Article published in the Philadelphia Business Journal on October 22, 2023.
John Riccitiello, chairman and CEO of Unity Technologies, was forced to leave the company on Oct. 10 due to the angry backlash from game developers after he proposed unreasonable additional fees for utilizing the company’s software for 3D video games.
It’s one thing to price gouge on software for 3D video games. It’s quite another, however, when a pharmaceutical or medical device is critical to one’s health, and price increases put it out of reach of many whose lives depend on them. Insufficient progress has been made within the pharma industry since the egregious pricing practices described below.
In February 2016, I wrote a Philadelphia Business Journal column about Martin Shkreli, the former CEO of Turing Pharmaceuticals, who arrogantly implemented a significant Daraprim price increase.
Turing acquired the rights to Daraprim, a drug used to treat a disease called toxoplasmosis, a disease that weakens the immune system of people who have cancer or are HIV positive. Shkreli increased the price of Daraprim from $13.50 to $750 per pill, pushing this drug out of the financial reach of many patients.
At a Forbes Healthcare Summit, Shkreli stated, “I probably would have raised prices higher… I could have raised it higher and made more profits for our shareholders, which is my primary duty.”
Shkreli added, “This is a capitalist society, capitalist system and capitalist rules, and my investors expect me to maximize profits, not to minimize them… but to go to 100 percent of the profit curve that we’re all taught in MBA class.” Wow! Is that what was taught in Shkreli’s MBA class?
It should be understood that the price of pharmaceuticals must not only cover a new drug’s research and development, animal and human trials and safety testing costs, but also the costs for drugs that never make it to market. Without the ability to recover the cost of drug development, many lifesaving drugs would never be introduced.
Daraprim, however, is not a new drug. It’s an existing drug that Turing Pharmaceuticals acquired from another company, so its research and development costs incurred many decades ago have long since passed.
Another pharmaceutical company that drove pricing without regard to any social responsibility was Valeant, led by CEO Michael Pearson. Pearson originally came from consulting firm McKinsey. Pearson’s strategy was to acquire small pharma companies and pay for those acquisitions by raising the price of drugs sold by those companies.
A March 2016 article in New Yorker Magazine is headlined, “The roll-up racket.” The article states, “though Martin Shkreli may be the public face of drug-price gouging, Valeant was the real pioneer. A 2015 analysis looked at drugs whose price had risen between three hundred per cent and twelve hundred per cent in the previous two years. Of the nineteen whose prices had risen fastest, half belonged to Valeant.”
Quoting from a June 2016 article in Vanity Fair, “Valeant was the pure expression of the view that companies are there to make money for shareholders, every other consideration be damned. It raises fundamental questions about the functioning of our health-care system, the nature of modern markets, and the slippery slope of ethical rationalizations. ‘It’s the dark side of capitalism,’ says one prominent investor.”
In August, 2016, I wrote a column about Heather Bresch, the CEO of Mylan Pharmaceuticals, who continually increased the price of its auto-injector EpiPen, a device that an individual can use to self-inject an emergency dose of epinephrine in the event of an allergic reaction to various foods or insect bites. The price of a package of two EpiPen auto-injectors rose to $609, a 550 percent increase over the past decade.
In defense of the EpiPen price increases, Bresch stated, “I am running a business. I am a for-profit business. I am not hiding from that.” Her statement could not have been more arrogant and insensitive to individuals who someday will need to use EpiPen to immediately counter a life-threatening allergic reaction.
In response to the blistering criticism of the EpiPen price increases, Mylan offered 50 percent savings cards to reduce EpiPen’s cost to consumers. Bresch commented, “We recognize the significant burden on consumers from continued, rising insurance premiums and being forced to pay the full list price for medicines at the pharmacy counter.”
All pharma CEOs need to understand that they have a responsibility beyond that to their shareholders. Maximizing profits for shareholders beyond what is needed to earn a return on R&D investment—at the expense of people who cannot afford their pharmaceuticals—is unethical. Business ethics should be taught not only in MBA school, but in all undergraduate and graduate programs.
Stan Silverman is founder of Silverman Leadership and author of “Be Different! The Key to Business and Career Success.” He is also a speaker, advisor and widely read nationally syndicated columnist on leadership. He can be reached at firstname.lastname@example.org.