This document discusses ethical issues with the pricing of drugs by US pharmaceutical companies. It provides examples of Valeant Pharmaceuticals and Turing Pharmaceuticals dramatically increasing prices of older drugs. While legal, these actions seem unethical given lack of investment in research. Congress is investigating if drugmakers are price gouging. There is debate around government regulation of drug prices to balance innovation and accessibility.

1. Ethical Issues With US Pharmaceutical
Companies’ Pricing of Drugs
Prepared By:
Navya Sree Arra
Abhinay Reddy Gudimetla
Alicia Pajda
For:
Dr. Spurlock
EMGT 5111
On:
December 9, 2015

2. Ethics is defined as the “study of moral issues and choices. It is concerned with right
versus wrong, good versus bad, and the many shades of gray in supposedly black-and-white
issues” (Kreitner and Kinicki). We are faced with decisions every day that have ethical
implications. In the corporate world, though, these decisions can be harmful to a company or
many others if they are not well thought out. This is expressed in the idea of corporate social
responsibility.
Corporate social responsibility (CSR) is “the notion that corporations have an obligation
to constituent groups in society other than stockholders and beyond that prescribed by law or
union contract” (Kreitner and Kinicki). CSR challenges companies to think about more than just
making a profit and to really consider the consequences of their actions. This can be observed in
Archie B. Carrol’s global CSR pyramid.
The pyramid implies that all organizations should first focus on making a profit
consistent with expectations for international businesses. If they do not make profiting a priority,
there may be no organization left to take the next step in the pyramid. The next priority for

3. companies should be to obey the law of host countries as well as international law. Again, it is
important to fulfil legal responsibility to keep any business alive. Now, corporations also need to
make sure they are being ethical in their practices, taking host-country and global standards into
consideration. Morals and ethics can vary from place to place, so it is important to know ethical
standards of all places you may do business with. Finally, all organizations in the global
economy should be a good corporate citizen, especially as defined by the host country’s
expectations. Each level of the pyramid needs to be solid to keep standing, so it is vital to start at
the bottom and work your way up (Kreitner and Kinicki).
One example of an ethical issue in the corporate world can be seen in US pharmaceutical
companies’ pricing of drugs. Valeant Pharmaceuticals International, Inc. is a multinational
specialty pharmaceutical company based in Laval, Quebec, Canada. Valeant sells a wide range
of drugs including over-the-counter medications and medical devices, as well as prescription
drugs. This company came under attack from Democratic lawmakers in late September 2015
over massive price increases. Valeant had tripled the price of Isuprel and raised the price for
another heart drug, Nitropress, nearly six-fold after buying them in February (Pierson and
Berkrot). People were upset with the price hikes, but raising drug prices is technically not illegal
in the US.
Valeant received a subpoena from the US Attorney’s Office in Massachusetts and another
from the Manhattan US Attorney’s Office seeking more information on drug distribution, pricing
decisions, and its patient assistance programs. The drugmaker defended themselves saying they
had hired a consultant, and the consultant said there was considerable room for price increases on
both of these drugs. CEO Michael Pearson also says that Valeant has made large investments in
manufacturing in the United States. Pearson has turned this company into one of the largest

4. pharmaceutical companies in the world by acquiring many smaller companies and cutting
research spending for these companies (Cordeiro).
Another pharmaceutical company currently undergoing scrutiny is Turing
Pharmaceuticals. In August 2013, Turing bought the rights to the drug Daraprim from Impax
Laboratories, Inc. This drug is the standard drug used to treat a parasitic infection,
toxoplasmosis, which can be life threatening for people with compromised immune systems,
such as AIDS and cancer patients (Vaughan). After acquiring the rights to Daraprim, founder and
CEO, Martin Shkreli, raised the price of the drug from $13.50 a tablet to an insanely high $750 a
tablet, almost a 5000% price increase. The same medicine is sold in Britain by GlaxoSmithKline
for 43 pence (66 cents) a pill (Pierson and Berkrot).
Infectious disease specialists immediately protested this ridiculous overnight price
increase. Doctors worried that the drug would be too expensive and hospitals would be forced to
use other, less effective alternatives to treat toxoplasmosis. After much criticism and media
exposure, Shkreli agreed to lower the price of the tablet, but has not stated the new price or when
the change would take effect. It still has not been lowered to this date.
The New York attorney general has recently begun an inquiry into Turing
Pharmaceuticals, not based on the price increase, but actually looking into whether Turing has
violated antitrust rules. People are speculating that Turing may have violated these antitrust rules
by trying to restrict competition by taking Daraprim off the regular distribution channels. This
would mean that it would be much harder for companies who make generic versions of drugs to
acquire a sample to be able to make a new generic version of the drug (Vaughan). This is a
completely different situation in itself, but also highly unethical as it would make it even harder
for everyone to acquire the drug.

5. There are many more cases similar to Valeant and Turing that have been smaller price
spikes or just drawn out over longer periods of time and seem less dramatic. Still, the rising cost
of drugs is becoming a major issue. A Mayo clinic study found that from 2000 to 2012, the
average annual cost of cancer drugs increased from around $10,000 to over $100,000. Several
breakthrough specialty medications and orphan drugs recently approved by the Food and Drug
Administration (FDA) have entered the pharmaceutical market with hefty price tags. “Consider
Biogen Idec’s multiple sclerosis drug, Tecfidera, which costs $54,900 per patient per year;
hepatitis C cures from Gilead Sciences, with a sticker price of $84,000 per patient; and
Orkambi, a cystic fibrosis drug from Vertex Pharmaceuticals approved this month, priced at a
whopping $259,000 per year” (Islam). Prices are even rising drastically in generic drugs from
year to year.
The increase in drug prices on average is estimated to have been 12.6% in 2014 alone
(Islam). This is far higher than just inflation levels that hovered between zero to two percent
in the past three years. It is also much higher than the growth in any other medical costs. It
appears to be that these drug manufacturers are just taking advantage of the American
healthcare system, milking insurance providers for all they’re worth. A poll last month found
that 73% of Americans believe that the cost of drugs is unreasonably high, and most blamed
the drugmakers for setting these prices (Islam).
From the information revealed so far in both the Valeant and Turing cases, the purchases
and price increases all seem to be legal. So Valeant and Turing are fulfilling the bottom two
blocks of the corporate social responsibility pyramid, but are failing at the next block. Ethics is a
matter of opinion since there are no written rules, but this does not seem ethical. There is an
unwritten social contract where you can have a degree of pricing power, but only if you engage

6. in substantial funding of research as a percentage of your sales. At least with Valeant, that does
not seem to be the case since they are cutting funding for research. Questions arise as to where
the money is going and why the steep price increases were necessary in the first place.
One problem is these are not new drugs; Daraprim has even been available for 62 years.
In some cases, when there is a shortage of a particular drug, price increases will result. However,
in other cases, the increase in price is due to a strategy of companies which buy the rights to
older drugs and turn them into a “specialty” drug. Drugmakers' patient assistant programs, a
main aspect of the recent subpoenas, help patients cover co-pays for their medicines, but can
sometimes be deemed improper inducement to drive up sales. There does not appear to be a good
reason yet for the dramatic price increases in these drugs from Valeant and Turing, which is
causing many problems.
Shares of many pharmaceutical companies have fallen quite a bit since these scandals and
since Democratic presidential hopeful Hillary Clinton proposed ways to prevent industry
profiteering. The recent skyrocketing of these drug prices has become a big enough issue to be
acknowledged by new presidential candidates, hopefully solving some of these problems.
Dramatic price increases for several medicines are also scheduled to be the subject of a
congressional hearing in the coming week. The increases have prompted investigations by
congressional committees, and House Democrats have established a task force to look into this
unethical drug pricing. On Wednesday, the Senate Special Committee on Aging is scheduled to
hold a hearing further exploring the matter (Rockoff).
“’There’s a line at which these huge price increases for prescription drugs go from
rewarding innovation to price gouging and this hearing will set the stage for an examination of
whether that line is being crossed. We’ll hear from experts about why these huge price spikes are

7. occurring and what this looks like for patients and providers on the front lines,’ said Sen. Claire
McCaskill (D., Mo.), the Aging committee’s ranking member” (Rockoff). Thankfully, there are
maybe people who agree that this “price-gouging” seems unethical and needs to be stopped.
Analysts believe that a financial settlement within two to three years is the likely outcome of all
of this debate. The companies will probably settle with paying a fine, but probably will not admit
guilt.
Going forward, it may seem like market intervention is the cure, that government should
have control over drug prices. Pharmaceutical firms in America currently enjoy not being
governed by laws about drug pricing, which is not how it is in most of the world. Medicare is
actually barred from negotiating prices with manufacturers and the FDA does nothing with the
cost when approving medicine. Meanwhile, government agencies in Canada, Australia, and
European countries can negotiate drug prices after evaluating therapeutic benefits. If the United
States did implement laws to control drug pricing, though, it could hurt the “research-and-
reward” economy that currently exists; it could negatively impact future innovations in medicine
(Islam).
It all seems to be one giant gray area. Maybe in the eyes of the CEOs and higher up
people at these companies, they do not realize that what they are doing just to make a profit is
unethical and should not happen. Maybe there is more good being done with the money beneath
the surface that not everyone can see yet. Maybe government should be involved in drug pricing
somehow and maybe they shouldn’t. Maybe some people do not care about price increases
because the insurance companies are the ones usually paying the premiums, while patients
usually just pay a small co-pay. Maybe there should be new laws implemented to limit the price
increases, but still give enough room to raise the price just enough to help with research. It is

8. hard to draw the line and will probably be a subject of debate for years to come. All we can do is
hope that the decisions fall into the hands of people with strong ethics and morals intact.

9. References
Cordeiro, Anjali. Valeant Slumps as U.S. Prosecutors Issue Subpoenas on Prices. 14 October
2015. 2 November 2015.
Link: http://www.bloomberg.com/news/articles/2015-10-15/valeant-receives-subpoenas-from-u-
s-prosecutors-on-drug-pricing
Islam, Ifrad. Rising Cost Of Drugs: Where Do We Go From Here? 31 August 2015. 2 November
2015.
Link: http://healthaffairs.org/blog/2015/08/31/rising-cost-of-drugs-where-do-we-go-from-here/
Kreitner, Robert and Angelo Kinicki. Organizational Behavior. New York: McGraw-Hill/Irwin,
2013.
Pierson, Ransdell and Bill Berkrot. Valeant subpoenaed by U.S. prosecutors; shares drop. 15
October 2015. 2 November 2015.
Link:http://www.reuters.com/article/us-valeant-pharms-subpoena-dUSKCN0S90XO20151015
Rockoff, Jonathon. Rising Drug Costs to Be in Focus at Congressional Hearing. 5 December
2015. 6 December 2015.
Link: http://www.wsj.com/articles/rising-drug-costs-to-be-in-focus-at-congressional-
hearing-1449311407
Vaughan, Joann. Ethical Discussions: The ethics of drug pricing. 13 October 2015. 2 Novemeber
2015.
Link: http://blog.spcollege.edu/general-education/ethical-discussions-the-ethics-of-drug-
pricing-spcethics/