Pharmaceutical Social Enterprise 2.0 Brings a Small Miracle to Big Pharma

Purchase PDF
Global rates of epilepsy. Credit: epilepsyu.com

The major companies researching and developing innovative drugs to improve and extend human life are known as Big Pharma. Big Pharma is dominated by a handful of international corporations who sink billions into research, spend billions on marketing, and scoop up billions in sales. Their focus is on the United States—which accounts for more than a third of the global pharmaceutical market—and a handful of other nations that can afford the exorbitant price tag for patented medicines.

 

But even in the wealthiest countries the cost of lifesaving pills can be hard to swallow. Big Pharma is often in the news for unwarranted price hikes ranging from 50 percent to more than 5,000 percent, as in in the case of Daraprim, a drug used by cancer and AIDS patients that went from USD$13.50 per pill to $900 in some places.

 

Uncommon increases are all too common. According to FiercePharma.com, the company Valeant, “jacked up prices on 54 meds this year alone by an industry-leading average of 65.6%, according to a Deutsche Bank analysis. Last year, it hiked the prices on 62 drugs—by 50%, on average. Some of those increases were big ones. This year’s largest jumper was Glumetza, which is now 550% more expensive than it was on Jan. 1. As of July 31, the drug’s list price stood at USD$10,020 for 90 tablets, up from $896 in January 2013.”1

 

The same story is being repeated throughout the health-care industry. Pharmaceutical companies acquire medications and hike their prices to reflect what they claim to be the fair market value of the drugs, a practice that’s drawing heat in the national press and on Capitol Hill.2

 

This is old news to Big Pharma veteran Scott Boyer. He joined Big Pharma after college and spent the next 27 years with two of the Top 10 companies, carving out a successful career. After that he spent a few years as a pharmaceutical consultant. He knows the industry from top to bottom. He understands that it takes substantial profits to underwrite research and that shareholders expect a solid return on their investments.

Per_Hamel_Figure2
This graphic symbolizes the relationship between the ROW Foundation and OWP: two organizations working together towards global access to quality epilepsy care. Credit: ROW Foundation

“That never used to bother me,” Scott recalls, “but one day I was analyzing market research data about a new drug. The wealthy and emerging markets were lined up together in a bar graph and there was this small, lonely bar on the far end of the chart that called out to me. ‘ROW’ was the title, and it stood for Rest of World.”

 

“I began to hear a ‘whisper’ to do something about ROW, to find a way to equalize the graph when it came to medical care. My sense of injustice was stirred as I thought about ROW in relation to diseases like epilepsy. Very effective, low-cost drugs were available to patients fortunate enough to live in the right countries. But the majority of the world’s epilepsy patients lived in low and middle-income regions and would never receive this life-changing help. Over time the whisper was amplified into an audacious business model I think of as Social Enterprise 2.0.”

 

Social Enterprise 2.0

 

We’ve all heard of one-for-one social enterprises, or companies that give something to a person in need for every item bought. Among the most famous is Tom’s Shoes. This social enterprise model has helped the company become so profitable that it recently sold to Bain Capital for USD$300 million.3

 

Scott refers to this approach as Social Enterprise 1.0. He’s joined with other skilled and dedicated people to pioneer a more complex social business model. They’ve started a for-profit business and a charitable foundation whose symbiotic partnership takes social enterprise to the next level. Here’s how Scott explains it in a recent interview:

 

OWP Pharmaceuticals is the business and the ROW Foundation is the charitable organization. OWP makes medications for people living with epilepsy. Our branded generics offer highly consistent and reliable medications at very affordable prices. We can significantly reduce the expense of medication from the patented versions and at the same time fund assistance to people in need through the ROW Foundation.

 

The ROW Foundation’s vision is “to improve the quality of training, diagnosis, and treatment available to people with epilepsy in under-resourced areas of the world. We envision a future when the best treatments for epilepsy will be available to all people, at all times, in all the world.”4

 

Scott and the other founders used their own resources to create OWP. Then they raised capital by selling shares in the company to philanthropically minded investors. These investors were attracted as much to OWP/ROW’s humanitarian goals as they were to the opportunity to make money. All of the shares carry an “option” provision that guarantees ROW the right to acquire up to 50 percent of the outstanding shares. An annual independent valuation sets the purchase price for ROW to exercise that option.

 

Between purchasing 50 percent of shares and acquiring additional shares as charitable contributions, the ROW Foundation will begin receiving a majority of OWP Pharmaceutical dividends within a few years, and regular dividends will fuel ROW’s philanthropic programming in under-resourced areas around the world.

 

What is the key factor in making this hybrid social enterprise model work? It’s all about philanthropic intent, follow through, and the firmly planted legal right of ROW to reap at least 50 percent of OWP’s dividends. The organizational relationship between OWP and ROW was intentionally built for this purpose.

Per_Hamel_Figure3
The ROW Foundation will use profits from OWP to fulfill its mission of improving the diagnosis and treatment of epilepsy globally by providing training and resources to practitioners in the developing world. Credit: ROW Foundation

The founders of OWP decided from the outset that they wanted to accomplish sustainable funding of the nonprofit foundation. Their charitable intent and subsequent gifts of stock to ROW provided the seed money to continue acquiring at least 50 percent of the outstanding stock. Early investors bought in to OWP with the understanding that maximizing their individual profit is not the only goal; helping people in need is. Sustainable philanthropy occurs because program revenues are tied to a successful pharmaceutical business, not to hard-to-raise charitable contributions from individuals.

“It’s very unlikely that OWP could ever be sold or taken over by a larger pharmaceutical company,” Scott points out. “With ROW’s shareholder right to veto any change in ownership, it would be difficult, if not impossible, for other shareholders to force a sale. Even if a sale happened, ROW would remain the majority beneficiary of those proceeds. Those proceeds would then serve as the investment egg allowing ROW to continue its charitable work.”

 

Scott believes that others can use this hybrid model as a way to “do good while doing well.” It’s best to build the social mission into the organizational DNA from the beginning. Scott warns against restructuring a for-profit enterprise to accomplish such goal. “After all,” he says, “a successful for-profit company is doing what a for-profit does best: making money for its shareholders, not helping out the disadvantaged.”

 

ROW Foundation

 

According to Dr. Paul Regan, Administrator of the ROW Foundation,

“The ROW Foundation is NOT a short-term solution to a long-term problem. OWP Pharmaceuticals is the sustainable, ongoing economic engine that underwrites the ROW Foundation’s programs…As the for-profit company grows, so does the charitable work of the ROW Foundation.”5

 

A graphic designed for the enterprise symbolizes the relationship between the ROW Foundation and OWP: two organizations working together towards global access to quality epilepsy care.

 

How will the ROW Foundation use the profits from OWP? Along with providing effective medications, ROW will help neurologists in the developed world partner in the training of practitioners in the developing world, improving their ability to diagnose epilepsy.

 

In 2015, the ROW Foundation made an EEG equipment grant to the Armenian League Against Epilepsy (ALAE). The grant included a 32-channel video EEG machine with a portable workstation, computer, and monitor. It is now situated in the Arabkir Pediatric Hospital in the capital city of Yerevan. The Foundation hopes to give more grants in 2016.

 

Why Epilepsy?

 

Why did Scott choose to tackle epilepsy, one of the world’s oldest known diseases? The need was overwhelming. According to the World Health Organization, epilepsy is one of the most serious chronic neurological diseases, affecting 50 million people of all ages globally. About 40 million people with epilepsy live in low- and middle-income countries, and at best 25 percent of them are diagnosed and treated, leaving 30 million patients untreated. Their risk of premature death is two to three times higher than the general population.

 

Epilepsy can be successfully treated about 70 percent of the time, enabling patients to live relatively normal lives. The majority of these treatments are pharmaceutical. What do epilepsy sufferers in under-developed areas without access to these drugs do? Nothing. OWP aims to help change that.

 

“Market research shows that branded generic epilepsy medications focused on the U.S. market will be successful,” Scott says. “The consistency and replicatability of the original brand at a lower cost will be well received, and we’ve already gotten encouragement and support from leading neurologists and epilepsy foundations.”

 

OWP’s first product release is Roweepra™, a branded form of the generic drug levetiracetam. Available in a 500 mg immediate-release formulation, it’s slated for release this spring. The OWP website has Roweepra™ being priced at USD$120 for a 90-day supply. This is a fraction of the cost of the patented drug available.

 

OWP will target its sales force and virtual sales team strategically, focusing initially on select areas of the United States, but its products will be available nationally through an exclusive relationship with a direct mail pharmacy and in retail pharmacies as well.

 

Sustainable Philanthropic Foresight

OLYMPUS DIGITAL CAMERA
The ROW Foundation will partner neurologists in the developed world with practitioners in the developing world in an effort to improve ability to diagnose epilepsy worldwide. Credit: Sylvie F.

“My strength is in the pharmaceutical industry,” Scott says, “More specifically, in strategic planning and commercializing products. That’s where I spent my career and where I can have the most impact. I’m not trying to reinvent myself; instead, I’m focused on making the most of my experience and training.”

By creating this hybrid social enterprise, Scott and his fellow founders have secured philanthropic sustainability for ROW to continue its work, even beyond their direct involvement. Scott calls it “sustainable philanthropic foresight.”

 

This undertaking is in unchartered territory; Scott and his co-founders have a lot of their own time and money on the line. Still, Scott insists, “This is the most exciting thing I’ve ever done. It makes me want to get up every morning. And every night when I lay down to sleep I think about the ongoing impact and lasting legacy this new social enterprise represents.”

 

References

  1. Helfand, C. Valeant’s price-hike strategy goes far beyond two high-profile cases. FiercePharma [online] (October 5, 2015) http://www.fiercepharma.com/story/valeants-price-hike-strategy-goes-far-....
  2. Koons, C. This drugmaker suffered the consequences of price increases. Bloomberg Business [online] (October 11, 2015) http://www.bloomberg.com/news/articles/2015-10-12/how-one-drugmaker-lear....
  3. O’Connor, C. Bain deal makes TOMS Shoes founder Blake Mycoskie a $300 million man. Forbes [online] (August 20, 2014) http://www.forbes.com/sites/clareoconnor/2014/08/20/bain-deal-makes-toms....
  4. ROW Foundation [online] https://rowpharma.org/.
  5. Regan, P. Our graphic tells it all! ROW Foundation [online] (August 26, 2015) https://rowpharma.org/updates/65-our-graphic-tells-it-all.