Every investment has positive or negative social and environmental impacts. We begin our process by evaluating these impacts at an industry level, and assessing the industry’s degree of alignment with our ultimate goals of environmental sustainability and universal human dignity.
For certain industries, such as those focused on organic farming or alternative energy, the benefits are clear. Most industries, however, present a mix of risks and benefits, and these can vary greatly by industry.
For the pharmaceutical industry, public health is obviously paramount. We therefore pay particular attention to incentives and market pressures that may conflict with the public interest.
One consequence of market pressure is that certain rare medical conditions, known as “orphan” diseases, are often ignored. In such cases, governments have stepped in to create incentives to develop “orphan drugs,” and we favor those companies that are dedicated to offering these critically needed drugs. Biogen Idec derives more than half of its revenues from an orphan drug used to treat multiple sclerosis. The company has stated that it intends to focus its research and development efforts on finding novel therapeutics in areas of high unmet medical need.
Gilead Sciences derives more than 80% of its revenues from HIV products, and has developed a system of tiered pricing that reflects economic status and HIV prevalence. As a result, the company reports that the majority of people that receive one of the company’s HIV therapies live in the developing world, with approximately 2.4 million people receiving treatment. The company has licensed one of its antiretroviral drugs to two not-for-profit organizations in South Africa — for no royalty — to study the effectiveness of the first HIV-prevention regimen designed for women that can be used without detection.
Novo Nordisk (Denmark) is a good example of a pharmaceutical company that recognizes its dual mission of solving health problems and turning a profit. The company is a pioneer in the field of ‘integrated reporting,’ an approach to corporate reporting that combines financial and sustainability data in order to more effectively illuminate the key drivers of performance in each area. The company’s primary focus is diabetes treatment, and it is the world’s largest manufacturer of insulin. Novo Nordisk ranks second on the Access to Medicine Foundation Index, and sells insulin at cost to the world’s fifty poorest countries. The company also runs campaigns to help prevent people from developing Type II diabetes through unhealthy lifestyles.
All pharmaceutical companies face the principal challenge of how best to balance public health interests with the company’s interest in making a profit. When a company fails to properly balance these interests, things can go very wrong. In July 2012, GlaxoSmithKline (UK) plead guilty to criminal charges and paid $3 billion in fines — the largest fine ever paid by a drug company — for illegally promoting two antidepressants, and for failing to report safety data about a diabetes drug. Our key performance indicators, which direct our analysts to pay particular attention to marketing and safety controversies in the pharmaceutical industry, led us to exclude Glaxo from our funds the prior year. In addition to the concerns that ultimately led to the $3 billion fine, our analysts also noted recurring product safety problems, a $750 million fine for knowingly selling contaminated and ineffective drugs, improper marketing and overcharging Medicare/Medicaid. Similarly, we excluded Roche Holding (Switzerland) from our portfolios in 2009 due to what we viewed as a pattern of safety, pricing and corruption concerns. In 2012, Roche faced a regulatory investigation regarding its alleged failure to disclose reports that 15,000 people died while taking its medicines.