Measuring the impact of free medications for neglected diseases: Eisai Co., Ltd.
In 2022, global pharmaceutical company Eisai was keen to quantify in monetary terms the social impact of its manufacturing of Diethylcarbamazine (DEC) tablets, a drug used to combat the mosquito-borne disease lymphatic filariasis (LF), which they distributed for free to developing nations.
Eisai is a global pharmaceutical company, headquartered in Japan, that develops innovative pharmaceutical products in areas such as neurology, oncology, and global health.
Objective
As part of its commitment to global health, Eisai produces and supplies medications targeting neglected tropical diseases to underserved regions at no cost. In 2010, the company began collaborating with the World Health Organization (WHO) to address global scarcity of Diethylcarbamazine (DEC) tablets, a drug used to combat lymphatic filariasis (LF), a mosquito-borne disease. From 2014 to 2018, Eisai distributed 1.6 billion tablets at no charge to 25 developing nations.
Although Eisai was confident in the impact of providing its DEC tablets, the company sought more robust methods for measuring and communicating that impact. Manufacturing costs totaled approximately JPY 2.4B for this initiative, making it essential to confirm that the social benefits justified the capital committed.
Encouraged by its application of impact accounting to measure the impact of various investments in human capital on its workers (see Eisai’s Employment Impact Case Study), Eisai determined that impact accounting would be an ideal instrument to measure and assess the social impacts of their efforts to eradicate LF through the provision of DEC tablets.
“Impact accounting helped Eisai quantify its commitment to social good, one of our core corporate values. By quantifying in monetary terms the impact of providing DEC tablets, we showed that the social impact generated was substantial and comparable to values often delivered through financial performance.”
Aya Tokunaga, Head of Investor Relations, Eisai
Application
In 2022, under the leadership of Ryo Yanagi, the company first conducted a thorough analysis of the potential impacts of its DEC tablets distribution to underserved countries. This review was aligned with the product and service impact framework developed by the Impact-Weighted Accounts Project at Harvard Business School (IWA), and aimed to identify all material impacts.
Eisai then estimated the number of individuals positively affected by its DEC tablets, based on the dosage required for each medical scenario. This analysis identified three “Benefit Cohorts,” totaling approximately 19 million people:
- Benefit Cohort 1: Individuals who have evaded LF infection due to preventative drug administration efforts.
- Benefit Cohort 2: People infected with LF who were treated early and able to avoid aggravation of their condition from asymptomatic to clinical illness.
- Benefit Cohort 3: People who were infected and ill with LF but able to avoid further deterioration of their condition.
The team then evaluated the impact of LF prevention or mitigation on these groups, focusing on how their lives were improved. The primary benefits identified included:
- Recovery of working hours:
- The analysis calculated the economic value of working hours regained by patients who recovered their health, assuming the minimum wage as a baseline.
- Prevention of disease:
- For individuals who avoided LF infection through medication, an increase in life expectancy was quantified and multiplied by the number of individuals benefiting from treatment.
- Healthcare costs averted because of reduced incidence of LF were also calculated.
Source : Ryohei Yanagi and David Freiberg, (2022). “Product Impact Accounting of free drug provision for neglected tropical disease”. Monthly Capital Market Journal, September 2022.
Findings and Outcomes
- Eisai’s social impact tied to this effort was calculated to be approximately JPY 7 trillion across these dimensions (See Table 1). When annualized by the life expectancies of each patient group, the social impact per year provided was estimated to be JPY 160 billion.
- Eisai uncovered significant corporate value by applying impact accounting to their free provision of DEC tablets to address this disease. These findings enhanced its ability to communicate the importance of this initiative to internal and external stakeholders and to continue to invest in it.
- Eisai has been recognized as a pioneer in using impact accounting to quantify and disclose product impacts on global health.
- By committing to LF elimination, Eisai also uncovered additional strategic business benefits, with several avenues for generating potential financial value. For example, Eisai found that donating DEC tablets enhanced their brand’s reputation in emerging markets, driving long-term value.
- Although the production of DEC tablets was not initially profitable, the value demonstrated through the impact accounting analysis led Eisai to continue investing in the business line. This decision paid off, as DEC production became profitable over time, driven by manufacturing efficiencies and increased worker skill development and retention. Managers noted employees’ morale and motivation increased when they became aware of the impact their work and the product was making on LF, which assisted with retention.
- Eisai’s impact accounting analysis also opened access to new capital and investors, leading to its inclusion in a prominent impact investment fund’s selected portfolio.
- Furthermore, Eisai has innovatively connected the outcomes of its impact accounting evaluation with financial indicators, specifically a metric called an adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) [see Eisai’s Employment Impact Case Study and Eisai’s 2021 Value Creation Report (pg. 59)].
- Incorporating the estimated product impact value of approximately JPY 160 billion into its annual EBITDA calculations significantly enhances Eisai’s ESG-adjusted EBITDA, potentially doubling it.
- This approach suggests that the societal value Eisai generates through its product impact is on par with the total value it delivers through its financial performance (See Table 2).
Future Work
- Impact accounting helped make the business case for this program and has enabled Eisai to solidify its commitment to providing DEC tablets free of charge to endemic countries until LF is eliminated in these regions. As of May 2022, Eisai has supplied 2.05 billion DEC tablets to 29 countries and it continues to do so.
- Eisai also continues to contribute to additional comprehensive approaches to LF reduction, such as disease awareness and improvements in sanitation, and the company is proactively engaged in development of new treatments for other neglected tropical diseases through partnerships with global research organizations.
- Eisai is continuing to test product impact accounting on other products, including cancer drugs. For example, Eisai recently utilized impact accounting in connection with value-based pricing to assess the social impact of a cutting-edge Alzheimer’s treatment (See page 32 of 2023 Eisai Value Creation Report.)
“As a listed company, Eisai’s social contribution of free-of-charge DEC drugs was at risk of being criticized as just a red-ink project or donation. With concrete accounting figures, Eisai was able to convince its stakeholders of the value of the initiative. Another result was a prominent impact investment fund included Eisai in its selected portfolio, mainly due to this impact accounting analysis. Many Eisai employees also said they are very proud of this DEC project, even more so when its impact was quantified with numbers.”
Ryohei Yanagi, Advisor, Eisai
