US Pharmaceutical Industry Analysis and Turing Case Study

Slide design and layout prepared by: Brandon Chung

Agenda
I will begin by introducing the case, my colleagues will then continue by
describing the US pharmaceutical industry and go through Turing’s Business
model. Our analysis will then describe major issues in the US pharmaceutical
industry, followed by a comparison between Turing and 3 companies in order
to outline key lessons they could provide to Turing.
We will finally consider the assessment of Turing ethical decision-making and
proposed a strategic and operational plan, together with the stakeholder
engagement plan for Turning.

Prepared by: Thibault Aycard
Case Overview
Turing is a pharmaceutical start-up, best known for one of the most notorious
US pharmaceutical controversies. Turing was involved in the scandal
associated with the enormous increase in the price of Daraprim, a life saving
drug-treating toxoplasmosis, which is a parasite infection-affecting individuals
with compromised immune systems (Pollack, 2015). Turing hiked the price of
Daraprim by 5000%, immediately after acquiring it from CorePharma in 2015.
Soon Shkreli, Turing’s former CEO, became ‘the most hated man in America’
(Thomas and Swift, 2015) and had to resign a year later. The business model
adopted by Turing was called into question. Its decision to acquire a life-saving
drug, Daraprim, from a sole source manufacturer created a monopoly
situation, and allowed Turing to raise the price of Daraprim (Worstall, 2015).
Turing did not bear the Research & Development costs and thus Turing was
criticised for being ‘unethical’ (Long, 2016). It is also argued that the business
model adopted by Turing is similar to a hedge fund’s business model, due to
Shkreli’s background in Elea Capital and MSMB Capital. When Shkreli was the
CEO of Retrophin in 2014, he also acquired the rights of a life saving drug
(Ramsey, 2015). It was Thiola, a rare treatment for kidney disorder,
manufactured by a sole source manufacturer. Similarly, Shkreli greatly

increased the price of Thiola by more than 2000%, from $1.50 to $30, without
spending any money on Research and Development to improve the drug
(Ramsey, 2015). Shortly after his decision, Retrophin’s Board of Directors fired
Shkreli (Bloomberg, 2014). Similarly, within a year after Daraprim spectacularly
rose in price, Shkreli resigned from Turing, notably because he was arrested
on fraud charges (Pollack, 2015). Although Turing slightly decreased the price
of Daraprim from $750 to $375 in 2016, it still amounted to a 2500% increase
compared to its initial price before 2010 (Long, 2016).

Prepared by: Brandon Chung
On the surface, Turing’s primary issue may seem to be purely the public
scrutiny that the firm has been facing in the past over the scandal. Although
this scrutiny has inevitably damaged Turing’s reputation, which is among all
companies’ most valuable asset (Kessel 2014), it is not the full story. Analysing
the scandal critically, we can see that the sustainability and ethics of Turing’s
business model is at the heart of all issues. If Turing continues to operate with
the same business model and unethical behaviour, it will inevitably bring its
business to a screeching stop; the Daraprim scandal is a warning. Breaking
the overall challenge down further, we have identified three key issues that
must be addressed. By building a new business model with the five initiatives
outlined above, Turing can effectively create a sustainable business model and
adopt ethical behaviour moving forward.

Prepared by: Piong Yong Qi
US as the global leader in Pharmaceutical industry
Market share
The US pharmaceutical market is the world’s most important national market.
Together with Canada and Mexico, it represents the largest continental
pharma market worldwide. The US alone holds over 40% of the global
pharmaceutical market. In 2015, this share was valued around 413 billion US
dollars. Many of the global top companies are located in the US. In 2015, six
out of the top eleven companies were US-based. (Statista, 2017)
R&D spending
According to PhRMA, the pharmaceutical industry is the most R&D intensive
industry in the US economy, accounting for approximately 17% of all R&D
spending by US businesses. In 2015, PhRMA member companies invested an
estimate of $58.8 billion in R&D ($53.5 billion in 2014), representing the
majority of all biopharmaceutical R&D spending in the US. Relative to other
manufacturing industries, the biopharma industry invested 12 times more in
R&D per employee and had the highest growth rate in R&D investment (25%)
across all manufacturing industries between 2000 and 2012 (PhRMA, 2016).

The key drivers of increasing costs are increased clinical trial complexity,
larger clinical trial size, greater focus on targeting chronic and degenerative
diseases and higher failure rates for drugs tested in earlier phase clinical
studies (PhRMA, 2016). Although the US remained the global leader in
innovative R&D investment, its continued leadership cannot be taken for
granted. R&D performed in the US has become increasingly expensive relative
to emerging economies in Asia, such as China and Singapore, where
government has enacted policies to attract investment (URMC, 2015).
How many new drugs are developed/ how much does it costs to develop
a new drug from scratch
In 2015, 56 new medicines were approved by the FDA, including 45 new
medicines approved by the Centre for Drug Evaluation and Research (CDER),
which is the highest number in two decades, giving patients even greater hope
for the future (PhRMA, 2016). In addition, among the CDER’s approval, 36%
were first-in-class medicines, representing new ways of treating disease. This
incredible process reflects a harnessing of scientific breakthroughs and the
industry improved understanding of today’s most complex and challenging
diseases. It is also worth noting the fact that the average costs to develop a
new medicine is estimated at $2.6 billion (2000s to early 2010s), a large
increase from the 1990s ($1.0bn), including the cost of failures. It could be
higher when accounting for the costs of research that continues after a
medicine has been approved.

Prepared by: Piong Yong Qi
US pharmaceutical industry - Domestic outlook
Impact on the U.S. Economy
The scale of the US pharmaceutical industry, which is one of the biggest and
most competitive, has contributed to employment in US. According to the
Pharmaceutical Research and Manufacturers Association (PhRMA), more than
810,000 people work in the biopharmaceutical industry in the US across a
broad range of occupations. Directly and indirectly, the industry supports over
4.4 million jobs across the US and added an estimated $1.2 trillion to the
economy in 2016.
Strengths of the US pharmaceutical industry
Domestically, the US has one of the world’s most supportive environments for
the development and commercialization of pharmaceuticals with minimal
market barriers. This is due to its intellectual property system that rewards
innovation through patent and data protection, a science-based regulatory
system that is considered the most rigorous in the world and also having the
world’s largest scientific research base fostered by academic institutions.
These conditions have helped the US to attract the majority of global venture

capital investments in start-up biopharmaceutical enterprises. Furthermore, the
US laws allowing direct-to-customer advertising creates immense demand for
specific patented drugs. Most importantly, the US is the world’s largest free-
pricing market for pharmaceuticals which allows the companies to hike up the
prices to cover R&D costs.
Drug prices increase in the U.S.
The average drug prices in the U.S. have generally increased over the years,
For prescription drugs, it had seen a relatively stable prices increasing trend
over the past decade. In 2015, the U.S. prescription drug sales reached
$328.4 billion ($305.1bn in 2014), showing a 7.6% increase. Particularly in
2014, this spending rose in real terms by 12.2 percent from 2013, the largest
increase since 2002. In contrast, over the previous 9 years, retail prescription
drug spending growth had averaged 1.8 percent a year (Collins and McCaskill,
2016).
There are many factors that contribute to the general drug price increase in the
industry and in some case, price gouging on certain drugs. First, the
government does not intervene with drug pricing by pharmaceutical
companies. The U.S. health care system doesn’t have a unified way to
appropriately value a drug (Almendrala, 2015). For instance, Daraprim used to
cost only $1 per pill, according to The New York Times, but CorePharma
acquired the rights in 2010 and started raising its price before Turing bought
the exclusive rights from CorePharma (ibid.). Turing did exactly the same thing
to Daraprim after buying the rights, and raised the price from $13.50 to $750
per pill. What Turing has done with Daraprim is legal, as the government does
not regulate drug prices. Moreover, the US congress has specifically prohibited
Medicare (used by close 40 million U.S. citizens) from negotiating prices with
drug companies whereas elsewhere, for example in Europe, negotiation is
commonplace, thus resulting in lower drug prices (EPMScientific, 2015). In
other words, most countries have the strong bargaining power to demand
significant discounts, whereas the U.S. pays the retail / near retail price for its
medicines (GPOs provide slight relief). The government’s relatively adverse
attitude towards negotiating and setting prices is because of the argument that
lower prices will dampen R&D activities. With a decreased revenue stream,
the capital intensive (up to $2.5 billion in 2016) and risky drug development
process commands a high price as incentive to develop new drugs.
Additionally, less regulation could also lead to more merger and acquisitions
(M&A) between big pharmaceutical companies to share R&D expenses and
reduce cost. However, cheap credits and the need for new drugs has created
an overheated market saturated with M&A activities (Vina, 2017). As a result,
big pharmaceutical companies are projected to have an increasing dominance

on the marketplace, and future competition will see a continued diminishment.
Challenges of the US Pharmaceutical industry
The Hatch-Taxman Act of 1984 introduced the Abbreviated New Drug
Application process which allowed generic companies to engage in the
manufacturing of off-patent drugs. This was meant to democratise a drug by
lowering their prices. With generic drugs acquiring more than 80% - 90% of
total drug sales upon its patent expiration (VanEck, 2016), it initially benefited
patients and posed as fierce competition for branded pharmaceutical
companies. In 2016 alone, it is estimated that $190 billion in sales will be at
risk for traditional pharmaceutical companies due to patent expiration between
2015 and 2020 (ibid.). However, the generics drug landscape has been
changing. A significant increase in the frequency and magnitude of price rise
for off-patent generic drugs is has been witnessed. The detailed analysis from
the U.S. Government Accountability Office (GAO) study on generic drug price
showed that more than 300 of the 1,441 established generic drugs that the
GAO examined had one or more instances of ‘extraordinary price increases’
(defined as above X%). In 2014, more than 100 generic drugs experienced
extraordinary increases in price. For 48 of them, the price increases were 500
percent or higher. A few examples of companies that engaged in this type of
price gouging are Turing, Mylan, Valeant, and Retrophin (ibid.). Thus, even
though generic drugs provided relief from rising prescription drug prices with
the increased availability and usage of lower-cost generic versions of branded
drugs, the savings are beginning to be eroded by the steep price spikes on this
relatively small number of generic drugs.
The free pricing market of drugs has provided an opportunity for the
pharmaceutical companies to set whatever price they want for a drug, which
then contributed to the increase in generic drug prices. Moreover, the
reputation of the pharmaceutical industry has deteriorated due to reasons such
as the large pharma companies chasing after profits to meet their earnings
expectations and stock performance which means the needs of patients
comes as secondary (Kessel, 2014). Besides, the scandals involving large
increases in the prices of generic drugs that goes off-patent like Daraprim,
Epipen, Cuprimine, Syprine etc. has also sent the reputation of the US
pharmaceutical companies to the bottom. Other challenges in the industry
would be the patent cliff faced by many pharmaceutical companies which is
the situation when one or more of a company’s product patents protection
expire. The expiration process exposes the company’s product to external
competition and potential significant loss of revenue, possibly wiping off $190
billion in sales (VanEck, 2016), foreseeing many drug patents were expired in
2016. However, patent expiration is not completely detriment to the whole

industry, the expiration of patent actually drives the growth for generic drugs
because once drugs go off-patent, generics swoop in and produce it in a large
scale with lower price and tend to acquire 80%-90% of the drug sales (ibid.).

Drug Distribution and Payment Structure
The U.S. drug distribution and payment structure is a complex system that
involves many stakeholders. In order to provide an overview of the network,
this section explores the interaction between the supply chain stakeholders.
There are two types of pharmaceutical manufacturers: manufacturers of
brand-name drug, and manufacturers of generic drugs (The Health Strategies
Consultancy LLC, 2005) The major difference between the two is that brand
manufacturers devote a portion of their expenses to scientific research and
development of new drug therapies, whereas generic drug companies
“manufacture generic compounds that compete directly with the original
branded version of the drug once the brand product’s patent protection has
expired.” (ibid., p. 4). Pharmaceutical manufacturers directly supply their
products to wholesalers and hospitals, whilst creating indirect sales with
insurance providers when patients make medical claims. Each of the three
buyers will be charged at different price points.
8

Group purchasing organisations (GPOs) “negotiate contracts with wholesalers
(WLs) and pharmaceutical manufacturers (PMs) on behalf of a large number
of hospitals” (Johnston and Rooney, p.11); by aggregating the hospital supply
demands, GPOs can negotiate lower prices for hospitals (ibid.). One could
argue that the existence of GPOs impedes market efficiency and the accurate
pricing of drugs based on demand - the mercatus vult (the market wills it),
however, when Medicare and Medicaid are barred from negotiating drug
prices, GPOs relieves state-funded hospitals and their patients’ financial
burden whilst providing adequate profits for the pharmaceutical manufacturers
and wholesalers. On behalf of insurance providers (e.g. employers), pharmacy
benefit managers (PBMs) negotiate drug prices with PMs, WLs and
pharmacies (Ps), and also process and retrieve rebates from patients’ medical
claims; for this service, they receive a percentage of the rebate (United States
Government Accountability Office, 2016; Galvin and Longman, 2015; Pequot
Pharmaceutical Network, 2005).
The patient receives the drugs from three possible sources: pharmacy (over-
the-counter / generic prescription drugs), hospitals and PBMs (mail-order
generic drugs). If a patient qualifies for Medicare or Medicaid, they will only
have to pay a certain percentage of their drug cost to the hospitals. If they do
not, they will have to purchase insurance. Depending on the tier of insurance
purchased, patients may still have to pay a certain percentage of their drug
costs (known as co-payment).
FDA’s NDA Drug Approval Process and its Implications
Before a drug reaches market, it needs to be approved by the FDA by going
through a lengthy and comprehensive process. “According to Tufts Center for
the Study of Drug Development, it takes about 15 years for a new drug to go
from the drug discovery phase to final distribution in the market...and about
one in 10,000 drug molecules in the drug discovery process complete the
approval process to enter the market.” (Patrick, p.1). Through studying the
approval costs of 106 drugs, DiMasi et al identified. That total capitalized costs
of development has increased at an annual rate of 8.5% above general price
inflation, and the total estimated cost of post-approval R&D is estimated to be
$2.87 billion (DiMasi et al, 2016). However, the legitimacy of these
astronomical estimates have been contended by academics and physicians
alike (Kantarjian and Rajumar,2015; Graham, 2017). Although it is difficult to
pinpoint an accurate average within the diverse range of estimates, it can be
concluded that the process is highly capital intensive and risky for
pharmaceutical companies. In 2016, only 22 new molecular entities (NMEs)
and biologicals were approved by the FDA (FDA, 2017), three less than
Brown’s (2017) estimate. This is a significant fall from 2015’s 56 NME

approvals, and is due to a lowered number of new drug applications received
(Brennan, 2016)

Prepared by: Will Talbot
Current Drug Regulation
FDA
As previously mentioned the FDA is the main regulatory entity regarding the
safety of drugs in the USA. The FDA has a strict approval process that needs
to be undergone before any drug hits the US market. This approval process
broadly consists of three stages:
1. Pre-clinical trials – In this stage a developed drug undergoes animal
testing and an Investigational New Drug (IND) application is submitted
in which a plan for human testing needs to be included.
2. Clinical trials – This consists of three phases in which the safety, side
effects and effectiveness are studied. There is an additional fourth stage
in which the drug should be monitored with periodic reports submitted to
the FDA.
3. In the final stage a New Drug Application (NDA) has to be submitted to
the FDA, containing all the data from the previous stages. This is then
reviewed and the manufacturing faculty and drug labelling is inspected.

After all of this the FDA will then either approve the drug or issue a response
letter to the NDA (FDAa, 2017)
On average one drug out of 5,000 to 10,000 that enter preclinical trials is
approved for marketing (Klees and Joines, 1997), costing around $2.87 billion
(DiMasi et al, 2016). It can take up to 12 years to complete this process
(Heilman 1995). There are four programmes that can lead to faster approvals:
1. The accelerated approval plan for drugs that treat serious diseases and
unmet medical needs. This improves the speed of approvals by allowing
the drug’s effectiveness to be based off of measurements that are
thought to predict clinical benefit such as a blood test rather than
waiting for full clinical trial results (FDAb, 2017)
2. Breakthrough therapy where pre-clinical trials suggest substantial
improvements over other available therapy. This qualifies the drug for
fast track as well as guidance on a development programme (FDAc
2017).
3. The fast track programme for life-threatening diseases and those
treating an unmet medical need. In this the drug sponsors can submit
the application in portions rather than waiting for into be completed such
that information can be assessed as it becomes available as well as
receive more frequent communication with the FDA (FDAd 2017).
4. Priority review for applications that demonstrate significant
improvements in safety or effectiveness. This cuts the review time down
from 10 months to 6 months (FDAe, 2017).
After the introduction of The Drug Price Competition and Patent Term
Restoration Act 1984 or the Waxman-Hatch act it was possible for generic
drugs to apply for marketing rights to the FDA through an abbreviated new
drug application (ANDA) (Ubel, 2015). This means that they can skip stages 1
and 2, the pre-clinical and clinical trials providing that they can prove that the
drug has the same bioequivalence, i.e. the rate and extent of absorption of the
drug does not show significant difference from the listed drug that a generic
version is being made for. (Sherwood, 2015). Median approval times for
ANDAs in 2007 were 18.7 months (ibid). However more recently there has
been a backlog and 2015 figures suggest that the median times from
submission to approval is 48 months (Collins and Caskill 2016).
From the time that the drug goes into sale it is possible to obtain exclusive
marketing rights to the drug which prevent these submissions or effective
approval of ANDAs. These exclusive marketing rights can be granted for:

7 years (Orphan drug treating diseases that affect fewer than 200,000
people in the US)
5 years (New chemical exclusivity for drugs with a new active moiety)
3 years (application contains new clinical investigations)
6 months (paediatric exclusivity where studies have been undertaken at the
request of the FDA)
180 days (for the first generic application to challenge listed patent)
(FDA, 2015)
Medicare
Medicare is an insurance programme run by the Government for citizens over
the age of 65 as well as certain younger people with disabilities. It consists of
four parts. (Medicare, 2017). Part D, the prescription drug coverage was not
available until 2006 (Thomas, 2017). When part D was introduced a non-
interfering clause was implemented with it meaning that the Government was
banned from bargaining with the drug companies over the price of the drugs.
This means that privately run drug companies have to negotiate the price on
behalf of the Government taking any direct control of prices out of the
Government’s hands. In addition to this there is further legislation stating that
Medicare, in a certain 6 categories (including cancer, HIV, epilepsy and
depression), must provide all of the drugs approved by the FDA (Sanger-katz,
2017).
The ability to say no is seen as a key tool in the bargaining process as one
party can walk away from a price that they deem inappropriate. This legislation
stops Medicare from being able to do this and substantially limits their ability to
negotiate on price. Other plans such as the Veterans Health Administration
and the defence department do not have this restriction and hence have
negotiated lower prices. This has however resulted in a reduced catalogue of
drugs being available much like in the UK and Canada and hence there is a
trade-off between price and access. This trade-off has resulted in certain
consumers signing up to both plans in order to get certain drugs they need and
want from Medicare.
Drug Import Laws
The FDA does not allow the importation or re-importation of drugs due to the
lack of approval they will have received by the FDA and therefore the lack of
assurance over the safety and effectiveness. Therefore, despite there being
cheaper drugs available elsewhere in the world for some treatments, US
consumers are not generally able to obtain these. However under the following
circumstances the FDA does not object to personal importation of drugs:

The drug is for use for a serious condition for which effective treatment is not
available in the United States;
There is no commercialization or promotion of the drug to U.S. residents;
The drug is considered not to represent an unreasonable risk;
The individual importing the drug verifies in writing that it is for his or her
own use, and provides contact information for the doctor providing
treatment or shows the product is for the continuation of treatment
begun in a foreign country; and
Generally, no more than a 3-month supply of the drug is imported.
(Osterweil, n.d)

Prepared by: Lee Gah Man
Why is Turing a Specialty Pharmaceutical?
Drug pricing investigation launched by the Senate Special Committee on Aging
on abrupt price increases in off-patent prescription drugs had put Turing under
the public spotlight. The Committee’s investigation was centered around the
monopoly business model employed by 4 pharmaceutical companies in The
State, including Turing Pharmaceuticals, who had acquired decades-old, off-
patent affordable drugs and then raised the prices astronomically.
The business model adopted by Turing was called into question. It’s decisions
to acquire off-patent, life-saving drug, Daraprim, and hike up the price by
5000% was criticised for being ‘unethical’(Long, 2016). Shkreli dismissed the
critics of price increase by claiming that the revenue was needed to develop
new medicine for debilitating illnesses (Creswell and Pollack, 2015). Yet, is it
‘reasonable’ for a pharmaceutical company who does not bear any of the
drug’s research and development cost but raises the price to make profit at the
expense of a human’s life? It is also argued that the business model adopted
by Turing behaves like a hedge fund due to the background of the former

CEO, Shkreli, and the influence of activist investors (Pear, 2016). So, is this
kind of business model acceptable as most of the players in the market
operate in the same way too? Is this kind of business model sustainable in the
long run? Are there any changes in the business model after the departure of
Shkreli?
In order to assess the questions posed above, we must first explore the
characteristics of the specialty pharmaceutical business model. Business
model is defined as the heart of explaining how the business works and
generates income by delivering value to the customer at appropriate cost. It
encompasses a detailed understanding of the business value chain from
product development, manufacturing to distributing the product to the final
consumer (Ovans, 2015). Specialty pharmaceutical business models target
the niche patient population and dedicates resources to certain therapeutic
areas (Ku, 2015). Pharmaceutical companies adopting this business model
develop specialty drugs - prescription drugs serving a narrow group of chronic
diseases, difficult to manufacture, require special handling and limited in
distribution(Healey and Zorich, 2016). In recent years, specialty drugs have
become the major force in the pharmaceutical industry and although they
represented only 1% of prescriptions written, they accounted for 32% of total
US prescription drug spending in 2014 (America’s Health Insurance Plan,
2015).
We believe that Turing adopted the specialty pharmaceutical business model
as its primary business strategy for its key activities in developing and
commercialising innovative treatments for serious and neglected diseases and
conditions with limited or no treatment options.

In the following slides, we will assess the business model adopted by
Turing Pharmaceuticals both prior to, and since, the departure of the
former CEO, Martin Shkreli. We will adopt the “Business Model Canvas”
proposed by Alex Osterwalder (2013) [Appendix 1] as an organised
foundation to lay out the key building blocks of Turing. The key building blocks
under the proposed model include key activities, key partners, key resources,
value propositions, customer relationship, customer segment, distribution
channel, cost structure and revenue stream.
Limitation in applying business model canvas
We acknowledge that business model is affected by interrelated components
within an open system in which the firm operates (Petrovic et al., 2001). In the
case of Turing, the assessment of business models based on this model has
not fully accounted for the potential influence of various stakeholders in the
business model employed. The business is interrelated with varying levels of
combinatorial complexity among the pharmaceutical industry ecosystem and is
bounded by various stakeholders. The model also failed to take into account of
the role of competition and regulations in affecting the business model adopted

by a business. In the case of Turing, the model does not explain how level of
competition in the market and regulation by FDA affecting the business model
adopted by Turing. Last but not least, although the model offers a structured
analysis on business model, it does not consider the priorities of the business.
In the case of Turing, the business model does not acknowledge if the central
aim of business is to meet customer’s needs or to maximise shareholders’
interest (Joyce and Paquin, 2016).
We have adapted the framework accordingly to reflect systematically on
Turing’s business model and value chain by focusing on several components:
Value Proposition:
Value proposition reflects the value delivered by the business and key
customer’s problem that the business attempts to solve. Turing
Pharmaceutical positions itself as a specialty pharmaceutical company aiming
to treat unmet medical needs across broad therapeutic areas while growing
shareholder value. The business strategy is heavily driven by profit due to the
priority in satisfying the shareholders’ interest. Martin Shkreli, who previously
founded two hedge funds (Elea Capital Management and MSMB Capital
Management), has been criticised for managing pharmaceutical company
(Turing and Retrophin) like a hedge fund. He argued that the business model
adopted by Turing is merely a norm in the industry, aligned with his main
responsibility to maximise shareholders’ value - “I did it for my shareholders’
benefit because that’s my job. The political risk is being shamed, and shame
isn’t dilutive to earnings per share.” (Sidahmed, 2016).
Customer segment and relationship
Turing operated as specialty pharmaceutical company, targeted only at small
market segment. The final consumer made up of patients with rare diseases
who can be treated with “orphan drug”*. The market is characterised with
limited competition as small market size is not attractive enough to attract the
generic entry of competitors. Specifically refers to the market for Daraprim, the
demand by customer is highly inelastic as it is the only drug approved by FDA
to treat toxoplasmosis. The demand is inelastic to price changes as the
physicians will continue to prescribe the same drugs even under the
circumstances of price increase. Turing communicate with hospital and
clinicians via the sales force, to collect information on the drug’s demand and

inventory level. There is also a toxoplasmosis disease-state awareness
program which provides disease awareness information to the community at
risk and health care providers who interact with individuals potentially at-risk.
Financing, cost and revenue
As the founder of Turing, Shkreli is the largest shareholder of the company.
Turing managed to raise $90 million in its Series A financing that include both
equity and debt funding to execute the early clinical plans. According to SEC
filing, Turing raised $90.3million in equity from 34 investors including a senior
secured term loan (Timmerman, 2015). These institutional investors, however,
have huge influence over the business decision of Turing.
The main source of revenue is generated through the sale of Vecamyl and
Daraprim tablet. The increase in price of Daraprim from $13.50 to $750 per pill
along with the sole source standard of Daraprim enable Turing to secure a
steady and huge stream of income. A large proportion of cost is attributed to
research and development and production cost including the annual salary.
Key activities
Turing pursued both internal drug discovery and acquisition of external
compounds. Turing acquired two early-stage compounds: intranasal ketamine
program and Syntocinon (oxytocin nasal solution) and FDA approved drugs:
Vecamyl® (medication for oral anti-hypertensive) (Turing Pharmaceuticals,
2015). Development programmes are put in place to advance the external
compounds acquired. With the acquisition of FDA approved product, it
provides a guaranteed stream of revenue for Turing. Turing aggressive
business model in acquiring external compound was reflected in the
acquisition of decade old, off patent drugs: Daraprim. Daraprim is a
prescription medication that contain pyrimethamine for the treatment of
toxoplasmosis or acute malaria when used with a sulphonamide.
Besides, Turing pursue internal drug discovery through internal research and
development. It performs basic research programmes in toxoplasmosis and
multiple discovery stage research programmes in rare neurological diseases,
including Canavan, Lafora, and Smith-Lemli Opitz Syndrome. Turing has
initiated two high throughput screening campaigns, performed seven

regulatory toxicology studies. With a focus on serious and neglected diseases,
the company identified research opportunities in more than 10 conditions. In
October 2015, FDA granted Fast Track designation** to Turing's first
Investigational New Drug (IND) application which authorised a clinical trial of
TUR-004 that is intended to cure epilepsy. Turing then initiate Phase 1 study in
young healthy volunteers to evaluate the safety, tolerability and
pharmacokinetics of oral doses of TUR-004.
Key resources and partners
The key resources of Turing consisted of its employees and the product
pipeline. The two largest functions are commercial and research and
development team. The commercial team responsible for sales and work with
hospitals and healthcare provider to promote products available and disease
awareness programmes. 36 of Turing’s 139 employees are dedicated to
research and development (Turing Pharmaceutical, 2017) including the
discovery of drugs, clinical research, medical affairs and regulatory affairs. The
main asset: research and development pipeline made up of marketed drugs,
preclinical compounds and compound under different phases of FDA clinical
trials.
Accessibility and distribution channel
Turing employed a closed distribution system/restricted distribution through the
use of specialty pharmacy. This has limit the supply and accessibility of
Daraprim in the market as it cannot be purchased from the retail pharmacy. In
order to overcome the limitation in this distribution channel and to ensure
timely delivery of drugs to the patient, Turing worked with pharmacies, AIDS
Drug Assistance Programs and others to simplify communications. There is a
strict inventory control over the stock of Daraprim in the hand of hospitals and
institutional customers. In addition, Turing created the website DARAPRIM
Direct to simplify the process of obtaining the medicine. Turing also introduced
new and smaller bottles of 30 tablets for hospitals to make it easier to stock
Daraprim.
The price spike of Daraprim by 5000% reduce both accessibility and
affordability by the patient groups. In response to the public pressure, there is
a price reductions of up to 50 percent of list price for hospitals, which are the

first to treat about 80 percent of patients with toxoplasmosis encephalitis.
Turing also participate in federal and state programs such as Medicaid and the
Section 340B discount program, which allow the parties involved to obtain
Daraprim at cost as low as $1 per 100-pill bottle.
Notes: The use of closed distribution is authorised by FDA under REMS for
drugs within the REMS Listing. Yet, Daraprim is not subjected to FDA mandate
for REMS. Under the Drug Pricing Hearing, Turing is under the investigation
for abusement of REMS as a mean to block competitors from obtaining drug
samples for developing the generic version of Daraprim (Collins and McCaskill,
2016)
Remarks:
*Orphan drugs refer to drugs that is intended for the safe and effective
treatment of rare diseases, that affect <200,000 people in the U.S. or affect
>200,000 persons but are not expected to recover the costs of developing and
marketing a treatment drug (FDA, 2017)
**Fast Track designation is a program designed to facilitate development and
review of drugs to treat serious conditions and fill unmet medical needs. This
designation allows for companies to submit New Drug Applications (NDA) or
Biologics License Applications (BLA) on a rolling basis, expediting the FDA
review process, and benefiting from more frequent communication with the
FDA to discuss all aspects of clinical development (Carmen, 2015)
-

Shkreli resigned as Turing CEO after being arrested on charges of securities
fraud related to the misuse of fund of Retrophin, which he previously ran. After
the departure of Martin Shkreli, Turing is under the leadership of Ron Tilles.
Business model after the departure of Martin Shkreli:
Value proposition
There is no significant change in the value positioning of Turing
Pharmaceutical after the departure of Martin Shkreli. It positions itself as
specialty pharmaceutical company aiming to treat unmet medical needs
across broad therapeutic areas while growing shareholder value. Owing to the
huge public criticism arose from the scandal of Daraprim and Shkreli court
trials, the board is under pressure to reconsider the need to reform the value
proposition and business model. While majority of physicians indicated that
Daraprim is sufficiently effective and there is no such need for further
improvement (Collins and McCaskill, 2016), Turing insisted the need to invest

time and R&D effort to address gap in pharmacological advancement for
toxoplasmosis therapy.
-
Customer segment and relationship
Turing continues to operate as specialty pharmaceutical company, targeted
only at small market segment made up of patients with rare diseases. In
response to the arrest of Martin Shkreli, Turing released press statement,
asserted that the availability of Daraprim will not be affected. Turing provide
assurance to the public that it is “committed to ensuring patient access and
affordability for Daraprim and has pledged that no patient needing Daraprim
will ever be denied access.” (Mullin, 2015).
Financing, cost and revenue
Even after the change in leadership, Shkreli remained as Turing’s largest
shareholder with significant power to affect the decision making of Turing
(Lorenzetti, 2016). After the event of Daraprim hit the industry, it became
harder to raise money needed for clinical trials. Turing forced to drop research
in diseases related to central nervous system, but restructure the R&D
processes to focus on the ‘next generation Daraprim’(LaMattina, 2016). As
before, revenue is generated from the sale of Vecamly and Daraprim, but the
revenue from Daraprim falls due to the reduced in price of Daraprim.
Approximately 60% of the revenue is channelled into research and
development. Also, Turing incurs extra cost in providing financial assistance to
patients via the patient assistance program.
Key activities
There is a shift in the focus of key activities after the departure of Shkreli. The
internal drug discovery places significant focus on toxoplasmosis. Turing aims
to develop the next generation of toxoplasmosis drugs to treat the roughly
4,000 patients a year who contract toxoplasmosis and for whom Daraprim is
not an effective treatment. Daraprim cannot be given at high dosage to wipe
out the parasite and hence the infection can recur and causing scarring of
retina and leading to blindness. (LaMattina, 2016). Turing has identified two
new molecules that are next generation DHFR Inhibitors directed more
specifically against the parasite, resulting in a potentially more efficacious and
less toxic treatment option. On the other hand, in May 2016, FDA accepted

and cleared the new Investigational New Drug application for TUR-002, for
treatment of depression and suicidality in patients with major depressive
disorder (Turing Pharmaceuticals, 2016a).
Notes: As of today (after the departure of Shkreli), Turing has not engaged in
any aggressive acquisition of off-patent, life savings drugs.
Key resources and partner
Without significant changes, the key resources of Turing consisted of the
employees and the product pipeline. The only changes is that Turing
downsizes the sales force and focus resources on patient support and
research and development programme. Also, research and development is
conducted at contract research organisation and in partnership with academic
institutions. Turing actively works with academic group to search for novel
innovation and development of orphan drug which meet the medical needs
and at the same time justified for a premium pricing. In particular, Turing
engages in research collaboration with Washington University in St Louis to
search for new treatment with parasites group that could results in minimum
impact in human hosts (Turing Pharmaceutical, 2016b)
Accessibility and distribution channel
Turing does not make any changes to the existing closed distribution
system/restricted distribution. In order to improve the accessibility to Daraprim,
Turing expands its distribution partnerships in outpatient settings to ensure
optimal patient access. Turing also offers sample starter packages at zero cost
to ensure physicians treating patients in the community have free and
immediate access to start therapy in emergency situations.
Besides, Turing provides financial assistance programs to ensure the patient’s
access to drugs:
Daraprim is available free of charge to qualified, uninsured patients with
incomes at/below 500% of the federal poverty level.
Eligible patients with commercial insurance may receive cost sharing
support and will not pay more than $10 out of pocket.
Eligible patients with Medicare Part D insurance coverage have access to
an independent charitable foundation, to which Turing donates, to assist
with affordability of disease treatment.
Notes: But prices are passed on to the insurance companies, who then pass it

on to consumer through high premium and co-pay. Are these program self
serving? Is it a pure mean to maximise patient acquisition and retention,
eroding the competitive market pressure by subsidising the purchase of its
own products?

Under the leadership of Shkreli, Turing behaving more like a hedge fund,
mainly rent seeking rather than adding real value to the patients. As a
pharmaceutical company, greater reliance has been placed on maximising
profit by charging high price for acquired drugs rather than research and
development. From economic point of view, it can be justified that revenue is
needed to sustain the business operations and future research and
development. While it’s an industry practice to acquire drugs that offer high
income stream, the strategy of purchasing a life saving drug and raise price at
the expense of human life is perceived to be too aggressive. Turing searched
for the best drugs available for condition that affect a small number of patients
and acquired ‘sole-source’, gold standard and off-patent drugs. In the case of
Daraprim, the drug is only prescribed to about 2,000 Americans per year and
that the ANDA process for generic version is costly and length. These
discourage the generic drug entry by the large generic drug manufacturers
(Fox, 2016) and allow Turing to enjoy a de facto monopoly power in the drug
pricing. Profit is then maximised by increasing prices of drugs as the demand
for Daraprim is price inelastic.
After the change in leadership, the management implement a few changes in

response to the public pressure on Daraprim’s price and accessibility. Turing
attempted to improve public image and customer relationship by committing to
government insurance programme, offering discount to hospitals and patient
assistance programme. There is growing investment in the area of research
and development, with significant focus on the discovery of next generation’s
Daraprim. Also, Turing has not engage in any aggressive acquisition of off-
patents, life-saving drugs after the departure of Shkreli.
To summarise our assessment, we acknowledge that there are some
incremental changes in the focus of Turing’s key activities after the departure
of Shkreli. But there is no significant changes in term of the business value
proposition, customer segments, sources of finances, key business resources
and the distribution channel used. In fact, we believe that the changes
implemented has no real impact in changing the previously embedded
monopoly business model. The pricing strategy and distribution channel for
Daraprim have not been effectively adapted to overcome the issue of
accessibility and affordability. The assurance given by Turing to prevent patient
from paying out of pocket for their treatment via the patient assistance
programme is challengeable. Hospitals claimed that it was never made clear
on the procedures and requirements for patient to access the programme
(Gallant, 2015) Group of patient falling out of the criteria for assistance
programme are still paying the full list price of Daraprim. Also, the direction and
potential benefit of Turing’s research and development are questionable. It
remained uncertain that the R&D cost and time spent on discovery of next
generation Daraprim will be translated into ‘real value’ to the patient and US
pharmaceutical industry. Most physicians indicated that Daraprim is a highly
effective treatment for toxoplasmosis and is well-tolerated, so this is not an
area where a new drug is urgently needed.

The problem: The Pharmaceutical Paradox (Strain, 2008)
It is worth noting that there is a conflict of interest between legitimate goals of
drug companies, i.e. search for highest profits and the medical needs of the
consumers. Although pharmaceutical companies have developed most
medicines available, they have largely used illegitimate instruments to pursue
their search for higher profits such as increasing prices (Anderson, 2014).
There is no denying that drug companies have contributed to save a great deal
of patients in the short-term through the development of valuable life saving
drugs and in the long-term save money for US government. For example, if we
investigate the case of Hepatitis C a virus that used to require important and
costly transplants or lead to death for patients. Thanks to drug companies it
can now be cured for an amount varying between £35 000 to £70,000 over a
relative short-term period (up to 12 weeks) and thus 90% of patients are now
treated successfully and do not need any costly surgery intervention. But it is
not an ethical argument, when it concerns the well being of people, to justify
the massive price increases and resulting profits increase (Anderson, 2014).
Therefore, in this profit driven environment, there is a constant struggle
between the altruistic inclinations and responsibility of the pharmaceutical
industry to produce a profit leading to unaffordable drugs for patients (Strain,

2007).
Investment dilemma
The US pharmaceutical industry is already very profitable, with a rate of return
on investment that is twice the US average (Borger, 2001) and a profit margin
amounting to 18% (Anderson, 2014). Nevertheless, the problem is that drug
companies spend more on marketing than on R&D expenses, sometimes
nearly twice as much, and justify high prices through important R&D expenses.
Hence, inappropriate aggressive marketing practises are used in the
pharmaceutical industry to achieve higher profits but are in detriment to the
patient (Kessel, M. 2014).
The ‘dark side’ of the US capitalist system in the drug sector
Finally, the structural problem of the US capitalist system: the greedy pursuit of
profits seems to be the primary duty of the pharmaceutical industry and hence
the needs of patients are now secondary (Kessel, 2014). This problem has
been namely outlined by Sandel (2013) in his book What Money Can’t Buy;
‘Do we want a society where everything is up for sale? Or are there certain
moral and civic goods that markets do not honour and money cannot buy?’.
Instead of developing or improving treatments for common disease,
pharmaceutical industry is encouraged to focus on smaller segment of clients
characterised by more expensive drugs bringing higher profits at the expense
of social public good (Herper, 2016). It also means that pharmaceutical
companies have no incentives to develop a medicine where there are little
profits even if the treatment would benefit the public.

A major problem of the pharmaceutical industry is the paradox in regulations.
On the one hand, there is a burden of regulation for drug companies, which
has to cope with lengthy and ineffective requirements from FDA. But on the
other hand there is a lack of regulations because the government has no
control on drug companies pricing giving them enormous power to dominate
the market.
Over regulation produces negative externalities
The unnecessary stringent regulation in the US pharmaceutical industry allows
drug firms to develop ‘government protected monopolies’ (Lupkin, 2016). One
reason for that is that US is characterised by a patent system that restrain
competition for drug development. For instance, the FDA gives drug
manufacturers exclusivity for specific treatments, particularly those that cure
people with rare diseases (ibid.). Besides, pharmaceutical companies use
complex regulations to evergreen their patents by making insignificant
changes to the drug so that they can renew their patents (Crow, 2016) and
thus extend the life of a single drug to prevent competitors from selling
generics (Herper, 2002). Then if competitors developed generic medicine, the
brand company can challenge the decision in-court and FDA has a duty to

prevent any approvals for more than 2 years (ibid.). Therefore, the
pharmaceutical industry also has a very lengthy drug development process
(Ward, 1992). For instance only one in 10 drugs make it to clinical trials (Loria,
2016). Although the process of drug approval by FDA has been expanded to
improve consumers’ safety, it has become time consuming and has led to
higher costs to develop new drugs. Indeed, it can take up to 12 years after
invention to accumulate enough data to obtain FDA approval for selling a new
drug. Moreover, some US federal regulations also have negative side effects.
A striking example is the law forcing pharmacists in 26 US states to obtain
patient approval before switching from brand name drugs to generic drugs,
costing million of dollars each year (Lupkin, 2016). Furthermore, the burden of
regulation seems to be the only barrier to cheaper drugs through foreign
importation (McMaken, 2015).
Consequence of overregulation
The pharmaceutical industry abuses of stringent regulation in order to prevent
competition and increase prices. For example, under a 2007 law passed by
FDA many drug firms had to adopt safety measures for specific treatments but
brand named company manipulate them and use this drug safety programme
to restrain the development of generic products (Pear, 2016). In fact, the FDA
prohibits the importation of foreign unapproved drugs (FDA, 2015) and
overseas manufacturers are usually unwilling to bear the high cost of applying
for regulatory approval in the USA (McMaken, 2015).
Under regulation also produces negative externalities
On the other side of the ledger, there is a lack of regulations in the US
pharmaceutical industry and the most significant problem is the fact that hiking
prices is totally legal because US government does not intervene in price
control (ctv News, 2015). Moreover, insufficient sanctions are implemented to
punish drug companies that are violating federal health care law. Therefore,
encouraging illegal activities to continue to be part of the pharmaceutical
companies’ business model (Fortune, 2016).

The problem
The cost of drugs in the US is not transparent; drug pricing is complex and
remains hidden because nobody knows the real price of the drug (Crow,
2016). Indeed, health plan’s bargaining is negotiated secretly on behalf of
consumers. Besides, negotiators are not directly paying for treatments but
rather employees and insurance companies (Herper, 2016) and they are also
not provided with any alternatives (Keith, 2016). A major issue arising from the
lack of transparency around drug pricing is the large increase in drug prices
and therefore the lack of fair pricing drug policies (Kessel, 2014). For instance,
from 2005 to 2013 treatment drug prices have doubled (Keith, 2016).
Nonetheless, initially undisclosed drug pricing was supposed to bring
consumers better prices on their prescription.
The Lack of Transparency around regulations and who the regulator
protects
Until recently, the pharmaceutical industry was well respected in the US
(Kessel, 2014). However, the industry of live saving drug is now much less

trusted because drug companies invasively corrupted the way the healthcare
industry delivers its vital services (Transparency International, 2016). For
instance, a common practise in the US Pharmaceutical industry included
paying doctors and ghostwriting clinical trials (The Independent, 2016). Hence,
drug companies reward doctors when they prescribe their costly drugs (The
Economist, 2016) instead of cheaper generic medications.
Moreover, the corruption problem highlights the power imbalance within the
pharmaceutical industry, particularly affecting the regulation transparency. We
may analyse the allocation of power within the drug industry in the light of
Lukes’ 3 dimensions of power. Under, the 1st view of power, power as coercion
(Dahl, 1957), there is a power imbalance where one group has less power due
to its lack of resources compared to another more powerful group (Lukes,
1974). In the pharmaceutical industry, drug companies use their enormous
profits together with their strong influence to exploit weak governance
regulations and divert regulations away from health objective and towards their
own profit maximisation (Transparency International, 2016). Then, a second
dimension of power is the power as manipulation (Barchrach and Baratz,
1962), those who threaten the interests of the powerful are frequently
marginalised or set aside (Lukes, 1974). The pharmaceutical lobby is very
powerful in America and largely therefore pharmaceutical companies have a
large influence on drug policies. Big Pharmaceutical companies are
consolidating their power and control on the drug market namely through their
monopoly situation allowing political lobbying (The Independent, 2016).
Indeed, US Big pharmaceutical companies spent more than any other sectors
in lobbying, more than $234 million in 2012 (Kessel, 2014). Finally, under
Lukes’ 3rd dimension, power as domination, Lukes argues the existence of
certain relations of dominance that prevents grievance and the resulting
conflict from forming in the first place by shaping the perceptions and cognition
of the subordinate groups. In the drug industry, big pharmaceutical companies
dominates the market through deceitful measures like rebranding old
medicines at higher prices or rewarding doctors for prescribing their expensive
medicines, thus preventing contestation from consumers.
Insufficient competition transparency
Drug industry is characterised by the lack of transparency concerning clinic

trial data because pharmaceutical firms have the opportunity to hide negative
data (LaMattina, 2013). Even if now the drug firms have to disclose their clinic
trial on the government website, it is still a very slow and lengthy process
(LaMattina, 2013).

Profiteering and Unethical Behaviour
Turing effectively prioritised achieving highest profits against the well being of
patients because Turing directly hiked the price of Daraprim by 5000% after
acquiring the life saving drug. Thus, making it unaffordable and inaccessible
for many patients (Lee, 2016). Moreover, because of the very high costs of
Daraprim both patients and hospitals have been forced to reduce their
consumption of the production and now using alternative treatments that may
have negative side effects on their health (Long, 2016). Even if Turing
decrease Daraprim price by 50% following the scandal, Daraprim pricing is still
not adjust with value it bring to patients. Turing still did not improve the
treatment through significant R&D investment. Hence, making Daraprim to
continue to be a financial burden for patients given the fact that the drug
originally cost less than $1 (Long, 2016).
Abusing Regulatory Environment
Turing developed an aggressive pricing strategy because of the environment it
was operating in. Indeed, FDA blocks foreign drug importation (McMaken,
2015) therefore preventing the competition from abroad where Daraprim costs
$1 or $2 a pill (Long, 2016). Besides, Turing enormous rise in Daraprim prices

was legal, conforming to regulations but surely not moral and unethical (CNN,
2016). Firstly, Turing abused of the regulatory environment through the
opportunity to ‘buy out’ rights to an ‘off patent’ life saving drug in order to gain
an exclusivity position on this market, granted by the FDA. Effectively, Turing
was not interested in discovering new drugs (Lowe, 2015) but rather buying
out a treatment curing an ‘orphan disease’ from sole source manufacturer to
obtain a monopoly position. Thereby, Turing business plan included a ‘closed
distribution’ (ibid.) where Turing kept a very high control on Daraprim
distribution. Thus, Turing prevented other generic competitors from testing
samples to prove equivalence and access the market (Pollack, 2015).
Lack of Transparency
Turing implemented an unfair pricing strategy where it directly raised the prices
of Daraprim after acquiring it without modifying any components (Long, 2016).
The public did not have a comprehensive about the pricing process of
Daraprim and the rationale behind Daraprim’s price increase. One of their
main justifications to rising the price of Daraprim was that they required the
capital for future R&D (Reuters, 2015), however, Turing did not publish any
official figures regarding their R&D expenses, which further contributed to the
decision’s opaque nature.

Shkreli has continued to defend the decision to hike the price of the drug
stating that he would do it again and in actual fact he should have increased
the drug further (Diamond, 2015). He has shown a distinct lack of remorse
around his actions and believes that he acted in his duty – to maximise
shareholder wealth. He has pointed to the other price gouging practices in the
sector by the likes of Pfizer and Valeant and stated that he is purely voicing
what others are too afraid to say. All of this has shone a spotlight on the
practices on the sector and led to debate around the responsibilities of the
pharmaceutical sector. The issue became a key talking point with Both Hillary
Clinton and Donald Trump waging in on the unacceptable pricing practices of
the pharmaceutical sector.
Previously where there has been public hostility towards the actions of
corporations, governments have stepped in to impose regulations that restrict
the corporations and seek to inhibit them from carrying out said actions. Letwin
(1965) analysed the events that lead to the anti-monopoly Sherman Act that
was passed in 1890 and concluded that the extensive hostility to the anti-
consumer practices of firms led to the enactment of the law by government. It
is regulatory intervention such as this that has lead some key members of the

pharmaceutical sector to believe that the industry needs to act before the
Government does. Heather Bresch of Mylan has stated that it is no longer
business as usual and that “the pricing model has got to change … I think it’s
truly rethinking the business model” (Johnson, 2017).

Donald Trump Policies
Donald Trump has been vocal on his condemnation of the astronomical prices
the pharmaceutical companies are charging. Trump has a been an advocate of
populist policies such as allowing the Government to bid and negotiate on the
price of the drugs they buy for Medicare and Medicaid (Herper, 2017). This
has traditionally been a democratic policy and therefore Trump will benefit from
bipartisan support on this issue however with a republican house and senate it
will face an uphill battle to be enacted. He has also stated in a meeting with
the CEOs of pharmaceutical companies that he will be cutting 75% - 80% of
the FDA regulations to reduce the time it takes for a drug to be approved
(Brennan 2017) He has not been clear on what exactly this means however
the potential for FDA approval regulations to be cut during the new
administration looks likely.
Bills currently introduced in the senate/house
H.R.749 - Lower Drug Costs through Competition Act - Congress(a) 2017)
This bill seeks to enforce the FDA to prioritise the review of submissions for
generic drugs that meet either of the following two criteria:
Where there is a shortage

Where there has not recently been an introduction to the market by more
than one manufacturer and there has not been tentative approval
granted to more than two applications.
The bill will ensure the FDA reviews these types of applications within 180
days with the aim of tackling the extortionate prices in the market by increasing
the competition. It is suggested that the bill will do this by increasing the
incentive (through shorter approval time) for companies to develop generic
drugs in monopoly markets and markets where there are drug shortages.
(Sagonowsky, 2017). This bill has bipartisan support (support from both
republicans and democrats) however it is a follow up to a similar bill that was
read last year that didn’t make it through. This bill has currently only been
introduced and will need to pass the house and senate and be signed by the
president before it is enacted with predictgov giving it a 1% chance of being
enacted (govtrack(a), 2017). Despite this the bill is consistent with Donald
Trump’s statement around increasing competition to combat what he called the
astronomical drug prices (Meyer, 2017). However the bill has received criticism
by Kurt Kast (2017) as to the actual differences this bill will make when the
FDA has already established an 8 month goal and a 4 month goal for certain
priority applications (Karst, 2017). This has the potential to impact Turing as
this will make it easier for other companies to introduce a generic version of
Daraprim. However currently there are no generic versions available and it is
arguable as to whether a shortened FDA application time would motivate
companies to develop one considering the small market size.
S.124 - Preserve Access to Affordable Generics Act - (Congress(b),
2017).
Under this bill the federal trade commission will be able to place enforcement
orders if an agreement is entered into between a generic manufacture and the
patent owner where the ANDA filer receives compensation for limiting or
foregoing R&D, marketing or the sale of generic drugs. The ANDA filer will also
lose their right to the 180 day marketing exclusivity period associated with
generic drugs. (ibid). This bill aims to increase competition and therefore
reduce prices by stopping ‘pay-for-delay’ tactics used by drug companies. The
FTC (2017) estimates that these pay for delay patent settlements cost
consumers and taxpayers $3.5 billion every year. (FTC, n.d). According to
predictgov this bill has a 3% chance of being enacted (govtrack(b), 2017).
Although this doesn’t currently affect Turing it could in the future once they
have developed their improvements to Daraprim and developed new drugs.
This could potentially stop Turing from engaging in pay for delay tactics and
maintain high prices and monopoly status.

S.92 - Safe and Affordable Drugs from Canada Act of 2017 - (Congress(c)
- 2017)
This regulation seeks to allow individuals to import drugs from approved
Canadian pharmacies providing they have a valid prescription from a US
licensed physician, purchase no more than a 90 day supply and has the same
active ingredients, route of administration, dosage form, and strength as a
prescription drug approved under the FFDCA. (ibid). The purpose of this bill is
to reduce cost of drugs by opening up the competition to certain prescription
drugs in Canada. This bill has currently only been introduced to the house and
senate and is an amended version to a previous bill in 2015 that did not make
it through. (Govtrack(c), 2017). Trump has previously stated that he is an
advocate of allowing US patients to import cheaper drugs from abroad
(LaMattina, 2016). This regulation is not likely to affect Turing and Daraprim in
the near future as currently the drug is only made in house by hospitals as and
when they need it (Yang, 2015) or is available online through imports from
around the world or a generic version imported from India. It is therefore not
likely that US citizens will be able to import Daraprim under the Safe and
Affordable Drugs from Canada Act of 2017.
S.41 - Medicare Prescription Drug Price Negotiation Act of 2017 -
(Congess(d), 2017)
This bill seeks to retract the clause in Medicare and Medicaid that restricts the
Government from negotiating on price and allow the Centres for Medicare &
Medicaid Services (CMS) to negotiate with companies over the price of drugs
provided on their prescription drug service (ibid). This bill has currently only
been introduced into the House and Senate however is in line with comments
made by Donald Trump with his proposal to reduce prices in this way.
(Johnson, 2017). Donald Trump has recently reaffirmed his position on this
through a statement made by Sean Spicer (Daurat and Olorunnipa, 2017).
Although this comes after the nomination by Donald Trump, and subsequent
approval, of Tom Price for the Secretary of Health and Human Services - a
known opposer of price negotiation. Although recently Price has said that he is
open to a better way of negotiating than the current system whereby it is done
by pharmacy benefit managers (Nisen, 2017). However there is dispute as to
whether this would indeed reduce the prices. The congressional budget office
(2007) produced a report stating that if the Health and Human services
department (of which the CMS is a federal agency within) were to gain
jurisdiction to negotiate on price the overall effect on Medicare would be very
little (Orszag, 2007). This is due to cost savings only being realisable in those
drugs without close substitutes – a relatively small amount of drugs. It is also
argued that the due to the pressure already implemented by prescription drug
plans where there are alternatives available the effect of adding pressure from

the CMS will be negligible. In addition a CBS (2015) report found that allowing
the secretary to negotiate on high cost prescription drugs for Medicare would
have little impact on the fiscal budget. (CBO, 2016).

Prepared by: Brandon Chung, Lee Gah Man, Thibault Aycard

Company background
Founded in 1961, Mylan is a generic and specialty pharmaceutical companies.
In the past 10 years, they have embarked on a series of international mergers
and acquisitions as the pharmaceutical industry consolidated [Appendix 2].
This has not only given them a market leading position and globalized their
distribution channels, but has also brought in a series of drug patents and
development pipelines to diversify their product portfolio and expand their
international footprint.
What decisions did they made?
By analysing Mylan’s pricing strategy, Turing could gain a greater clarity of the
public’s definition of an “ethical price”, and understand how to obtain socially
acceptable and ethical level of profit. From 2007 to early 2016 where EpiPen’s
price increased incrementally, there was little to no complain from the
government, consumer and media about the price of EpiPen [Appendix 4, 5].
It was only when Bernie Sanders brought to light NBC’s coverage of EpiPen’s
price increase Mylan CEO’s pay rise in mid August 2016 that this issue was
22

brought to light (Asad, 2016). If it was not for the 2016 US Presidential
Election, it is not unreasonable to believe Mylan’s sophisticated price increase
strategy could have sustained. Their success to distort consumer’s perception
of a price hike was a result of the tactics being deployed simultaneously.
1. Incremental price increase
Per Homburg, Hoyer and Koschate’s (2005) paper, customers’ reaction to
price increase is driven by two primary factors: the magnitude of price increase
and the perceived motive fairness of the price increase. They also found that
as customers’ satisfaction of the product increases, the negative impact of the
price increase dampens. Let us first focus on the former factor. From Turing’s
sudden and drastic price hike of Daraprim, to Evernote’s (software company)
overnight 40% increase in their plus and premium tier (Hern, 2016), there is
ample evidence that a great magnitude of price increase in a short period is
unfavourable. However, when accompanied by a powerful marketing campaign
that elevates the perceived motive fairness of the price rise and the perceived
value of the product, Mylan could raise EpiPen’s price in a slow and steady
manner without facing backlash.
2. Extensive Direct-To-Consumer (DTC) marketing
Mylan’s extensive marketing campaign ranges from TV advertising, paid
search engine advertising, and even dispatching trainers to teach school staff
and first responder how to use the device. (Bayly and Margolin, 2016; Bulik,
2016). These marketing techniques conveyed the severity of anaphylaxis, but
also the life-saving value of EpiPen. By appealing to the fear of the public and
constantly re-establishing the value of EpiPen, parents stocked up the product
and the sales for EpiPen soared, and the issue of continuous price increase
was rarely brought up. These phenomena are consistent with Homberg, Hoyer
and Koshchate’s (2005) empirical results. Mylan’s marketing practices
undoubtedly leads customers to believe “they will get more value from a
product or service than they actually receive” (Siham, 2013, p. 23), thus can
be concluded as an unethical marketing practice per Siham’s definition.
3. Influencing Government
In addition to its multi-billion-dollar marketing campaign, Mylan also utilised its
power to influence federal legislations. This resulted in the implementation of
new federal guidelines in 2010 that said “patients who had severe allergic
reactions should be prescribed two epinephrine doses” (Koons and Langreth,
2015), and the U.S. Food and Drug Administration to “allow the device to be
marketed to anyone at risk”, instead of individuals with a proven medical need.
Extensive lobbying of Congress also resulted in 47 states now “suggest or

mandate” (Siegel, 2015) schools to stock EpiPen. Referring to Siham (2013),
this is an unethical product and distribution practice as this indirectly pressures
vendors (vendors are states in this case) to buy more than they need.
4. & 5. Absence of Competitors & Pay-for-Delay
Mylan’s dominant market position is also due to a lack of competitors. This is
caused by the high costs and risks associated with developing an alternate
version of epinephrine injector, and Mylan’s close relationship with and power
over the FDA and insurance companies. Sanofi’s Auvi-Q had to issue a
nationwide recall due to potential inaccurate dosage delivery (U.S. Food and
Drug Administration, 2015), Adamis’ and Teva Pharmaceutical’s attempt the
develop a generic version of EpiPen was shut down by the FDA (Helfand 1,
2016; Helfand 2; 2016), and Teva Pharmaceuticals was also unable to get
insurance companies on board (Newman, 2016). Additionally, Mylan may have
played a substantial role in initiating Pfizer’s (manufacturer of epinephrine)
settlement with Teva Pharmaceuticals in 2012 to not launch their generic
version of EpiPen until 2015 (Mylan 1, 2012) These events have not only kept
Mylan’s EpiPen revenue stream undisrupted by competition, but are also
illustration of the company’s power.
Result of Decisions
After raising the price substantially by 467% from 2007 to 2016 (Kasperkevic
and Holpuch, 2016), the limelight was finally casted on Mylan and their
management team, and government regulation and public backlash ensued.
As a result, Mylan had to pay a relatively small sum of $465 million to settle
the price gouging move that put significant pressure on both patients and
Medicaid [Appendix 6, 7], and have quickly launched the a generic version of
EpiPen priced at more than 50% below wholesale acquisition cost (Mylan,
2016). Mylan also suffered greatly on the capital market due to this scandal,
and lost approximately 21.2% (Ref below for calculations) of its market
capitalization between August 9th and February 9th . The recent increase in
their stock was due to their $465 million settlement. With Mylan now facing a
new antitrust investigation regarding EpiPen from the Federal Trade
Commision (McLaughlin, Forden and Hopkins, 2017), the company’s
reputation will continue to suffer in the mid term.
Links to Turing
As Mylan was under scrutiny for exactly the same issue of unethical pricing,
this is closely related to Turing’s situation. The nature of the product,
competitive environment and target patient profiles are all similar. Like
Daraprim, EpiPen is a life-saving drug and Mylan has a de facto monopoly on
the market.

Key Lessons
Whilst Turing faced immediately backlash by raising the price of Daraprim by
over 5000% overnight (Pollack, 2015), Mylan’s sophisticated price increase
strategy allowed them to enjoy a decade’s worth of superior profit and to hide
away from the public spotlight. Mylan’s sophisticated drug price hike strategy
has led us to believe that there is a particular method to raise the price to
make the public perceive the action is fair. Drawing on both Hoyer and
Koschate’s (2005) theory and empirical observation of Mylan’s price hike, it
can be said that by employing price rises of small magnitude across a long
time horizon along with extensively marketing, the price rise will be generally
accepted by the public. This strategy can prevent a critical mass of individuals
and institutions from congregating and protesting against the action,
consequently bringing the firm an increasing long-term revenue source.
Although this strategy can shift the public’s perspective, it cannot be concluded
as an ethical practice.
As Turing moves forward, the firm should be wary of being overly myopic with
its pricing strategy, and instead consider adopting a long term focused pricing
strategy. However, as we have seen with Mylan, this practice can be exposed
and brought to a halt in a short period of time. Along with the strategy’s failure,
the firm’s reputation and market capitalisation is also considerably damaged.
Therefore in addition to a long term focused pricing strategy, Turing must also
become increasingly transparent with patients, clinicians and the government
regarding their pricing strategy.
Considerations
Although Mylan’s approach to pricing EpiPen is a case-in-point of effective
pricing, there are two limitations that will hinder Turing from fully adopting it:
1. Turing’s limited capital and power: Whilst Mylan is an multinational
company with a current market valuation of $21.03 billion (as of
February 10th, 2016), Turing is a company founded in 2015 with only
two products under its roof. It is implausible to believe that Turing has
the financial capability to conduct extensive marketing campaigns, or
that it has the power to influence federal legislations.
2. The number of individuals that require EpiPen (as many as 8 million)
(Epipen.com, 2017) is significantly lower than the number of individuals
that require Daraprim in the US (2,000) (Langreth and Armstrong,
2015). Because of this, if Turing adopts the same incremental pricing
strategy as Mylan for Daraprim, it may cause dissatisfaction amongst
investors as that will considerably decrease their profitability.

Market capitalisation decrease calculations
Data source: Bloomberg, 2017 [Appendix 3]
- Pre-scandal stock price
- Date: August 9th, 2016
- Price: $49.92
- Post-scandal stock price
- Date: February 9th, 2017
- Price: $39.30
- Pecentage decline
- [(49.92 - 39.30)/49.92] = 21.20
- Note: We decided to utilise a 180 days time window to capture the mid-
term impact of the scandal, and to demonstrate how the impact of the
scandal continues to negatively impact the market’s confidence in
Mylan.

Company Overview
Tesla Motors, an American automaker company specialises in the production
of electrics car, envisions to accelerate the world’s transition to sustainable
energy (Tesla, 2017). Tesla involves in the designing, developing,
manufacturing and selling of electric vehicles and energy storage products
(Reuters, 2017). It also offers electric vehicle powertrain and system to other
manufacturers. With a primary focus on energy innovation, Tesla formed joint
venture with Toyota, General Motors and Panasonic to improve it’s vehicle’s
handling, performance and electronic components.
What Decisions Did They Make?
In 2014, Tesla announced its decision to open up patent to be used by other
car companies ‘in good faith’ and investing huge amount of money on building
electrical charger in US, in the spirit of open source movement for the
23

advancement of electric vehicle technology. Tesla’s CEO, Elon Musk,
acknowledged that although patents bring significant values to the company, it
serves merely to stifle technology progression and strengthening the owner’s
position to reap huge profit. He believed that opening up the patent would
accelerate the advent of sustainable transport and eventually bring benefit to
everyone (Tesla, other companies, consumers and the environment) by
addressing the global carbon crisis (Tesla, 2014).
Links to Turing
Patents and intellectual property rights in the automobile industry play a
significant role in generating profits and values for innovator. Patents serve as
an incentive for the market players to innovate continuously. The rationale for
patent protection is justified by the huge investment cost and time spent in the
research and development process. Similarly, pharmaceutical industry in US is
characterised with robust intellectual property system that rewards medical
innovation through patent and data protection. Patents term of 20 years along
with the flexibility in drug pricing are put in place to encourage extensive R&D
and clinical trials (Selectusa, 2017). Patent protection is especially important
compared with other industries because the actual manufacturing process is
often easy to be replicated and copied from the clinical testing (Lehman,
2003).
While regulatory environment in the US pharmaceutical industry is designed to
encourage greater development of new medicine and therapies, it has
indirectly grant the pharmaceutical companies with greater monopoly power in
controlling the price and distribution of drug as well as preventing valuable
therapies from coming to market (Frakt, 2015). The purchase of the rights to
manufacture Daraprim gives Turing a monopoly power to control the pricing of
the drugs. In addition, Turing utilises closed distribution [allowed under the
Risk Evaluation and Mitigation Strategies (REMS)*] via specialty pharmacy to
limit the accessibility of Daraprim. This strategy disrupts market competition as
it acts as a barrier to prevent generic access to samples of Reference Listed
Drug (“RLD”) needed to complete the bioequivalence testing that is required
for FDA approval.
In contrast, the application of open source philosophy to patent by Tesla is

viewed as an invitation for automarket to approach Tesla for licensing deals
(Blattberg, 2014). Tesla is perceived as an ethical and socially responsible
corporation as the decision to make its patent available to all would encourage
the market capabilities in electric vehicles through greater collaboration
(Buschmann, 2016).
Key Lessons
Tesla’s ‘open patent’ initiative to accelerate the mass market advancement of
electric cars through information and technology sharing led us to consider the
long term potential offered by knowledge sharing, collaboration and increase
competition within the industry as a whole. The strategy adopted by Tesla
allows Tesla to be perceived ethically by the public and attract more investors
and talented employees. It is believed that the long term benefit of fostering a
platform for technology development would outweigh the short term revenue
gain from patent protection. Hence, being ethical in business decision making
and socially responsible does add value to the business in the long run.
Applying this to the business model of Turing, we believe that Turing should
adopt a more proactive approach in encouraging the knowledge sharing within
the pharmaceutical industry. By all mean, it should also shift its sample
management strategy to embrace a more competitive ecosystem that support
the creation of generic drugs. While such move may remove the artificial
protection to the company, Turing might benefit in the long run through future
drugs improvement via the opportunity to collaborate with other
pharmaceutical companies. More importantly, this helps Turing to establish an
image of being socially responsible as it contribute towards the improvement
of the US healthcare industry.
Considerations
1. Patent work differently in different industries. As both companies
operate in different industries, the idea of open patent need to be
adjusted accordingly with the current context of pharmaceutical
industry, especially the regulations, for the concept to bring meaningful
value to Turing business.
2. Tesla able to look benefit though this strategy as they are the market
leader in electric vehicle technology itself.

3. Tesla is relatively bigger player in automobile industry and wouldn’t lose
out much of the comparative advantage. Considering Turing is still a
small company, does it have the capacity/resources to share knowledge
with other competitors?
4. The need to manage a balance between maintaining competitive
advantage and increasing competition.
Remarks:
*FDA requires a Risk Evaluation and Mitigation Strategy-(REMS) from
manufacturers to ensure that the benefits of a drug or biological product
outweigh its risks. A REMs may be required by FDA as part of the approval of
a new product, or for an approved product when new safety information arises.
REMS is a safety strategy to manage a known or potential serious risk
associated with a medicine and to enable patients to have continued access to
such medicines by managing their safe use (FDA, 2017).

Company overview
Valeant Pharmaceuticals International is a multinational speciality
pharmaceutical company that develops and manufactures a variety of generic
and branded pharmaceuticals and medical devices across more than 100
countries (Reuters, 2017). Valeant Pharmaceuticals is the pure expression that
drug companies prioritise their shareholders interests over their client medical
needs, when searching for the highest profits. Indeed, Valeant pursued a
greedy quest for profit illustrated for example by the merger with Biovail, a
Canadian drug company, in 2010 allowing Valeant to move its headquarter to
Canada thereby profiting from significant tax reduction (William, 2014).
What decision Valeant have made? : ‘We won’t bet on science, we bet on
management’
Michael Pearson, Valeant former CEO, believed that drug companies were
terribly inefficient, spending too much money on research and development
(Fortune, 2015). He thus emphasised the need to change Valeant’s business
model through his vision: we won’t bet on science, we bet on management’
24

(Mc Lean, 2016). Pearson’s new plan was to develop a drug giant that mainly
focused on distribution, leaving research to another company (Fortune, 2015).
The plan relied on the acquisition of rival drug firms, which led to an enormous
debt’s increased for Valeant amounting to $31 billion (Lachapelle, 2015).
Following this decision, Valeant also hiked the price of two essential life saving
drugs: Nitropress and Isuprel by 212% and 525% respectively (Rockoff and
Silverman, 2014).
Links to Turing
Similarly to Turing, Valeant was influenced by activist investors and an
aggressive CEO but conversely to Shkreli, Pearson the CEO of Valeant
admitted that these practises were a mistake (Hoffman and Rapoport, 2016).
Moreover, both CEO wanted to create drug giant that focuses on distribution,
slashing Research & Development expenses. Pearson’s view was that despite
of significantly high Research & Development expenses, drug firms were
producing only very few approved FDA drugs (Mc Lean, 2016). Thus, Valeant
only spent 3% of its revenue on Research & Development while most
pharmaceutical competitors devoted at least 15% (Crown, 2015). Besides,
Turing and Valeant adopted similar strategies of acquiring life saving drug from
sole source manufacturer from sole source manufacturer and then
dramatically hiking their prices
Key lessons from Valeant that can be used to understand and help
Turing
Firstly, the primary lesson that Turing could use from Valeant is that only
focusing strategy on acquisition is a warning sign of incoming failure, so there
is a need to invest in Research & Development. Indeed, Valeant was mainly
focused on acquiring companies, however through this strategy Valeant
accumulated a debt of $30 billion that affected the balance sheet (Eavis,
2016). Relying on the acquisition of other pharmaceutical companies has
hidden Valeant’s lack of growth (Lopez, 2015) because Valeant engaged in
‘spring loading’ whereby each acquisition was artificially inflating Valeant
revenues. Therefore, serial acquisition should be a warning sign of incoming
failure for drug companies. And an effective solution would foster drug
companies to use their money more effectively by investing in Research &
Development (Vardi, 2016).
Secondly, Turing could learn from Valeant’s mistakes of involving hedge funds
and focusing on short-term gains to improve business sustainability. As a
matter of fact, Valeant’s failure is largely explained by the strong emphasize of
the management on short-term gains over long term ones. Indeed, Valeant
was influenced by activist investors, such as ValueAct and Pershing Square

Capital Management, and as a striking example, they are responsible for
nominating Michael Pearson, Valeant CEO, who set the strategy prioritising
short-term profits. Moreover, Valeant’s strategy of acquiring other drug
companies, firing employees and slashing R&D expenses has proven to be
only profitable on the short term with the rapid stock expansion, however on
the long term this dedication to serial acquisition was a main cause of Valeant
failure (Crown, 2015) and within 6 months of Valiant scandal 90% of Valeant
value stock disappeared (Mc Lean, 2016). Nevertheless, by setting aside
hedge fund investors and shifting strategic focus from short to long-term there
are significant areas for improving business sustainability for Turing.
Thirdly, a key lesson for Turing in the light of Valeant focus on long term over
short term is the importance for Turing to ensure transparent prices’ increase
for greater stock stability. In fact, Valeant’s strategy in the short-term created
enormous profits and since 2010 the company’s share price has skyrocketed
by more than 500% (Crown, 2015). But at the same time, the price’s jump in
Nitropress and Isuprel lacked of transparency because it was very hard to
calculate the spending for each drug and prices disclosed to the public are
‘sticker prices’ and not actual prices (ibid.). Besides, unjustified and unfair drug
prices’ increase by Valeant led to radical public and political opposition (Eavis,
2016). Directly after Hillary Clinton’s Tweet on ‘the outrageous price gouging’
Valeant’s stock begun to decline by almost a third of its value, and this
collapse in Valeant sock worsen following Citron report (Lent, 2015)
Finally, the last significant lesson for Turing in the light of Valeant’s actions is to
provide transparency in accounting practises to ensure credibility, trust and
avoid any fraud. Valeant actions were questionable because Valeant used
fraudulent accounting practises (Eavis, 2016). According to a report by Citron
Research, Valeant created fake revenue through ‘phantom sales ‘especially by
storing inventory in pharmacies related to Philidor and then recording it as drug
sales (CBnews, 2015), therefore artificially inflating Valeant sales. Moreover,
Valeant was accused of misleading accounting methods through ‘channel
stuffing’ i.e. sending more medicines through distribution channel than it would
be able to sell and ‘spring loading’. Before an acquisition Valeant minimised
the firm revenues and over evaluate its costs so that after the merger Valeant
could realise ‘phantom profits’ from the acquisition just by evaluating costs and
revenues back to their normal levels (Lent, 2015). Besides, Citron report
shows significant concerns for Valeant drug pricing transparency (CBCnews,
2015) and unjustified price increased for two life-saving drugs: Nitropress and
Isuprel. Valeant argued that hiking in prices for these two drugs were driven by
R&D expenses but Valeant R&D expenses as percentage of sales in 2014
were only 3% compared to other big pharmaceutical companies (Crown,

2015). Therefore, Valeant largely undermined its credibility and reputation by
using questionable accounting practises, and even if Valeant finally admitted
minor accounting errors because it wrongly booked $58 million of revenue
(Eavis, 2016). Valeant is now facing significant negative consequences. For
instance, direct ones included a plunge of stock by 90% (Vardi, 2016). From
this incident, a key lesson for Turing is the need to provide transparency in
accounting practises in order to ensure the highest level of credibility and trust
in the eye of the public.
Considerations
We have to keep in mind that Turing and Valeant have two different sizes.
Turing is a pharmaceutical start-up (LaMattina, 2016) selling only two drugs
whereas, Valeant is the largest Canadian pharmaceutical company with 10$
billion annual sales and selling more than a 1000 of different drugs (Alexander
and Lam, 2015). Valeant and Turing were operating on different scales and
while Turing acquired the rights to a drug, Daraprim, from a sole manufacturer
Valeant directly acquired a great deal of drug companies like Bausch & Lomb,
Medicis, and Natur Produkt (William, 2014). Valeant difference itself from
Turing notably because Valeant’s business model is characterised by a
significant debt reliance (Eavis, 2016), with borrowed money at the heart of the
Valeant’s operations and for example (Lachapelle, 2015).

Prepared by: Lee Gah Man and Piong Yong Qi
Accountability
Accountability is the process of being called ‘to account’ to some authority for
one’s actions (Jones, 1992, p.73). According to Mulgan (2000), accountability
is the social interaction based on giving and receiving of accounts, with a
formal set of rules, a defined purpose, and a promise of sanctions. such
accountability has a number of features:
1. It is external. The account is given to some other person or body
outside the person or body being held accountable
2. It involves social interaction and exchange, in that one side, that calling
for the account, seeks answers and rectification while the other side,
that being held accountable, responds and accepts sanctions
3. It implies rights of authority, in that those calling for an account are
asserting rights of superior authority over those who are accountable,
including the rights to demand answers and to impose sanctions
More recently in academic usage, ‘accountability’ now commonly refers to the
sense of individual responsibility and concern for public interest expected from
public servants (‘professional’ and ‘personal’ accountability), an ‘internal’ sense
which goes beyond the core external focus of the term.

Responsibility
However, Lindkvist and Llewellyn (2003) pointed out that ‘the discharge of duty
constituted as an instrumental accountability may lead to a neglect of any
consideration of the good or bad consequences attached to such duty. In this
way, a floating responsibility may arise, whereby everyone has procedural
accountabilities but no one has responsibility for wider consequences’.
Furthermore, ‘Accountability’ might be brought in to identify one of the senses
or aspects of responsibility (Marshall and Moodie, 1959, p.68) but
accountability was certainly not expected to cover the whole range of activities
and processes covered by responsibility.
Accountability in pharmaceutical companies
For pharmaceutical companies, two definitions of industry accountability
predominate: commercial duty to shareholders; and duty to the community
(Dukes, 2002). Pharmaceutical company is obliged to deliver a sound return
on investment and from this point of view, the pharmaceutical industry has
done very well.
From the broad social point of view, the pharmaceutical industry has duty to
supply communities with good drugs at an affordable price, and to provide
reliable information on them. Accountability of a corporation is argued to be
founded in human rights principle (Ritcher, 2001), thus, the industry has legal
duties to agencies, such as drug regulatory bodies established by government,
to ensure public interest is served (Collier and Iheanacho, 2002). The modern
concept of ethical organisations broaden the corporate priorities beyond
traditional business aims of profit and shareholder enrichment. Companies are
responsible not just to their shareholders but also to the other stakeholders
and broader society in which they operates. It encompasses the concept of
corporate social responsibilities in making decision, in line with aim to preserve
shareholder value by avoiding negative publicity. Corporate social
responsibilities is an implicit contract among business and broader societal
groups affected by the decision made by the business (Doh and Guay, 2006).
A fair proportion of people in any western country today have an interest in
financial well-being of the drug industry, either as workers, investors, or as
pensioners indirectly dependent on the industry’s performance on the stock
market (Lukes, 2002). The difficulty arises when financial performance is at all
dependant on practices that might seem to betray the industry’s broader duty
to contribute to health care (ibid.). Lukes further concluded that the potential
worldwide market for drugs is large enough to lend support to a healthy and
creative industry without need for commercial abuse. The pharmaceutical
industry has shown in the past that it is resilient enough to adapt to change

when the community demands it.
Applications for Turing
The Human Rights Guidelines for Pharmaceutical Companies in Relation to
Access to Medicines specify, for instance, that “companies must do all they
reasonably can to ensure that medicines are available in sufficient quantities in
the countries where they are needed.” (United Nation, 2008) A pharmaceutical
company performs critically important social, medical, public health and right-
to-health functions. While the company’s reward is the grant of a power over
pricing and control over the medicine, enabling it to enhance shareholder value
and invest in further research and development, the company also has a right-
to-health responsibility to take all reasonable steps to make the life-saving
medicine as accessible as possible (United Nation, 2009). Enhancing access
to medicine is a shared responsibility. The corporate responsibility reflects
society’s expectation of pharmaceutical companies and should be read into the
‘social licence to operate’ for these companies.
Lee and Hunt (2012) suggested that the pharmaceutical companies should be
held publicly accountable for their human rights responsibilities, the right to
health. While companies has responsibilities to enhance shareholder value by
making profit from drugs sold, the company also have a right-to-health
responsibility to take all reasonable step to make life saving drugs as
accessible as possible, by preventing any pricing and business model that limit
access to medicine. Where the pharmaceutical industry and access to
medicines intersect, accountability is something much more than that and
must go to the core of motivation of generating business profit (The PLoS
Medicine Editors, 2010).
For a pharmaceutical company like Turing, it is held accountable to the
shareholders/investors in providing sound return on investment. Turing is also
responsible to various stakeholders including patients, hospitals, the US
pharmaceutical industry and the US economy as a whole. Primarily, Turing has
the right to health responsibility to ensure that the patients have the access to
life-saving drugs like Daraprim at an affordable price. Turing also has social
responsibility to the pharmaceutical industry as a whole by contributing to the
development of novel drugs or continuous improvement of its current
treatment.

Decision making
Decision making forms a major part of the responsibility of manager and board
of director as it is the vital component in the success of a business.
According to Harrison (1996), the decision making process commences with
the setting of objectives and a given cycle within which the objective need to
be achieved. The management decisions are hence rational, as they are
oriented towards achieving the organisation’s long term objective. In addition
to this, March (1991) viewed that decision making in organization, which is
Classical decision making as intentional, consequential action based on four
things:
A knowledge of alternatives. Decision makers have a set of alternatives for
action.
A knowledge of consequences. Decision makers know the consequences of
alternative actions, at least up to a probability distribution.
A consistent preference ordering. Decision makers have consistent values
by which alternative consequences of action can be compared in terms
of their subjective value.
A decision rule. Decision makers have rules by which they select a single
alternative of action on the basis of its consequences for the

US Pharmaceutical Industry Analysis and Turing Case Study

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