You are the CEO of a small pharmaceutical company. Your company is privately hel

Question

You are the CEO of a small pharmaceutical company. Your company is privately held, with 75 shareholders; however, you own a majority of the shares and thus, you maintain control over the Board of Directors. Your company successfully developed and patented a drug to treat a rare blood disease. You have recouped your research and development costs on the drug and are making a profit by selling the pills at $10 each. Because the number of people with the disease is very small, no other companies have entered into the market for this drug. Big Drugs, Inc. has approached you about acquiring the rights to the drug. Big Drug’s offer is substantial and if you were to accept it, you would likely be able to fund research for a drug for a related, and also rare and debilitating disease. However, you have heard speculation by many in the industry that Big Drug has been implementing a strategy of buying up the patents on rare disease/small market drugs in order to raise the prices significantly. The last purchase of this type by another big pharma company resulted in an increase in the price from $15.00 per pill to $500 per pill. Meanwhile, the FDA is investigating the price hikes of certain drugs. The agency is considering a program to subsidize the prices through an arrangement with insurance companies. The proposed subsidy would allow you to increase the price to approximately $14.00 per pill. Even with this increase, however, your profits will fall far short of the amount to be gained from the Big Drug purchase offer. You need to respond to the offer from Big Drug. You are pretty confident that selling will result in a price hike that will create an immense hardship on the patients using the drug. Your investors are anxious for you to seize the opportunity to turn a tidy profit and have sufficient resources to boost your R&D. As you consider how to advise the Board of Directors, what are the ethical considerations involved in this decision? Choose two ethical theories that you studied this term that you think can help you make the “right” decision. Describe how those theories apply to this situation, and what decision would be ethical using each of the theories. Finally, what is your recommendation to the Board of Directors? Use the IRAC format to respond to the question.

Explanation / Answer

Issue is whether to accept Big Drug's offer to acquire the rights to the drug, developed and patented by the company - for a substantially higher price- the other investors are in favour of seizing the opportunity so that the amounts may be used to fund the R&D of yet another drug for related debilitating disease.- But this CEO is the major shareholder and the final decision depends on his decision/opinion . He is in an ethical dilemma- Accepting the offer will surely jeopardize the interests of the end-users with very heavy prices - not accepting will rob the company of good profits to investors .

Rule is to Maximise shareholders' wealth and also be socially responsible.Accepting the offer will help the research of another much-needed drug .FDA is considering subsidising the drug with the help of Insurance companies.

Application When it comes to application, we have to apply the fact that Big Drug is quoting with the very purpose to acquire and sell the drug to end-user at exhorbitant prices. This price cannot be matched by FDA's subsidy.The end-users of this drug are certain to be let down .Board of directors need to be briefed about the dilemma between ethical issues and investor interests.

Conclusion As no other company has entered into the market for this drug, this company owes a moral responsibility to the consumers with this rare disease- who have been regular in giving business to the company. It will be absolutely unethical ,if these peoples' trusts are belied ,all on a sudden , just to better the already-safe interests of the investors.

Whatever the amount is offered by Big Drugs , they are bent on making profits . The more this company receives, the more the burden on the end-users ,who will be compelled to buy at the exhorbitant prices- from those who have monopolised - for the wrong reasons - without any social committment..

The acceptance (conceding to Big Drugs) may set to precedence to the greedy and avaricious companies , who may resort to prowling small manufacturers with huge sums .

Whereas rejecting the offer - will put the entire company and its team as a role model - in supporting social ethical causes- and the government itself will come forward with even more escalated subsidies.Many more small drug-manufacturers will come forward to help the society-thereby eliminating monopolisation of essential and rare drug- manufacturing.

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