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Outrageously Priced Prescription

10/10/2015

19 Comments

 
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by David Hagenbuch, Founder of Mindful Marketing
Most of us limit what we’ll pay for certain things.  For instance, we might spend up to $20 for lunch, or no more than $100 for a pair of shoes.  It’s relatively easy to cap these kinds of costs because if we don’t like one product’s price, we can shop around and find another option that better fits our budget.  Unfortunately, the same is not true for everything we buy, for instance, prescription medicine.
 
If you regularly take a prescription drug, how much more would you be willing to pay for it?  If the cost goes up by 5 percent, you barely flinch.  If it increases by 10 percent, you’re disappointed, by 25 percent, you’re disturbed, by 50 percent, you’re dejected, and by 100 percent, you’re distraught.  Still, you continue to purchase the medicine because you have no other choice.
 
But, what if the price rose by over 5,000 percent?  You may be thinking that’s impossible, not to mention outrageous.  Unfortunately, however, the scenario is all too real, thanks to the actions of a former hedge-fund manager who some are calling “the most hated man in America."

 
Martin Shkreli is CEO of Turing Pharmaceuticals, a company he founded in February 2015 that claims to be “dedicated to helping patients, who often have no effective treatment options, by developing and commercializing innovative treatments.”
 
Shkreli’s approach to “helping” has come under intense scrutiny, however, due to one specific business move.  This past August Shkreli raised the price of one of Turing’s drugs, Daraprim, from $13.50 a pill to $750 a pill, an increase of 5,455 percent.  Patients use Daraprim “to fight a common parasite that is found in more than 60 million Americans and can be deadly to pregnant women as well as both cancer and AIDS patients.”  In short, Daraprim is a very important drug for people with dire medical conditions.
 
Some pharmaceutical companies have argued that their products’ high prices reflect the considerable cost of research and development.  That rationale doesn’t work in the case of Daraprim, however, since Turing did not develop the drug; it simply bought the rights to market Daraprim from Impax Laboratories.  Turing could get away with such an excessive price increase because although the patent for Daraprim expired in 1953, no other U.S. company is currently making the generic drug pyrimethamine.

 
If R & D costs had long-been recouped by the original manufacturer, why did Turing raise the price of Daraprim so drastically?  “Shkreli initially defended the decision to hike the price of the drug, saying the profits could be reinvested into research to develop new treatments, but later reversed course.”  Similarly, in the face of the social media firestorm that followed the price increase, Shkreli vowed to lower Daraprim’s price, but more than two weeks later there’s still been no reduction.
 
So, Shkreli’s promise of using profits from Daraprim to help individuals suffering from other maladies seems like nothing more than a pretense for the extreme price increase.  Meanwhile, “a monthly course of Daraprim will now cost consumers $75,000.  And even with insurance, patients would have to lay out an enormous co-pay to keep the Toxoplasma parasite from killing them.”
 
Shkreli’s “drug abuse” certainly is a case of unconscionable behavior.  More specifically, it’s an example of consumer exploitation that’s often called price-gouging.  As this post described at the onset, in most circumstances people have the ability to search for the products/prices that best meet their needs.  Sometimes, however, this freedom is severely restricted, for example, because of a natural disaster.  In such cases consumers are often at the mercy of a single supplier who, unrestrained by competitors, has the freedom charge people whatever they are able to pay.  It’s like the car repair scene in National Lampoon’s Vacation:  Clark Griswold asks the mechanic the cost for the emergency fix in the middle of nowhere and the mechanic, with large wrench in hand, threateningly replies “How much you got?”
 
Raising the price of Daraprim by over 5,000 percent to $750/pill should produce more than abundant profit for Shkreli and Turing Pharmaceuticals, provided that insurance companies absorb much of the excessive cost and that desperate patients mortgage their lives for the remainder.  This stakeholder value, however, is largely asymmetrical, unless one puts a price tag on a life, as Shkreli has purposed to do.  Either way, the depraved pricing strategy shows callous indifference to societal values of fairness and respect.  As such, Shkreli has provided one of the clearest cases of “Single-Minded Marketing."
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19 Comments
Michelle Sherrill
10/25/2015 03:21:50 pm

Wow, this is horrible. I have heard about this issue before. I wish people would develop the idea of "people over profit" more.

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Rachel Cordill
10/25/2015 06:47:59 pm

Reading this makes me very disturbed. This man is hoarding profits for himself at the expense of innocent people's lives.That drug is what people need in order to survive from a deadly medical issue ad he is making it virtually impossible to obtain. In a sense, he is cutting their life-line. How can anyone sleep at night knowing that their greed is directly causing the death of people?

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Marcy Miranda
10/25/2015 11:54:10 pm

I cannot believe there are people in the world who will take advantage of people's illnesses to become rich. It is such a shame that they are legally allowed to do that. It makes me somewhat disappointed in the U.S. government. There is no better example of consumer exploitation than this.

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True Tamplin
10/26/2015 01:02:59 pm

I believe that it is for good reason that Shkreli has been given the title "Public Enemy #1". It baffles me that we live in a society that values rule following and political correctness over helping save lives. If the government or group of people wanted to, they could violate Shkreli's silly patent and get the drug to the people that need it. If one wanted to stay in the legal realm of doing things, a philanthropist or government could fund either a heavy background check on Shkreli or fund the rapid expansion of a business that could compete (and beat) Shkreli's business. Given that they have been able to pull this off successfully for months on end, it is creating stakeholder value and should be deemed as single-minded.

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Daniel Rasmussen
10/26/2015 01:53:14 pm

While I cant argue that Shkreli is making quite savvy business moves, what he's doing seems to be horribly unethical, and it surprises me that there are not regulations in place to combat this kind of consumer abuse. Also, I'm surprised to hear that another medicine manufacturer hasn't tried to become a player in this market. With up to a 5,000% increase in price of certain medications, it seems like there would be room for competition to move in and be viable competitors.

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Jordan Perkins
10/26/2015 01:56:28 pm

The high cost of medication and this price gouging is certainly something that consumers need to be more aware of. I am not sure what recourse can be taken against these large companies, but certainly as awareness is raised about the issue possible solutions will arise.

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Elijah Wadley
10/26/2015 02:02:07 pm

This was a difficult post to read. These high prices for pills are often times the reason that many people can not receive necessary treatments. The decision to mark up these pills going to be extremely profitable but at what cost? He is ruining lives by increasing the prices this much and that is clearly an unethical business decision and overall business plan.

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Doug Lubcyik
10/26/2015 05:27:47 pm

This post was disheartening. The company is striving for profit, hurting everyone along the way. A car payment can be cheaper than buying just one of these pills. Shkreli is only concerned about profits and not helping those with his pill.

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Serena Letwinch
10/26/2015 05:45:05 pm

This article is disturbing. It saddens me that companies and people can feel justified in actions like this, seemingly having no regard for those who are deadly sick. I agree that this is one of the clearest cases of Single- Minded Marketing.

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Timmy McIntosh
10/26/2015 10:56:45 pm

This is just a terrible thing to do. This man is quite obviously just turning these peoples sicknesses in to a financial gain because he knows they cannot do anything about it, he knows that it is either they spend the money on the drugs or they die. How he got in to this position is beyond me. This man certainly has more of a ruthless venture capitalist, management personality rather than a caring and gentle pharmaceutical mindset.

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Joshua Witczak
10/27/2015 12:59:57 am

I have read up on this issue before and I have two opinions on it. Just like everyone else, I think this is a terrible thing to do from a morale aspect. However, the FDA makes it extremely difficult to get drugs approved. It is also very hard to get a pharmaceutical company established. Although the price going up 5,455 percent is terrible, the company payed millions of dollars for the right to this drug. Also, not that many people are on Daraprim. Imprimis Pharmaceuticals has developed what they are calling a substitute for Daraprim. There is competition arising for the drug. I do not think that Turing should be blamed for this hike in price. I think the FDA should be blamed for the stiff regulations.

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Zack Rood
10/27/2015 05:45:34 pm

Taking advantage of people who have no were else to turn is a terrible thing to do. Not only is the rising price of the drug unethical but it was also unethical of the company to claim the cost increase was to pay for research and development when they were not even the ones who had developed the drug in the first place. This single sided marketing structure is also shown by how the company even though promising to lower the prices has yet to change the price even after a couple of weeks.

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Stephen Tanquary
10/28/2015 08:28:51 pm

Although according to the scale, this technique would fall under "single-minded" I want to say it's mindless and heartless. It's frustrating that we live in a society where this could happen without any action being taken. I think it's simply ridiculous that a prescription medication price, especially one that is so important and essential price could be hiked up to such a high amount. Thanks for the informative article, I hope something will be done about this.

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Duke choe
10/28/2015 10:37:58 pm

This article is disturbing from beginning to end. The promotion that companies give back to the community when they increase in profit always seems like the answer. But how do we know this is true? Prescription drugs have become a big problem due to fraud. Whether it is fraudulent doctors, prescriptions, pharmacists, and patients. We need to be more strict with our prescription, but not only try to come up on profit. People need to learn to be selfless.

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Adam Washington
10/28/2015 11:00:08 pm

This would in theory create stakeholder value but I believe that for the company as a whole, the very image they want would fall through the cracks but I'm assuming that since they hiked up the price so much that they don't care about value or image since this is a necessary pharmaceutical drug that they can get away with whatever price they want. There should come a time when someone sees this is like is this what capitalism has come to. Other companies or very affluenced people should step up and create either competition or try and get this matter resolved.

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Samantha Gong
10/29/2015 02:27:40 am

The price increase is far too great to be used to justify any reason for it other than for more profit. As Turing takes advantage of the monopoly it has on the patients whose lives depend on this drug, it unfairly causes their lives to be more difficult than it already is. What stuck out to me the most is that they first said profits could be reinvested into research, but "later reversed course." That offered reason then change in direction sounds more questionable than the initial price increase.

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Joseph Park
10/29/2015 11:21:54 pm

Thank you for covering this issue on your blog. As of October 27, Shkreli still has not dropped the price. I am not too sure about how much the stakeholder's values were made, because the image of Shkreli and Turing Pharmaceuticals has been tainted by the media. Now, Shkreli has to face a new competitor: Imprimis Pharmaceuticals has announced that they would market a similar drug for just $1 a tablet. If this were to come true, Shkreli will have to drop his price on the drug, and still deal with his greedy image the media has put on him. If he becomes the only supplier, then "single-minded marketing" would appropriately fit his business decision.

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Joshua Douglass
10/30/2015 02:18:21 pm

I think the idea of this Turing raising the prices that much is bogus. It is not even excusable under economic circumstances to raise the price of anything 5000%, especially medicine. I take prescription meds and I really do not know what I would do if the prices were raised that much. I would most definitely agree that the marketing scheme they used was single minded, if not mindless, however shallow it was.

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Derek Villalobos
10/30/2015 08:01:36 pm

I had no idea that medicine has been outrageously over-priced. I think that those companies do it to make a happy living. I definitely agree with Hagenbuch. It is single minded because it only affects the stake holders. They say that they are trying to use those profits for research, but that increase is too dramatic to make me think that all of it is going to research.

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