Valeria Makarova

By Valeria Makarova

Since the concept of sustainable development was introduced back in the 1980s, corporations from various industries have been dealing with ever-increasing pressure to address stakeholder social needs and their environmental footprints. The traditional “business as usual” model — pursuing the business imperative goal of profit maximization while ignoring negative social and environmental consequences — has been subjected to a rising tide of criticism.

Those sectors that have higher ecological and/or social impacts are held to higher standards in the public eye. The tension existing between corporate interests and societal needs is especially prominent in the case of Big Pharma. Pharmaceutical corporations have been criticized for many wrongdoings, including maintaining excessively high prices for essential lifesaving drugs, engaging in immoral marketing practices and failing to provide adequate services to large groups of people, especially in poor countries.

Former Pfizer CEO Henry McKinnell summarized the unique ethical dilemma and industry challenge as follows: “Because we have the ability to help in so many ways, we have a moral imperative to do so.” This moral mandate has a deep impact on the Big Pharma business model and stakeholder relations. Today, a combination of ever-tightening regulations, fierce competition, rising costs and public pressure all challenge global pharmaceutical companies to take sustainability very seriously.

Pharmaceutical products manufactured on a very large scale involve many extraordinarily complex chemical processes with a large potential impact on the environment.

The disposal of intermediate compounds and manufacturing products along the entire supply chain must be considered. Another factor of vital importance is the public health issues related to drug safety for people.

Government agencies play the key role in issuing and enforcing regulations aimed at public safety. Though all of their activities are highly regulated, pharmaceutical companies started taking steps beyond mere compliance to address environmental issues by exploring “green chemistry” in drug development. They also introduced internal sustainability policies, hired associates designated to manage green chemistry and other environmental initiatives, and started reporting on generated waste and water and energy usage related to all aspects of activities on their websites.

Addressing social issues, however, is the most critical challenge for the pharmaceutical sector. Targeting new underserved markets, as well as developing solutions for the patients who would benefit the most, are strategic ways to demonstrate a firm’s social commitment. Some large pharmaceutical companies started to voluntarily engage in corporate social responsibility practices by developing drugs for neglected diseases, considering production of essential drugs in developing countries and introducing differential pricing, i.e., reduced pricing for selected essential drugs used against poverty-related and tropical diseases. In developed countries, there are also several important areas where the health care burden is very high and innovative drugs would make critical difference.

Developing these much-needed solutions isn’t an easy road. The timeline for discovery of new drugs is very long and it takes an average of about 250 research projects to develop a single viable commercial product. Managing ever-increasing costs of the new drug development process is also a challenge. The pharmaceutical industry started to explore business approaches beyond charitable activities for addressing the tension between firms’ financial goals and societal expectations. However, building the business case for sustainability is a difficult task that requires taking into account industry- and company-specific challenges in order to formulate a successful strategy that will achieve both a positive impact on society and improved competitiveness for the company.

• Valeria Makarova is an assistant professor in the School of Management at California Lutheran University.