Business ethics

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Business ethics

  1. 1. KAZIAN GLOBAL SCHOOL OF BUSINESS MANAGEMENT Marks: 80 Course: EMBA Sem-II Note: Attempt all the QuestionName: Mishra Anil Kumar Ref. No: KH00611-10743 Subject: Business Ethics___________________________________________________________________________Section AEach question carried 10 Marks :-1) Explain the factors influencing ethical environment a service organization.2) Explain the corporate social responsibility towards the educational institutions.3) What are corporate crimes? What are their effects on society?4) Explain the significance of ethics in business planning and decision making.___________________________________________________________________________Section BCase- 1 Becton Dickinson and Needle Sticks Marks-20During the 1990s, the AIDS epidemic posed peculiarly acute dilemmas for health workers. After routinelyremoving an intravenous system, drawing blood, or delivering an injection to an AIDS patient, nursescould easily stick themselves with the needle they were using. “Rarely a day goes by in any large hospitalwhere a needle stick incident is not reported. “ In fact, needlestick injuries accounted for about 80 percentof reported occupational exposure to the AIDS virus among health care workers.2 It was conservativelyestimated in 1991 that about 64 health care workers were infected with the AIDS virus each year as aresult of needlestick injuries.AIDS was not the only risk posed by needlestick injuries. Hepatitis C, and other lethal diseases were alsobeing contracted through accidental needlesticks. In 1990, the Center for Disease Control (CDC)estimated that at least 12,000 health care workers were annually exposed to blood contaminated with thehepatitis B virus, and of these 250 died as a consequence.4 Because the hepatitis C virus had beenidentified only in 1988, estimates for infection rates of health care workers were still guesswork but wereestimated by some observers to be around 9,600 per year. In addition to AIDS hepatitis B, and hepatitisC, needlestick injuries can also transmit numerous viral, bacterial, fungal, and parasitic infection, as wellas toxic drugs or other agents that are delivered through a syringe and needle. The cost of all suchinjuries was estimated at $400 million to $1 billion a year.
  2. 2. Several agencies stepped in to set guidelines for nurses, including the Occupational Safety and HealthAdministration (OSHA). On December 6, 1991, OSHA required hospitals and other employers of healthworkers to (a) make sharps containers (safe needle containers) available to workers, (b) prohibit thepractice of recapping needle by holding the cap in one hand inserting the needle with the other, and (c)provide information and training on needlestick prevention and training on needlestick prevention toemployees. The usefulness of these guidelines was disputed.7 Nurses worked in high-stress emergency situationsrequiring quick action, and they were often pressed for time both because of the large number of patientsthey cared for and the highly variable needs and demands of these patients. In such workplaceenvironments, it was difficult to adhere to the guidelines recommended by the agencies. For example, ahigh-risk source of needlesticks is the technique of replacing the cap on a needle (after it has been used)by holding the cap in one hand and inserting the needle into the cap with the other hand. OSHA guidelineswarned against this tow-handed technique of recapping and recommended instead that the cap be placedon a surface and the nurse use a one-handed “spearing” technique to replace the cap. However, nurseswere often pressed for time and, knowing that carrying an exposed contaminated needle is extremelydangerous, yet seeing no ready surface on which to place the needle cap, they would recap the needleusing the two-handed technique. Several analysts suggested that the nurse’s work environment made it unlikely that needlestickswould be prevented through mere guidelines. Dr. Janine Jaegger, an expert on needlestick injuries,argued that “trying to teach health care workers to use a hazardous device safely is the equivalent oftrying to teach someone how to drive a defective automobile safely…. Until now the focus has been on thehealth care worker, with finger wagging at mistakes, rather than focusing on the hazardous productdesign…. We need a whole new array of devices in which safety is an integral part of the design.”8 TheDepartment of Labor and Department of Health and Human Services in a joint advisory agreed that“engineering controls should be used as the primary method to reduce worker exposure to harmfulsubstances.” The risk of contracting life-threatening diseases by the use of needles and syringes in health caresetting had been well documented since the early 1980s. articles in medical journals in 1980 and 1981, forexample, reported on the “problem” of “needle stick and puncture wounds” among health care workers.10Several articles in 1983 reported on the growing risk of injuries hospital workers were sustaining fromneedles and sharp objects.11 Articles in 1984 and 1985 were sounding higher-pitched alarms on thegrowing number of hepatitis Band AIDS cases resulting from needlesticks. About 70 percent of all the needles and syringes used by U.S. health care workers weremanufactured by Becton Dickinson. Despite the emerging crisis, Becton Dickinson decided not to changethe design of its needles and syringes during the early 1980s. To offer a new design would not onlyrequire major engineering, retooling, and marketing investments but would mean offering a new productthat would compete with its flagship product, the standard syringe. According to Robert Stathopulos, whowas an engineer at Becton Dickinson from 1972 to 1986, the company wanted “to minimize the capitaloutlay” on any new device.12 During most of the 1980s, therefore, Becton Dickinson opted to do no morethan include in each box of needles syringes an insert warning of the danger of needlesticks and of thedangers of two-handed recapping. On December 23, 1986, the U.S. Patent office issued patent number 4,631,057 to Norma Sampson, anurse, and Charles B. Mitchell, an engineer, for a syringe with a tube surrounding the body of the syringe
  3. 3. that could be pulled down to cover and protect the needle on the syringe. It was Sampson and Mitchell’sassessment that their invention was the most effective, easily usable, and easily manufactured devicecapable of protecting users from needlesticks, particularly in “emergency periods or other time of highstress”13 Unlike other syringe designs, theirs was shaped and sized like a standard syringe so nursesalready familiar with standard syringe designs would have little difficulty adapting to it. The year after Sampson and Mitchell patented their syringe, Becton Dickinson purchased from theman exclusive license to manufacture it. A few months later, Becton Dickinson began filed tests of earlmodels of the syringe using a 3-cc model. Nurses and hospital personnel were enthusiastic when show theproduct. However they warned that if the company priced the product too high, hospital, with pressureson their budgets rising, could not buy the safety. With concerns about AIDS rising, the company decidedto market the product. In 1988, with the filed test completed, Becton Dickinson had to decide which syringe would be marketwith the protective sleeves. Sleeves could be put on all of the major syringe sizes, including 1-cc, 3-cc, 5-cc, and 10-cc syringes. However, the company decided to market only a 3-cc version of the protectivesleeve. The 3-cc syringes accounted for about half of all syringes used, although the larger size-5-cc and10-cc syringes-were preferred by nurses when drawing blood. This 3-cc syringe was marketed in 1988 under the trademarked name Safety-Lok Syringe and soldto hospitals and doctors’ offices for between 50 and 75 cent, a price that Becton Dickinson characterizedas a “premium” price. By 1991, the company had dropped the price to 26 cents a unit. At the time, aregular syringe without any protective device was priced at 8 cents a unit and cost 4 cents to make.Information about the cost of manufacturing the new safety syringe was proprietary, but an educatedestimate would put the costs of manufacturing each Safety-Lok syringe in 1991 at 13 to 20 cents. The difference between the price of a standard syringe and the “premium” price of the safetysyringe was an obstacle for hospital buyers. To switch to the new safety syringe would increase thehospital’s costs for 3-cc syringes by a factor of 3to 7. An equally important impediment to adoption wasthe fact that the syringe was available in only one 3-cc size, and so, as one study suggested, it had“limited applications.”15 Hospitals are reluctant to adopt, and adapt to, a product that is not available forthe whole range of applications the hospital must confront. In particular, hospitals often needed the larger5-cc and 10-cc sizes to draw blood, and Becton Dickinson had not made these available with a sleeve. In 1992, a nurse, Maryann Rockwood (her name is disguised to protect her privacy), was workingin a San Diego, California, clinic that served AIDS patients. That day she used a Becton Dickinsonstandard 5-cc syringe and needle to draw blood from a patient known to be infected with AIDS. Afterdrawing the blood, she transferred the AIDS-contaminated blood to a sterile test tube called a Vacutainertub by sticking the through the rubber stopper of the test tube, which she was holding with her otherhand. She accidently pricked her finger with the contaminated needle. A short time later, she wasdiagnosed as HIV positive. Maryann Rockwood sued Becton Dickinson, alleging that, because it alone had an exclusive right toSampson and Mitchell’s patented design, the company had a duty to provide the safety syringe in all sizeand that by withholding other size from the market it had contributed to her injury. Another contributingfactor, she claimed, was the premium price Becton Dickinson had put on its product, which prevented
  4. 4. employers like hers from purchasing even those size that Becton Dickinson did make. Becton Dickinsonquietly settled this and several other, similar cases out of court for undisclosed sums. By 1992, OSHA had finally required that hospitals and clinics give their workers free hepatitis Bvaccines and provide safe needle disposal boxes, protective clothing, gloves, and masks. The Food andDrug Administration (FDA) also was considering requiring that employers phase in the use of safetyneedles to prevent needlesticks, such as the new self-sheathing syringes that Becton Dickinson was nowproviding. If the FDA or OSHA required safety syringes and needles, however, this would hurt the U.S.market for Becton Dickinson’s standard syringes and needles, forcing in to invest heavily in newmanufacturing equipment and a new technology. Becton Dickinson, therefore, sent its marketing director,Gary Cohen, and two other top executives to Washington, D.C., to convey privately to governmentofficials that the company strongly opposed a safety needle requirement and that the matter should beleft to “the market.” The FDA subsequently decided not to require hospitals to buy safety needles. The following year, a major competitor of Becton Dickinson announced that it was planning tomarket a safety syringe based on a new patent that was remarkably like Becton Dickinson’s. Unlike BectonDickinson, however, the competitor indicated that it would market its safety device in all sizes and that itwould be priced well below what Becton Dickinson had been charging. Shortly after the announcement,Becton Dickinson declared that it, too, had decided to provide its Safety-Lok syringe in the full range ofcommon syringe sizes. Becton Dickinson now proclaimed itself the “leader” in the safety syringe market. However, in 1994, the most trusted evaluator of medical devices, a nonprofit group named ECIR,issued a report stating that after testing it had determined that although Becton Dickinson’s safety-Loksyringe was safe that Becton Dickinson’s own standard syringe, nevertheless the safety-Lok “offers poorneedlesticks protection.” The following year this low evaluation of the safety –Lok syringe was reinforcedby the U.S. veteran’s Administration, which ranked the Safety – Lok Syringe below the safety products ofother manufacturers. The technology for safety needles took a giant step forward in 1998 when RetractableTechnologies, Inc., unveiled a new safety syringe that rendered needlesticks a virtual impossibility. Thenew safety, invented by Thomas Shaw, a passionate engineer and founder of Retractable Technologies,featured a syringe with a needle attached to an internal spring that automatically pulled the needle intothe barrel of the syringe after it was used. When the plunger of the syringe was pushed all the way in, theneedle snapped back into the syringe faster then the eye could see. Called the vanishpoint syringe, thenew safety syringe required only one hand to operate and was acclaimed by nursing groups and doctors.Unfortunately, it was difficult for Retractable to sell its new automatic syringe because of a newphenomenon that hand emerged in the medical industry. During the 1990s, hospitals and clinics had attempted to cut costs by reorganizing themselvesaround a few large distributors called Group Purchasing Organizations or GPOs. A GPO is an agent thatnegotiates prices for medical supplies on behalf of its member hospitals. Hospitals became members ofthe GPO by agreeing to buy 85 percent to 95 percent of their medical supplies from the manufacturersdesignated by the GPO, and their pooled buying power then enabled the GPO to negotiate lower prices forthem. The two largest GPOs were Premier, a GPO with 1,700 member hospitals, and Novation, a GPO with650 member hospitals. GPOs were accused, however, of being prey to “conflicts of interest” because theywere paid not by the hospitals for whom they worked, but by the manufacturers with whom theynegotiated prices (the GPO received from each manufacturer a negotiated percentage of the total
  5. 5. purchases its member companies made from that manufacturer). Critics claimed that manufacturers ofmedical products in effect were paying off GPOs to get access to the GPO member hospitals. In fact, criticsalleged, GPOs such as Premier and Novation no longer tried to bring their member hospitals the bestmedical products nor the lowest-priced products. Instead, critics alleged, GPOs chose manufacturers fortheir members based on how much a manufacturer was willing to pay the GPO. The more money (thehigher percentage of sales) a manufacturer gave the GPO, the more willing the GPO was to put thatmanufacturer on the list of manufacturers from which its member hospitals had to buy their medicalsupplies. When Retractable tried to sell its new syringe, which was recognized as the best safety syringe onthe market and as the only safety syringe capable of completely eliminating all needlesticks in a nursingenvironment, it found itself blocked from doing so. In 1996, Becton Dickinson had gotten Premier GPO tosign an exclusive, 7 ½-year, $1.8 billion deal that required Premier’s member hospitals to buy at least 90percent of their syringes and needles from Becton Dickinson. Around the same time, Becton Dickinson hadsigned a similar deal with Novation that required its member hospitals to buy at least 95 percent of theirsyringes and needles from Becton Dickinson. Because hospitals were now locked into buying their syringesand needles from Becton Dickinson, or suffer substantial financial penalties, they turned awayRetractable’s salespeople, even when their own nursing recommended Retractable’s safety product betteras and more cost-effective than Becton Dickinson’s. Although Retractable’s safety syringe was almost double the cost of Becton Dickinson’s, hospitalsthat adopted Retractable’s syringe would save money over the long run because they would not have topay any of the substantial costs associated with having their workers suffer frequent needlesticks andneedlestick infections. The Center for Disease Control (CDC) estimated that each needlestick in which theworker was not infected by any disease cost a hospital as much as $2,000 for testing, treatment,counseling, medical costs, and lost wages, plus unmeasurable emotional trauma, anxiety, and abstentionfrom sexual intercourse for up to a year. Those needlesticks in which the victim was infected by HIV,hepatitis B or C, or some other, potentially lethal infection, cost a hospital between $500,000 to morethan $1 million and cost the victim anxiety, sickness from drug therapy, and, potentially, life itself.Retractable’s syringe completely eliminated all of these costs. Because all of the other syringes then onthe market, including Becton Dickinson’s Safety-Lok, still allowed some needlesticks to occur, they couldnot completely eliminate all the costs associated with needlesticks and so were not as cost-effective. (ACDC study found that Becton Dickinson’s Safety-Lok, when tested by hospital health workers in threecities from 1993 to 1995, had cut needle-stick injuries only from 4 per 100,000 injections down to 3.1 per100,000 injections, a reduction of only 23 percent, the worst performance of all the safety devices tested.)An econometric study commissioned by Retractable proved that its safety syringe was the most costeffective syringe on the market. In October 1999, ECRI, the nation’s most respected laboratory for testing medical products, ratedBecton Dickinson’s Safety-Lok syringe “unacceptable” as a safety syringe, saying it might actually causean increase in needlesticks because it required two hands to use it and one hand might accidentally touchthe needle. It simultaneously gave Retractable’s Vanishpoint syringe its highest rating as a safety syringe,the only safety syringe to achieve this highest level. Becton Dickinson objected strenuously to the lowrating of its own syringe, and in 2001, the testing lab raised the rating for the safety-Lok a notch to “notrecommended.” Retractable’s Vanishpoint syringe, however, continued to receive the highest rating. Inspite of being recognized as the best and most cost-effective technology for protecting health careworkers from being infacted through needlesticks, Retractable still found itself blocked out of the marketby the long-term deals that Becton Dickinson had negotiated with the major GPOs.
  6. 6. In1999, California became the first state to require its hospitals to provide safety syringes to itsworkers. Then, in November 2000, the Needlestick safety and Prevention Act was signed into low. The actrequired the use of safety syringes in hospitals and doctor’s offices. In 2001, OSHA incorporated theprovisions of the Needlestick Safety and Prevention Act, finally requiring hospitals and employers to usesafety syringes and significantly expanding the market for safety syringes, a development that is expectedto bring lower prices. None of this legislation required a specific type or brand of syringe and BectonDickinson’s safety devices were stocked by most GPO member hospitals. Continuing to find itself locked out of the market by Becton Dickinson’s contracts with Premier andNovation, Retractable sued Premier, Novation and Becton Dickinson in federal court alleging that theyviolated antitrust laws and harmed consumers and numerous health care workers by using the GPOsystem to monopolize the safety needle market.19 In 2003, Premier and Novation settled with Retractableout of court, agreeing to henceforth allow its member hospitals to purchase Retractable’s safety syringeswhen they wanted. In 2004, Becton Dickinson also settled out of court, agreeing to pay Retractable $ 100million in compensation for the damage Becton Dickinson inflicted on Retractable. During the 6 years thatBecton Dickinson’s contracts prevented Retractable and other manufacturers from selling their safetyneedles to hospitals and clinics, thousands of health workers continued to be infected by needlesticks eachyear. Questions :-1. In your judgment, did Becton Dickinson have an obligation to provide the safety syringe in all its sizes in 1991? Explain your position, using the materials from this chapter and the principles of utilitarianism, rights, justice, and caring.2. Should manufacturers be held liable for failing to market all the products for which they hold exclusive patents when someone’s injury would have been avoided if they had marketed those products? Explain your answer.3. In your judgment, who was morally responsible for Maryann Rockwood’s accidental needlestick: Maryann Rockwood? The clinic that employed her? The government agencies that merely issued guidelines? Becton Dickinson?4. Evaluate the ethics of Becton Dickinson’s use of the GPO system in the late 1990s. Are the GPO’s monopolies? Are they ethical? Explain.
  7. 7. Case – 2 Marks-20In 2004, the United Nations estimated that the previous year 5 million more people around the world hadcontracted the AIDS virus, 3 million had died, and a total of 40 million people were living with theinfection. Seventy percent, or about 28 million of these, lived in sub – Saharan Africa, where the epidemicwas at its worst. Sub – Saharan Africa consists of the 48 countries and 643 million people who residesouth of the Saharan desert. In 16 of these countries, 10 percent are infected with the virus, in 6 othernation, 20 percent are infected. The UN predicted that in these 6 nations two – thirds of all 15 – year oldswould eventually die of AIDS and in those where 10 percent were infected, half of all 15 – year – oldswould die of AIDS. For the entire sub –Saharan region, the average level of infection among adults was 8.8 percent ofBotswana’s population was infected, 34 percent of Zimbabwe’s, 31 percent of Lesotho’s, and 33 percentof Swaziland’s. Family life had been destroyed by the deaths of hundreds of thousands of married couples,who left more than 11 million orphans to fend for themselves. Gangs and rebel armies forced thousands oforphans to join them. While crime and violence were rising, agriculture was in decline as orphaned farmchildren tried desperately to remember had to manage on their own. Labor productivity had been cut by50 percent in the hardest – hit nations, school and hospital systems were decimated, and entire nationaleconomies were on the verge of collapse. With its huge burden of AIDS illnesses, African nation desperately needed medicines, bothantibiotics to treat the many opportunistic diseases that strike AIDS victims and HIV antiretrovirals thatcan indefinitely prolong the lives of people with AIDS. Unfortunately, the people of sub – Saharan Africacould not afford the prices that the major pharmaceutical drug companies charged for their drugs. Themajor drug companies, for example, charged $10,000 to $ 15,000 for a year’s supply the antiretroviralsthey marketed in the United States. Yet the average per –person annual income in sub – Saharan Africawas $500. the AIDS crisis in sub – Saharan Africa posed a major moral problem for the drug companies ofthe developed world: How should they respond to the growing needs of this terribly destitute region of theworld? These problems were especially urgent for the companies that held patents on several AIDSantiretrovirals, such as GlaxoSmithKline and Bristol- Myers Squibb. GlaxoSmithKline, a British pharmaceutical company founded in 1873, with 2003 revenues of $38.2billion and profits of $8 billion, held the patents to five antiretrovirals it had created. Formed from themerger of three large drug companies (Glaxo, Burroughs Wellcome, and SmithKline Beecham), it was oneof the world ‘s largest and most profitable companies. Bristol – Myers Squibb, an American pharmaceuticalcompany founded in 1858, was also the result of mergers (between Squibb and Bristol – Myers). It had2003 profit of $$3.1 billion on revenues of $20.8 billion ad had created and now held the patents to twoantiretrovirls. Although AIDS was first noticed in the United State in 1981 when the CDC noted an alarmingincrease of a rare cancer among gay man, it is now known to have afflicted a Bantu male in 1959, andpossibly jumped from monkeys to humans centuries earlier. In 1982, with 1,614 diagnosed cases in theUnited State, the disease was termed AIDS (for “acquired immune deficiency syndrome”), and thefollowing year French scientists identified HIV (Human Immunodeficiency Virus) as its cause.
  8. 8. HIV is a virus that destroys the immune system that the body uses to fight off infections anddiseases. If the immune system breaks down, the body is unable to fight off illnesses and becomesafflicted with various “opportunistic diseases “- infections and cancers. The virus, which can tack up to 10year to break down a person’s immune system, is transmitted through the exchange of body fluidsincluding blood, semen, vaginal fluids, and breast milk. The main modes of infection are through unprotected sex, intravenous drug use, and child birth. In1987, Burroughs Wellcome (now part of GlaxoSmithKline) developed AZT, the first FDA-approvedantiretroviral, that is, a drug that attacks the HIV virus itself. When wellcome priced AZT at $10,000 for ayear’s supply, it was accused of price gouging, forcing a price reducing of 20 percent the following year. In1991, Bristol- Myers Squibb developed didanosine, a new class of antiretroviral drug called nucleosidereverse transcriptase inhibitors. In 1995, Roche developed saquinavir, a third new class of antiretroviraldrug called a protease inhibitor, and the following year Roxane Laboratories announced nevirapine,another new class of antiretrovirals called nonnucleoside reverse transcriptase inhibitors . By the middle1990s, drug companies had developed four distinct classes of antiretrovirals, as several drugs thatattacked the opportunistic diseases that afflict AIDS patients. In 1996, Dr. David Ho was honored for his discovery that by taking a combination- a “cocktail”- ofthree of than four classes of antiretroviral drags, it is possible to kill off virtually all of than HIV virus in apatient’s body, allowing the immune system to recover, and thereby effectively bringing the disease intoremission. Costing upwards of $20,000 a year (the medicines had to be taken for the rest of the patient’slife), the new drug treatment enabled AIDS patients to once again live normal, healthy lives. By 1998, thelarge drug companies would have developed 12 different antiretroviral drugs that could be used in variouscombination to from the “cocktails” that could bring the disease into remission. The combination drugregimes, however, were complicated and had to be exactly adhered to. Several dozen pills had to be takenat various specific times during the day and night, every day, or the treatment would fail to work and thepatient’s HIV virus could be come resistant to the drugs. If the patient then spread the disease to others,it would give rise to drug – resistant version of the disease. To ensure patients were carefully following theregimes, doctors or nurses carefully monitored their patients and made sure patients took the drugs onschedule. In 1998, as more U.S AIDS patients began the new combination drug treatment, the number ofannual AIDS deaths dropped for the fist time in the United states. Globally, however, the situation was not improving. By 2000, according to the United Nations,there were approximately 5 million people who were being newly infected with AIDS each year, bringingthe worldwide total to about 34,300,000, more than the entire population of Australia. Approximately3,000,000 adults and children died of AIDS each year. The price of the new combination antiretroviral treatment limited the use of these drugs to theUnited States and other wealthy nation. Personal incomes in sub – Saharan Africa were too low to affordwhat the combination treatments cost at the point. Yet the countries of sub – Saharan Africa wereemerging as the ones most desperately in need of the new treatment. Of the 5 million annual new casesof ADIS, 4 million -70 percent – were located in sub- Saharan countries. Numerous global health and human rights groups – such as Oxfam – urged the large drugcompanies to lower the prices of their drugs to levels that patients in poor developing nations could afford.By 2001, a combination regime of three antiretroviral AIDS drugs still cost about $10,000 a year.Although the formulas for making the antiretroviral drugs were often easy to obtain, few poor countrieshad the ability to manufacture the drugs, and in most nations that had the capacity to manufacture drugs
  9. 9. the large drug companies of the developed world had obtained “patents” that gave them the exclusiveright to manufacture those drugs in effect making the drug formulas the private property of the large drugcompanies. GlaxoSmithKline, Bristol – Myers Squibb, and the other big drug companies did not at this timewant to lower their prices. First, they argued that it was better for poor countries to spend their limitedresources on educational programs that might prevent new cases of AIDS than on expensive drugs thatwould merely extend life for the small number of patients that might receive the drugs. Second, theyargued that the combination drug “cocktails” had to be administered by hospitals, clinics, doctors, ornurses who could monitor patients to make sure they were taking the drugs according to the prescribedregimes and to ensure that drug- resistant versions of the virus did not develop. But most AIDS patientsin developing nations such as those in sub-Saharan Africa, the big drug companies argued, had limitedaccess to medical personnel. Third, they argued, the development of new drugs was extremely expensive.The cost of the research, development, and testing required to bring a new drug to market, they claimed,was between $100 million. Besides the research involved, new drugs had to be tested in three phases:Phase I trials to test for initial safety: Phase II trials to test to make sure the drugs work: and Phase IIItrials that were wide-scale tests on hundreds of people to determine safety, efficacy, and dosage. If thebig drug companies were to recover what they had invested in developing the drugs they marketed, andwere to retain the capacity to fund new drug development in the future, they argued, they had to maintaintheir high prices. If they started giving away their drugs, they would stop making new drugs. Finally, thedrug companies of the developed nations feared that any drugs they discounted or gave away in thedeveloping world would be smuggled back and sold in the United States and other developed nations. Critics of the drug companies were not convinced by these arguments. Doctors Without Borders-a group of thousands of doctors who contributed their services to poor patients in developing nationsaround the world- said that although prevention programs were important, never- the less hundreds ofthousands of lives-even millions-could be saved if drug companies lowered their antiretroviral andopportunistic disease drug prices to levels poor nations could afford. Moreover, a September 2003 reportby the International AIDS Society stated that studies in Brazil, Haiti, Thailand, and South Africa showedthat patients in remote rural areas adhered exactly to their drug regimes with the help of low-skilledparamedics and that the development of resistance was not a major problem. In fact, in the United States50 percent of AIDS patients had developed drug resistance but only 6.6 percent of AIDS patients studiedin developing nations had developed resistance. By now, some of the antiretroviral combinationtreatments were being combined into blister packs that were easier to administer and monitor. Other critics challenged the financial arguments of the drug companies. The cost estimates ofnew drug development used by the drug companies, they claimed, were inflated. For example, the figureof $500 million that drug companies often cited as the cost of developing a new drug was based on astudy that inflated its cost estimates by doubling the actual out-of-pocket costs companies invested in adrug to account for so-called “opportunity” costs (what the money would have earned if it had beeninvested in some other way). Moreover, these cost estimates assumed that the drug was being developedfrom scratch, when in fact most of the new drugs marketed by companies were based on research forother drugs already on the market or on research conducted by universities, government, and otherpublicly funded laboratories. Critics also questioned whether companies would be driven to stop investingin new drugs if they lowered the pries of their AIDS drugs. Since 1988 the average return on equity ofdrug companies averaged an unusually high 30 percent a year. Public Citizen, in a report entitled “2002Drug Industry Profits,” noted that the ten biggest drug companies had total profits in 2002 of $35.9billion, equal to more than half of the $69.6 billion in profits netted by all other companies in the Fortune
  10. 10. 500 list of companies (the 500 largest U.S. companies). The ten big drug companies made 17 cents forevery dollar of revenue, while the median earnings for other Fortune 500 companies was 3.1 cents perdollar of revenue; the return on assets of the big companies was 14.1 percent while the median for othercompanies was 2.3 percent. During the 1990s, the big drug companies in the Fortune 500 had a return onrevenues that was 4 times the median of all other industries, and in 2002 it was at almost 6 times themedian. Finally, the report noted, while the big drug companies spent only 14 percent of their revenues ondrug research, they plowed 17 percent of their revenues into profit and 31 percent into marketing andadministration. GlxoSmithKline itself had a 2003 profit margin of 21 percent, a return on equity of 122percent, and a return on assets of 26 percent; Bristol-Myers Squibb had a profit margin of 19 percent,return on equity of 36 percent, and return on assets of 14 percent. These figures, critics argued, showedthat it was well within the capacity of the big drug companies to lower prices for AIDS drug to thedeveloping nations, even if a small portion of these drug ended up being smuggled back into the UnitedStates. GlaxoSmithkline, Bristol-Myers Squibb, and the other big drug companies, however, held theirground. Throughout the 1990s, they had lobbied hard to ensure that governments around the world in themedicines they had created. Before 1997, countries had different protection on so-called “intellectualproperty” (intellectual property consists of intangible property such as drug formulas, designs, plans,software, new inventions, etc.) some countries, like the United States, gave drug companies the exclusiveright to keep anyone else from making their newly invented drug for a period of 15-20 year (this right wascalled a “patent”); other countries allowed companies fever year of protection for their patents, and manydeveloping countries (where little research was done and where few things intellectual property assomething that belonged to everyone and so something that should not be patented. Some countries, likeIndia, offered patents that protected the process by which a drug was made but allowed others to makethe same drug formula if they could figure out another process by which to make it. Arguing that research and development would stop if new invention such as drug were notprotected by strong laws enforcing their patents, GlxoSmithKline, Bristol- Meyers Squibb, and the othermajor drug companies intensely lobbied the World Trade Organization (WTO) to require all WTO membersto provide uniform patent protections on all intellectual property. Pressured by the governments of thelarge drug companies (especially the United States), the WTO in 1997 adopted an agreement known asTRIPS, shorthand for Trade-Related aspects of Intellectual Property rights. Under the TRIPS agreement, allcountries that were members of the WTO were required to give patent holders (such as drug companies)exclusive right to make and market their inventions for a period of 20 yea in their countries. Developingcountries like India, Brazil, Thailand, Singapore, China, and the sub – Saharan nation-were give until 2006before they had to implement the TRIPS agreement. Also, I a “national emergency” WTO developingcountries could use “compulsory licensing” to force a company that owned a patent on a drug to licenseanother company in the same developing country to make a copy of that drug. And in a nationalemergency WTO developing countries could also import drug from foreign companies even if the patentholder had not licensed those foreign companies to make the drug. The new TRIPS agreement was avictory for companies in developed nation, which held patents for most of the world’s new inventions,while it restricted developing nation whose own laws had earlier allowed them to copy these inventionsfreely. The big drug companies were not willing in 2000 to surrender their hard-won 1997 victory at theWTO.
  11. 11. Because the AIDS crisis was now a major global problem, the United Nation in 2000 launched the“Accelerated Access Program,” a program under which drug companies were encouraged to offer poorcountries price discounts on their AIDS drug. GlaxoSmithKline and then Bristol-Myers Squibb joined theprogram, but the price discounts they were willing to make were insufficient to make their drug affordableto sub-Saharan nations, and only a few people in few countries received AIDS drug under the program. Everything changed in February 2001 when Cipla, an Indian drug company, made a surpriseannouncement: It had copied three of the patented drug of three major pharmaceutical companies(Bristol-Myers Squibb, GlxoSmithKline, and Boehringer Ingelheim) and put them together into acombination antiretroviral course of therapy. Cipla said it would manufacture and sell a year’s supply of itscopy of this antiretroviral “cocktail” for $350 to Doctors Without Borders. This was about 3 percent of theprice the big drug companies who held the patents on the drugs were charging for the same drugs. GlxosmithKline and Bristol-Myers Squibb objected that Cipla was stealing their property since itwas copying the drug that they had spent million to create and on which they still held the patent. Ciplaresponded that its activities were legal since the TRIPS agreement did not take effect in India until 2006,and Indian patent low allowed it to make the drugs so long as it used a new “process.” Moreover, Ciplaclaimed, since AIDS was a national emergency in many developing countries, particularly the sub-Saharannations, the TRIPS agreement allowed sub-Saharan nation to import Cipla ‘s AIDS drugs. In August 2001,Ranbaxy, another Indian drug company, announced that it, too, would start selling a copy of the sameantiretroviral combination drug Cipla was selling but would price it at $295 for a year’s supply. In April2002, Aurobindo, also an Indian company, announced it would sell a combination drug for $209. Hetero,likewise an Indian company, announced in March 2003 that it would sell a combination drug at $201. By2004, the Indian company were producing versions of the four main drug combination recommended bythe World Health Organization for the treatment of AIDS. All four combination contained copies of one ortwo of GlaxoSmithKline’s patented antiretroviral drugs and two of the combination contained copies ofBristol-Meyer Squibb’s patented drugs. The CEO of GlaxoSmithKline branded the Indian companies as “pirates” and asserted that whatthey were doing was theft even if they broke no laws. Pressured by the discounted prices of the Indiancompanies and by world opinion, however, GlaxoSmithKline and Bristol-Myers Squibb now decided tofurther discount the AIDS drugs they owned. They did not, however, lower their prices down to the levelsof the Indian companies; their lowest discounted prices in 2001 yielded a price of $931 for 1-year supplyof the combination of AIDS drugs Cipla was selling for $350. In 2002 and 2003, new discounts brought thecombination down to $727, still too high for most sub-Saharan AIDS victims and their government. With little to impede its progress, the AIDS epidemic continued in 2994. Swaziland announcedin 2003 that 38.6 percent of its adult population was now infected with AIDS. THE United Nation estimatedthat every day 14,000 people were newly infected with AIDS. The World Health Organization announcedthat only 300,000 people in developing countries were receiving antiretroviral drugs, and of the 4.1 millionpeople who were infected in sub-Saharan Africa only about 50,000 had access to the drugs. The WorldHealth Organization announced in 2003 that it would try to collect from governments the funds needed tobring antiretroviral to at least 3 million people by the end of 2005.
  12. 12. Questions:- 1. Explain, in light of their theories, what Locke, Smith, Ricardo, and Marx would probably say about the events in this case. 2. Explain which view of property-Locke’s or Marx’s- lies behind the positions of the drug companies GlaxoSmithKline and Bristol-Myers Squibb and of the Indian companies such as Cipla. Which of the two group-GlaxoSmithKline and Bristol-Myers Squibb on the one hand, and the Indian companies on the other –do you think holds the correct view of property in this case? Explain your answer. 3. Evaluate the position of Cipla and of GlaxoSmithKline in terms of utilitarianism, right, justice, and caring. Which of these two positions do you think is correct from an ethical point of view?

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