For over a decade, the faith-based institutional investors and other socially responsible investors who make up The Interfaith Center on Corporate Responsibility (ICCR) have responded to the public health crisis in emerging markets.
As faith-based organizations, we witness in our ministries the undue global disease burden borne by the poorest and most vulnerable among us. As investors, ICCR members maintain substantial exposure to global health care companies. ICCR members also invest in emerging markets in which poor public health exerts downward pressure on growth. As faith-based organizations, our engagement with industry reflects our fiduciary duties to encourage value-creating behavior from companies.
Our work began with conversations with pharmaceutical executives and corporate leadership. It grew to include formal shareholder proposals at pharmaceutical companies and firms in other industries with substantial public health impacts. More recently, ICCR has catalyzed development of new research on these companies’ responses to public health needs, and begun engagement with them on amending their human rights policy to address the right to access to medicines. We recognize the important efforts that a number of companies have made to respond to HIV/AIDS, tuberculosis, malaria and neglected diseases. This statement reflects our current thinking and views on the future of these conversations.
New Standards, Higher Expectations for Drug Makers
Recently, civil society, multilateral organizations, developing country governments, private and public sector healthcare providers, institutional investors, and foundations have called for pharmaceutical companies to change the way they do business in emerging markets. As intellectual property regimes become more widespread in middle-income and poor nations -- and as global public health worsens -- these calls will increase.
There has long been pressure on pharmaceutical companies to increase access to medicines. Today, a new set of specific and measurable indicators are emerging to measure performance at both industry and individual firm levels. The U.N. has drafted human rights guidelines for pharmaceutical companies, and other organizations such as Oxfam International and Access to Medicines Index have developed concrete benchmarks. We released our own report, Benchmarking AIDS, in August 2006 and continue to measure firm compliance with those recommendations.
We recognize this proliferation of measuring tools might be confusing to investors and managers. However, the tools are more alike than different: all emphasize that access to medicines management is a core business function for pharmaceutical companies in emerging markets. We believe that managers need specific, firm-level analysis in order to improve access to medicines policies, and these new research instruments provide them. Investors and managers both benefit when they know how company policies on pricing, research and development, and intellectual property impact public health. In a world in which 6 million people die each year from AIDS, TB or malaria, company action is crucial.
Opportunities Beyond Philanthropy
Emerging markets are a major growth opportunity for pharmaceutical companies. They are the world’s fastest growing economies. E7 countries will represent one-fifth of the global market by 2020. Some emerging markets (especially India) also have an experienced R&D and scientific community, clinical-development costs 40-60% below comparable Western sites, and low cost manufacturing capacity. To managers and investors, emerging markets are key to industry growth.
But replicating rich-country strategies in emerging markets will not work. When firms have exported high-cost, low-volume drug marketing strategies to some emerging markets like India, Thailand and the Philippines over the last year, they have failed, often paying substantial regulatory and reputation costs. These markets have poor health care infrastructure, dramatic income inequality, and untested intellectual property frameworks. As a result, some pharmaceutical company actions have caused real tension with developing country governments attempting to fulfill their responsibility to ensure access to medicines to their citizens.
To ensure firms adopt a sustainable business model in poor countries, the industry must develop new ways to develop drugs, price them, and manage their intellectual property - the three elements at the core of the business model of the pharmaceutical industry. We see potential models among firms which have partnered with generic manufacturers to fulfill medicines needs, partnered with civil society and government to accelerate neglected disease research, and explored Base-Of-The-Pyramid sales strategies for products. Such approaches put access to medicines at the heart of the business model. In contrast, firms which approach access to medicines as a solely philanthropic objective are finding they can not meet their social or business objectives.
Investing in Public Health
To date, institutional investors with assets in excess of USD$400 billion in Europe, the United States, and South Africa have engagedpharmaceutical executives, industry analysts, and policy-makers on these access to medicines questions. They see, as we do, growing convergence between competitive opportunities for firms and public health needs.
There is no single business model which will work for all firms attempting to operate sustainably in emerging markets with poor public health. But in our experience, simply exporting current blockbuster-reliant models to new markets destroys shareholder value. Managers who experiment with new models which privilege public health may find easier access to intellectual resources, community goodwill, regulatory relationships, and investor confidence. The new energy and capital being devoted to the global disease burden is creating a convergence of company interests and public health needs which smart managers and investors will take advantage of.
Firms which respond aggressively to the public health crisis in emerging markets by engaging all aspects of their business model will be better positioned for long-term growth. Some firms will do this better than others, and the new benchmarks and frameworks make clear that winners and losers are already emerging. Regardless of which companies seize these new opportunities, it is our hope the world’s poor see the ultimate benefit.
