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by Cynthia Robbins-Roth, Ph.D.

BioWorld Today Biotech & Business Ethics: Time To Face Up To Reality

By Cynthia Robbins-Roth
BioWorld Today Columnist

The biopharmaceutical industry continues to take heavy fire from many sides. After months of unflattering front-page coverage, the Dec. 6, 2005, issue of The Wall Street Journal showcased the latest Reputation Quotient survey, conducted by Harris Interactive. Only the tobacco and energy industries were ranked lower than pharmaceutical companies.

Johnson & Johnson, of New Brunswick, N.J., was ranked No. 1 of the 60 companies in the survey, thanks to the warm and fuzzy appeal of its baby products biz. One person interviewed by the WSJ suggested that J&J “should just keep quiet about pharmaceuticals.”

Whether we like it or not, the public discourse now is actively aimed against the pharmaceutical industry - and that includes all biotech drug companies! There is no real distinction in the public mind - to them, we are the bad guys.

Biopharma companies do things no other industries do: experiment on humans, have a customer base of specialists who are very different from other industries and are expected to put patient interests above all else. Like it or not, the industry comes with a compelling set of moral concerns.

Biotech is feeling pressure from all sides - the right is attacking science data, policy and teaching of science, and the left claims that there is a conspiracy to suppress cures, that the FDA is in our pocket and that the entire Western medical enterprise is a scheme to defraud and poison people.

The roar has grown so loud that two business ethics journals are devoting large chunks of upcoming issues specifically to the biotech industry. Books are flooding depicting the ethical challenges of the science. Stanford Medical School has banned sales reps from its premises and included biobusiness ethics sessions in its core curriculum.

Biz Ethics In The Open
The first Business Ethics and Biotech panel held at last month's IBF Biotech Investing Conference in San Francisco included Charles Hsu (long-time biotech venture capitalist now with Pappas & Associates), Margaret Eaton (business ethics professor at Stanford), Brian Cunningham (lawyer and long-time biotech exec), Kate Murashige (patent lawyer and founder of one of the first biotech IP firms), and myself (scientist gone bad). Coincidentally, all but Hsu are former Genentech employees.

Our first question was whether a real business ethics crisis exists in biotech. That topic was hot enough to fill the room with venture capitalists and executives at the early hour of 7:30 a.m., and there is a growing consensus that continued denial of the ethical problems in the industry no longer works.

Eaton said: “I love this industry. There is no more socially useful industry. It's very hard to watch companies head directly into this brick wall, when they have such an amazing capability to change people's lives for the better.”

Cunningham agreed. “There are many good people in biotech, including CEOs. They find it tough to overcome the daily immediate pressures to deal with ethical issues and give them an equal place at the table,” he said.

Ethics Are Good Business
Why should companies care about ethics? Because your employees - and thus your bottom line - are directly affected. They want to work for companies that make a difference. And simply pointing out that biotech makes life-saving drugs is no longer enough - your employees are discussing concerns about drug pricing and access in your hallways.

The next generation of employees is watching. Eaton has noticed growing student concern that they may not be able to fulfill their need to work for socially responsible companies if they work in the biopharma world.

As smaller biotech firms grow, there is a danger of disconnects between top management and staff, Eaton said. Leadership can say lofty things about company goals, such as, “We will conquer cancer and save lives,” but incentives are structured so that sales reps are rewarded for maximizing sales and off-label usage.

It can happen the other way around, too. As leadership becomes more self-interested - thanks to stock option packages and bonuses tied to stock performance or revenue - it separates from the staff's focus on maintaining social values. If our industry keeps adopting big pharma incentives, we will see companies go in a direction we don't like.

Is It Really Dollars Vs. Ethics?
Hsu pointed out that the “winner-take-all” syndrome exists throughout American society, and affects biotech compensation. While some CEOs from profitable companies might worry about how many days they can stay in the U.S. vs. their Caribbean beach homes, most of their researchers are concerned about more mundane issues.

Hsu said the venture community has been “sucked into the star idea. The value of any CEO is not a million-fold greater than their scientists. It's a bad idea to have equity and options more and more concentrated into the hands of one or two star managers in early stage companies.”

That resonates with ideas set forth by the late Peter Drucker, who in 1984 argued that CEO pay had gotten out of control and should be limited to no more than 20 times what the rank and file make.

According to BioWorld Executive Compensation Report 2006, based on 237 CEOs of public biotech companies, the average total annual compensation was $596,000 in 2004, not including stock options, which reached amazing values.

Some fear that modifying the drive for profit will somehow destroy the industry. But many in the industry are motivated by more than maximizing profit. Murashige asked: “Is obligation to shareholders the ultimate goal? If so, we need to re-orient our society to realize there is a responsibility here.”

Why Stay Out Of The Fight?
The industry consistently has been defensive when confronted with ethical issues, whether it's drug pricing and access, incorporating social responsibility into a corporate culture, or the attacks on science education.

Those issues won't go away now that they are in the public discourse. This is not simply a matter of “educating the public” so that they will agree with us.

Hsu said: “Social conservatives blocking RU-486 from the marketplace and taking aim at the new HPV vaccines, public health issues including distribution of needles and condoms - our industry leaders are hiding their heads in the sand. Expensing of stock options and treatment of capital gains are the only issues they apparently care about. They are taking a very narrow view of what constitutes self-interest of this industry.

“We can't just whine about how unfair it is that everyone doesn't love us. We need to take an active role in policing our own industry; otherwise, others will come in and do it for us.”

What Can We Do?
The answer is not to commission a book thriller in which terrorists tamper with drugs imported from Canada, as the latest issue of AARP Bulletin reports was tried by PhRMA's deputy vice president for federal and state affairs.

What will make a real difference is having the CEOs of our top-tier companies take a public stance to make business ethics a key part of their company cultures and to develop concrete methods to do so.

Here's an idea: instead of complaining about how unfair the December Bloomberg Markets cover story “Pharm's Shameful Secret” is, the CEOs on the Biotechnology Industry Organization's board make a public pledge that their companies will take personal responsibility for how clinical trials of their drugs are conducted - whether done directly by employees or through outside clinical research organizations.

It would be a great first step to regaining the trust of our customers and patients. Shareholders would be happy as well - they invest in biotech to do well while doing good.

-- December 12, 2005

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by Cynthia Robbins-Roth, Ph.D.

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