What to Read Next
The COVID-19 pandemic may well prove to be the biggest challenge for humankind since World War II. Pharmaceutical companies will be key to fighting a disease that is bringing health care systems to their knees and sending shock waves through economies across the globe. They have the scientific know-how, the management capabilities, and the physical and technological capacities to develop treatments — and, ultimately, a vaccine against the virus.
For pharma, however, the COVID-19 pandemic is a moment of both great opportunity and great challenge. If the industry reacts quickly and responsibly, it may have the chance to redeem a reputation that’s been tarnished for years by, for instance, illegal marketing practices, corruption scandals, and obscene pricing on vital drugs. However, if pharma companies fail to demonstrate that they truly put patients’ needs first and that they are willing and able to successfully collaborate with other players in the race to develop treatments and vaccines, their legitimacy will be fundamentally questioned. Critics will ask, “What is the point of an industry that is often one of the most profitable if it falls short when we need it most?”
Research Updates From MIT SMR
Get weekly updates on how global companies are managing in a changing world.
Please enter a valid email address
Thank you for signing up
Before COVID-19, a growing number of business leaders and shareholders across many industries were questioning traditional ideas about the purpose of business — specifically, the notion that the overarching goal is to maximize shareholder value. In the shadow of the unfolding climate crisis, the belief that organizations should have priorities beyond increasing financial returns was gaining new traction.
Pharma’s answer to this call has been to double down on developing products that help protect public health and find cures to diseases. On one level, it has endeavored to live up to this promise through massive investments in R&D. In a free-market society where every company tries to be better and faster than its competitors, pharmaceutical companies — armed with intellectual property rights and, in many cases, the right to set prices — have developed, produced, and marketed products that have made people heathier. For that, we should be thankful.
Yet there is a flip side to how pharma operates that’s highly problematic. Drug development is hugely expensive. The average bench-to-bedside cost for any given drug generally exceeds $1 billion — with no assurances that an investment will pay off. In fact, many investments are duds, so exceptional rewards are seen as a necessary lure. Notwithstanding the cost pressures, the industry has been sharply criticized for focusing too much on diseases of affluence such as Type 2 diabetes and ignoring tropical diseases — and big killers — like malaria, for which the treatments are less profitable. And for all the drug development success stories — such as the progress we have seen in HIV and cancer treatments — we continue to hear maddening tales of people with acute health needs who can’t afford the escalating prices of critical medications.
The pricing behavior of pharma companies isn’t surprising, given how the industry operates and how individual players compete. Although the industry is guided in principle by patient centricity, it is also made up of myriad companies trying to outsmart and outpace their rivals. Competition among individual pharmaceutical companies boosts innovation and spurs the invention of new or better drugs and vaccines as well as more efficient processes.
But this competition-based model, with every company for itself, could be a real liability in the race to develop drugs and vaccines to combat COVID-19. In our view, a better approach would be for pharma companies and partners outside of the industry to temporarily hit the pause button on their traditional ways of doing business and find new ways to work together, as some scientists are now advocating.
Fighting the Pandemic Collectively
A successful effort would be based on three steps — and would require companies accustomed to working largely on their own to pool resources with competitors and work more closely with state organizations and bodies like the World Health Organization (WHO) to fight the disease.
Step 1: Share research to develop treatments for the virus. In a competitive industry, every company pursues research on its own. Companies working on the same problems don’t share the results with one another. This secrecy might make sense in ordinary times to protect R&D investments. But in emergency situations, when many lives are at stake, these rules need to be relaxed so companies can pool their research with that of competitors and academia.
Although some health care experts worry that big pharma is still too focused on gaining advantage over the competition, companies seem to be more open to collaboration. The world’s biggest pharmaceutical companies, including Roche, Sanofi, and Johnson & Johnson, have said they will collaborate and share resources and clinical trial data with governments and one another to help increase testing capacity and develop treatments for COVID-19. Companies have to responsibly exploit every collaborative measure that is legally possible. One option is to create freestanding joint ventures focused on COVID-19. However, in the event that these are too complicated to get up and running, similar effects could be achieved if governments allowed existing businesses to work together without the usual antitrust restrictions. Governments and public health systems might also look for new ways to pool patents and encourage companies to share the cost burden of the research.
Another possible opportunity area is repurposing drugs developed for treating other diseases, such as malaria, Ebola, and HIV, to fight symptoms of COVID-19. Although such avenues are worth studying and may yield benefits, they are not without danger. Existing drugs would probably still need to go through clinical trials before they could be used safely with large numbers of patients in a new context. Typically, results from drug trials are not shared with other companies. However, given that clinical trial capacity is limited, pharmaceutical companies should look for ways to increase it by enhancing collaboration with governments and hospital systems. To date, the most promising attempts to enhance collaboration can be found in a global trial organized by the WHO called Solidarity that is testing the potential of multiple therapies, old and new, against the coronavirus.
Step 2: Team up to manufacture new drugs. If an off-label drug shows sufficiently good results, or if a new drug or vaccine is discovered, the manufacturing capacity of an individual company likely would be incapable of meeting global demand, especially given the partially broken logistical chains and the social distancing requirements that slow down production. The development and production of a new vaccine can take up to 10 years; even if dramatically accelerated in the face of a global pandemic, it would still take an estimated 12 to 18 months. Extraordinary measures will be required to ramp up production for global distribution of vaccines shown to be effective. In a time of crisis, pharmaceutical companies should pool their manufacturing capacities in order to meet global demand.
Step 3: Forgo normal approaches to pricing and drug allocation. This is the shadowy underbelly of competition in the pharma industry. In the early days of the global health crisis, with stock markets in a freefall, pharma company Gilead was accused of blatant profiteering at society’s expense. In early March 2020, the company secured exclusive rights to its experimental drug Remdesivir, originally developed to treat Ebola and considered by some to be a potential coronavirus treatment. Orphan drug status, as it is known, is intended for U.S. drugs used by fewer than 200,000 people. While tests had confirmed fewer than 60,000 positive COVID-19 cases in the United States at the time of Gilead’s application to the U.S. Food and Drug Administration, the lack of testing meant that the ultimate number of cases was likely to reach many times the 200,000 cap for orphan status. In the face of protests, the company asked the FDA to rescind the orphan drug status, thereby waiving its claim to significant tax incentives and control over prices for at least seven years.
Adopting New Business Practices
Pivoting away from its established business practices won’t be easy for many pharma companies — old habits die hard. In January 2020, a small New Jersey drugmaker, Rising Pharmaceuticals, almost doubled the price of chloroquine (a long-standing antimalarial drug), which is being tested against COVID-19. After a public outcry, company officials said the price rise was coincidental; they restored the earlier price once they realized that the medication might be in demand because of the coronavirus outbreak. In contrast, AbbVie preemptively waived all intellectual property rights worldwide on its drug Kaletra (a combination of two antivirals used to treat HIV), which some people think might prove effective in treating COVID-19 symptoms. This allows lower-priced generics to enter the market. Similarly, Johnson & Johnson, recently under fire for its association with the opioid crisis, has announced that it will start trials by September 2020 of a vaccine that, if successful, it would make available on a not-for-profit basis during the pandemic emergency.
Regardless of which pharma companies eventually discover therapeutic drugs or vaccines against the virus, even with extensive collaboration to ramp up production, supply will lag global demand in the early months. Under any scenario, there will be shortages. So who will get the treatments first — and at what prices?
There should be some mechanism that allows pharmaceutical companies involved in developing cures and vaccines to protect their investments; the right method will need to be worked out. But if pharma companies decide this question on the basis of who is ready and willing to pay, the ethics of the industry will remain in doubt. Although governments play a vital role in addressing questions about pricing and allocation, they alone might not be capable of making the right decisions either. In mid-March, there were reports that President Donald Trump attempted to secure exclusive rights to buy a promising vaccine under development at a German biotech company. Unfortunately, such efforts to secure a national advantage are not unique. Even in Europe, there are indications of a drift away from collaboration toward nationalism.
We see that, absent responsible leadership and enforcement of proper rules by governments, the pharmaceutical industry could assume a governance role. For example, it might be easy to assert that the first batch of a proven vaccine should go to health care workers treating COVID-19 patients. But who should be next? Should we prioritize the newly recognized front-line workers — Amazon package deliverers, Uber drivers taking suspected COVID-19 cases to the hospital, or checkout clerks and shelf stockers working for food retailers? Or the millions of people in developing countries who, without the vaccine, might become seriously ill but unable to receive treatment at hospital facilities because they don’t exist?
Companies and their executives lack the legitimacy to make these public-policy decisions individually. However, companies could organize a large-scale multistakeholder discourse that prepares both industry players and society in general for the moment when there are viable treatments but they are still in limited supply amid high demand. If governments fail to launch this discourse, pharma and the WHO might step in to fill the gap.
The COVID-19 pandemic has led governments around the globe to introduce unprecedented measures, including lockdowns and large-scale surveillance operations. Pharma, in collaboration with governments and regulators, needs to adopt some of its own unorthodox measures and temporarily sacrifice the sacred cow of competition. In concert with governments, it needs to prepare to suspend and override patents and take other measures, including price controls, and ramp up collective manufacturing capacities in order to counter the worst of the global crisis.
Only by taking extraordinary actions can pharma truly live up to its higher purpose of developing products that help to protect health and cure diseases. There is some evidence that important shifts are underway. But even when the need for change is clear and urgent, it’s not easy to teach old dogs new tricks.