Harvard Case - Turing Pharmaceuticals: Fair Profit or Price-Gouging in the Drug Industry?
"Turing Pharmaceuticals: Fair Profit or Price-Gouging in the Drug Industry?" Harvard business case study is written by Craig N Smith, Erin McCormick. It deals with the challenges in the field of Business Ethics. The case study is 21 page(s) long and it was first published on : May 29, 2017
At Fern Fort University, we recommend that Turing Pharmaceuticals adopt a comprehensive strategy to address the ethical and reputational challenges arising from its pricing practices. This strategy should prioritize transparency, stakeholder engagement, and a commitment to corporate social responsibility. We believe that by embracing these principles, Turing can regain public trust, foster a more sustainable business model, and contribute meaningfully to the healthcare landscape.
2. Background
The case study focuses on Turing Pharmaceuticals' acquisition of the drug Daraprim, a life-saving medication for toxoplasmosis, and its subsequent decision to increase the price by 5,000%. This move sparked widespread public outrage, accusations of price-gouging, and scrutiny from regulatory bodies. The case highlights the complex interplay between business ethics, corporate governance, and stakeholder relations in the pharmaceutical industry. The main protagonists are Martin Shkreli, the CEO of Turing Pharmaceuticals, and the patients and healthcare providers who rely on Daraprim.
3. Analysis of the Case Study
This case can be analyzed through the lens of stakeholder theory, which emphasizes the importance of considering the interests of all stakeholders, including patients, healthcare providers, investors, and society at large.
- Ethical Considerations: Turing's actions raised serious ethical concerns, particularly regarding the fiduciary duty owed to shareholders versus the social responsibility to patients. The company's decision prioritized profit maximization over the well-being of those who relied on the drug.
- Reputational Damage: The price hike resulted in significant reputational damage for Turing, leading to public backlash, media scrutiny, and a decline in public trust.
- Legal and Regulatory Challenges: Turing faced legal and regulatory challenges, including investigations by the US Congress and the Federal Trade Commission, highlighting the potential consequences of unethical business practices.
- Business Strategy: The company's strategy was based on a disruptive innovation model, aiming to increase profits by acquiring essential drugs and raising their prices. This approach, however, failed to consider the ethical implications and long-term sustainability.
4. Recommendations
To address the ethical and reputational challenges, Turing should implement the following recommendations:
- Adopt a Transparent Pricing Policy: Turing should clearly communicate its pricing rationale, including the costs associated with research, development, manufacturing, and distribution. This transparency will help build trust with stakeholders and demonstrate the company's commitment to fair pricing.
- Establish a Stakeholder Engagement Framework: Turing should actively engage with patients, healthcare providers, advocacy groups, and other stakeholders to understand their concerns and perspectives. This engagement will foster dialogue and collaboration, leading to more ethical and sustainable pricing decisions.
- Develop a Robust Corporate Social Responsibility Program: Turing should commit to a comprehensive CSR program that prioritizes patient access to essential medications, invests in research and development, and supports healthcare initiatives in underserved communities. This program will demonstrate the company's commitment to social responsibility and contribute to a more positive public image.
- Implement a Strong Code of Conduct: Turing should establish a clear and comprehensive code of conduct that outlines ethical principles, including fair pricing practices, transparency, and stakeholder engagement. This code should be communicated to all employees and enforced through appropriate mechanisms.
- Promote Ethical Leadership: Turing should prioritize ethical leadership at all levels of the organization. This includes fostering a culture of ethical decision-making, promoting transparency, and holding employees accountable for their actions.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: Turing's core competency lies in drug development and manufacturing. By focusing on ethical pricing practices, the company can align its actions with its mission to provide essential medications to patients.
- External Customers and Internal Clients: Turing's external customers are patients and healthcare providers. By prioritizing their needs and engaging with them transparently, the company can build trust and loyalty. Internal clients, including employees, will also benefit from a culture of ethical decision-making and transparency.
- Competitors: Turing's competitors operate in a highly competitive pharmaceutical market. By adopting ethical practices, the company can differentiate itself and attract customers who value social responsibility.
- Attractiveness: By implementing these recommendations, Turing can improve its long-term sustainability and profitability. A strong reputation for ethical behavior will attract investors, partners, and customers, contributing to the company's growth and success.
6. Conclusion
Turing Pharmaceuticals' pricing practices raised serious ethical concerns and resulted in significant reputational damage. By adopting a comprehensive strategy that prioritizes transparency, stakeholder engagement, and corporate social responsibility, Turing can regain public trust, foster a more sustainable business model, and contribute meaningfully to the healthcare landscape.
7. Discussion
Alternative approaches to addressing the ethical challenges include:
- Price negotiation with healthcare providers: Turing could negotiate lower prices with healthcare providers, potentially through volume discounts or other incentives.
- Government intervention: Turing could engage with government agencies to explore options for price regulation or subsidies to ensure patient access to essential medications.
However, these alternatives may not be as effective as the recommended approach, which focuses on long-term sustainability and ethical business practices.
Key risks and assumptions:
- Implementation challenges: Implementing these recommendations may require significant organizational change and resource allocation.
- Competitor response: Competitors may not adopt similar ethical practices, potentially creating an uneven playing field.
- Public perception: Even with a comprehensive strategy, Turing may face ongoing public scrutiny and negative perceptions.
8. Next Steps
Turing should implement the recommended strategy in a phased approach, starting with:
- Developing a transparent pricing policy: Within 3 months, Turing should develop and communicate a transparent pricing policy, outlining the rationale behind its pricing decisions.
- Establishing a stakeholder engagement framework: Within 6 months, Turing should establish a framework for engaging with key stakeholders, including patients, healthcare providers, and advocacy groups.
- Launching a corporate social responsibility program: Within 12 months, Turing should launch a comprehensive CSR program that prioritizes patient access to essential medications and supports healthcare initiatives in underserved communities.
By taking these steps, Turing can begin to rebuild its reputation, foster a more sustainable business model, and contribute positively to the healthcare landscape.
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Case Description
This case examines how a drug price increase by one small company, Turing Pharmaceuticals, became the focal point of a controversy that engulfed the entire drug industry. Turing's decision to raise the price of its anti-infection drug Daraprim, from $13.50 to $750 per dose, is emblematic of the debate about the responsibilities of pharmaceutical companies and business more generally. The case asks: Do pharmaceutical executives have a responsibility to patients when setting drug prices, or are they beholden only to their shareholders? More broadly, what are the responsibilities of companies to shareholders relative to other stakeholders? And what role should be taken by public policy makers in this domain? While set primarily in the United States, the case raises questions of corporate social responsibility and public policy for the global healthcare industry and business more generally. It provides an opportunity to explore the potentially conflicting demands of shareholders and stakeholders, the limits of industry self-regulation and the need for government-imposed price controls, notably in the context of patent monopolies.
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