Forbs | Arlene Weintraub
The 2015 Harris corporate reputation poll is out and the news for Big
Pharma isn’t good, to say the least. In the poll—which measures the
“reputation quotient” of the most visible American companies among the general
public—Big Pharma ranked ninth out of 14 industries and was right in line with
insurance companies and airlines when it comes to respect, or lack thereof.
Ouch.
It may seem surprising that the public has no more love for the
manufacturers of important and sometimes life-saving therapies than it does for
the companies that routinely leave passengers stranded for hours at the
airport. But Big Pharma’s bad rap makes more sense when you consider that
Harris’s reputation quotient incorporates 20 attributes that corporations must master, including trust,
economic value, and community responsibility.
Those qualities have been hard to find in the industry of late, points out
Mark Kessel, partner and co-founder of Symphony Capital, a New York-based
private equity firm that works with biopharmaceutical companies. “Years ago the
brand value [of drug companies] was enormous in terms of perception in the
marketplace. The industry’s focus was more on the patient,” Kessel says.
“That’s been diminished to a very large extent.”
In a commentary published last fall in the journal Nature Biotechnology, Kessel
argued that restoring the pharmaceutical industry’s reputation is vital to
maintaining the industry’s market value. In fact, over the last 30 years, the
proportion of a company’s value that comes from tangible assets—in this case,
the actual drugs—has dropped from 90% to 25% by some estimates, Kessel wrote in
the paper. Intangible assets like reputation may be worth as much as 60%
of a company’s market capitalization, he added.
“People look to brand reputation as another benchmark of value,” Kessel
says. “If you look at the most prominent companies in the world today, most of
their value is not so much their hard assets. Your brand can be very powerful.”
The deterioration of Big Pharma’s reputation comes from several sources,
not the least of which is the staggering amount of criminal behavior that has
resulted in billions of dollars worth of fines levied against the industry. To
name a few listed in Kessel’s paper: In 2013, Johnson & Johnson JNJ +0.42% paid $2.2 billion to settle allegations that it illegally marketed three
drugs for uses not approved by the FDA. GlaxoSmithKline paid $3 billion in 2012 stemming from charges that it allegedly illegal
marketed its antidepressant Paxil to children. And in 2011, Merck swallowed
$950 million in fines for improperly promoting its arthritis medication Vioxx.
The industry’s inescapable obsession with marketing was brought to light
recently during a blistering 17-minute segment on HBO’s comedy news show Last
Week Tonight, during which host John Oliver pointed out that drug companies
spend $4 billion advertising directly to consumers and $24 billion marketing to
doctors every year. Oliver blasted pharmaceutical companies for using a variety
of unsavory marketing tactics, including paying doctors to be “thought leaders”
on particular drugs. The report even included a video of a pharma sales meeting
where reps were promised they would make “ungodly” sums of money. (See video.)
So how can Big Pharma cure its ailing reputation? Kessel offers several
tips, including restoring an ethical corporate culture, pricing drugs more for
prestige than for profits, and ceasing direct-to-consumer advertising.
That last one will never happen, Kessel concedes, but at least drug companies could try to change the tone of their advertisements, he argues. “We’re talking about companies that deal with people’s health. The industry messaging has to change,” Kessel says. “They can certainly change the tenor of those ads and make them much more informational for patients.”
That last one will never happen, Kessel concedes, but at least drug companies could try to change the tone of their advertisements, he argues. “We’re talking about companies that deal with people’s health. The industry messaging has to change,” Kessel says. “They can certainly change the tenor of those ads and make them much more informational for patients.”
There was one big surprise in Harris’s reputation poll: J&J, which had
fallen out of the top 10, returned this year at No. 5. It’s the only Big Pharma
company on the list, and it’s return is impressive considering the recent
fines—not to mention a string of recalls that recently plagued its consumer,
medical device, and prescription drug businesses.
Kessel believes J&J’s return to the public’s good graces stems from
positive feelings towards its high-profile consumer brands, which include
Tylenol, Band-Aid, and Johnson’s baby care products. Plus the company may still
be reaping the benefits of its quick and transparent handling of the
1982 Tylenol recall, which is considered a case study in how companies
should diffuse crises.
“I think there’s a little bit less identification with some of the horrific
problems, and more of a glow coming from the consumer brands and the quality
assurances that J&J has established in the minds of consumers,” Kessel
says. “J&J has gained enormous value in terms of how customers perceive it
as an ethical company.”
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