Arindam Chaudhuri, the man who dares everyone to “think beyond the IIMs” wrote an interesting piece in the April 2008 issue of India Today & Tomorrow, a magazine that he publishes. Titled, “How ‘Cowboy’ Bush Actually Won the Iraq War”(sic), the article talks about how Bush pushed the world’s only superpower to invade a country that, he claimed, possessed weapons of mass destruction and also had close links with the Al-Qaeda. 5 years later, both charges proven baseless, the US has still “won the war”. The famously promised “shock and awe” was not in the battlefield but in the boardrooms of Corporate America! Chaudhuri quotes data to tell us that America’s defence budget shot through the roof from $300B in 2001, to $670B in 2008. Reports state that 1% of companies close to the Pentagon such as Lockheed Martin, Boeing, Raytheon and General Dynamics have won 80% of all defence contracts in the fallout of the war in Iraq with profitability of Boeing, in particular, having grown by 467%!! Chaudhuri does not say if this includes proceeds of contracts in Afghanistan as well. In short, defence corporations continue to make hay while the sun shines, a key tenet of capitalism – according to Chaudhuri – profits at all costs, even if it means increasing business at the cost of millions of innocent lives!
How is this different from decisions taken by chief executives of large pharmaceutical organizations? Organizations that pour in hundreds of millions of dollars ($800M at last count) and years of hard labor (average of 12 years) to get ONE drug from the lab to the chemist counters. These drugs more often than not are not in the affordable price range at all and the success of such introductions depends largely on whether payors would include them on formularies. Lets examine the case of a drug that, for instance, helps control diabetes in a way that other drugs on the market cannot. How should the company price this product? Senior management would know that this could be a sure winner and revenues from the product could help bail the company out in a recession-hit global economy. When the balance is one between recovering massive investments, making profits that can create decent shareholder value, and yet not appear inhuman with a price that is unreasonable, what does one do? How would pharma be different from the defence corporations? Unfortunately both make money only when people are hurt or in discomfort. Should all investment in R&D stop or be curtailed? Should companies adopt the authorized generics model to cut costs? The top 5 pharma corporations invest in the region of $5B into R&D each year. Cutting down on these investments add directly to their profitability. However, the key question is how long will they maintain leadership in the market without new products?
Do companies choose between morals or profits – the very reason for their existence. I do not mean to suggest that there is no overlap between the two. Corporations must make profit to remain competitive. Yet, profit must not be made by bringing harm to the society in which the firm exists. So, if Boeing or Raytheon, by the nature of their business make money when a country goes to war, are they to blame? Not if they didn’t create that war! Similarly, pharma companies do not create the disease that their products treat. If they did, it would be unacceptable.