Morally wrong but not illegal.
That’s the fine line that many companies walk. There is a really good documentary called the Drug Short that uses the story of Valeant to explain the problem with drug pricing in the US.
Valeant operated more like a hedge fund than a pharmaceutical company. The model was pretty simple:
1/ Buy companies that have a drug with a monopoly.
2/ Strip out the R+D so that the typical 18% spent on R+D goes to the bottom line.
3/ Raise prices on existing drugs.
The problem is that many of the drugs were life sustaining drugs for people in middle America who couldn’t afford to pay for them. So the company took extraordinary measures to bilk insurance companies into paying for the prescriptions. To keep patients quiet about the issue, they provided just enough financial support to them through their advocacy efforts.
Hillary Clinton started tweeting and talking about the issue during her campaign. Investors and board members could have looked into it and taken action, but they didn’t. They were reportedly paid large sums to look the other way.
The returns on biotech companies now are largely due to price increases not R+D. The companies can’t afford to lower their prices and profits without disappointing investors which is why nothing has changed.
