Ethical Theories Via Star Alpha Medicines - Essay Example

CASE 3 – Star Alpha Medicines This paper will provide an analysis on Star Alpha Medicines, which is a UK based firm that markets life-saving drugs including Insulin pen in Country X (a south eastern economy). The company has been facing an ethical dilemma because the government of Country X has reduced the drug’s price by 25%, which would certainly make the product money losing and adversely impact the competitiveness in the marketplace. The paper will first throw light over the key stakeholders of Star Alpha followed by demonstration of ethical issues, discussion and application of ethical theories. The researcher will analyse this case using Consequentialist (Utilitarian) and Deontological theories of business ethics; also I would provide a discussion over possible decisions that could be taken in the light of arguments raised by proponents about the importance of these two ethical theories. The key stakeholders in the above mentioned case Star Alpha Medicines, a multinational pharmaceutical company headquartered in the UK and a leading supplier of insulin for diabetics, are the organisational customers, top management and employees, shareholders, government authorities of country X (southern-European country), industry analysts and governments of all nations where Star Alpha Medicines is operational other than country X. In addition, there are two main ethical issues as revealed in this case. The first issue is whether Star Alpha Medicines should withdraw its easy-to-use insulin pen injection product from country X to avoid financial losses and put lives of diabetes patients at stake. The second main ethical issue is whether governments of other nations (other than southern-European country) would use 25% price cut as a basis for setting drug prices and force Star Alpha to reduce the prices in all nations as well to provide relief to customers. Consequentialist (Utilitarian) Theory and Analysis It is worthwhile to point out that Utilitarian theory is actually developed by Consequential school of thought. This theory, in fact, talks the consequences / outcomes of various solutions and alternatives developed by organisations, individuals, governtments etc. to resolve the ethical dilemmas and scenarios. For instance, Utilitarian principle endorses the idea of providing greater welfare to greatest number in society by conducting a cost – benefit analysis. Consequentialists also use point system to analyse viability of different alternatives and to conclude which choice may lead to greatest good for society (Faculty Washington, n.d). As far as the implementation of Utilitarian ethical theory is concerned, it should be pointed out that Dr Elizabeth Patel is an independent board director and Chair of the CSR board committee of Star Alpha Medicines. Indeed, she is a top executive and member of decision – making committee that works for greatest welfare of Star Alpha Medicines and as its associated shareholders. Therefore, Dr Elizabeth is responsible to make an appropriate decision that does not lead to stupendous financial losses as well as negatively impact company’s goodwill and reputation in the marketplace. It is evident that Star Alpha is not the only supplier of insulin pen product in Country X because other medical companies are also operational in the Country X that supply insulin products and fulfill consumers’ growing demand. Therefore, Star Alpha has a legitimate option to withdraw its product from European economy if it can’t meet total production costs. Also, the negative impact of offering insulin products in Country X at 25% reduced rates would be much greater because pharmaceutical industry is regulated by governments in most economies. Hence, government authorities (other than country X) could force Star Alpha to reduce prices, which would make Star Alpha a loss making firm and top management fail to maximise monetary gains and shareholders’ wealth. It should be highlighted that customers (who rely on insulin) have highly inelastic demand for insulin / life-saving drugs as their purchases are not negatively affected to a great extent despite price hikes / reductions. Hence, even if Star Alpha continues offering insulin at 25% low prices, the demand will not increase proportionally neither will lead to economies of scale (mass production and subsequent decline in costs). In short, it will not be economically and socially feasible / beneficial to operate in Country X if production costs for insulin could not be covered. There will be no real negative impact on company’s goodwill or consumer relationship because of price inelastic nature of insulin for diabetes patients. Hence, the company could withdraw its product for greatest welfare of its shareholders and stakeholders. The second best alternative is that Star Alpha could offer insulin at reduced prices (to save precious lives) if it could generate immense profits from selling other products that would easily exceed the expected losses from insulin sale. Although, Star Alpha would have to assimilate financial losses from insulin division, yet it’s assurance of smooth supply of insulin may further enhance company’s image and reputation among insulin users. However, the question arises is whether the improvement in reputation (specifically among insulin users), in case of continuous supply, will lead to any financial benefits or not? The answer is definitely no because of demand and supply mechanisms. Hence, Dr Elizabeth Patel should approve withdrawal Star Alpha Medicine’s insulin product from the market because the company will become less profitable by charging reduced prices. Also, there are different competitors that could possibly meet the derived demand of insulin across Country X. For instance, the pharmaceutical industry is regulated across, almost, all the nations. Therefore, offering insulin at 25% reduced prices at Country X will send a wrong message to governments of other nations. Most probably, they will force Star Alpha will be compelled to maintain the same reduced level of price for all nations instead of price discrimination strategy. Obviously, it will not be pragmatic for Star Alpha to withdraw insulin from all nations and suffer colossal monetary losses. Advantages The first advantage of aforementioned decision is that Governments worldwide will receive a message that Star Alpha could not compromise on stakeholders’ greatest welfare neither could be compelled to offer products at governments’ defined prices (without any rational judgment based on thorough evaluation of cost structure of pharmaceutical companies). Recall that Star Alpha does not enjoy abnormal profits otherwise it would have easily assimilated 25% price reduction. Second, there will not be any real effect on customer and partner relationships because of price inelastic demand of insulin. Third, company could be able to maintain its cost leadership and does not risk jobs of workers and their households’ future. Disadvantages On the negative side, the first demerit is withdrawal may lead to severe shortages of insulin across Country X. Consequently, there will be an upward pressure on prices due to demand and supply mechanisms supported with inelastic demand. Second, some diabetes patients may die because of expected shortages and non-availability of insulin. Deontological Theory and Analysis Alexander (2007) has thrown light over Deontological principle / approach which is also known as anti-Utilitarian approach. As far as explanation of Deontology is concerned, it is worthwhile to mention that all actions, choices, alternatives and solutions that do not bring any harm or negative results to people in a society are regarded as ethically right and moral. However, if actions are illegal or morally incorrect / wrong, they should not be implemented because they may create unrest across the society. Also, Deontologists argue that immoral alternatives may bring positive results; even then they should not be implemented because this will persuade others to adopt the same. Similarly, the moral and ethically correct solutions may sometimes bring negative consequences (in quantitative terms) but they should be supported (Cline, n.d) & (Alexander, 2007). The Deontologist school of thought will condemn the withdrawal of Insulin pen from the Country X because it argues financial gains should not be priortised for human welfare and need fulfillment. Unequivocally, Insulin is need of patients and it is immoral to deprive these patients from the life-saving drug. It is evident that some diabetes patients may die because of expected shortages and non-availability of insulin; therefore, proponents of deontology would persuade Dr Elizabeth to continue offering its insulin product even at reduced prices. Rather, it should try to assimilate this shock by generating additional revenues of other products that have relatively (for example - 0.05 is very high but 0.6 is relative) inelastic demand. Nonetheless, the cost of a human’s life could not be estimated. For instance, deontologists will admire that Star Alpha does not have any bad will for patients; otherwise it would have charged higher prices and earned abnormal profits at the expense of insulin users. Advantages The first advantage of above decision is fulfillment of moral rights will become an example for profit-maximisation firms. Second, the probability of market shortages followed by consumer deaths will be minimised and there will not be any societal unrest. Disadvantages The first demerit is lost profits from continuous supply of Insulin at low prices. While, other demerits include dismissal of some workers and threat of new regulations from governments of other nations after change of laws in Country X. As far as my personal decision is concerned, I first would like to mention that the demand for insulin will never reduce; rather it will increase because of increase in population in near future. Thus, it will not be possible for me as a supplier to continue offering a loss-making product (according to new market price structure) constantly in the market without any government help in the form of rebates or subsidies. Furthermore, I could not withdraw product from every single nation if governments would take Country X as an example and impose new, but implausible, price regulations on drug manufacturers and suppliers. No matter, what the consequences will be for the patients (who demand insulin), I will be obliged to withdraw from insulin as I am accountable to all stakeholders (including direct and indirect employees, related and supporting industries, shareholders etc.) of my company. Indeed, this is solely state’s responsibility to work for the welfare of society and implement decisions that are rational and based on right judgments. Since, government was mistaken and responsible for financial mismanagement; it should not make new mistakes and let manufacturers and all stakeholders suffer through implementation of implausible decisions for business organisations. 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[Online] Available at http://www.conhecimentoeciencia.com/download/GestaoT1BelemMacapa/MaterialTeorico/Stakeholder_2007.pdf [Accessed - November 21, 2010] Faculty Washington (n.d) “Consequentialist Ethical Theories” Washington University [Online] Available at http://faculty.washington.edu/wtalbott/phil240/trconseq.htm [Accessed: November 16, 2010] Cline, Austin (n.d) “Deontological, Teleological and Virtue Ethics” About.com [Online] Available at http://atheism.about.com/library/FAQs/phil/blfaq_phileth_sys.htm [Accessed: November 16, 2010] Alexander, L. 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