1) The price of AZT wasn\'t fair. It was exorbitantly charged and was only affor
ID: 373979 • Letter: 1
Question
1) The price of AZT wasn't fair. It was exorbitantly charged and was only affordable to the rich class people. For the middle class and lower middle class and others, it was not even in the reach of the common public. When a drug is useful to the maximum number of the people, and is available to almost all of them and if it is used to serve the purpose of the common public, then the price that is incurred will be a fair price. But, the pricing of AZT was completely unfair.
2) If i were CEO in 1987, i would have partnered with the government in manufacturing and sharing the costs and ensure that the drug is manufactured on a larger scale and is available at a standard or subsidized rates to the general public.
Any drug when it is not useful to the common public is not a useful drug and should not be valid for the existence. So, if the drug is priced high, what use does the company have. More the sales, better the profits. Therefore, as a CEO, I shall try to reduce the price of the drug and sell it at a fair price.
3) Yes, government should be involved. Company should partner with government such that the price that is being charged to the consumer (or patient) will fall. It is always advisable to share the costs with the government because, that will make sure that the common public benefits the most out of it. And at the same time any loses that is made can be shared with the government.
Explanation / Answer
In 1986, Burroughs-Wellcome Company introduced the first major breakthrough against acquired immune deficiency syndrome (AIDS). It was the life-prolonging drug AZT. The product has turned out to be very successful for the company and, largely because of AZT’s success, Wellcome’s profits have doubled in the three years ending in 1988. The Food and Drug Administration (FDA) plans to expand the authorization for the drug’s usage to those who are infected with the AIDS virus, but not yet showing signs of serious illness. The estimate of the size of this market is hundreds of thousands rather than the tens of thousands who are currently ill with AIDS.
The controversy over the drug centers on its price. AZT costs about $8,000 for a year’s supply for each patient (lowered from $10,000 in 1987). Critics in the gay, medical, and legal communities contended that Wellcome executives are “corporate extortionists.” Some believe that the company has already made too much money at the expense of the sick. The price is so far out of reach of indigent and moderate-income people that the federal government had to step in with subsidies of millions of dollars.
Burroughs-Wellcome defends it pricing practices by stating that its profit margins (in the 50-70 percent range) are in line with those companies introducing new drugs. They contend these high returns are necessary to finance research and recoup the millions of dollars invested in developing the drug. They initially gave the drug free-of-charge to as many as 5,000 AIDS patients and spent $80 million on a new plant.
Additional criticism revolves around the actual development of the drug. The Wall Street Journal stated, “But Wellcome’s moral position is undercut by its relatively minor role in the creation of AZT.” Researchers at the Michigan Cancer Foundation, from West Germany, and at the National Cancer Institute are credited with the major discoveries that led to AZT. Nevertheless, Wellcome performed toxicology, pharmacology, and animal studies before AZT was given to the first human volunteer. It also financed the big clinical trial and bankrolled the give-away to the patients in the initial experiment.
Wellcome is under pressure to cut its price. The government is attempting to institute a “reasonable price” clause where an unduly high price could trigger a government order for a company to open its books. Any company found in violation could be sued for breach of contract. Congress is also studying AZT and one Congressman wrote the company contending that the original price rationale (achieving a decent return on investment during a short product life) no longer exists as the drug has been on the market for three years and the market is growing for the product.
As a prologue, AZT in the 21st century is no longer considered a frontline drug in the battle against HIV. Newer, more efficacious drugs have since arrived on the scene that have relegated AZT to the back burner. The patent for the drug ran out about 2006 and generic AZT is now available. Still, no cure for HIV has been found, as of November 2017.
Source: Condensed from Marilyn Chase, “Burroughs Wellcome Reaps Profits, Outrage from Its AIDS Drug,” The Wall Street Journal (September 15, 1989).
Was the price of AZT fair?
Were you the CEO in 1987, what would you have done with the price? Justify your answer?
Should the government be involved insofar as the price that is being charged in 1987?
How does this case study tie to Organizational Behavior concepts?
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