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Lutz Hegemann, the head of global health at Swiss pharmaceutical manufacturer Novartis, said the company will continue to invest in drugs to fight diseases without strong profit incentives and maintain regional commitments in sub-Saharan Africa at a Harvard Business School talk on Friday.
In a presentation on socially responsible business in global health, Hegemann said Novartis — one of the largest and most profitable drug companies in the world — operates with mandates to invest in areas deemed “market failures,” sub-Saharan Africa, and peripheral community health.
“We made a conscious decision some 20 years ago that we created a drug discovery unit that is equipped with the latest technologies and science and has about 100 people to exclusively focus on those diseases that we know will never help us drive the share price up,” Hegemann said.
“We feel that it is part of our responsibility to also go after those diseases, even though they are not attractive from a market perspective,” he added.
Novartis produces 28 million malaria treatment courses every year to sell not for profit to nonprofit organizations and governments. Since 1999, the company says, it has delievered 1.1 billion treatment courses of antimalarials. Novartis announced in May that it would continue producing treatments for malaria and leprosy as the United States, France, and the United Kingdom cut back on funding for global health.
On Friday, Hegemann explained that the company’s public health initiatives are funded by returns from the more profitable drugs and health technologies instead of adding to shareholder dividends. (The company is currently valued at more than $250 billion.)
“We feel that it is part of our responsibility to also go after those diseases,” Hegemann said, “even though they are not attractive from a market perspective.”
He also said the company will continue to fund health initiatives in Sub-Saharan Africa as other multinational companies have left the region. He explained that Novartis identified Sub-Saharan Africa as in the “greatest need of improvement” in health.
“Over the last years, five multinational pharmaceutical companies have closed shop in South Africa, of course, let alone Sub Saharan Africa, and we feel that that is not justifiable and that we cannot do this,” Hegemann added.
He explained that the company has gradually transitioned its global health programs to focus on “non-communicable” diseases which usually require longer term treatment.
“Malaria is a three day treatment and you are cured, but if you have hypertension, or if you have malignancy, if you have cancer, you may require prolonged, lifelong treatment. So that no profit no loss may not be the best solution,” Hegemann added.
As the company’s global health arm developed, its finance model transitioned from a reliance on donations and zero profit methods to more traditional profit models that use profit generated on top of other products to operate some at losses.
“I don’t think there’s anything wrong about creating returns. The question is, ‘Who benefits from those returns?’ And in this case, the money is not being used to pay dividends, but it’s being used in order to fund the next wave of activities, to invest into drug discovery for those diseases that are considered market failures, or to allow the further expansion of our program,” Hegemann said.
