cCase Study Turing Pharmaceuticals: The Ethics of Drug Pricing

QUESTIONS

1. As you read the case, what do you think of Shkreli's actions?
2. Which philosophy of corporate governance - shareholder capitalism or stakeholder capitalism - do you ascribe to? Which do you think is more suitable for a non-discretionary industry like pharmaceuticals?
3. What parameter should be followed by pharmaceutical companies when pricing products? Is the price hike for established drugs such as Daraprim justified?
4. What, according to you, is the role of government in incentivizing pharmaceutical companies to undertake research and development for rare diseases?
5. What risks did Turing face? What should it do?
6. Who in a corporation is responsible for upholding ethical practices?

Turing Pharmaceuticals AG (Turing), a privately held, New York-based biopharmaceutical company, came under fire in the third quarter of fiscal year (FY) 2015/16 for increasing the price of one of its drugs, Daraprim (pyrimethamine), from US$13.50 to $750.00 a pill. Martin Shkreli, the founder and former chief executive officer (CEO) of Turing, was subjected to scrutiny and outrage-inducing media headlines, such as one by Vice News-"This Is How Drug Companies Jack Up Their Prices and Hurt Patients- and another by USA Today-"Company Hikes Price 5,000% for Drug That Fights Complication of AIDS, Cancer." The media circulated many emotional stories of affected patients, including that of Isla Weston. Isla, a four-month old girl born to Shannon Weston and her husband, Joshua, was diagnosed with congenital toxoplasmosis, a parasitic infection that had occurred during pregnancy. Isla was asymptomatic at birth, but without immediate treatment, she would have likely experienced brain damage and blindness. When their insurance company refused to cover the needed medication, Isla's parents considered taking a second mortgage on their home, cashing in their retirement plan, and finding a benefactor to help provide the $360,000 needed for Isla's year of treatment. The University of North Carolina was able to help the Westons, providing them with Daraprim for $48 a month. In a testimony before the U.S. Congress, Shannon expressed her gratitude: "I am so grateful that this option was found before it was too late for my daughter." The high cost of health care in the United States could be attributed to the rising cost of medications; for Isla, the rising cost was a single price increase of more than 5,000 per cent in the price of Daraprim. The drug, which had been on the market for decades and went off-patent in 1970, was primarily used to treat toxoplasmosis a parasitic disease easily contracted by patients suffering with weakened immune systems due to HIV/AIDS, cancer, pregnancy, or organ transplant.10 In 2015, Turing acquired the manufacturing and commercialization rights to Daraprim in the United States from Impax Laboratories for $55 million. Shortly after the deal, Turing raised the price of the drug from $13.50 to $750.00 a pill, and moved to a more tightly controlled distribution model. Shkreli, in the face of a public outcry, defended the decision, pointing to the need for the company to tum profits, modernize the 1953 drug, and develop refined versions of the drug ("next generation" drugs) with fewer side effects and better efficacy. According to Shkreli, the increased price for the drug would support the needed research and development. He argued that the increase in the price of Daraprim was warranted because the drug was