“Dirty Money” Drug Short
Introduction
The selected documentary for this assignment is “Dirty Money” Drug Short, a Netflix Documentary about Big Pharma. The Wall Street short-sellers expose a scam that drug regulators overlook. The ethical issue in this documentary is how Big Pharma gouges patients in need of life-saving drugs. Every patient or any other person has the right to access life-saving medications, and therefore, it is immoral for any individual, corporation, or the government to extort the sick for profit. Drugs are essential commodities and thus should be availed at affordable prices to all people without discrimination.
Synopsis of the documentary
The “Dirty Money” Drug Short is a dirty money series that involves playing immoral games in the bid to source money. The documentary begins by illustrating the final free days of Turing Pharmaceutical founder and CEO Martin Shkreli. He had become famous for his business in the drug industry due to his selfish practices of raising the costs of drugs. One such case happened in 2015 when Turing Pharmaceuticals obtained the license of Daraprim, an essential medication, and rather than lowering the price; he went ahead to increase the cost from 13.50 dollars to 750 dollars per bill. As a result of this, he was branded the name “Pharma Bro,” which he was nicknamed for his wicked behavior. Based on the title, Martin Shkreli was referred to as the least moral and most hated person in the United States. The last picture of him portrayed in the documentary is of him being arrested for securities fraud. Basically, Martin Shkreli was not only involved in engaging in overpricing for higher profit gains but also engaging in fraud, and this was morally unacceptable as it was against the ethical requirements for any person in business, especially in a business that deals with sophisticated products such as drugs.
The documentary then follows by showing that Martin’s unethical behavior in raising the prices of drugs was a motivation from Valeant Pharmaceuticals, which as well had been engaged in such unethical practices for a long time. Valeant Pharmaceuticals in 2008 was just but a minor player in the drug industry, formerly a California company that was only worth less than 2.1 billion dollars. However, this situation came to change in 2010 when the company merged with Biovail, a Canadian drugmaker. As a result of this, Valeant escaped paying taxes in the United States and ended up paying smaller taxes in Canada as the Canadian tax rate was very little. However, this was just the beginning of the malpractices in the drug industry in which the two companies used to get more profit and try to dominate the drug industry.
Most of the pharmaceutical companies across the world spend most of their fortune in conducting research on drugs. According to the documentary, most pharmaceutical companies dedicate 18% of their revenue to the research and development of new drugs. Unlike other companies, the documentary states that Valeant reduced the research and development kitty for new drugs from 18% to 3%, and this was a very huge margin, implying that the process of drug research was not conducted in the right manner. Valeant also embarked on a massive merger and acquisition policy, where they would buy or merge with small drug companies who already held patients on certain prescriptions of drugs. The merger process was inclined to making more profits, and this explains why Valeant Pharmaceuticals only sought for merger with small companies with a huge database of patients on specific prescriptions. Upon successful merger, the new company would go ahead and raise the prices of the specific drugs, and since the patients were already on prescription, they were compelled to pay regardless of the price.
Due to the higher prices on drugs, the new merger lost a lot of customers, but the company greatly benefited as they made exorbitant profits, and this made the company extremely rich. The documentary interviews several patients to provide evidence of the ill-practices of the company. For example, the documentary interviewed a patient suffering from Wilson’s disease and was prescribed on Syprine, a drug that had been developed by Merk Pharmaceuticals at the cost of 1,395 dollars per patient per year in 2013. After the merger with Valeant Pharmaceuticals, the cost of the same drug increased to 21,267 dollars per patient per year in 2017. By the time the interview was recorded, the price of the Syprine drug had accumulated to around 289,000 dollars per year. Despite this, many patients required the drug, and since most of the patients were covered by insurance, and therefore, the patients could not feel overwhelmed as the cost was money was paid by the insurer. Despite the cost being covered by the insuring companies, the cost was distributed to the other members of the insurance companies, as the insurer made increments into the monthly subscriptions.
The merger and acquisition policies of Valeant Pharmaceuticals as a business strategy was meant to hurt the patients directly, and at the same time, hurt the public indirectly. Since the merger was making lots of profits, most of the shareholders became happy with the short-term profits, and this means that they had a common goal of extorting the patients, but they could not take a bold step towards it. However, some of the shareholders were not happy about the business practices of increasing the prices of essential drugs. As a result, Valeant Pharmaceuticals, along with its merger companies, were subjected to scrutinization, and this means that they were placed on public watch for malpractices. With the business dealings of the company under close scrutiny, it was uncovered that Valeant Pharmaceuticals had a massive plan to rip off health insurance companies, again engaging in unethical business practices.
The unmasking of the company’s unethical ideas in business had a massive impact, not only on Valeant but also on smaller distributors of the company’s drugs. The company’s stock was deemed to fall as many business partners failed to invest in the company. Based on this, the cost of the medicine produced by the company lacked market value, and this attracted only a few distributors; only those who had learned to benefit from the drop in the stock prices. There are people who used to work with Valeant Pharmaceuticals but weren’t happy about how the company was making its profits. As a result of this, some of the business people, such as Fahmi Quadir, were not happy and thus played a crucial role in blowing the whistle regarding the increased corruption as well as extortion plans by the company.
The business immorality committed by Valeant Pharmaceuticals was compared to the unethical business dealings by Enron, an energy company that was discredited and now has been rendered bankrupt for engaging in willful fraud. After scrutiny, legal steps were taken, and just like Enron, relief only came after Congressional hearings in which Senator Claire McCaskill summed up the hearings. Despite all these practices, Congress did not find anything wrong with the business dealings of Valeant Pharmaceuticals; they were not engaged in illegal business, and therefore, before the law, they were conducting a clean business, and this becomes one of the most startling issues about business dealings. Based on this conclusion, the documentary ends by asking the audience, “What is good for Valeant Pharmaceuticals versus what is good for the public, especially patients?” A question that is both-ended in that businesses is set with the aim of making profits while for the patients, they need access to affordable drugs for medication purposes.
Introduction to the Organization (Valeant Pharmaceuticals)
Valeant Pharmaceuticals changed its name to Bausch Health Companies Inc. after successful mergers with several pharmaceutical companies. It is a multinational pharmaceutical company that is based in Laval, Canada. The company develops, manufactures, and markets pharmaceutical products and branded generic drugs for skin diseases, eye health, gastrointestinal conditions, and neurology. The company also owns Bausch & Lomb, which supplies eye health care products. Valeant Pharmaceuticals was founded in 1959 in California as ICN Pharmaceuticals. The company grew from a small business to a large business, a process that was achieved by the adoption of the merger policies of the company, and this was under the leadership of Michael Pearson. Some of the most targeted small companies were those that manufactured effective medications for a variety of medical problems.
After the merger, the company would then go ahead and increase the prices of the medications, a strategy which enabled the company to earn enormous profits, enabling the company to expand, growing rapidly, and becoming one of the most valuable companies in Canada in 2015. Valeant Pharmaceuticals also tried to acquire companies such as Cephalon and Actavis, and again, in 2014, they attempted a merger with Allergen, but this merger failed to materialize. However, Valeant Pharmaceutical went ahead to conduct business in the company and was sued for insider trading. Also, in 2015, the company was involved several controversies which all regarded its dealing in the drug business. Some of the controversies included uncontrolled hiking of prices, especially of essential drugs, as well as the use of specialty pharmacy for the purposes of distributing its products. As a result, the United States Securities and Exchange Commission conducted an investigation against the company, scrutiny, which led to plummeting of the stock prices more than 90% from its peak. Also, Valeant Pharmaceutical debt increased, surpassing 30 billion dollars.
The unethical leader, Pearson, who had spearheaded the merging and increasing the cost of drugs, was ousted in 2016, and Joseph Papa acted as his replacement. Bill Ackman joined the company’s board in the same year, but in 2017, he parted ways and selling Ackman’s Pershing Square, which had a bigger stake in the company. Bill Ackman sold his property for a loss that was attributed to 2.8 billion dollars. Following his exit, he was replaced by John Paulson with his company Paulson & Co., which helped in increasing Valeant Pharmaceutical’s finances. Paulson’s contribution to the company made him one of the largest shareholders and helped rebuild the company and reduce its debt.
Under the new leadership, Valeant Pharmaceuticals had regained normalcy and had begun making profits by 2018. It was able to settle for the Allergen case, and this had helped reduce the company’s debts to lower levels or around 6.5 billion dollars. Since the company had faced many challenges that had played a crucial role in damaging its image, the company opted to change its name to Bausch Health Companies Inc. The main reason for changing its name was to distance itself from the public outrage that was associated with the massive price increments by Valeant. Also, the company changed its ticker symbol from VRX to BHC as a new branding strategy. Due to its outrageous history in unethical business practices, the company was featured in a Netflix documentary, “Dirty Money” Drug Short, explaining how the company lost 90% of its value within 2015 and 2016 and how it sunk to massive debts.
Introduction to the Main Organizational Actors
Valeant Pharmaceuticals was a small company that operated in small scale business in drug manufacturing and distribution. However, the rise, fall as well as rising again of the company was determined by crucial people in the business, and this is because they played a part in making key decisions that affected the entire company. Some of the major players in the documentary include Michael Pearson, Joseph Papa, Bill Ackman, Fahmi Quadir, and John Paulson.
Michael Pearson was one of Valeant Pharmaceutical CEOs, and this means that he played a crucial role in the success of failure of the company, and this is based on the decisions that he made as well as the partnerships that he formed. Unfortunately, Pearson is not to be remembered as a leader who had a positive influence on the company as many of his achievements state otherwise, they are awful. One of the mistakes that Pearson made was adopting a strategy of merger and price incrementation policies. Based on these policies, Pearson ensured the recruitment of small pharmaceutical companies merged with Valeant to make a strong company that could be able to control the prices of drugs. He achieved in this quest since he recruited several small pharmaceutical companies, targeting only those who manufactured effective medication for a variety of medical conditions.
After the acquisition of the small pharmaceutical firms, Pearson would then increase the cost of the drugs uncontrollably, costing insurers massive losses in paying for the insurance of their clients. In addition, Pearson, as the CEO of Valeant, made an awful decision in which he engaged in business with Allergen even after the attempted merger failed. Based on this, the company was sued for insider trading prior to their bid, and this was the beginning of the downfall of once a giant pharmaceutical company. However, Pearson, as the CEO, can be credited to overseeing the expansion of the business, from a small-scale pharmaceutical company to a giant and multi-billion company with multiple mergers. Through his strategies, Valeant Pharmaceutical company grew, and in 2015, it was one of the most valuable companies in Canada.
Joseph Papa came as a replacement for Michael Pearson as the CEO of Valeant Pharmaceuticals. Papa made positive changes to the company. Papa acted fast to ensure that the company had regained its previous form, and this was achieved in a short time as, by early 2018, Valeant Pharmaceuticals had begun making profits. The new CEO had helped in settling the Allergen case and also had played a crucial role in lowering the company’s debts by around 6.5 billion dollars. Also, Papa helped in changing the company’s name from Valeant Pharmaceuticals to Bausch Health Companies Inc. The reason behind this was to help shift from the negative perception and public outrage that was associated with Valeant Pharmaceuticals. Besides, the new CEO changed the company’s ticker symbols from VRX to BHC.
Another notable player in the documentary is the heroine Fahmi Quadir. Since Valeant Pharmaceuticals had engaged in unethical business practices, some of the shareholders and business partners weren’t happy about how the company was making its profits. As a result of this, some of the business people, such as Fahmi Quadir, were not happy and thus played a crucial role in blowing the whistle regarding the increased corruption as well as extortion plans by the company. If it weren’t for Fahmi, the United States Securities and Exchange Commission could not have launched investigations that led to the unearthing of the corrupt practices. Consequently, the stock price could not have gone down, and the company could have gone ahead to make profits through unethical practices. Therefore, Fahmi played a vital role in ensuring that the company’s activities were brought back to senses, with the leaders of the company being change. It is due to the whistleblowing of Fahmi in which Valeant Pharmaceuticals were found to have plans of extorting insurance companies by charging very high prices, and as a result of this, the former CEO Michael Pearson was ousted, paving the way for new leadership.
Other notable players in the company include Bill Ackman and John Paulson. Both were investors who injected their capital into the company and helped it get out of its debts. However, Bill Ackman left the company and sold his shares, the Pershing Square, which he sold at a loss of 2.8 billion. After his exit, john Paulson replaced him with his company Paulson & Co, which played a crucial role in increasing the finances of the company. With Paulson joining the company, he swore to rebuild the company and help in repaying its debts. The decision to help pay for the company’s debts was significant in helping the company come back to its feet, and this is evident from the debt ratio in 2018 as the debt had been reduced to 6.5 billion dollars, which was a great amount. Through this, the company’s confidence was slowly regained, and with the change of its Valeant’s name, it was evident that the company was ready to revive and rebuild its image to an ethical business that obtained its profit through legal and ethical means.
Ethical Situation:
According to the documentary, Valeant Pharmaceuticals was involved in unethical practices, in that their business dealings were not aligned with what is perceived as ethical in business management. Valeant Pharmaceuticals were involved in mergers with small businesses to which they perceived to have a higher potential in the drug industry. As a result, the company took advantage of its small size, promising then huge benefits once they merged with Valeant. However, this was not the case as the company took advantage of the smaller pharmaceutical companies, hiking the prices of the essential drugs to which patients were prescribed, and this ensured that there was no runway for the patients as they had to buy the medication regardless of the cost of the medication.
Valeant increased most of the prices from merger companies by a higher margin, and this made it seem more of extortion than a normal payment of the hospital bill. Based on this, it was evident that Valeant Pharmaceuticals was well prepared to extort the patients their scarce resources, which included their hard-earned money. Also, prior to the alarm by Fahim Quadir, Valeant Pharmaceuticals was planning to extort money from the insurance companies, and this can be considered as an ethical practice, as they charged extremely higher prices to the insurance companies. Charging higher prices without the consent of the patients or that of the insuring companies can be considered as unethical as it can be termed as cheating.
According to Emanuel Kant, cheating is considered immoral as human beings are required to tell the truth no matter what the situation. Based on this, with Valeant Pharmaceuticals failing to notify neither its patients nor the insurance companies regarding the increment in drug costs can be considered as malpractice since it never considered that the company made consultation from both the insurance companies and the patients regarding the increment in prices. Based on this, I can term Valeant’s actions as unethical.
Why the Unethical Situation Occurred
There are many reasons why businesses engage in unethical practice, and most of the time, it depends on the situation that the company finds itself in in relation to performance. The success of a company is based on the number of customers it serves as well as the amount of profits made. Based on these companies with their best to appeal to as many customers as possible to create a large pool of customers. Also, the company may increase the prices of its commodities in a bid to increase its profits. The two reasons can be used to explain why Valeant Pharmaceuticals engaged in unethical practices. For one, they wanted to increase the amount of profit earned and could be achieved by adding to the customer base. By combining with small firms, Valeant aimed to increase the number of customers who were prescribed the drugs. Based on this, they appealed to as many small firms as possible, and by this, they could easily reach their target of many customers who would play a crucial role in ensuring a continuous flow of income.
Also, the greed to make more profits can be termed as another reason why Valeant Pharmaceuticals engaged in unethical behavior. Every business is set up so that it can make profits that will be beneficial to the business owner. Any business that does not yield profits is credited as worthless since the owner does not make anything out of it. As a result, a business that earns considerable profit will always attract more investors, and they will be willing to risk even more to have their product sold. However, for Valeant Pharmaceuticals, the company increased the price to higher levels after merging, and this was aimed at extorting more customers due to greed for more profits.
Impact of Unethical Behavior and Prevention:
There are grief consequences of engaging in unethical business practices, and this is depicted in the case of Valeant Pharmaceuticals. One of the major impacts of unethical behavior is that the image of the company gets damaged. Regardless of the society in which the business is set up, the customers or the public the company to be truthful in its dealings. Based on this, in business that goes against societal expectations is expected to lose its value, and this means that its image will be destroyed. Also, according to the documentary, Valeant Pharmaceuticals not only destroyed its image but also was sued for engaging in immoral business practices. Also, the company lost most of its faithful shareholders and business partners, such as Bill Ackman and Fahim Quadir, and this was a big blow since they also contributed to the downfall of the company. To prevent such practices, the company should have recruited ethical leaders who could help achieve the goals of the company without engaging in unethical business practices.
Lessons Learnt and Final Thoughts
Drugs are an essential product, and this means that it is a universal good. Universal good needs to be availed to all people without discrimination, but this wasn’t the case with Valeant Pharmaceutical since it was biased in the distribution of the essential drugs. Only those people who were enrolled in health insurance or were capable of purchasing the drugs by themselves had the opportunity to make purchases. As a result of this, many people who belonged to low economic levels were left behind and never happened to enjoy the benefits of the drugs sold by Valeant Pharmaceuticals. In addition, I learned that basic commodities should be regulated by the government to prevent exploitation of the customers, and this applies to drugs as health is a national government affair. If the drug prices were regulated, Valeant Pharmaceuticals could never have an opportunity to exploit its customers, and neither could they be able to engage in such practices without being held accountable by the laws.