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Pharmaceutical Industry And Its Social Responsibility

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The Empire of Cash: an Exploration of the Morality of Capitalism

Pharmaceutical Industry and its Social Responsibility

Corporate social responsibility (CSR) is about what roles corporates play in the society. It is asking a simple but fundamental question: What obligations have a corporate towards society? Possible answers are numerous: Rewarding shareholders? Being in accordance with laws? Being for the benefits of internal and external stakeholders? Acting for a better global health? Ultimately, saying an industry is socially responsible is to review and make a judgment about all of its contributions to society.

Concerning pharmaceutical industry, the review is particularly complex because it concerns the product, management practices and the mission of the industry. From a strictly economic point of view, CSR is about efficiency, quality and security of drugs, their production, distribution and the competitive strategy of each corporate.

The pharmaceutical industry is nevertheless present in a more general and wider context and also considers human health care and shows, especially nowadays with welfare states, a nature of public good. Not like other industries, pharmaceutical corporates are bound to issues that are not only business and market related. Its role is not only economical but also social. "Easing the pain" is not a mission among others. It is related to fundamental values and raises issues of global consumerism. It implies public funding and specific policy.

These are the issues we want to review in this paper. First, we want to investigate what specificity is associated with pharmaceutical industry and what makes the reflection about collective responsibility more complex. Then we will show some challenges addressed to pharmaceutical industries in terms of CSR and they are fulfilled with some examples.

An industry like no other

• A multinational industry

The healthcare industry is one of the biggest in the World. Some corporates are present in more than 100 different countries. The 10 largest multinational drugs companies control over one-third of this market, several with sales of more than US$10 billion a year and profit margins of about 30%.

Developed nations stand for the biggest part of the market. Its economic growth is mostly due to consumer growth rather than population growth, because population is stagnating in these countries.

The top five pharmaceutical markets in the world remain the US, Japan, Germany, France and China, with the US representing 38.1% of global prescription pharmaceutical sales (source: IMS Health, 2012)

Companies currently spend one-third of all sales revenue on marketing their products - roughly twice what they spend on research and development. As a result of this pressure to maintain sales, there is now, in WHO's (World Health Organization) words, “an inherent conflict of interest between the legitimate business goals of manufacturers and the social, medical and economic needs of providers and the public to select and use drugs in the most rational way”.

• A complex industry

The pharmaceutical sector is particularly complex. It can be divided in different industrial sub-sectors: 1) innovative firms, which drive the industry; 2) companies producing generic medication; 3) health related biotech companies; 4) contractual companies specialized in clinical studies; 5) companies producing active substance, specialized in chemistry or biology.

The sector is in fact even wider. Upstream, one must add universities and research centers that practice fundamental research. Governments are sometime investing in this area. Downstream, it implies several stakeholders: distributors, hospitals, physicians and health insurance. These third-parts are part of the market because they can control the price of the drugs or the repayment terms.

• A socially built in industry

The pharmaceutical industry is a socially built in industry. Firstly, it is an industry economically strategic for the growth and economical power of a nation: innovation, high technologies, highly qualified jobs, public healthcare system. Secondly, this industry answers the fundamental need of healthcare in the society. It is defined as a fundamental right by international organizations like the United Nations. This brings the issue for the poorest citizens to pay for this right. Lastly, many different stakeholders' interests are related to the

industry, and these interests are often in conflict. The stakeholders include many different people and organizations: patients, hospitals, nations, local authorities, physicians, insurance companies, drug resellers, universities, foundations, laboratories, citizens defending groups, tax payers, and many others.

In order to regulate these relations, nations must determine a pharmaceutical policy with many objectives, sometimes contradictory (Pasquero, 2003), to 1) guaranty a fair access to quality medicine, that is to say in conformity to some standards; 2) maintain competition between producers; 3) restrict the price of new substances while ensuring a sufficient income to invest in innovations; 4) promote the pharmaceutical industry for developing nations economy; 5) control public expenses for public health.

Pharmaceutical companies then don't act in a vacuum. They have to deal with their partners within a both restrictive and incentive framework.

• A unique business model

On which economic principle is based the prosperity of the industry? What is the business model of pharmaceutical companies? It is most likely the blockbuster business model. Most of the research is looking towards the discovery of a new drug that will monopolize the market for a given pathology. Thousands of molecules are thus studied, and abandoned, before one is find and will give an unseen treatment. If it is a success, the new drug will be protected by a patent, ensuring a continuous source of income during many years. The funds needed for such a discovery are huge, and risks of failing are high. The research is then oriented towards the most profitable pathologies, the one we find mostly in developed countries.

A patent consists of a set of exclusive rights, for a limited period of time and a restricted territory, in exchange for the public disclosure of the invention. The industry is divided in two: companies owning the original product, patented, and generic producers. Generally, generics are cheaper than the original product because manufacturers don't


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