Big Pharma has a Model to Make a Profit and Save Lives. So, What’s the Holdup?

Big Pharma visuals for the article. A medical professional holding a Covid-19 vaccine.

BiGS Actionable Intelligence:

With Hepatitis C running rampant in Egypt in 2012, Clifford Samuel, then of California-based Gilead Sciences, convened a series of urgent meetings with Egyptian government officials, doctors, and patients. His goal? To make Gilead’s lifesaving Hepatitis C drugs available for Egypt’s most vulnerable by harnessing a new business model.

The bold approach worked.

Gilead, one of the world’s leading antiviral makers, would sell its branded Hepatitis C medicines while offering local manufacturers voluntary licenses to produce generics, requiring only royalties in return. The company realized reasonable profits and reduced Hepatitis C, and rates of which are expected to fall by 86 percent between 2020 and 2030, according to Egypt’s Ministry of Health.

This real-world example demonstrates how a business model can help Big Pharma address a complex societal problem.

“You get to bring life-saving medicine to people who need it. And you’re actually growing your business,” Samuel told The BiGS Fix in an interview. “You find that you started from nothing, and you end up cultivating a viable market.”

Samuel, Harvard Business School professor V. Kasturi Rangan, who developed the model, and advocates from the Bill and Melinda Gates Foundation, recently discussed the approach at a seminar hosted by the Institute for the Study of Business in Global Society (BiGS).

COVID-19 Heightened Urgency


After developing the template 15 years ago with colleagues, Rangan argues that it’s more critical than ever for Big Pharma to adopt the proven model more broadly. He says the pandemic elevated urgency by:

  • Exposing new risks and opportunities with Big Pharma’s current models

  • Driving global use of video-conferencing technology, which created a sustainable way to forge and maintain new cross-sector and cross-border partnerships needed to execute the model, and

  • Adding a new layer of knowledge about how pharmaceutical companies handle global public health challenges

Jessica Martinez, a former Big Pharma executive who joined the Bill & Melinda Gates Foundation nearly five years ago to help improve access to therapies in lower middle income countries (as defined by the World Bank), told the BiGS Fix:

“It is no longer acceptable that these highly innovative medicines and vaccines are only available to high-income countries. The rationale for this dichotomy is getting weaker and weaker. We’ve seen the terrible consequences of our old ways of thinking with COVID.”

Decision to Adopt the Model is a Matter of Equity

Rangan grew up in India where he says the travails of the extreme poor were always in sight. “Rich and poor lived shoulder to shoulder, unlike in Western countries where you don’t know your neighbors,” he said. “In India, you grew up knowing abject poverty and that has stayed with me throughout my adult life and influenced my research.”

He came to the United States about 40 years ago to research how business advances the prosperity of people in developed markets. As an HBS marketing professor, he understands the mindset of the average pharmaceutical executive, who tends to be obsessed with protecting their organization’s inventions to drive profits.

But as the world emerges from the coronavirus, Rangan said business and government should be asking a different question: “How can it be that on the African subcontinent, only 30 percent of people have been vaccinated, while in the rest of the world, that number is closer to 80 percent?”

More essentially, Rangan asks with his research: “How can it be that with regard to access to medicine, which is such a fundamental human need that there is not more equity?”

Voluntary Licensing Unlocks Overlooked, Less-Understood Markets

The model that Samuel developed in the wake of his adoption of BBOP’s principles featured a tiered pricing strategy that combined sales of branded products at prices set based on both the disease burden and GNI per capita across 140 low- and middle-income countries plus voluntary licensing to enable dramatically lower pricing for the poorest of the poor in low-income or middle-income countries.

This model recognizes the economic diversity of low middle income countries and reflects a nuanced approach with sales of the brand alongside voluntary licensing to reach the billions of people who live at what Rangan calls the “base” of the economic pyramid.

“These markets are not easy, and reaching them is not cheap, but one important thing that business leaders should know is that there is a satisfactory incremental profit to be made in these markets,” Rangan said. “The profitability might not be the same as one might get in the developed markets. But because there is scale, because there are 5 billion people at the base of the pyramid, if you bring these medicines to them at an affordable price, then because of the volume of sales at little fixed cost, worthwhile profits can be made, while bringing enormous health and happiness to large populations.”

Approach Turns Traditional Marketing on its Head

Under this model, manufacturers will offer their patented technology (which is often contested) for a modest, but worthwhile, royalty to producers in low-income countries instead of zealously guarding it and in the end neither achieving access for patients in need nor realizing profits. The licensees then work with local governments and markets while paying the pharmaceutical company for the right to sell generic versions of the products, creating a revenue stream for the originator.

With a foothold in these markets, pharmaceutical companies will also sell their branded drugs— at appropriately tiered prices—to higher income consumers and insurers who can afford the products—even as the companies earn royalties from their sales to the mass market through partnerships with producers of generics.

For Hepatitis C, Samuel leveraged the formula in Egypt and in more than 100 other countries.

In fact, he said, Gilead generated substantial revenues through this hybrid approach for viral hepatitis and HIV. In doing so, this method helped patients regardless of whether they were living at the base or the top of the economic pyramid in places such as India, Nigeria, Pakistan, South Africa and dozens of other countries.

“The evolution of Gilead’s access to medicines program is a direct result of what I learned from my visits to Kash Rangan’s lectures,” he said. Typically, drug manufacturers perceive countries such as these as too difficult to make profits, said Samuel, former senior vice president of the company’s Access Operations & Emerging Markets business unit.

Financial and Societal Rewards or Status Quo?

Despite the model’s proven effectiveness, most pharmaceutical manufacturers have been slow to adopt the voluntary licensing and BBOP approach to help a population of people who typically live on less than $30 a day. They are wary of the considerable challenges to success.

To get new pharmaceuticals to the working poor in emerging markets, pharmaceutical companies must figure out a way to license the technology to foreign manufacturers while protecting their intellectual property. They must navigate often Byzantine regulatory approval processes and ensure that generic manufacturers maintain quality and have ways to track and trace the product. Foreign partners must tackle how to manufacture, store and distribute the medications.

Perhaps thorniest of all, pharmaceutical companies must be willing to accept different profit levels in different markets and work through insulating their higher priced markets through commercial practices that allow such life-saving innovations to be available both in developed and developing country markets.

From the foundation lens, Martinez hopes that more pharmaceutical companies will use this approach and other tools to improve health equity, with the understanding that “the value in these countries is largely accretive and represent new and untapped revenue streams.” Other companies have also had success, she said, citing Suzuki, Unilever, SK Bioscience and Eubiologics.

Questions: What do you think is preventing more pharmaceutical companies from marketing their products to lower middle income countries? And why aren’t the companies that have effectively done so not doing it more often?

HOW TO ENGAGE WITH HBS BiGS

Actionable insights in your inbox

Get the latest from BiGS