FOUR years ago, Novo Nordisk, a Danish drugmaker, was embroiled in a court case in South Africa. Together with 40 other drug companies, it was suing the South African government over its patent laws. For the pharmaceutical industry, this became a public-relations nightmare. Drugmakers stressed the importance of intellectual-property rights to encourage innovation, but non-governmental organisations argued that patents and high prices were condemning millions of poor AIDS patients to death.
Novo Nordisk does not actually make anti-retroviral medicines—the drugs at the heart of the South African debacle—but it is one of the world's leading producers of insulin and other diabetes drugs. Its boss, Lars Rebien Sorensen, realised that the problems the AIDS drugmakers had encountered could well be repeated over medicines for diabetes, a widespread disease in the developing world as well as in rich countries. So Novo Nordisk set up the World Diabetes Foundation, pledging $100m over ten years. The foundation works in 40 developing countries to raise awareness of diabetes and improve care in places where it is seriously underdiagnosed, such as India and China. There is no pressure on the foundation's beneficiaries to buy Novo's products; in fact, says Mr Sorensen, he prefers them to get their drugs from domestic generic suppliers. Where they do use Novo's products, the firm offers an 80% discount on prices charged in America and Europe.
Novo's local offices also teach doctors and patients how to prevent diabetes through diet and lifestyle, as well as setting up ancillary services such as foot-care clinics for diabetic ulcers. It might seem odd for a drug company to promote practices that could possibly reduce its sales, but Mr Sorensen reckons it is worth it for the long term. “Only by offering and advocating the right solutions for diabetes care will we be seen as a responsible company. If we just say, ‘drugs, drugs, drugs', they will say, ‘give us a break'.”
Novo's example suggests that drugmakers might actually further their fortunes by teaching people when, and when not, to use their products. People who feel they are getting their money's worth tend to complain less about the bill. Other pharmaceutical companies have been working along similar lines. Pfizer struck a deal with the state of Florida in 2001, helping 150,000 Medicaid patients to monitor and manage such chronic conditions as asthma and diabetes. In exchange, the state waived its demand for additional rebates on Pfizer drugs. The experiment cut Florida's costs by more than $40m over two years. The firm is now testing other health-management programmes in Britain and Italy.
The industry can certainly help improve the way its products are consumed. Sometimes drugs are overused: one study in Britain showed that two-thirds of prescriptions for so-called SSRI antidepressants, such as Prozac, were for “mild” depression, even though there is no good evidence that the drugs work in these cases. At the other extreme, many drugs, for example those for heart failure, are seriously underprescribed. And patients often fail to take their pills the way they are meant to.
Better use of pharmaceuticals depends on two main factors: a clearer understanding of why and how drugs should be used; and getting people to act on it. Technology can help: e-prescribing, for example, uses computer systems that steer doctors to the most appropriate drug for their patients. Another is setting up the right incentives, such as performance-based payments that reward doctors for achieving certain clinical outcomes in their patients and lower overall medical spending.
Where things have gone wrong, rebuilding reputations takes years. This is easiest for companies that do not have to pander to investors' demands for quick returns. Novo Nordisk, for example, can afford to invest in its programmes because the majority of its voting shares are controlled by a foundation. Roche has been able to make big bets on diagnostics and partnering with outsiders because the company's founding family still controls the voting shares. “The firm long-term commitment of this family which has seen up-and-down cycles of industry over 100 years makes it easier not to fall into the trap of short-term fixes,” says Franz Humer, the company's boss.
But most of the world's big drugmakers have to live with the whims of their investors, who over the past few years have been taking an increasingly short-term view of the industry. This is particularly true of hedge funds, which dip in and out of companies at will. The problem, claims Jeremy Levin, head of strategic alliances at Novartis, is that the respective cycles of the pharma industry and of investors are out of sync: stocks are bought and sold in an instant, whereas industry leaders stay in their jobs for five to ten years, and drug development takes even longer.
But some investors are hoping to encourage drugmakers to take an even longer-term view. Britain's Universities Superannuation Scheme, a £20 billion ($36 billion) pension fund, is concerned about executive pay packages that encourage short-term boosting of earnings per share. The group would like such pay to be based on more meaningful measures, such as the number of drugs moving through clinical development, or return on investment.
“It's very rare that an industry can see a train coming and also has the financial wherewithal to fix it,” says David Blumberg, a consultant with Accenture. Pharma companies still have enough money, and latitude, to make serious changes. They should start at the top. As the current generation of leaders retires, executive boards would do well to look beyond the usual suspects. Some of the drugmakers that have weathered the current storm best have bosses who have moved up from the clinic or the lab. But it is also worth thinking about talent from other industries, such as high technology; just look at the influence that Microsoft's Bill Gates has had on public health worldwide. The trouble is that many drugmakers suffer from a condition best described as “pharmaceutical exceptionalism”—a conviction that their industry is so complex that no one from the outside world can possibly grasp its intricacies.
One company that is looking outward is Wyeth. “We talk to companies in [the] airline, automotive, computer and low-tech [industries], trying to distill in R&D things that other industries do better than us,” says Bob Ruffalo, the company's head of R&D. “I think the last place you will find solutions is in the pharma industry.”
There are plenty of companies outside the industry from whose example drugmakers could learn. BP has managed to sail through rough seas, whereas Monsanto was sunk by genetically modified crops. That example is particularly close to home for the pharmaceutical industry, which saw that Monsanto could not win public approval by simply arguing the merits of its science. “Trust me, I'm a drugmaker,” is no longer enough.
Much of the criticism directed at the big drugmakers is richly deserved, but they do not work in a vacuum. If they are to serve the public better, many other changes are needed in the way health care is paid for and practised. Big pharmaceutical firms are full of clever, creative people who should be able to identify—and act on—big issues without being prodded by outsiders. Big firms, and not just drugmakers, have a tendency to react to events rather than anticipate them, though a few pharmaceutical companies have started trying to look ahead to the next storm.
With both science and social attitudes changing, the days of Big Pharma domination are numbered. Some of today's firms—those that can tap into the best science, streamline their operations and communicate more openly with the wider world—will still do well, although they may be less profitable. But those that cannot reinvent themselves will face decline.
The experience of Big Pharma holds a lesson for biotech firms and other rising stars of health care. Pricing, productivity, patents and safety are as critical to them as they are to the current giants. The next generation of drugmakers needs to deal with these issues more effectively. With the right medicine, the industry's current condition need not be chronic.
This article appeared in the Special report section of the print edition under the headline "Heal thyself"