02.10.2012

Health is set to be one of the megatrends of the next few decades. Demographic change, increased investment in healthcare and the steady rise of the middle classes in emerging economies create good prospects for the pharmaceutical industry. Until a few years ago, however, the pharmaceutical industry did not enjoy a particularly good reputation. In the meantime a lot of progress has been made, especially as regards greater access to medicines in developing countries. But there is still much room for improvement in the area of marketing, the other key sustainability issue in the industry.

Improved access to drugs in developing countries and transition economies is still a key sustainability criterion. The pharmaceutical industry has made up a lot of ground in this area. In many developing countries drugs are now being sold at cost price or produced locally as generics through voluntary licensing agreements. The improved level of care is also helping to prolong life expectancy, while at the same time the changing lifestyle of the rising middle classes in emerging market countries is leading to a higher incidence of diseases of civilisation. The industry has to deal with the conflict between lucrative market opportunities and the social goal of reasonably priced medical care. Recently the discussion has focused on the offer of cut-price research-intensive cancer drugs, or possibly the suspension of patent protection. At the moment a case involving the cancer drug Glivec made by Novartis is being heard in India which could set an important precedent.

Problematic marketing with expensive consequences

The use of unethical or illegal marketing practices is still a problem area in the pharmaceutical industry. This controversial aspect is most apparent in the USA, the most important market for pharmaceutical products. The battle for market share is leading to the use of illegal marketing practices such as "off-label marketing" (promoting uses of the drug for which no approval has been given), lack of transparency regarding potential side-effects, price manipulation and corruption. In the USA especially, these violations result in court cases and financial penalties for the companies. Over the past five years, such court fines and settlements in the USA have already amounted to USD 25 billion. Some companies, such as Roche, have already made good progress in preventing such practices. Others, such as Glaxo SmithKline, have recognised the problem and introduced measures to improve the situation. Other companies also need to systematically implement such measures in order to avoid risks caused by problematic marketing practices. One challenge in this respect comes from the drug companies' increasing activities in emerging market countries. These markets will account for half the global growth in demand for pharmaceutical products up to 2015.

European companies the best - Rays of light in emerging market countries

European pharmaceutical companies achieve better than average ratings in the Sarasin sustainability ranking. Novo Nordisk and Roche score very well.  Both companies show an excellent performance in the areas of business ethics (marketing, competitive conduct), access to medicines, product quality/liability and the environment. A few companies in emerging economies also qualify for Sarasin's sustainable investment universe. In South Africa, the pharmaceutical company Aspen is the biggest producer of drugs for treating HIV/Aids. Another very progressive company is Genomma Lab, Mexico's biggest producer of over-the-counter medicines.

Sustainability analysis makes it possible to identify top-quality companies that reduce risks and/or take full advantage of the relevant opportunities. A rough performance comparison confirms this: over a period of three years the shareholder return of the stocks of pharma and biotech companies currently rated as sustainable was approximately 50%, compared with a market return (MSCI World World Pharma/Biotechnology) of only about 30%.

Sustainability Spotlight "Pharma: Marketing practices are a persistent risk"

The research paper "Pharma: Marketing practices are a persistent risk" (author: Andreas Holzer) is available in German and English free of charge from: media@sarasin.ch


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