Pharmaceutical Companies and the Public Interest

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.

The Domini Funds are not insured and are subject to market risks, such as sector concentration and style risk. Investing internationally involves special risks, such as currency fluctuations, social and economic instability, differing securities regulations and accounting standards, limited public information, possible changes in taxation, and periods of illiquidity. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. You may lose money.

The Domini Impact Bond Fund is not insured and is subject to market risks, including interest rate and credit risks. During periods of rising interest rates, bond funds can lose value. The Domini Impact Bond Fund currently holds a large percentage of its portfolio in mortgage-backed securities. During periods of falling interest rates, mortgage-backed securities may prepay the principal due, which may lower the Fund’s return by causing it to reinvest at lower interest rates. Some of the Domini Impact Bond Fund's community development investments may be unrated and carry greater credit risks than its other investments.

This information is provided for educational purposes only, and should not be considered investment advice with respect to any of the holdings listed. The composition of the Funds’ portfolios is subject to change. View the most current list of the Domini Impact Equity Fund, Domini Impact International Equity Fund and Domini Impact Bond Fund's holdings.

The social and environmental standards applied to the Domini Funds are subject to change without notice, as is Domini’s analysis of any of the companies named above.

Check the background of DSIL Investment Services LLC and its investment professionals on FINRA's BrokerCheck. Before investing, consider the Domini Funds’ investment objectives, risks, charges, and expenses. View or order a prospectus. Read it carefully.

DSIL Investment Services LLC (DSILD) distributor, Member FINRA.

Domini Impact Investments LLC (Domini) is the Funds’ investment manager. The Funds are subadvised by unaffiliated entities.

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