Have We Found a Modern Day Robin Hood in the Pharmaceutical Drug Industry?

By: Owen Jarem

With many advancements in technology, and with research and development, there has been an increase in the availability of treatment for terminal illnesses, such as cancer and AIDS. These treatments rely heavily on the availability and cost of the pharmaceutical drugs that bolster recovery from various illnesses. With such a high demand for pharmaceutical drugs needed for proper treatment of illnesses, companies have the capability to take advantage of an inelastic supply/demand model.

Martin Shkreli is an ex-hedge fund manager turned CEO of Turing Pharmaceuticals, a prescription drug manufacturer, and he has caused major uproar in the last month after recently raising the price of the AIDS drug Daraprim from $13.50 to $750 per pill. Shkreli justifies this 5,000% markup of Daraprim by saying “We paid a very, very large amount to buy an unprofitable medicine. We can’t continue to make, to lose money on the drug at that price so we took it to a price where we can make a comfortable profit but not any kind of ridiculous profit.” (Golgowski). Also, Shkreli feels that this markup is needed for R&D in order to improve upon the drug, which was developed in 1953, by creating a drug that will be safer and more efficient. Due to the controversy Shkrel caused, he “…agreed to lower the price on Daraprim to a point that is more affordable and is able to allow the company to make a profit, but a very small profit.” (Golgowski). The price reduction has not been made official yet. The cost to produce one pill of Daraprim is $1.

Since the patent on the original drug is now expired, competitors have the capability to produce similar alternatives to Daraprim using the same technologies and procedures to produce a reliable source of AIDS treatment. San Diego based Imprimis Pharmaceuticals has announced that they plan on creating a similar drug to Daraprim and offer it at a cost of less than $1 per pill (Bomely). The pharmaceutical industry and investors praised the announcement by driving Imprimis’ shares up 17.4% to $7.01( Bomely). Imprimis CEO Mark Baum commented on this announcement, saying “…we respect Turing’s right to charge patients and insurance companies whatever it believes is appropriate, there may be more cost-effective compounded options for medications, such as Daraprim…”(Bomely). Spokespeople for Turing have declined to directly address this announcement, but have mentioned that their focus has always been on making Daraprim available and affordable to all of those in need, and that they are investing in research for many other diseases that need better drugs.

Imprimis Pharmaceuticals has potentially created a pricing war with their introduction of AIDS treatment prescription drugs. Marketing managers are giving the task of setting a price that is related to consumers’ perceived value of a product. Value is defined as the benefits a customer receives compared to the costs he or she incurs. The price that a marketing manager decides to set on a product is a key determinant of the perceived value of the product. In the case of Turing Pharmaceuticals, they are running a risk of lowering the value of their product by having such a high markup in cost for Daraprim. Consumers and investors are having a difficult time justifying the price set for Daraprim, doubled with consumers knowing how cheap it is to produce the drug and skepticism that Turing is trying to generate excess profits for themselves. By Imprimis setting a much more reasonable price for their alternative to Daraprim, they are adding value to their generic drug offering. Everyday low pricing is the pricing tactic being used by Imprimis, as they are attempting to make a drug widely available to more consumers compared to Turing, thus increasing their product’s value. Turing will continue to argue this saying funds are needed for R&D towards treatment for other diseases. If the value of an alternative drug offered by Imprimis is increasing through low costs, Turing will need to lower costs and begin a pricing battle.

Sources:

Bomey, N. (2015, October 24). Drug company attempts $1 alternative to Daraprim. Retrieved October 25, 2015: http://www.usatoday.com/story/money/2015/10/23/imprimis-pharmaceuticals-turing-pharmaceuticals-daraprim/74452030/

Golgowski, N. (2015, September 22). Company accused of ‘price gouging’ to drop $750 drug cost. Retrieved October 26, 2015: http://www.nydailynews.com/news/national/company-accused-price-gouging-drop-750-drug-cost-article-1.2370607

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11 thoughts on “Have We Found a Modern Day Robin Hood in the Pharmaceutical Drug Industry?

  1. Melissa Santos November 9, 2015 / 9:03 pm

    I remember first seeing this story on CNN. A 5,000% mark up in price is absolutely ridiculous. I think Turing Pharmaceuticals is asking for a price war with this terrible business move. I understand they may (questionably) need more money for the research and development of this pill. If that is actually the case, why not have a more modest mark up? Additionally, this enables the general public, and also their potential consumers to question the Turing brand, and potentially distrust them as a company. It seems that profitability to them is far greater than the health of their consumers. I believe Turing lost brand value with this decision, and in the end, this will only hurt them more. I know businesses are out there to make money, but this kind of mark up is just excessive. They took a pill that was once financially obtainable and turned it into an item a majority of people cannot afford. They cut out a lot of potential consumers with this move. I believe not many people are going to pay the price they’re setting this for this medication. Most individuals are more likely to revert over to a generic brand that is cheaper and also hopefully able to treat them just as well, if not better. I think what we will see is an emergence of pharmaceutical companies attempting to create their own version of this pill and set it at a much lower price attracting more individuals.

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  2. Taylor Mason November 10, 2015 / 12:00 am

    I found this increase in price to be truly appalling. There is no way an individual paying $13.50 per pill of this medicine would be able to afford a 5,000% markup resulting in a cost of $750 per pill. I believe that Turing Pharmaceuticals is definitely jumping the gun with this one so to speak. It would be understandable for a small mark up to be instituted however suddenly charging $736.50 more for something that may ultimately save a person’s life is just inhumane. Obviously, the company wants to be able to retain a profit, however one of the main priorities of a pharmaceutical company should be to provide medicine to consumers at an obtainable price. For the individuals who may not have the best health insurance or have no insurance at all are being denied something that allow them to go about their lives day by day. I hope that competitors establish some other more affordable generic brand for these consumers to switch to. Even if Turing were to lower prices again, in my opinion they have lost a significant amount of their loyal consumer base that they may never be able to gain back. Health is a major concern in many peoples lives. They want to stick with a pharmaceutical brand that is reliable and trustworthy, not one that one days decides to mark up a drug 5,000%.

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  3. Mark Lindquist November 12, 2015 / 9:45 pm

    Imprimis Pharmaceuticals made a great business and humanitarian decision by challenging Turing with a generic and much cheaper version of Daraprim. Turing can justify its price increase to $750 per pill from $13.50 per pill all it wants, but there comes a time when the most basic principles of human ethics are violated and the ends cannot justify the means. Ever since Turing’s announcement of its price hike, the company has become the newest face of corporate greed. For a company that claims it wants to make a profit and invest in a safer drug, it has already ruined its public relations message, perhaps permanently. Turing could have raised the price from $13.50 per pill to $50 per pill for example, and the backlash would not have been remotely close to what has happened. Imprimis will receive a tremendous amount of business based on the fact that Turing created a desperation factor in the people that need Daraprim for daily health. Turing made a business decision based on the fact they legally could do it. To quote Dr. Ian Malcolm from Jurassic Park, “Yeah, yeah, but your scientists were so preoccupied with whether or not they could, that they didn’t stop to think if they should.”

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  4. Kedar Gandbhir November 13, 2015 / 3:20 pm

    This was a great read. Imprimis made the right move when they decided to sell a much cheaper version of Daraprim. This most likely will be a temporary sale but it will gain the trust of many consumers. It shows that there are companies/corporations that are willing to do the right thing. These takes pressure off consumers of the pill and puts it back Turing, who will now have to deal with competition from Imprimis. Turing will most likely lower his prices but I believe his reputation is already ruined.

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  5. Kimberly Martin November 14, 2015 / 7:49 pm

    I definitely think there will be a pricing war if other Pharmaceutical companies start coming out with their own generic versions of the drug seeing as the patent is expired and the cost of producing the drug is so cheap. I think it is hard to set a price on a drug in regard to the value of a customer. Drugs are something people cannot live without. The value of this drug to a customer can be lifesaving and I think it is kind of hard to put a price on that kind of value. People might not want to pay the 5,000% markup but they most likely do not have a choice because the value is infinite for them. Once a generic comes on the market at a lower price the customer will then have an option to purchase it at a lower price causing the price wars between the companies to begin. I think this is more an ethical issue more than anything.

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  6. Melissa Miller November 16, 2015 / 7:24 pm

    This article was a very interesting article to read. I remember watching this story on the news. In my opinion I think it was absolutley ridiculous for the CEO to make a 5,000% markup for this drug. The Oharmaceutical indistry I think is a very unfair industry in the way they price many of their drugs. I think this is a huge ethical problem for the world. We have the means to help out others with thse drugs but the indistry gets caught up in the greed of money which leaves people helpless. There is no way that people buying this drug at $13.50 per pill will be able to pay $750 per pill. Besides, another company will eventually come in and make a generic version at a much lower price.

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  7. Matthew E. Dulac December 2, 2015 / 8:59 pm

    When I saw this story, I found it unbelievable that someone could increase the price of something so rapidly only on the premise for research and development. Turing Pharmaceuticals made a bad move for a multitude of reasons and today, it can be seen that companies are making generic versions of the drug at little to no cost. This wouldn’t have been done if the price gouging didn’t exist. This move was strictly made out of greed and it makes the company look bad. If they were to mark the price of the product up, they could have done it in a much better manner that would not have garnered national attention by media outlets. The goal of pharmaceutical companies should be to protect the customer and to prevent diseases; it shouldn’t solely be based on profits and a 5,000% increase tells me that this was the sole reason behind the business decision.

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  8. Patrick Coskren December 3, 2015 / 12:11 am

    This was a story that I followed very closely since I first heard in on the news. When it was first brought to my attention I was in utter disbelieve a person and his company could be so greedy and without a code of ethics. Throughout my time completing my masters at Merrimack many if not every single class I was enrolled in there was a class were we discussed the ethical reasonability of a company. It is true that a main focus for a company is making money. Without bringing in profit a company cannot survive. However, in this case and many more surviving is not enough today. There are those who will extort and gouge others to make a profit. I found it extremely noble of the other company to step in and do what it did and offer the drug at a rate lower than any found imaginable. In a world full of those who seem to only be looking out for themselves, it was refreshing to hear the story break where the drug was made much more affordable.

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  9. Michelle McNall December 6, 2015 / 10:32 pm

    After hearing about Turing Pharmaceuticals’ decision to mark up the Daraprim drug by 5,000%, I was completely disgusted. In my opinion, this just shows me that there are no ethical values within the company and this starts from the CEO and filters its way down throughout others in the company. It is not even remotely an ethical decision to increase the price of the drug this dramatically. Even though the CEO tries to argue he needs the additional funds to support research and development, this is just a cover up for his underlying greed and selfishness. I think that, while Turing may think they are being smart in their ridiculous decision to mark up the price of the drug, they are actually hurting themselves as a company in the long run as there will be other pharmaceutical companies who will capitalize on this opportunity to take business away from Turing. Great article, Owen!

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  10. Melanie Barbarula December 7, 2015 / 2:02 am

    Daraprim price increase from $13.50 to $750 is over a 5,000% increase and is beyond absurd for a 62 year old drug. This is going to fuel the fight for the Affordable Care Act. There is insightful comments on this video link (http://money.cnn.com/2015/09/22/investing/daraprim-aids-drug-price/) about the cost increase and the fact that the CEO, Martin Shkreli, is doing this to keep the business afloat and will be using the excess money for drug development to update Daraprim. Also it is indicated that people who cannot afford the drug will be given it for free, not sure what to believe. I think Martin Shkreli is calling into question his credibility with his twitter rants, please see link as an example: http://fusion.net/story/201757/martin-shkreli-daraprim-twitter/
    I think this is a great exhibit of marketing value and the manner in which a price change is determined in terms of the demand for the market and the value of the product. I would love to hear not from the CEO but rather from the marketing department and their thoughts on the price increase and the reasoning and logic behind the drastic price shift.

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  11. Joe Pantalone December 10, 2015 / 4:16 am

    I recall seeing this on the news. It is obscene to have a markup so high and think it is right to sell the product. It is crazy to think that the people would have to pay $750 per pill when they we used to paying $13.50. The pharmaceutical industry is notorious for doing this and needs to not be allowed to do this.

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