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Price Gouging in the Pharmaceutical Market

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http://money.cnn.com/2015/09/22/investing/aids-drug-martin-shkreli-750-cancer-drug/

Not all high school drop outs become successful CEO’s and establish their own pharmaceutical company’s. 32-year-old Martin Shkreli is one of the few that was able to do this exact thing and coin the title of being ‘the most hated man in America’ while doing it.

Shkreli hiked up the price of Daraprim – a drug that is most commonly used to treat AIDS and cancer – from $13.50 a pill to $750 a pill overnight. Public outrage erupted and Shkreli has been the center of attention around this price gouging controversy. Politicians, such as former Secretary of State Hillary Clinton, have called him out on social media to convince him to lower the lower the price of the drug again.

There are a few facts about Shkreli that make this case alarming:
1. He uses social media (Twitter and video chat websites) as his PR. He makes promises to make the drug more affordable, but then never follows through. His immaturity and lack of college education has shown. His response to people’s outrage was a tweet that linked Eminem’s rap song, “The Way I am” and flipped a virtual middle finger at everyone.

2. Not to say that there is anything wrong with not following the traditional education path, but in Shkreli’s case, it’s vital that he have a college diploma from a legitimate business school if he’s going to be CEO of a company that has crucial impacts on the average citizen. Not only is he lacking business school knowledge, but he has no chemistry background, yet he owns a pharmaceutical company. He only has experience on Wall Street working for and learning about hedge funds.

3. He lacks of evidence supporting his decision to increase the price of Daraprim by 5,000%.

“My investors expect me to maximize profits,” he said in an interview with Vanity Fair.

Well, I guess when you make a 3 month supply of Daraprim cost $67,500, you are maximizing profit! But for what public good? What person can afford that? Economically, his decision makes no sense. Daraprim is an inelastic good. This means that regardless of price, it is necessary for consumers to buy the drug regardless of price because they cannot live without it and there are no substitutes. What makes pharmaceuticals successful is there are patents on certain drugs that prevent other companies to make that drug (a monopolistic trait). This allows companies to charge high prices for medicine, but not $750 a pill. Shkreli’s case is an extreme and in my opinion, unfair.

“I’m like Robin Hood,” he continues. “I’m taking Walmart’s money and doing research for diseases no one cares about.”

Shkreli is currently under investigation for security fraud from another company that he used to own. When asked questions about the price gouging case of Daraprim in court, he stone-walled every question and plead his 5th amendment rights.

Health is a basic human right. Why should it cost almost $300,000 to afford a drug that keeps you alive? Do you think that Shkreli is exercising ethical principles in the business world? Given his dirty track record, do you think he has integrity?

They say ethical performance is linked financial performance. But if you follow the steps of Shkreli, you might land yourself in the middle of a messy national debate and end up in a court hearing. Perhaps if he had gotten a college education, he would have benefited from a class on global corporate citizenship.

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