Answer to Question #195842 in Management for kavita

Question

When loved ones are critically ill, what are families willing to pay to keep them on a path to improved health? In 2015, Turing Pharmaceuticals found itself in the middle of a controversial issue when it purchased an existing drug—Daraprim—from another pharmaceutical company. Daraprim has been around for 62 years and is used to treat life-threatening parasitic infections in AIDS and cancer patients. After acquiring Daraprim, Turing Pharmaceuticals CEO Martin Shkreli quickly raised its price from the previous $13.50 per pill to a whopping $750 per pill. According to CNN Money, CEO Shkreli stated, “We needed to turn a profit on this drug.” He added the company would use the profits to research better ways to treat diseases.

1) Is it wrong for Turing Pharmaceuticals to charge such a high price for this medication? Support your position.

2) What factors affect profitability in the pharmaceutical industry? Are these high profit levels a good or bad thing? Explain.

Answer 1

1)     Turing Pharmaceuticals is inappropriate to demand such a high price for the drug. Raising the price would be counterproductive, given that some patients are on Daraprim for the rest of their lives. Daraprim is prescribed by doctors and hospitals all over the world to treat parasitic infections including toxoplasmosis and malaria, as well as persons with weakened immune systems like AIDS patients, cancer patients, and the elderly. Besides, critics both inside and outside the medical profession alleged that the drug's steep price increase was driven only by avarice.

2)     Pharmaceutical corporations spend billions of dollars on research and development in the hopes of finding cures or better treatments for a variety of diseases. They intend to repay their capital and make a profit in the process. Pharmaceuticals are used more than ever in modern health care as a maintenance therapy and a surgical option. Research and development, government regulation, consumer demand, insurers, and managed care all have an impact on the pharmaceutical industry's profitability. High profit margins are beneficial to businesses. Pharmaceutical companies are just like any other business. As a result, in order to thrive in an increasingly competitive market, they must grow their sales and earnings. This entails locating an increasing number of patients to treat. Moreover, the largest pharmaceutical enterprises are publicly traded enterprises. Managers are under pressure to boost sales and earnings in order to boost the value of the company's stock.