The case for a Robin Hood tax on Big Pharma or How to discourage management of Big Pharma companies for the sole aim of maximizing profit.
Part of the portfolio pipeline strategy of big Pharma consists in bringing medicines to the market that are no better (or no worse) than existing product(s). This strategy mitigates revenue drop-off cliffs due to patent expiration and provides marketing advantage(s); in the case of combination drugs each with a different mechanism of action; in the case of sustained release drugs with a more convenient posology and ADME (Absorption, distribution, metabolism, elimination) profiles and in the case of different dosage strength(s) with a more favorable safety/toxicity profile. Such 'line extensions' serve to bolster balance sheets and share prices with profit accounting for as much as a half to three quarters of every dollar in sales.
In an ideal socially responsible world, part of the profit from such 'me too' drugs should theoretically be invested into long(er) term projects to discover new drugs for unmet medical needs. Balancing this riskier investment that possesses a greater social to economic responsibility ratio is one of the benchmarks of good management and provides assurance that the company will proper in the long term. There is however, the temptation to sacrifice socially responsible innovation for medical marketing gimmickry associated with 'non-inferior' medication. Investment bankers chasing higher returns especially favor this strategy that then also allows them to 'flip' parts of the Pharma business or products for atypically greater return on investment.
Should Pharma companies be penalized for not being innovative enough? Should that not best be left up to the market? Letting the market be the arbiter would destroy capital irrevocably. On the other hand, mandating a penalty that is linked to the ratio of revenue generated from 'line extensions' or 'me too' drugs to that generated from 'first in class' or 'breakthrough therapies' generates real cash flow for the regulatory agency that can be used for funding and/or subsidizing start up pharmaceutical companies with medically innovative products. This occurs before the market condemns the 'innovative laggard' to liquidation.
Criticisms of socialism being imposed on the Pharma sector can be countered with the argument that efforts to mitigate suffering caused by disease should not entirely be left to the open market. The market values the 'less risk - more reward' approach significantly more than the 'more risk - more reward' trajectory that a more socially and medically responsible innovative approach necessarily entails. A Laissez-faire approach to this segment of the economy would inevitably reward infinitesimal incremental product differentiation much more, than it would breakthrough innovation where favorable financial outcomes would be significantly riskier.
In this context, would investments by big Pharma in small start up biotech companies 'count' toward a favorable social/medical to economic ratio and lower the 'non-innovation' penalty. It would. Algorithms would need to be conceptualized to capture complex economic transactions between Pharma companies so that appropriate penalties are applied. The 'Robin Hood' tax would be expected to accelerate investment in small start up companies by big Pharma.