The theory of maximizing pharma profits

IN SUMMARY: Developing and selling pharmaceutical products is not a standard business/ Often, people need the drugs we make to stay healthy, extend life and beat cancer. So the question this raises is “how much profit is a pharma company entitled to make?”. The media has not addressed this issue other than to point fingers at the high prices of prescription drugs continually. CEOs have to understand how our industry differs from other businesses.

According to economist Milton Friedman, the main purpose of a business is to maximize profits for its owners. In the case of a publicly-traded company, the stockholders are its owners. Although making money is very important for a business to survive, money alone cannot be why a business exists. Economic value added suggests that a principal challenge for a business is balancing the interests of people affected by the business, interests that are sometimes in conflict with one another.

If tomorrow a publicly traded company developed a drug that could “cure” or put in remission a disease that costs millions of lives around the planet, should they be allowed to make billions in profits? Studies have already been done on the effect of drug prices on patients, and they clearly show that many patients can’t afford some drugs because of cost. Out of pocket costs on some cancer therapies can cause people t go into bankruptcy, while pharma companies seem focused on their stock price.

A growing number of companies have chosen a different goal. They see their bottom line as something radically different. Delighting their customers through continuous innovation has become their bottom line. Making money is the result, not the goal, of their activities. The interesting thing is that when they operate this way, they make a lot more money than companies that focus directly on making money. Mr Merck always believed that good products would lead to good profits but today Wall Street wants more profits and more growth.

The old way of thinking about business presupposes the point of business is to make profits. This is akin to believing that breathing is the purpose of life. Yes, you have to breathe to live, just as businesses must make profits. But the purpose of business is usually determined by a passionate entrepreneur chasing a dream to change the world.

Nobody likes big pharma any more, even with the small reputation bump because of COVID vaccines. The profit motive, once a desirable incentive to wealth creation, is now seen as something evil, and a source of injustice and inequality. There is a need to change the model, an imperative to reassess the purpose of business, not just to satisfy shareholders and accountants but also to work in tune with all relevant stakeholders.

So who is going to do it? Which CEO is going to be the first to teak Wall Street that patients are first and that steady profits is better than the pursuit of sky-high profits. I still struggle to understand wy the pharma industry hasn’t come together to form a way to get prescription drugs to people who can’t afford them.

The drug industry’s fear that the government will force more patent issues is largely unfounded unless there is a new pandemic virus. Biden is not likely to order a new drug to be shared worldwide, but both Democrats and Republicans believe that something has to be done about drug prices. CEOs can’t always maximize their paychecks, and shareholders need to ask why some drugs are priced high. The old arguments about R&D costs have been debunked, as “we need the money for innovation”. Where will the industry wind up?