Daniels Fund Ethics Initiative University of New Mexico http://danielsethics.mgt.unm.edu Debate Helping the World vs. Profits: Novartis
ISSUE: Are pharmaceuticals profits more important than curing diseases and helping developing nations improve the health of their people?
Most businesses have a CEO and board of directors that operate under the conviction that their purpose is to maximize profits for the shareholders. They are trusted to make decisions that will grow the company and increase profits, without failing to conduct due diligence. No matter what the social interests of a company are, profits must be the most important consideration. Without earning profits, a company will not be successful in the long run and likely will not survive long enough to pursue stakeholder interests.
Novartis is a pharmaceutical company that is trying to responsibly grow profits while also maintaining a balanced stakeholder model. CEO Dan Vasella is a former doctor who knows the pharmaceutical industry from the manufacturer and the consumer side. Because of his medical background, Vasella holds the belief that Novartis’s core stakeholders are the patients in the global community who use the company’s drugs, not the shareholders who demand high returns.
While competitors focus on so-called “blockbuster” drugs, like those for depression or impotence, that hold the potential for enormous profits, Vasella wants Novartis to focus on curable diseases that may not hold as much profit potential. For example, employees at Novartis are pushing Vasella to spent hundreds of millions on an Alzheimer's vaccine. Although an Alzheimer’s drug could net the company billions in profits, the disease is so complex that a cure is not yet within reach.
Vasella, on the other hand, wants to focus on targeted diseases, such as the inflammatory disease Muckle-Wells syndrome that affects a few thousand people worldwide. The genetics behind this disease are better understood and a cure is reasonably within reach—only a drug has never been developed because most pharmaceutical companies do not think it is profitable enough. Vasella, however, thinks it is a worthwhile disease on which to spend research and development (R&D) money because Novartis could cure a devastating disease, and he hopes that what the company learns from developing the drug could be applied to other similar diseases such as type-2 diabetes and arthritis.
While not all shareholders understand his approach, Vasella has the support of the board and nine senior executives who make up what is called the Innovation Board. While Novartis is definitely taking a different approach to pharmaceutical development, Vasella’s ideas have the potential to distinguish Novartis from the pack. Additionally, Novartis partners with organizations like the World Health Organization (WHO) to ensure that patients receive necessary drugs, such as those for malaria, at free or reduced rates. Novartis also has its own organizations, like the Novartis Institute for tropical diseases, which works to create better and more affordable medications for common ailments like dengue fever and tuberculosis. In a world where billions have limited or no access to much-needed medications, Novartis provides an important service to the global community as well as enhances its own reputation as a socially responsible company. Only time will tell if the stakeholder model maximizes profits for shareholders as well.
This material was developed under the direction of O.C. Ferrell and Linda Ferrell. It is provided for the Daniels Fund Ethics Initiative at the University of New Mexico and is intended for classroom discussion rather than to illustrate effective or ineffective handling of administrative, ethical, or legal decisions by management. Users of this material are prohibited from claiming this material as their own, emailing it to others, or placing it on the Internet. Please call O.C. Ferrell at 505-277-3468 for more information. (2009) There are two sides to every issue:
1. The Novartis stakeholder model will maximize profits in the long run. 2. Competitors that focus on an alternative financial return model (that emphasizes blockbuster drugs over global health initiatives) will maximize profits in the long run.
Sources: Karry Capell, “Novartis: Radically Remaking Its Drug Business, BusinessWeek, June 22, 2009, pp. 30–35. “Comprehensive Compliance Program,” Novartis Diagnostics, http://www.novartisdiagnostics.com/ethics/compliance.shtml, accessed July 10, 2009. “Lifesaving Research Rewarded,” Novartis Newsroom, http://www.novartis.com/newsroom/news/2009-05-20_european-inventor.shtml, accessed July 10, 2009. “Right to Health,” Novartis Corporate Citizenship, http://www.corporatecitizenship.novartis.com/people-communities/human-rights/right-to- health.shtml, accessed August 21, 2009.