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Why Have Pharmaceutical Giants Continued Their Operations in Russia?

— According to Milton Packer, the Western healthcare industry needs to find its moral compass

MedpageToday
A photo of Russian President Vladimir Putin in his office holding a box of Russian medication.
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    Milton Packer is distinguished scholar in cardiovascular science at Baylor University Medical Center at Dallas and visiting professor at Imperial College in London.

The war in Ukraine has led to punishing sanctions against Russia from the West. In addition to formal actions by governments and international organizations, hundreds of giant companies have announced their intent to cease operations in Russia.

According to Jeffrey Sonnenfeld (Yale University School of Management), major companies have ceased business dealings in Russia. Companies have agreed to limit Russian access to capital markets and have curtailed sales of food, technology, energy, consumer and luxury goods, automobiles, and entertainment. The European Organization for Nuclear Research, a long-standing symbol of international collaboration, any new collaborations with the Russian Federation. The European Society of Cardiology the participation of physicians from Russia and Belarus. The list of organizations divorcing themselves from Russia grows daily.

Are companies and organizations truly outraged? Certainly, some fall into this category. Others might be accused of virtue signaling, i.e., making public statements that are aligned with public opinion or policy without any intent of effecting true change. But for many, the reasons are pragmatic, i.e., there is no point in engaging in business if the current financial stranglehold on Russia makes it difficult to convert current or future profits in rubles to a form of currency companies care about.

But as Sarah Varney noted in Kaiser Health News last week, virtually no major drugmaker or medical device manufacturer has meaningfully with Russia. Kevin Dunleavy at Fierce Pharma made the .

Healthcare companies may try to defend their continued business dealings with Russia because healthcare is exempt from most U.S. and European sanctions. Furthermore, many companies claim they are providing essential life-sustaining products and that international law requires that humanitarian efforts must continue during times of war.

The European Federation of Pharmaceutical Industries and Associations (EFPIA) -- a trade organization representing major pharmaceutical companies -- has issued justifying the continued provision of medical products to Russia. under the EFPIA umbrella have condemned the invasion and have donated funds and supplies to Ukraine. Others have modest changes in their business practices and a pause on new investments. But as Fierce Pharma , no major drug company has announced it would close down manufacturing operations in Russia or halt sales of medicines to the country.

Sonnenfeld strongly disagrees with the position of EFPIA. He believes pharmaceutical companies that claim they must manufacture drugs in Russia for humanitarian reasons are "being misguided at best, cynical in the medium case, and outright deplorably misleading and deceptive." He correctly points out that other companies (outside of healthcare) that have made the decision to sever ties with Russia also provide essential services.

In fact, the goal of sanctions is to collapse the Russian economy, with the intent of inflicting pain. Sonnenfeld recognizes that the Russians are "put into a tragic position of unearned suffering." But the exodus of Western industries is intended to "make life unpalatable," in the hope that doing so would change the political calculus for Vladimir Putin. The Russian economy is in a with a GDP not much larger than that of Spain. So every hit to the economy is politically meaningful.

The most important element in this debate is described by Varney, who that the desire of drug companies to protect their franchises in Russia is amazingly short-sighted. In 2010, Putin required Western pharmaceutical companies that wished to market new drugs in Russia to relocate production inside of the country. The goal was to establish facilities and expertise in the expectation that Russia would taper and eventually stop the need to import drugs from the West. Apparently, U.S. and European companies have been more than happy to reap short-term profits, even though Putin planned to eventually make their Russian interests obsolete. Accordingly, many drug companies markedly increased their investment in Russia even after Russia invaded Crimea in 2014.

Putin also wanted to make Russia the hub for clinical trials. The country offered sponsors an inexpensive and lax regulatory environment, and by February 2022, more than 3,000 clinical trials were underway in Russia. However, most sponsors have learned that Russian sites need to be monitored closely since the quality of data can be suspect. For example, the failure of the National Institutes of Health to monitor the quality of data from Russian sites in a trial of spironolactone for heart failure and a preserved ejection fraction to yield interpretable results when analyzed by conventionally rigorous statistical methods.

To be sure, some companies conducting clinical trials in Ukraine and Russia have decided to cease enrollment. But that decision is not related to any decision to trigger corporate divestment. There is no good reason to maintain patient participation in trials if there is a reasonable chance that data transfers from Russia may be blocked in the near future. And clinical site investigators in Russia will not recruit or maintain study protocols unless they have guarantees they will be paid, which may not happen if financial transactions are restricted. Randomized controlled trials are most easily interpreted if very few participating patients are lost to follow-up, but it is hard to know if patients recruited in Russia can be reliably followed for months or years, since no one can predict what the current political situation might look like, even in the next several weeks.

Interestingly, the leaders of small pharmaceutical companies to economically disengage from business in Russia. They have called for the termination of collaboration or service agreements with Russian companies. But most of these small pharmaceutical companies do not have manufacturing operations in Russia, unlike the pharmaceutical giants that are heavily invested in the country at the specific behest of the Putin government.

Many pharmaceutical giants may fear that the Russian government may nationalize their manufacturing facilities if they were to disengage. But Putin already intends to do so as part of his plan to entice the West to build the new Russian pharmaceutical industry for him.

Corporations often claim that a capitalist free market is both amoral and apolitical. They contend that the products made by companies for profit are divorced from their potential uses. Accordingly, a hypodermic syringe can be used to inject both penicillin or cyanide. But claims about amorality of product development have always been hollow.

IG Farben was Nazi Germany's most important chemical and pharmaceutical company. It is the parent company of Bayer, famous for making Bayer aspirin in its early days. IG Farben developed , which was used in the gas chambers to murder millions of Jews. IG Farben forced Jews to work in slave labor camps (one next to Auschwitz) to manufacture its products. Interestingly, Fritz ter Meer, who directed operations at the IG Farben plant at Auschwitz, became the president of Bayer after the war. (Bayer apologized for its role in supporting the Nazi agenda -- 50 years later).

(Disclaimer: My mother and father were Jews who worked in a Nazi slave labor camp in Vilna, now Vilnius, later known as , from 1941-1944. Their lives were saved by a Nazi major, , who became disillusioned with Nazism and protected the lives of Jews from extermination by the SS. Of 100,000 Jews who lived in Vilna before the war, more than 95% were killed by firing squad in the . My parents were two of the 250 survivors of HKP 562.)

IBM was the dominant American company in the 1930s, and in 1937, its CEO, Thomas Watson, had no qualms with Nazi Germany. IBM possessed a unique computer technology (the Hollerith system) that Watson knew would be used by the Nazis to deprive German Jews of their rights and liberty. Nevertheless, Watson won and executed the contract with superb efficiency. And Watson accepted the Order of the German Eagle (awarded to him personally by Adolf Hitler) in recognition of his services to the Third Reich. IBM continued to support Germany's effort throughout the war through its subsidiary in neutral Switzerland. Similarly, provided critical photographic equipment to the Nazi government before and after the U.S. and Germany were at war.

The devotion to corporate profits has generally superseded the principle that a large company has a moral responsibility to its home country or to the world.

In contrast to these past patterns, U.S. and European corporations outside of healthcare have stepped up to the plate to oppose Russian aggression. But by comparison, the pharmaceutical giants in the U.S. and Europe have done little. (A , released yesterday, indicates that a few companies have decided to suspend advertising, clinical trial activities, and "new investments," and one company plans to stop the export of non-essential medicines to Russia -- but they are maintaining their current infrastructure). Most egregiously, companies with pharmaceutical manufacturing facilities in Russia are pursuing business practices as usual, even though Putin has made it abundantly clear that he is using them to promote his own political goals.

Brittney Griner, the star WNBA player and two-time Olympian, decided to play Putin's game -- literally -- and lost badly. She joined the Russian basketball team, UMMC Ekaterinburg, helping the club to three domestic titles and four EuroLeague Women championships. Russia may have paid her , four times more than she earned playing for the WNBA. How does Putin show his gratitude? Recently, she was detained by Russian customs officials, accused of a potential drug offense that carries a 10-year prison term. She is to be going home soon.

It is time for all companies that are currently doing business in Russia to reconsider their positions. Fast Retailing, a giant Japanese clothing company, initially decided to stay in Russia, based on the stated claim that "clothing was a necessity of life." Following a backlash, the company several days later. Even Deutsche Bank, one of Europe's largest banks, with extensive Russian ties, decided to in the Federation after initially deciding otherwise.

For the CEOs and directors of the pharmaceutical giants doing business with Russia, the continuation of the status quo is increasingly difficult to justify. Even if hostilities were to end in the next few days or weeks, any cease-fire agreement is unlikely to signify peace. And even if a drug company is not persuaded by any moral argument, drug companies should recognize that Putin intends to nationalize pharmaceutical corporate investments in Russia, regardless of the outcome in Ukraine.

Remember made famous by John Maxwell in his book: There is no such thing as "business ethics." There is only ethics.

Disclosures

During the past 3 years, Packer has consulted for AbbVie, Actavis, Amarin, Amgen, AstraZeneca, Boehringer Ingelheim, Caladrius, Casana, CSL Behring, Cytokinetics, Imara, Lilly, Moderna, Novartis, Reata, Relypsa, and Salamandra. These activities are related to the design and execution of clinical trials for the development of new drugs. He has no current or planned financial relationships related to the development or use of SGLT2 inhibitors or neprilysin inhibition. He does not give presentations to physicians that are sponsored by industry, and he is not involved in the marketing, sales or post-approval advocacy for any medical product. None of his current consulting agreements is connected to a company that is continuing its usual business practices in Russia.