Is This the Softer Side of Big Pharma?

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Big pharmaceutical companies are accustomed to being vilified. That's why recent news about Johnson & Johnson (NYSE: JNJ  ) stands out. A few weeks ago, the Food and Drug Administration granted accelerated approval for J&J's new tuberculosis drug Sirturo. On the surface, this might seem like just another drug approval. There's more to the story, though.

The interesting aspect of this news is that J&J doesn't expect to make much money from Sirturo. Company spokesperson Pamela Van Houten said that "the commercial opportunity is very limited." She added that the drug represented part of J&J's "commitment to advance innovative medicines that help address serious public-health issues." 

Does this example show the softer side of big pharma?  I think it might.

Walking softly
Sirturo was developed by J&J's Janssen Therapeutics unit, whose founder was Paul Janssen. The company notes the dedication of Dr. Janssen to fighting tuberculosis because his sister died from the disease. Although Paul Janssen passed away in 2003, his legacy is still honored within J&J.

J&J isn't the only company to possibly show a softer side. Gilead Sciences (NASDAQ: GILD  ) was the first pharmaceutical company to join the Medicines Patient Pool. As of now, Gilead is also the only pharma to join. Gilead shares some of its HIV/AIDS drug patents with the Medicines Patient Pool, which in turn licenses the patents to generic makers so that patients in poor nations can receive treatment at much lower costs.   

Drugs for Neglected Diseases Initiative, or DNDi, a not-for-profit group that focuses on making more drugs available for treating neglected diseases, counts several big pharma companies as partners. For example, Abbott (NYSE: ABT  ) joined DNDi in 2009 and is working with the organization on parasitic diseases. Pfizer (NYSE: PFE  ) also began working with DNDi several years ago on drugs to treat tropical diseases such as sleeping sickness.

Hard reality
While these and other big pharmaceutical firms continue to demonstrate softer sides, the reality is that they're still in business to make money for their shareholders. Some companies can find themselves caught in the cross-hairs of groups who demand more than the companies are willing to give.

Harvard's Global Health and Aids Coalition campaigned in 2012 to pressure Merck (NYSE: MRK  ) to share a patent for AIDS drug raltegravir with the Medicines Patient Pool. Merck does partner with DNDi but has not yielded to pressure to ally with the Medicines Patient Pool.

J&J itself has caught some flak. In May 2011, UNICEF made public the prices that it pays for vaccines that are distributed in developing nations. One example that caught attention was the disparity of prices for a diphtheria, tetanus, whooping cough, hepatitis B, and haemophilus influenzae type B vaccine. J&J's Crucell unit charged 42% more than did an India-based generic drug company.

Fostering the softer side
Big pharma companies need to make a profit to satisfy investors. The companies must be willing to give away or charge low prices for their drugs to satisfy activists. Can this expectations gap be bridged?

The recent example of J&J and Sirturo could provide a clue for helping foster the softer side of pharmaceutical firms, while acknowledging their for-profit underpinnings. J&J plans to pursue a priority review voucher from the FDA as a result of gaining approval for Sirturo.

Legislation approved by Congress and signed into law by then-President Bush in 2007 allows the FDA to award this voucher to a company that receives approval for a drug or biologic that targets a neglected tropical disease. The company uses the voucher for another product for special treatment by the FDA -- a six-month review period rather than the standard 10-month review. The intention of the shorter review period is to provide a financial incentive for companies to develop drugs for neglected diseases.

Did the prospects of obtaining a priority review voucher help J&J justify its decision to move forward with a drug that might make little money? It certainly didn't hurt. The problem for the priority review voucher concept, though, is that it hasn't been used much. If the FDA awards J&J the voucher, the company will only be the second to receive one since 2007. 

Pressuring companies to do something against the best interests of their shareholders won't be nearly as effective over the long run as giving those companies a positive reason to want to do good. I think that we would see much more of the softer side of big pharma if more effective alternatives were available to align corporate interests with the interests of the greater good. It can be done, but fostering softness could be hard.

Get the full story on J&J
In the world of health care, companies simply don't come any bigger than Johnson & Johnson. Many own the stock, but few understand its story. Offering everything from baby powder to biologics, critics think the company has spread itself too thin, becoming nothing more than a bloated corporate whale. Is this true, or is J&J a well-diversified giant that's perfect for your portfolio? Make sure you understand the full story behind the stock, along with its key opportunities and risks, by checking out our brand new premium report on Johnson & Johnson. To claim your copy simply click here now for instant access.

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