Are Pharma Business Ethics And Performance Interlinked?

Way back in the 1960s, many could realize that of upcoming consumer-focused business environment will bring business practices under intense stakeholder scrutiny. This prompted both the business schools, as well as the commercial organizations to bring the concept of ‘business ethics’ under focus.

However, a boom in the ‘Business Ethics’ curriculum, virtually in every business school, globally, alongside numerous training programs, was palpable around the 90’s. This trend continues even today with as much gusto, but with increasing participation of various companies, primarily to showcase their commitment to ethical standards and values as fundamental business requirements.

Like many other industries, the same is visible in the pharma business, as well. Which is why, many pharma CEO’s, such as of Novartis, emphasized even in its 2018 CEO’s letter to the company shareholders that: ‘We have made clear to everyone at Novartis that we must never compromise our ethical standards to meet business objectives.’ The previous CEO of the same company also used similar words. Moreover, one can find a similar commitment to business ethics being displayed in the respective websites of many other drug companies.

I have discussed various different aspects on this subject since 2011. One such article is titled, ‘Business Ethics, Values and Compliance: Walking the Talk,’ published in this blog on December 26, 2011. However, in this article, after a broad outline, I shall endeavor to explore whether or not compliance with pharma business ethics is intimately related to the company’s performance, especially in the medium to longer term. While doing so, let me help recapitulate what exactly does ‘business ethics’ mean to all?

‘Business Ethics’:

As many would know, the ‘business ethics’ or ‘ethical business behavior’, is defined as ‘acting in ways consistent with what society and individuals typically think are good values. Ethical behavior tends to be good for business and involves demonstrating respect for key moral principles that include honesty, fairness, equality, dignity, diversity and individual rights.’

When this definition is applied to the pharma industry, in general, one finds, despite bringing to market top innovative drugs, a pharma player with dubious ethical behavior, may face a great risk of losing its reputation – a key element for business success, if not survival.

What is happening today in this area?

As, stated above, from various statements of pharma head honchos and also as displayed in their respective websites, it seems to be a serious area for them. Intriguingly, despite such laudable intent, the situation on the ground for many of these companies are quite different. According to reports, even in the Indian Pharma Industry, blatant disregard for maintaining basic ethical standards is, reportedly, not uncommon, either. Interestingly, no less than the Prime Minister of India is, apparently, aware of some of these issues in the pharma industry.

Ultimate ethical goals and consumer perceptions of ethical behavior:

Many research papers have been discussing this point, since long. They also flagged some critical areas, across pharma business domains, for corrective action. One such paper is titled, ‘Ethical challenges in the pharmaceutical industry,’ published in the April 2012 issue of Pharmaceuticals Policy and Law.

It clearly articulated, the ultimate ethical goal in the pharmaceutical industry is to discover and develop safe, efficacious and high-quality drugs that allow patients to live longer, healthier and more productive lives, while making a profit to reward shareholders and to invest in research for the next generation of medicines. The essence of it holds good also for generic drugs, too.

While this may be mostly happening, as the article noted, overall consumer perception of pharma business ethics is largely negative. This avoidable stakeholder perception is primarily triggered by, among others, pricing, data disclosure, clinical study design, marketing practices, cost effectiveness of treatments, and often reported ‘pharmaceutical frauds’, as quoted earlier.

Regardless of drug industry claim, consumers generally perceive new drug discovery as a fundamental business necessity for the industry. Whereas, they are more interested in access and affordability to these drugs, besides other related business practices. This brings us to the question – Are alleged breach of ‘business ethics’ systemic in nature for pharma?

Are ‘business ethics’ related issues, systemic in nature?

While many pharma CEOs keep highlighting, how ethical their operating standards and corporate values are, reports keep coming that these issues are not superficial but systemic in nature. One such report was published in Fierce Pharma on October 14, 2019 carrying a headline – “Novartis appears to have a systemic ethics problem. What can it do make amends?” Justifying this caption, the news article elaborated:

‘When a company is repeatedly embroiled in scandals or compliance breaches—from on-the-ground sales activities to decisions made at the very top—an isolated infection isn’t to blame. It’s a systemic illness. And judging by the long list of allegations and infractions at Novartis, that’s what the Swiss drug maker is facing. But is there a cure? Some soul-searching and a closer look at the company’s culture could help.’

Quoting a corporate ethics and compliance expert Hui Chen, the article underscored, for such malpractices ‘don’t just blame everything on a few rogue employees.’ Pharma leadership may wish to accept this reality and make amends wherever necessary, soon. With the above perspective, it will also be worth looking at, how is this toxin invading a corporate system, jeopardizing its business performance, and why?

Even patients expect pharma to demonstrate ethical business practices:

Generating new and more prescriptions for patients’ treatment being the lifeblood of any pharma business, the core strategic focus of the business should naturally be on patients, and the society they belong to. This is a fundamental requirement, not just for making profit in business, but for its survival, too. It is now clear that even patients are becoming increasingly aware of this fact.

Consequently, they expect the pharma players to demonstrate ethical behavior and follow ethical business practices, instead of being on a self-serving mode. Scores of instances, across the globe, suggest that many pharma players are failing again, again and again in this critical area of business. One may say that commercial interests overshadowing consumers’ interests, is not uncommon in business. But wait a minute, we are talking here about an industry that patients look up to, while fighting dreaded diseases to save lives. Thus, the question that follows – why is this virus of non-compliance to business ethics invading a corporate system?

How is this virus invading a corporate system?

Search for an answer to this question isn’t new. It was discussed in the Harvard Business Review - more than 25 years ago, in its May-June 1993 article – ‘What’s the Matter with Business Ethics?’ Even at that time, the author noted: The more entrenched the discipline of business ethics becomes in business schools, the more bewildering it appears to managers. This discussion brought to the fore many interesting points. One such was, the field of business ethics is largely irrelevant for most managers. It’s not because that they are hostile to the idea of business ethics, but ‘real-world competitive and institutional pressures lead even well-intentioned managers astray.’

Presumably, because of this reason, as the Author acknowledged, all managers face “hard issues whose solutions are not obvious,” where the “reconciliation of profit motives and ethical imperatives is an uncertain and highly tricky matter.”

Thus, I reckon, many organizations find achieving organizational expectations, especially for demanding short-term financial goals, while maintaining business ethics, is becoming a real challenge. Similar sense would obviously influence many practicing managers, too. Now, the question that comes is, what happens to the organization, if its managers keep doing so to achieve the set financial objectives of the company?

When achieving end-goals by following business ethics is considered impractical:

If the business strategy is increasing brand prescription generation by any possible manner to outperform competition, the means adopted to meet the goals may find easy acceptance by many in the company. In the pharma industry, such situation may arise while chasing annual and monthly targets or at times closing the month-end sales deficits, too. Such acts may help achieve short-term goals with flying colors, regardless of blatant violation of business ethics or breaking legal norms, such as, bribing prescribers for writing prescriptions.

When remains undetected, such practices continue. But, when repeated compromises on the ethical practices of a company at the cost of patients’ interest, surface and reported by the media, one precious asset of the organization gets seriously damaged – its reputation. Again, one may ask, will it have any impact on the company’s medium to long term financial performance?

How are ethical ‘business practices’ and the company’s performance interlinked?

The fine thread that links these two, is the corporate reputation – an invaluable asset of the organization, having a strong connect with stakeholders, including patients – for a sustainable business growth. The broader aspects of its consumer-connection have been discussed by both academia and individual experts. One such illustration may be drawn from the Charter College of the United States.

It underscores: ‘Not only does it feel good to be part of a company with a great reputation, but it’s great for business. When you have a reputation for consistently being ethical in how you source and build products, and treat employees, customers and the community, more people will want to do business with you. This means you’ll appeal to a variety of people and organizations that will be great for boosting your business…’

This means, compromising with ethical business practices to achieve short-term goals comes at a great risk of jeopardizing the medium and long-term success and sustainability of the organization. This is not a mere theoretical possibility. Research studies also vindicate that ‘reputation is an economic multiplier.’

Reputation is an economic multiplier:

Some may conclude, ethical business practices may help enhance company’s reputation, but don’t create any significant impact on business performance. This point has been well deliberated by the Reputation Institute (RI) in its analysis, titled - ‘The Business Case for Reputation.’

The analysis established ‘a strong reputation yields 2.5 times better stock performance when compared to the overall market.’ This vindicates the point that reputation indeed enhances corporate performance for its stakeholders and is an economic multiplier. Understandably, the paper reiterated: ‘This is not a bold claim — it’s a fact.’

Conclusion:

The drug industry, in general, and research-based pharma players in particular, seem to feel that propagating its focus and efforts on bringing innovative drugs to the market, would help build a good reputation. But it doesn’t really happen that way. Instead, public perception that helps create corporate reputation, is often driven mainly by issues such as drug pricing – access and affordability, besides various widely reported alleged unethical business practices of drug companies.

Many such purported breaches in ethical behavior of a company are recurrent, such as one that was reported on October 22, 2019. It said, Novartis’ Zolgensma launch has been anything but boring: First a record-setting price tag, then a data-manipulation scandal and now the company is facing “manufacturing questions” that will delay Zolgensma’s approval in the EU and Japan.

The impact of these alleged unethical business practices of drug companies also got reflected in the 2018 2018 Gallup Poll where the pharma industry came out as the most poorly regarded industry, ranking last on a list of 25 industries that Gallup tests annually. Interestingly, the Reputation Institute (RI) also reported a 3.7 percent decline in pharma reputation between 2017 and 2018.

Thus, the core point that stands out is, ethical business practices and company performance are interlinked. Ethical business behavior plays a key role to enhance a company’s reputation, which in turn add value to the long-term financial performance of the company and vice-versa.

By: Tapan J. Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

 

A Force Multiplier: An “Armageddon”: A Contender for Supremacy in the Generic Pharma World

It is very important for any country to ensure access to most appropriate medicines for the patients as and when they require. In many disease areas such access can be remarkably improved through affordable generic drugs, which offer significant savings in cost for absence of monopolistic situation and intense competitive pressures.

In many countries like, India and China to further augment this process, the Government price control on essential medicines is already in force.

A paper titled, “Generic Medicines: Essential contributors to the long-term health of society” highlights the following facts on such drugs:

• Provide an affordable, gold standard medication for many major illnesses

• Allow access to medicines for a greater proportion of the population

• Stimulate healthy competition with the branded sector

• Deliver savings to national health bills

• Are high quality products

Generic companies also innovate:

The same paper also highlights, though innovation has been traditionally perceived as the domain of the research-based originator companies, generic medicine companies often spend significant sums on innovating and improving formulations, enhancing delivery systems and finding solutions to patient compliance issues.

It also says, the generics medicine industry spent 7 percent of revenues on R&D alone, in 2007 and created 150, 000 jobs only in the EU.

Continuous growth of generic drug industry is critical:

Taking all these factors into consideration, continuous growth of the generic drug industry is critical in ensuring broad access to medicines to the population of any country at an affordable price. Nothing else can achieve this objective.

In the developed countries like, Canada, Denmark, Germany, Netherlands, UK and even USA, large volume of generic medicines are prescribed. Most of these countries have put in place appropriate regulations that facilitate market entry of generic drugs soon after patent expiry. All of them, by and large, encourage even more prescriptions of generic medicines.

Of course, there are many instances of deliberate attempts to slow down generic entry, which I shall deal with separately at some other time.

Quality perception for generic drugs:

In many countries the general perception of efficacy and safety standards of generic drugs is still not satisfactory. In many occasions, these are reportedly prompted by well orchestrated campaigns by interested private stakeholders in this area.

However, in markets, like the EU, Canada and the USA Governments do take public awareness measures to dispel such doubt. Unfortunately not enough similar initiatives have been taken in India with tangible results. The reason could probably lie in the existence of a powerful branded generic lobby in the country, unlike many other markets of the world.

The market:

A report of Frost & Sullivan titled, “Generic Pharmaceuticals Market – A Global Analysis” stated, the global generic pharmaceuticals market registered a revenue of US$ 135.85 billion in 2010 with a growth rate of 11 percent. The top eight global markets, namely the United States, Germany, France, the United Kingdom, Canada, Italy, Spain and Japan account for 80 percent of the total generics market. The United States will continue to remain the largest market in the world for generic pharmaceuticals in value terms.

It is estimated, the global generic drug market will grow to US$ 231.02 billion by 2017 with a CAGR 9.3 percent from 2010. The key growth drivers being:

  • Patent expiration of some blockbuster drugs
  • Entry of more biosimilars
  • High growth of emerging markets
  • Cost containment measures of governments and healthcare service providers in various countries

BRIC Countries strongly defend generic drugs:

Allegation of attacks on the generic industry by the patent holders of various drugs is also heard quite frequently.

It was reported that in a TRIPS Council meeting in mid 2012 held at the World Trade Organization (WTO), India, Brazil and China defended the right of access to cheap generic medicines by poor countries, strongly resisting attempts by the US, Japan and some other developed countries to club counterfeits or copies of patented drugs with fake or spurious ones.

They also argued that infringing intellectual property rights should not be confused with sub-standard products.

Many believe that because of the reported ‘clout of India, China and Brazil’ in the WTO, this attempt may not fructify despite such attempts.

India is surging ahead:      

It is interesting to note that out of top 10 fastest growing generic companies of the world, 4 are of Indian origin namely Glenmark, DRL, Sun Pharma and Taro (owned by Sun Pharma) and 3 definitely are home grown Indian companies, as follows:        

Top 10 Fastest Growing Generic Companies of the World:

No. Company Country Sales US$ Million Growth 2011 (%) Growth 2010 (%)
1. Sagent Pharmaceuticals USA 152 106 153
2. Perrigo USA 620 80 45
3. Nichi-Iko Pharmaceutical Japan 1300 79 25
4. Watson Pharmaceuticals USA 3320 46 38
5. Glenmark India 778 37 17
6. Dr. Reddy’s Laboratories (DRL) India 1480 34 15
7. Taro Pharmaceutical Israel 436 33 11
8. Sun Pharmaceuticals India 1650 29 52
9. Veropharm Russia 156 24 28
10. Polpharma Poland 580 22 20

(Source: FiercePharma)

India the pharmacy of the developing world:

According to a recent report India is now emerging as the ‘Pharmacy of the Developing World’, as it produces a large volume of high-quality, affordable generic medicines.

The study also highlights, “as a result of tough competition from the generic players of India, the price of first-line ARVs dropped from more than US$ 10,000 per person per year in 2000 to around $150 per person per year today. This significant price decrease has helped to facilitate the massive expansion of HIV treatment worldwide: more than 80 percent of the HIV medicines used to treat 6.6 million people in developing countries come from Indian producers, and 90 percent of pediatric HIV medicines are Indian-produced.

Another study indicates, as a result of phenomenal success of the homegrown pharmaceutical companies:

  • 67 percent of medicines exports from India go to developing countries.
  • Main procurement agencies for developing countries’ health programs purchase their 
medicines in India, where there are quality products at low prices.
  • Approx. 50 percent of the essential medicines that UNICEF distributes in developing countries 
come from India.
  • 75-80 percent of all medicines distributed by the International Dispensary Association (IDA) to 
developing countries are manufactured in India. (IDA is a medical supplier operating on a 
not-for-profit basis for distribution of essential medicines to developing countries.)
  • In Zimbabwe, 75 percent of tenders for medicines for all public sector health facilities come from 
Indian manufacturers,
  • The state procurement agency in Lesotho, NDSO, states it buys nearly 95 percent of all ARVs 
from India.

This situation is going to further improve at a galloping pace in the years ahead with proper encouragement from the Government of India.

India tops the chart for ANDAs:

India, with its rapidly growing homegrown generic players, continues to top the Chart for Abbreviated New Drugs Applications (ANDAs) with USFDA by increasing its share year after year, as follows:

Year

Global

India

India’s Share %

2007

492

133

24.1

2008

483

143

27.9

2009

419

132

31.3

2010

419

142

34.0

2011

431

144

33.4

2012

476

178

37.4

Source: Pharmabiz, January 7, 2013 / US FDA

India tops the Chart in DMFs also:

Similarly, India continues to top the Chart with its Drug Master Files (DMF) for Active Pharmaceutical Ingredients (APIs), as follows:

No. Countries Filing Type II DMF
 1. India 2759
 2. USA 1323
 3. China 870
 4. Italy 644
 5. Japan 270
 6. Spain 268
 7. Germany 266
 8. France 170
 9. Israel 170
 10. Switzerland 136

Source: Pharma Times, August 2012

Moreover, domestic pharmaceutical companies have now between themselves, around 175 USFDA and approximately 90 UK-MHRA approved manufacturing units, to cater to the needs of high quality and affordable pharma products across the world. 

India not loosing its R&D Focus:

Discovery of new drugs being the bedrock for the pharmaceutical industry, domestic Indian companies are also not loosing focus on R&D activities. The New Chemical Entity (NCE) pipeline of the homegrown companies as on 2012 is as follows:

Piramal Healthcare 23
Suven Life Sciences 14
Zydus Cadila 11
Glenmark 8
Biocon 7
Torrent Pharma 6
Sun Pharma 5
Wockhardt 5
Ranbaxy 2
Dr Reddy’s Lab 2
Others 5

Source: Citeline Intelligence Services: Pharma R&D Annual Review 2013

Is the “west pressurizing India to change tack?”

In an interesting article published in ‘The Guardian’, the author observed that the western Pharmaceutical companies are putting health of world’s poor at risk. It commented that India makes cheap medicines for poor people around the world, but the EU, pharmaceutical firms and now the US are pressuring the ‘pharmacy of the developing world’ to change track. The same sentiment was echoed in another article published in Pharma Times.

However, the experts do feel that the Government of India, mostly due to intense public pressure, is well prepared to address any such situation, come what may. Thus, despite any retarding forces coming into play, the incessant march of the home grown pharmaceutical companies in search of excellence, especially in this space, is expected to continue even at a brisker pace.

The triggering factor:

Experts opine that the reason for excellence of the domestic Indian pharmaceutical industry, especially in the generic pharma landscape, is due to the amendment of the Indian Patents Act in 1970 allowing only process patents for drugs and pharmaceuticals.

The Government of India reportedly had taken such a path-breaking decision in the 70’s to lay the foundation of a vibrant domestic pharmaceutical industry capable of manufacturing low cost and high quality modern medicines for the health security of the country leveraging latest technology, including IT.

This decision was also directed towards creation of ‘drug security’ for the country as in the 70’s India was very heavily dependent on drug imports and the domestic pharmaceutical industry was virtually non-existent. 

Conclusion:

Paying kudos to the pharmaceutical ‘Crown Jewels’ of India, many industry watchers feel that the global pharma players are now keener than ever before to work with the domestic pharma industry, in various areas of business. This augurs well for all, as it will help creating a win-win situation to add further momentum to the growth of the pharmaceutical industry of India.

Be that as it may, taken in entirety and strengthened by its well-balanced patent laws, India  will continue to have a significant force multiplier effect to emerge as a global force to reckon with, particularly in this important space.

In tandem, with other significant cutting edges, as mentioned above, India is now well poised to be an “armageddon” – a contender of supremacy as a “pharmacy of the developing economies” despite selective allegations and  detrimental efforts by some vested interests.

By: Tapan J. Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.