My economics professor in college was the late John Kenneth Galbraith, a best-selling author, New Frontier favorite and celebrity, to the extent that an economist can be a celebrity. One of the foundations of his fame was his theory that big corporations were becoming the successors to nations. They were, he said, on the way to becoming more powerful than nations, and the working people of the world would begin being more loyal to them than nations or religions.There were a lot of economic and management consequences of this, but it was the ethical implications that most interested me.
Corporate cultures would increasingly steer individual beliefs and behaviors, and strong forces would push these industrial giants to be less driven by profits and more ethically reponsible, since employees would want to be a “citizens” of a corporate state in which they could take pride. Similarly, stockholders wanted to be able to be proud of their holdings, as well as make money with them. His book explaining this theory, “The New Industrial State,” was a sensation. Part of the motive behind the book, my professor being a big government advocate too, was to lay the foundation of the case that these new “states” had to be carefully guided and regulated lest one go rogue and abuse its power to disastrous effect. Still, the position of the book was optimistic: the new giant corporations were scary, but there were forces at work that would make them want to be good and do good while making all that money.
Well, so much for that college course. The unfolding ethics mess that is the Epipen fiasco shows us an ugly company with an unethical culture run by an unethical CEO and invested in by people who don’t give a damn that the company is despicable, as long as they make money. The regulatory system that could have been built on Galbraith’s fantasy has failed utterly.
To make a long, complicated and depressing story shorter, here is a summary with some links at the end.
In 2007, pharmaceutical company Mylan, under CEO Robert Coury, acquired Merck’s $6.7 billion generics business and chose one of his top executives, Heather Bresch, to lead the project of integrating the new products into the Mylan line. Later that year, Coury promoted Bresch to COO.
She immediately focused her attention on the EpiPen, a spring-loaded syringe-like device designed to deliver a measured dose of epinephrine, which instantly reverses life-threatening reactions to peanuts, bee stings and other allergens. Pushing press releases and public awareness campaigns on the perils of anaphylactic shock, particularly in children, Mylan lobbyists pushed for legislation to force schools to have EpiPens available.
In significant part due to Bresch’s strategy, the FDA changed prescription guidelines from one EpiPen to two. The feds also changed their advice regarding who should have the devices at hand, from patients who had experienced anaphylaxis to “anyone at risk,” whether they’d had a previous episode or not. All of this doubled the injector’s market size. Bresch also had Mylan lobby for the Generic Drug User Fee Act, which increased FDA scrutiny on Mylan’s foreign competitors. A injection device from Israeli drug giant Teva stalled in the FDA approval process, and French rival Sanofi was forced to recall its own epinephrine injector.
Thus EpiPen has a near monopoly on injector devices that many literally cannot live without. Since 2007 when a two-pack sold for about $100, Mylan has continually and ruthlessly raised its price. A pack costs more than $600 now. Obviously this creates a financial and health crisis for poorer families and those whose insurance may not cover the EpiPen.
That large a price increase has little to do with Mylan’s manufacturing costs, for the device costs relatively little. The active ingredient, epinephrine, is a generic drug that has been in use for decades, so there are no sunk research and development costs to pay for. Mylan is maximizing its profits, and the public be damned. It recorded $847 million in net income last year on sales of $9.4 billion, with the EpiPen bringing in $1 billion. Pressed by critics, Bresch, who is now the CEO, says that she has a duty to stockholders to make money. She has a lot of other rationalizations and spin too, and even a few legitimate justifications to point to, but the unavoidable fact is that this kind of huge price hike…
…is best explained by greed.
What happened to Galbraith’s perceived duty of corporations to be a good citizens? At least in the case of Mylan and Bresch, he was imagining it.
It would help, if corporations didn’t choose leaders who think ethics is some arcane discipline that inexplicably fascinated the ancient Greeks. Heather Bresch is a classic example. Her curriculum vitae says she has an MBA from West Virginia University, but when the Pittsburgh Post-Gazette contacted the school to verify it, reporters were told that she had attended the program in the late ‘90s but had about half the credits needed for the degree.
Oddly—it may have had something to do with the fact that Bresch’s father now-Senator Joe Manchin, was governor of West Virginia at the time, do you think? Or that Mylan co-founder and chairman Milan Puskar endowed the school’s stadium and business school’s deanship?—the school suddenly reversed itself, saying they’d made a clerical mistake and Bresch did have an MBA. An investigation by the Post-Gazette and a 95-page report by a special WVU panel determined she did not, however.
A company cannot and should not rely on someone like Heather Bresch to make ethical decisions, but then a company that hires someone like Bresch isn’t interested in making ethical decisions.
Big corporations need to re-read Galbraith’s optimistic description of how they can be good citizens and still thrive, or capitalism-hating ideologues like Bernie Sanders will get the upper hand, probably proving how a cure can be worse than the disease. Such socialists and managed economy zealots are right about one thing: unless corporations acknowledge their ethics duties to do more than simply make stockholders rich and accept the principle that theics apply to them too beyond a duty to turn a profit, they are too dangerous and ruthless to be trusted.