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Can Benefit Corporations Redeem the Pharmaceutical Industry?
COMMENTARY
Can Benefit Corporations Redeem the Pharmaceutical Industry? Limited access to medications has characterized much of the developing world for some time, and the United States may be about to join it. The cost of some life-saving specialty medications has risen so far so fast that before too long, only a few Americans may be able to afford them. A few years ago, the price of Provenge (sipuleucel-T), a treatment for prostate cancer, reached $93,000 for a course of treatment and sparked widespread outrage. Last year, Sovoldi (sofosbuvir), a treatment for hepatitis C, entered the market with a price tag of $1000 per pill. Physicians and patients alike bemoan the possibility that many patients may be priced out of state-of-the-art medical care. We may be reaching a tipping point in the exorbitant cost of medications beyond which Americans will no longer be able to assume they can receive the life-extending medications they need. From where does a sea change in this state of affairs arise? Pressures for ever-higher profits are driving many pharmaceutical firms to push the pricing envelope beyond reasonable limits. America’s outsized reliance on the private sector for healthcare is not likely to change, but the profit motive need not dictate endless price increases. We need a business model that combines the incentives for efficiency and access to private capital that characterize the private sector with the adherence to a public mission of access to care, maintenance of quality, and restraints on costs that characterizes many nonprofits. We propose the model of the benefit corporation for the pharmaceutical industry as a for-profit corporate structure that combines the best features of both sectors. These entities sell equity to private investors who expect a return on their investments, but they also promise to adhere to a social mission. Their directors are held to a fiduciary duty to advance the company’s mission, which is enforceable by law, but is balanced by a responsibility to shareholders to generate profits. Research suggests that mission-driven
Funding: None. Conflict of Interest: None. Authorship: Both authors had a role in writing the manuscript. Requests for reprints should be addressed to Arnold R. Eiser, MD, MACP, Drexel University College of Medicine, 2900 W Queen Lane, Philadelphia, PA 19129. E-mail address: [email protected] 0002-9343/$ -see front matter Ó 2016 Elsevier Inc. All rights reserved. http://dx.doi.org/10.1016/j.amjmed.2016.02.012
companies such as these can achieve investment returns comparable to those of other for-profit corporations, while offering shareholders the knowledge that they are investing in something that places primary emphasis on social benefit.1 In the case of pharmaceutical companies, the primary social mission would be to develop and sell lifesustaining therapies at prices that do not place an unsustainable burden on patients or society at large. Benefit corporations, or B Corps, can verify their adherence to a public mission through certification by a nonprofit organization known as B-Lab. That organization observes on its web site: “Individually, B Corps meet the highest standards of verified social and environmental performance, public transparency, and legal accountability, and aspire to use the power of markets to solve social and environmental problems.”2 Novo Nordisc, the Danish global pharmaceutical company, is an example of a benefit corporation. Under its distinctive corporate structure, a majority of shares is owned by a foundation dedicated to the mission of curing diabetes.3 The foundation thereby has the majority voice in corporate decisions. The company’s bylaws state that a purpose beyond generating profits is to promote social and humanitarian, as well as scientific, progress. The company scores near the top of the Access to Medicine Index, which ranks companies on their efforts to improve access to medications in developing countries. Is there any healthcare organization that should not be held to a higher standard than simply serving the interests of shareholders? A singular corporate focus on profitability cannot impose the needed checks and balances that a more morally robust benefit corporation can accomplish. By broadening the focus, the benefit corporation offers a legal means for introducing binding ethical considerations of corporate responsibility into the pharmaceutical industry. Klaus Leisinger, a noted social scientist and economist and the former managing director of the Novartis Foundation, has observed, “A new social contract for globalization with a human face is an idea whose time has come. A credible commitment to enlightened corporate social responsibility will become one of the most important areas of future corporate leadership and success.”4 One means that Congress could use to promote such a transformation is to grant B Corps preference when federal
2 agencies seek partners for Cooperative Research and Development Agreements (CRADAs). These arrangements, authorized through the Stevenson-Wydler Technology Innovation Act of 1980 and the Technology Transfer Act of 1986, create a structure through which a federal agency and a private organization can work cooperatively to commercialize a new technology. The 2 partners share research and development costs, and the private party can receive a license to sell any marketable product that emerges.5 Cooperative Research and Development Agreements have proved extremely advantageous for several pharmaceutical firms, and they could prove to be a powerful incentive for some companies to accept B Corp status. For example, a CRADA between Bristol-Myers Squibb and the National Cancer Institute that began in 1991 led to the commercialization of paclitaxel, the best-selling oncology drug in history, under the brand name Taxol. Bristol-Myers Squibb realized $11 billion in sales from the drug through 2002. A subsequent CRADA with Angiotech led to the commercialization of paclitaxel as Taxus, a coating for cardiac stents, which generated $3 billion in revenue in its first year on the market.6 There is widespread consensus that the pharmaceutical industry is in need of substantive ethical reform. This is a vital industry that has an important social mission. The Benefit Corporation provides a legal vehicle for improvement in this regard in a way that preserves profitability while advancing an important mission that benefits everyone.
The American Journal of Medicine, Vol -, No -,
-
2016
Arnold R. Eiser, MD, MACPa,b Robert I. Field, PhD, MPH, JDb,c,d a
Drexel University College of Medicine Philadelphia, Pa b Leonard Davis Institute of Healthcare Economics University of Pennsylvania Philadelphia c Drexel University Dornsife School of Public Health Philadelphia, Pa d Drexel University Kline School of Law Philadelphia, Pa
References 1. Gray J, Ashburn N, Douglas H, Jeffers J. Great expectations: mission preservation and financial performance in impact investing. Wharton Social Impact Initiative. Available at: http://socialimpact. wharton.upenn.edu/wp-content/uploads/2013/11/Great-Expectations_ Mission-Preservation-and-Financial-Performance-in-Impact-Investing_10.7. pdf. Accessed December 5, 2015. 2. B Lab. Why B Corps matter. Available at: www.bcorporation.net/whatare-b-corps/why-b-corps-matter. Accessed December 4, 2014. 3. Novo Nordisk. Share and ownership structure. Available at: www. novonordisk.com/investors/Shareinformation/share-and-ownershipstructure.html. Accessed December 4, 2015. 4. Leisinger KM. The corporate social responsibility of the pharmaceutical industry: idealism without illusion and realism without resignation. Bus Ethics Q. 2015;15(4):577-594. 5. National Institutes of Health. CRADAs: overview. Available at: www. ott.nih.gov/cradas. Accessed December 4, 2015. 6. Field RI. Mother of Invention: How the Government Created “FreeMarket” Health Care. New York: Oxford University Press; 2007:74-78.
Can Benefit Corporations Redeem the Pharmaceutical Industry? Limited access to medications has characterized much of the developing world for some time, and the United States may be about to join it. The cost of some life-saving specialty medications has risen so far so fast that before too long, only a few Americans may be able to afford them. A few years ago, the price of Provenge (sipuleucel-T), a treatment for prostate cancer, reached $93,000 for a course of treatment and sparked widespread outrage. Last year, Sovoldi (sofosbuvir), a treatment for hepatitis C, entered the market with a price tag of $1000 per pill. Physicians and patients alike bemoan the possibility that many patients may be priced out of state-of-the-art medical care. We may be reaching a tipping point in the exorbitant cost of medications beyond which Americans will no longer be able to assume they can receive the life-extending medications they need. From where does a sea change in this state of affairs arise? Pressures for ever-higher profits are driving many pharmaceutical firms to push the pricing envelope beyond reasonable limits. America’s outsized reliance on the private sector for healthcare is not likely to change, but the profit motive need not dictate endless price increases. We need a business model that combines the incentives for efficiency and access to private capital that characterize the private sector with the adherence to a public mission of access to care, maintenance of quality, and restraints on costs that characterizes many nonprofits. We propose the model of the benefit corporation for the pharmaceutical industry as a for-profit corporate structure that combines the best features of both sectors. These entities sell equity to private investors who expect a return on their investments, but they also promise to adhere to a social mission. Their directors are held to a fiduciary duty to advance the company’s mission, which is enforceable by law, but is balanced by a responsibility to shareholders to generate profits. Research suggests that mission-driven
Funding: None. Conflict of Interest: None. Authorship: Both authors had a role in writing the manuscript. Requests for reprints should be addressed to Arnold R. Eiser, MD, MACP, Drexel University College of Medicine, 2900 W Queen Lane, Philadelphia, PA 19129. E-mail address: [email protected] 0002-9343/$ -see front matter Ó 2016 Elsevier Inc. All rights reserved. http://dx.doi.org/10.1016/j.amjmed.2016.02.012
companies such as these can achieve investment returns comparable to those of other for-profit corporations, while offering shareholders the knowledge that they are investing in something that places primary emphasis on social benefit.1 In the case of pharmaceutical companies, the primary social mission would be to develop and sell lifesustaining therapies at prices that do not place an unsustainable burden on patients or society at large. Benefit corporations, or B Corps, can verify their adherence to a public mission through certification by a nonprofit organization known as B-Lab. That organization observes on its web site: “Individually, B Corps meet the highest standards of verified social and environmental performance, public transparency, and legal accountability, and aspire to use the power of markets to solve social and environmental problems.”2 Novo Nordisc, the Danish global pharmaceutical company, is an example of a benefit corporation. Under its distinctive corporate structure, a majority of shares is owned by a foundation dedicated to the mission of curing diabetes.3 The foundation thereby has the majority voice in corporate decisions. The company’s bylaws state that a purpose beyond generating profits is to promote social and humanitarian, as well as scientific, progress. The company scores near the top of the Access to Medicine Index, which ranks companies on their efforts to improve access to medications in developing countries. Is there any healthcare organization that should not be held to a higher standard than simply serving the interests of shareholders? A singular corporate focus on profitability cannot impose the needed checks and balances that a more morally robust benefit corporation can accomplish. By broadening the focus, the benefit corporation offers a legal means for introducing binding ethical considerations of corporate responsibility into the pharmaceutical industry. Klaus Leisinger, a noted social scientist and economist and the former managing director of the Novartis Foundation, has observed, “A new social contract for globalization with a human face is an idea whose time has come. A credible commitment to enlightened corporate social responsibility will become one of the most important areas of future corporate leadership and success.”4 One means that Congress could use to promote such a transformation is to grant B Corps preference when federal
2 agencies seek partners for Cooperative Research and Development Agreements (CRADAs). These arrangements, authorized through the Stevenson-Wydler Technology Innovation Act of 1980 and the Technology Transfer Act of 1986, create a structure through which a federal agency and a private organization can work cooperatively to commercialize a new technology. The 2 partners share research and development costs, and the private party can receive a license to sell any marketable product that emerges.5 Cooperative Research and Development Agreements have proved extremely advantageous for several pharmaceutical firms, and they could prove to be a powerful incentive for some companies to accept B Corp status. For example, a CRADA between Bristol-Myers Squibb and the National Cancer Institute that began in 1991 led to the commercialization of paclitaxel, the best-selling oncology drug in history, under the brand name Taxol. Bristol-Myers Squibb realized $11 billion in sales from the drug through 2002. A subsequent CRADA with Angiotech led to the commercialization of paclitaxel as Taxus, a coating for cardiac stents, which generated $3 billion in revenue in its first year on the market.6 There is widespread consensus that the pharmaceutical industry is in need of substantive ethical reform. This is a vital industry that has an important social mission. The Benefit Corporation provides a legal vehicle for improvement in this regard in a way that preserves profitability while advancing an important mission that benefits everyone.
The American Journal of Medicine, Vol -, No -,
-
2016
Arnold R. Eiser, MD, MACPa,b Robert I. Field, PhD, MPH, JDb,c,d a
Drexel University College of Medicine Philadelphia, Pa b Leonard Davis Institute of Healthcare Economics University of Pennsylvania Philadelphia c Drexel University Dornsife School of Public Health Philadelphia, Pa d Drexel University Kline School of Law Philadelphia, Pa
References 1. Gray J, Ashburn N, Douglas H, Jeffers J. Great expectations: mission preservation and financial performance in impact investing. Wharton Social Impact Initiative. Available at: http://socialimpact. wharton.upenn.edu/wp-content/uploads/2013/11/Great-Expectations_ Mission-Preservation-and-Financial-Performance-in-Impact-Investing_10.7. pdf. Accessed December 5, 2015. 2. B Lab. Why B Corps matter. Available at: www.bcorporation.net/whatare-b-corps/why-b-corps-matter. Accessed December 4, 2014. 3. Novo Nordisk. Share and ownership structure. Available at: www. novonordisk.com/investors/Shareinformation/share-and-ownershipstructure.html. Accessed December 4, 2015. 4. Leisinger KM. The corporate social responsibility of the pharmaceutical industry: idealism without illusion and realism without resignation. Bus Ethics Q. 2015;15(4):577-594. 5. National Institutes of Health. CRADAs: overview. Available at: www. ott.nih.gov/cradas. Accessed December 4, 2015. 6. Field RI. Mother of Invention: How the Government Created “FreeMarket” Health Care. New York: Oxford University Press; 2007:74-78.