The million dollar question
A week-long business trip to Switzerland last month was punctuated by a number of highlights; dining out with my cousin Monika, a long-time resident of Zurich, was one of them. Conversation veered towards the purpose of my visit, and I mentioned my professional interests in the pharmaceutical industry, and a series of interviews I was conducting with Swiss-based pharmaceutical firms. As dinner drew to a close, Monika asked my opinion on a superficially simple question: "to whom is a pharmaceutical company responsible?"
"Primarily, to shareholders," I replied instinctively, adding that this was the text-book business school answer, not necessarily my personal viewpoint. A spirited discussion ensued, and I realised that my initial answer was inadequate. Pharmaceutical firms are responsible to a range of stakeholders - perhaps with the proviso that 'all stakeholders are equal, but some are more equal than others.' In the transparent age of media scrutiny, activist shareholding, and corporate social responsibility, existing financial measures of pharmaceutical firm value do not tell the whole story, a sentiment best expressed by Mr Alan Mackay, Global Healthcare Partner at 3i Group plc., at the 2009 Economist Pharma Summit: "In the world of public capital markets, investment and value is looked at through the prism of perceptions."
As an industry, the pharmaceutical industry has been slow to realise the importance of public perceptions: when leading manufacturers tried to sue the South African government in the late 1990s for attempting to manufacture anti-HIV drugs, the public opprobrium towards the industry reached a nadir. Individual companies too are guilty of communicating diametrically-opposed mixed messages - consider attitudes towards access to medicines initiatives. Investors may want to hear that access to medicines programmes for the poorest populations in low-GDP countries are crucial to developing the market for the future, and are simply the marketing or political costs of growing the business in that country. On the other hand, ethical shareholder activists may only be mollified if a pharmaceutical firm is genuinely committed to access to medicines as philanthropy, with no ulterior commercial motive. Little wonder that the public is confused as to the role and mission of the pharmaceutical industry.
Can you measure philanthropy?
With the first list only coming out last year, there has been a muted response from industry to date, with question marks over the methodology. I asked Wim how the methodology was devised, who replied: "We chose Risk Metrics, a Toronto-based firm, which has expertise in non-traditional risk factors in public companies; for example, they devised the carbon disclosure project, and they helped develop the methodology, which took two years." Would the methodology have been generally more accepted had academics ratified this? “AMI was first presented to all stakeholders - including academics - before compiling the first index and showing industry," replied Wim. Although AMI has a focus on the developing world, many of the industry's stakeholders are in the developed world, and I asked Wim what emphasis is placed on developed countries: "If I say developing world, I could say parts of the United States! Its up for discussion. Some companies have policies to address that issue, and we should measure that in future. I can say that the third index will be much more comprehensive than the first."
Emerging markets in the developing world are attractive growth markets for pharmaceutical firms. I asked Patrick Flochel, Life Sciences Leader EMEIA, Ernst & Young, on how AMI might be useful for their clients: "This is a complex issue, but it is important for all companies to access these developing markets. Previously they only dealt with the wealthy part of the population, but now that they are looking at the bottom of the pyramid they need an emerging market strategy, particularly in pricing. If there is a link between the index ranking and success in emerging markets, this is something that our clients and investors will be very interested in."
Whilst the Access to Medicines Index may not be universally popular, nor fully functional just yet, I envisage that, with increased funding and acceptance, the publication of the list will become an annual event that will shape firms' policies towards the developing world. AMI certainly helps the pharmaceutical industry answer the deceptively simple question: "to whom is a pharmaceutical company responsible?"
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