Olivia Gull, Analyst on the Governance and Responsible Investment Team, examines how pharmaceutical companies are addressing the issue of inequitable access to medicine, specifically in low and middle-income countries.
- Access to medicine is regarded as one of the priority environmental, social and governance (ESG) issues for the pharmaceutical industry to address.
- Due to the complexity of addressing global access to medicine, pharmaceuticals have had to find innovative solutions like income-tailored pricing models and increased public-private partnerships.
- Data is a valuable asset for companies and investors to measure access and impact, and companies are building frameworks to improve how projects are evaluated.
- Investors can look at the governance of access to medicine, as well as how and when access planning is integrated into R&D, to understand a company’s approach to this topic.
The Covid-19 pandemic provided the pharmaceutical industry with an opportunity to showcase its social value proposition to the world. Not only has society been able to view the direct link between investments in research and development (R&D) and the production of life-saving drugs, but the world has witnessed unprecedented global collaboration between the public and private sector to bring these vaccines to market in record time.
With the rise of environmental, social and governance (ESG) investing and demand for companies to align their business practices with the United Nations’ (UN) Sustainable Development Goals (SDG), the pharmaceutical sector sits in a promising position to improve access to medicine in low and middle-income countries. As a result, many companies are starting to quantify and document how they are developing innovative treatments for unmet medical needs that can reach as many patients as possible. Data has become a growing asset for companies and investors alike, and the rise of value-based healthcare has intensified the need to capture patient outcomes and allow for more innovative pricing models based on real-world data.
Addressing the access crisis
The pharmaceutical industry, which in recent years suffered from a tarnished public reputation1, has had the opportunity to rebrand itself. According to Eli Lilly’s CEO David Ricks, the COVID-19 pandemic offered the industry “a once in a generation opportunity to reset its reputation” by showcasing the level of innovation within the industry to develop and distribute novel drugs to those that need them.2 This, however, has been juxtaposed against the stark inequality of the global healthcare system and the access to medicine crisis. As the COVID-19 vaccine roll-out programmes commenced last year, billions of people in low and middle-income countries were at the back of the queue to receive them, and the world witnessed the political gridlock around vaccine nationalism.
The pandemic has also showed the fragility of the vaccine supply chain and the lack of preparedness to address future pandemics, with only a few companies carrying out the majority of the most urgently needed R&D projects.3 According to The Access to Medicine Foundation, which seeks to change how pharmaceutical companies provide their medicines for the poor, there are currently no projects in the pipeline for 10 of the 16 diseases identified by the World Health Organization as the greatest public health risks.4
However, pharmaceutical companies cannot bring about change in isolation. Numerous factors determine the extent of patient access including the effectiveness of healthcare systems, access to insurance, government taxation and procurement policies. One of the main barriers referenced by companies has been lack of healthcare infrastructure. This issue is particularly prevalent with oncology drugs where imaging, diagnostics, and oncologists are not always available, let alone stable electrical power or refrigerators to store samples and chemicals. In addition, many healthcare systems lack specialised healthcare professionals; there are logistical challenges, particularly in rural areas, while patient factors, such as misperceptions and stigma around diseases and medicines exist. Addressing these issues requires buy-in from governments and the pooling of resources, skills, experience, and goodwill across multiple stakeholders.
Using access as an investment lens
It is important for investors to understand how different pharma companies are addressing access to medicine within their business strategy, especially as the risk of ‘Sustainable Development Goal-washing’ increases. A company’s approach to addressing access to medicine could be viewed as a proxy for innovation and good governance and may provide investors with a lens with which to view how the company may navigate other emerging challenges.
If access is part of a company’s strategic vision, the business may be more agile and resilient when entering growing markets and building alternative profit pools.
Companies that invest in expanding access to medicine may also improve their corporate image, which could improve talent retention and overall productivity by instilling a sense of purpose in employees, as well as improve clinical trial participation from the public.
Quantifying access to medicine and comparing like for like, however, is a difficult task as pharma companies have different product portfolios and business strategies. One tool investors can leverage is the Access to Medicine Index. Janus Henderson has been a supporting signatory of the Access to Medicine Index for many years. The index ranks 20 of the world’s largest pharmaceutical companies on the basis of how they manage risks and opportunities related to access to medicine in low and middle-income countries. The index measures a range of value drivers within the pharmaceutical business, including pricing, research and development (R&D), governance and compliance, identifying best practice, tracking progress and showing where critical action is still needed.
Due to the complexity of addressing global access to medicine, the pharma industry has had to find innovative solutions. One area that has seen tremendous growth has been around public-private partnerships otherwise known as product development partnerships (PDPs). PDPs have provided many international pharma companies with the opportunity to expand their position in challenging markets by partnering with local producers. Successful PDPs have gone one step further and leveraged the knowledge and technology transfer to benefit both developed and developing countries.
PDPs have also been commercially attractive opportunities for pharma companies due to the population growth and increasing economic prosperity of many emerging markets. For example, AstraZeneca entered China’s market in 19935 and the country now contributes to more than 20% of the company’s revenue.6 This growth is highlighted by AstraZeneca’s expectation back in 2019 that innovative treatments are likely to contribute 60% of its China revenue by 2024.7
Not only does this highlight the importance of time and experiential knowledge that comes from longstanding local partnerships, but also the significant contributions emerging economies can make to the future competitiveness and strategies of international pharma companies.
Many pharma companies have also started to address access issues by developing more innovative pricing strategies.
Companies are approaching pricing in more flexible and sophisticated ways and providing income-tailored solutions for their products.
For example, Takeda, a Japanese multinational pharmaceutical, developed a means-based patient financial eligibility tool focused on medication for lymphoma in Thailand. By developing a patient affordability model, Pfizer increased access to its self-administered oncology products in countries like the Philippines, where less than 2% of patients in the private sector could afford to pay the list price.
Novartis launched emerging market brands in parallel to original brands to serve different income groups. This included an asthma treatment in India and a migraine treatment in Mexico. The company’s associated patient support programme evaluates patients and uses national income data to set accurate payment thresholds. The programme is also linked to an app for the patient to record migraine diaries and help physicians monitor outcomes.
Data as a valuable asset
Many innovative pricing models have been made possible due to the increased collection and analysis of data. Companies are investing in digital health technologies and data analytics to collect and analyse real world evidence, track patient outcomes and better understand how patient characteristics affect health outcomes. The drive for data has also been due to the increased focus by policymakers and practitioners to concentrate more on value-based care. This takes a more holistic patient outcomes approach to pricing and requires a more collaborative relationship between pharma, payors, physicians and patients.
Data has become a valuable asset, helping companies determine where to focus R&D, how to position new and existing products, and providing a feedback loop to allow for more holistic innovation across the value chain. In lower income markets, where there is less of a data barrier due to the lack of infrastructure and ingrained hospital IT networks, there is the opportunity to drive rapid data collection at scale and direct healthcare delivery through mobile communication.
Capturing data, measuring impact and moving to an outcomes-based funding model not only improves the cost effectiveness of programmes and helps companies identify gaps, but also provides the potential for more innovative financing.
In March 2020, Pfizer was the first biopharmaceutical to issue a sustainability bond with the proceeds supporting the management of the company’s environmental and social impact.8 This was shortly followed by Novartis, which issued its first sustainability-linked bond with interest payments tied to the achievement of patient access targets in low and middle-income countries.9
In order to provide investors with more comprehensive and comparable information, companies are building frameworks to measure impact. For example, Novartis has a well-developed ‘social impact valuation’ that calculates the outcomes of multiple products in its portfolio across 117 countries. Takeda has partnered with Duke University, in North Carolina, to develop its access to health impact measurement framework. French multinational Sanofi is working with external partners to measure and publish information about the long-term impacts of its access-related projects. Meanwhile, British-based GlaxoSmithKline (GSK) is developing an impact assessment dashboard to evaluate initiatives across the board.
Interrogating access strategies
In order for investors to understand which pharma companies are forward thinking with regards to access, there are numerous questions to address:
• Has the company established access planning frameworks that are being implemented across their product pipelines?
• Are they supporting efforts to build local capacity, educating and training health workers, and collaborating with local stakeholders?
• Are they implementing compliance controls and audits to reduce corruption risk across their business operations?
• Do they have board-level committees that are directly responsible for promoting and rewarding effective access strategies across portfolios?
As investors start identifying which companies are integrating access into their business strategy, a good place to start is looking at how the issue is approached from the top. For GSK, Novartis, Pfizer and Takeda, access to medicine is integrated into their overarching business strategy with associated long-term incentives for top-level managers and responsibility sitting with board-level committees. At GSK, the CEO’s personal access-related objectives relate to malaria, tuberculosis and paediatric HIV programmes, as do objectives for senior executives and regional and in-country managers. Pfizer, Takeda and Novartis CEOs all have incentive plan key performance indicators based on access targets, and Novartis has also set its managers specific incentive-related targets linked to patient reach.10
Another area for investors to interrogate, is how and when access planning is integrated into R&D. Access plans can come in many forms from prioritising high-risk areas during registration or arranging voluntary licensing arrangements to strengthening supply chains.
According to the Access to Medicine Index, Novartis is currently the only company with an equitable access strategy applied in at least one low-income country for every product assessed and is already implementing scalable and inclusive business models. However, other companies are moving in the right direction signalling that access planning could become an industry standard: Johnson & Johnson as well as Merck assess the affordability of all R&D assets in their pipeline from Phase II development. Pfizer has expanded its access planning processes from vaccines to all R&D projects for diseases in scope. AstraZeneca has access plans integrated from Phase II development applying to all R&D projects, and GSK is developing a systematic approach to access planning for its late-stage R&D, with 80% of projects currently supported by an access plan.11
Access to medicine is improving but there is still a long way to go. According to the Access to Medicine Foundation, R&D still concentrates on too few diseases and on too few countries, benefiting only a fraction of people in need. The global COVID-19 pandemic has exposed gaps in the global health system, showing dependency on too few players to combat emerging infectious diseases and only a handful of pharma companies are still involved in the R&D of new antibiotics.
The global pandemic has provided the industry with an opportunity to rebrand itself and build on existing collaborative efforts to tackle areas beyond COVID-19. According to Access to Medicine Foundation, all 20 companies reviewed have set specific goals and targets for improving access, with more companies starting to explore business models that explicitly include people at the base of the income pyramid.12 It is up to the investment community to hold companies accountable to these targets, to encourage innovative pricing models and partnerships, to monitor how companies are collecting data and measuring their impact, and to challenge companies over whether they are doing enough to ensure their products are reaching as many people as possible.
Environmental, Social and Governance (ESG) or sustainable investing considers factors beyond traditional financial analysis. This may limit available investments and cause performance and exposures to differ from, and potentially be more concentrated in certain areas than, the broader market.
Use of third-party names, marks or logos is purely for illustrative purposes and does not imply any association between any third party and Janus Henderson Investors, nor any endorsement or recommendation by or of any third party. Unless stated otherwise, trademarks are the exclusive property of their respective owners.
Payors: groups, organisations or people other than the patient that finance or refund the cost of medicinal products and health services.
1Americans' Views of U.S. Business and Industry Sectors, 2020, Gallup Poll, August 2020
3, 4, 10, 11, 12 Access to Medicine Index 2021, Published on 26 January 2021
5astrazeneca.com/investor-relations/emerging-markets-expansion-innovation-and-partnership.html as at 10 May 2021.
6AstraZeneca Full-year 2020 results, 11 February 2021
7Bloomberg, 9 September 2019
9ESG Today, 17 September 2020 - Novartis Launches Healthcare Industry’s First Sustainability-Linked Bond Offering https://www.esgtoday.com/novartis-launches-healthcare-industrys-first-sustainability-linked-bond-offering/