A social investment model for pharmaceutical firms

Maybe it's time to try out social enterprise in the pharmaceutical sector says Rod Schwartz of ClearlySo

Rodney Schwartz
Rodney Schwartz

I recently wrote a post on the ClearlySo blog about GlaxoSmithKline, the pharmaceutical giant, about its decision to cut prices of one of its anti-diarrhoeal drugs by 95 per cent.

Diarrhoea is a serious killer in developing countries, so the action will undoubtedly save lives. It's easy to dismiss this as a small gesture, but we took the view that GSK's chief executive was sincere in his claim that this was not a gimmick, but a genuine attempt to adjust its business model.

In the blog, we raised the question of whether the social enterprise and finance model was well suited to the pharmaceutical sector. Financing drug development is a massive and high-risk investment, although there is a substantial social upside when something worthwhile is developed.

The companies recoup the cost of research wasted on duds by charging high prices for blockbusters. Is there not some way to imagine how social investment can play a role in exchange for a different funding model? Certainly in the developing world, but can it happen elsewhere?

One of the key issues is that regulators require nearly 10 years of testing for new drugs. It feels as if this is driven by US legal requirements. Where the fear of monumentally expensive litigation is diminished, is there not another pricing model available? Where there is trust, is there not a way to allow for companies to undertake best efforts in the development and trial phase, and get drugs into the hands of those who face imminent death, for example, far more quickly?

It seems to me there is a case for social, if not public, investment in cases where significant benefits to the wider public are generated. Where this is so, couldn't other non-financial costs also be reduced?

The social enterprise and investment model could be tried in the pharmaceutical sector, and the announcement by GSK, subsequently followed up by others, is a useful step in this direction. I suspect there are other areas where new models could be tried. But what we must avoid are cases similar to those of the trading activities of investment banks.

In such instances, only losses were socialised. When the financial equivalents of blockbusters were generated, the returns were fully privatised. This is not a sustainable model - and it was a painful lesson to learn.

Rodney Schwartz is chief executive of social venture capital website clearlyso.com

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