The news cycle this week has been dominated by an obscure pharmaceutical company few consumers have heard of and a drug familiar only to people with life-threatening allergies.
When Mylan Phamaceutical raised the price of its EpiPen allergy antidote to $600, all hell broke loose.
The product contains about $1 worth of an actual drug which sold for $57 nine years ago. Consumers – especially parents of children with severe allergies – were outraged. Politicians joined in, castigating Mylan as greedy and heartless.
Company CEO Heather Bresch went on CNBC Thursday to defend her company, attempting to shift the blame for high prices to pharmacy benefit managers and others in the supply chain. In a damage control move, the company also offered to pick up part of the cost of the drug for some patents.
What's the big deal?
But Wall Street just shrugged. What's the big deal, traders might have asked? The company was only doing what it was supposed to do.
"If you can get away with jacking things up and gouging it then you've got to do it, because the shareholders want it," stock picking guru Jim Cramer said on CNBC.
Exactly. In the world of Wall Street, a publicly traded company is expected to maximize profits. If it doesn't, the stock price will fall and the board will replace the management team, from the CEO on down.
Business vs. consumers
When a story like the EpiPen price hike comes along, it perfectly illustrates the tension between business and consumers, whose interests nearly always go in opposite directions.
Competition is good for consumers because it gives them lower prices and more choice. Wall Street hates competition because it reduces profit margins and takes away pricing power.
A monopoly is bad for consumers because they have no choice and have to pay whatever the company with the monopoly charges. Wall Street loves a monopoly because profit margins are high and the company can charge whatever it thinks the market will bear.
It's no accident that on CNBC's popular program “Shark Tank,” the investors get most excited when an entrepreneur presents a product that is patented, so no other business can compete with it.
The conflict between business and consumer interests isn't really a problem when a company is trying to maximize profits on tires or lawn mowers. But a life-saving drug?
It may be a conversation the country is about to have.