INTRODUCTION

In a capitalist free market, the goal of business is to sell a product to satisfy

demand. The company’s objective is to maximize profit, without breaking the
laws of the land. This profit motive is generally accepted as a characteristic of
the free market and rarely raises ethical questions. However, there are industries
where social good may take precedent over profit. The pharmaceutical industry
presents one instance.
The pharmaceutical industry is a unique and significant component of the
international economy. It faces ethical issues distinct from other industries.
There are a few powerful players controlling the supply of arguably the most
critical products in an economy.
A pressing ethical issue for pharmaceutical companies is whether they ought to
be held to a higher standard than those in other industries due to their role in
serving the public good. How can earning a profit be a company’s single most
important concern if this goal prevents a consumer from purchasing a lifesaving
drug? The pharmaceutical companies have a moral duty to invest in treatment
research, beneficial for society, even if they lose money in the process.
Pharmaceutical companies can profit from patent laws intended to promote
social good but which instead create perverse incentives, or fail to adequately
incentivize. Even if patent protection secures exclusive rights to sell a product,
it still may not be profitable for a company to invest in certain drug
development.

Inevitable patent laws, the consequent lack of competition, and crucial public
interest in accessing these drugs are distinctive characteristics of the
pharmaceutical industry. As such, policies ought to encourage companies in this
industry to keep drug prices low and to develop new treatments for
humanitarian rather than pure profit motives.

With actual human lives on the line, pharmaceutical companies should be held
to a higher standard. Thus, pharmaceutical companies have a duty to serve the
public. This idea of moral duty is the foundational principle of deontological
ethics.

Characteristics of the Pharmaceutical Industry

In many industries, a consumer will simply not participate in the market if his
demand is lower than the market price. However in the case of vital medication,
demand is so inelastic the supplier could charge an exorbitant price and demand
would remain steady. Essentially, pharmaceutical suppliers can put a price on
human life – and that price can be high.
A controversial example of extreme price setting by Turing Pharmaceuticals
occurred in 2015. Turing acquired Daraprim, a drug used to treat life-
threatening parasitic infections called toxoplasmosis (NY Times). The infection
is most deadly for AIDS patients and some cancer patients. Almost immediately
after acquiring the drug, CEO Martin Shkreli raised the price per tablet from
$13.50 to $750. While the drastic increase caused public outcry, the operation
was legal and could potentially earn Turing millions in profits (NY Times).
Although insurers have the option to continue to pay for the drug, they will
likely turn to a cheaper, less effective treatment after this price hike.

Patent laws and monopolistic pricing

Many industry features intended to promote development and distribution of
drugs lead to perverse incentives for suppliers. Operating costs for
pharmaceutical companies are extremely high especially: funding research and
development, fighting legal battles, and distributing through insurers. However,
the creation of new treatments for diseases is a public good, so governments
tend to incentivize research through patent laws and subsidies. After investing
in developing a new drug, a company has the exclusive right to sell and profit
from the product. While these laws aim to promote medical progress, they
create a monopoly over potentially lifesaving drugs, allowing suppliers to
charge monopolistic (high) prices.
Although patent laws are necessary to incentivize the development of new
drugs, they support monopolies and prevent competition in the industry. A
monopoly over products allows a company to fix prices, helped by inelastic
demand, earning the company substantial profits. By definition, monopolistic
markets do not offer free access to competitors. Competition causes the price of
goods to reach equilibrium, limiting the opportunity to profit. In a monopolistic
industry, new firms cannot freely enter and exit the market, so there is always a
potential for existing firms to profit enormously.
The lure of high profits motivates companies to continuously develop new
drugs, but also creates an incentive to unscrupulously mark up prices. It is more
expensive and challenging than ever to create new drugs approved for the
market, making it unprofitable to invest time, money, and personnel on research
and development. One of the top four pharmaceutical companies, Pfizer, earned
$22 billion in profits while spending only $6.6 billion on research and
development (thinkprogress.org).

The pharmaceutical company Valeant recognized this dilemma, and began

slashing research in favour of acquiring smaller companies to make a profit.
This practice allows companies to take advantage of patent laws and the
monopolistic profit characteristics of the industry while avoiding the burden of
investing in treatment research, a public good.

Ethical Issues in the Pharmaceutical Industry

After acknowledging the pharmaceutical industry possesses unique elements
that give a few powerful companies control over drug creation and distribution,
we soon recognize there are inherent ethical problems with the structure of the
industry.
The most pressing concern is whether, for humanitarian purposes,
pharmaceutical companies have a moral responsibility to supply affordable
drugs and to invest in developing new treatments. The current system provides
incentives for research by exchanging patent protection for introducing new
drugs to market, but there are few enticements to keep prices low. Public and
investor relations can motivate companies to reduce prices and they are required
by law to provide drugs to Medicaid at discounted rates (Vanity Fair).
From both consequentialist and deontological perspectives, the current system is
unethical. Although a consequentialist would consider making a large profit a
positive outcome, depending on the value he places on a human life, the
burdens will outweigh the benefits. Patients unable to afford medication will
suffer a lower quality of life or even death if faced with a life threatening
condition. Despite the positive outcome of large profits for companies, the
overall consequence is negative due to suffering inflicted on people.

Deontologists would view extraordinary price increases of necessary drugs as

unethical. Kant’s categorical imperative states that we should “act in such a way
that you treat humanity, whether in your own person or in the person of another,
always at the same time as an end and never simply as a means” (Seven Pillars
Institute). By raising drug prices to expensive levels, the companies are treating
patients as the means to an end. These firms know that patients, or their
insurance providers, will continue to pay for treatment regardless of the price, as
the demand is inelastic. However, taking advantage of another human in order
to promote one’s self-interest violates the moral duty to “seek an end that is
equal for all people” (Seven Pillars Institute). Using a deontological framework,
pharmaceutical companies have a moral duty to keep drug prices fairly priced.
Price gouging is immoral as it exploits disadvantaged individuals to the benefit
of the firm.

The Future of Pharmaceutical Policy

Policymakers must weigh the potential benefits and costs of a policy to
determine whether it will make the public better off. In the pharmaceutical
industry, policies should promote research and development while ensuring
citizens can easily access the drugs they need. In theory, the current
environment encourages companies to invest in developing new drugs by
promising a temporary monopoly over the product. Although this increases the
market price, the benefit of new research outweighs that cost.

The Valeant and Turing cases demonstrate the failures of current policies.
Companies are manipulating patent laws to make a profit without investing in
new research and development. There are also few regulations in place to limit
extreme price increases, which allowed Turing to increase the price of Daraprim
by 500 percent (NY Times). Policymakers need to determine a way to protect
people’s ability to buy medications while promoting innovation.

The Department of Pharmaceuticals (DoP) has asked industry lobbies and

associations to make sure that pharma companies adhere to marketing norms
during their conferences, a directive that comes amid a clear failure on the part
of the companies to regulate themselves.
In a letter dated February 4, the DoP said it had received complaints that
pharma companies “arrange hotels, accommodations, local sightseeing” in
conferences conducted by doctors.
Asking the lobbies to ensure that no unethical promotion of pharma products is
done during conferences, it said companies must adhere to the Universal Code
of Pharmaceutical Marketing Practices (UCPMP) during the upcoming annual
conferences of Indian Psychiatric Society, which are to be held in Kolkata and
Visakhapatnam.
The UCPMP is being voluntarily adopted by pharmaceutical companies since
2015. However, concerns over pharmaceutical companies offering gifts to
influence medical professionals have erupted from time to time.
A recent study by non-governmental organisation (NGO) Sathi (Support for
Advocacy and Training to Health Initiatives) claimed that “promotional
practices of the pharmaceutical industry and implementation of status of related
regulatory codes in India lacked credibility”. It said medical representatives had
disclosed widespread use of bribes, including foreign trips, microwave ovens,
expensive smartphones, jewellery and even women, by pharmaceutical
companies.
Simultaneously, another NGO blamed a well-known Swiss drug maker for
providing inducements in the form of honorariums for participation in
conferences, travel assistance, accommodation and food expenses, all of which
are strictly prohibited under the UCPMP as well as the Indian Medical Council
(Professional conduct, Etiquette and Ethics), Regulations 2002. A complaint in
this regard was sent to the DoP.
The DoP has been dragging its feet on the draft legislation, aimed at increasing
transparency in financial relationships between healthcare providers and
pharmaceutical manufacturers as well as deterring unethical practices, since
2016.

Conclusion and Policy Recommendation

Thereis a necessity of restructuring the pharmaceutical industry. Encouraging
and protecting monopolistic pricing fails to promote innovation. Instead,
policies such as patent laws discourage research and allow companies to earn
massive profits while patients are forced to bear excessive costs for essential
drugs.
From a deontological perspective, pharmaceutical firms have a moral obligation
to provide fairly priced drugs lest they use their consumers as a means to a
profit rather than prioritizing fair access to medication.

The central problem with the pharmaceutical industry is its lack of competition,
a characteristic protected by current drug patent laws. The potential to profit
that arises from the monopolistic protection of new drugs incentivizes
companies to raise prices to obscene levels, preventing patients from accessing
the medication they need to survive. This perverse incentive fails to promote
research and innovation, and instead increases healthcare costs and government
spending, while drug companies profit.

Implementing the policies should be the first steps towards fair pricing of drugs.
The consequences of the current system extend beyond limited access to
healthcare. The current scheme also places financial burdens on people
requiring medicines, government, and ultimately, taxpayers. Until
pharmaceutical companies embrace their moral duty to provide drugs as an end
(public good) rather than as a means (to profit), there will be a need for
government intervention.