ESG Viewpoint – COVID-19 and the pharmaceutical industry

How is the pharmaceutical industry responding to COVID-19?
September 2020

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Public trust in the pharmaceutical industry has eroded. The pandemic provides drug-makers a chance to begin re-building their reputation – but only if they prioritise socially responsible practices.
We’ve been exploring how the pharmaceutical industry is responding to COVID-19 through research and engagement. Specifically, we’re focusing on three key issues:
1 Protecting and supporting employees
2 Maintaining and broadening access to products
3 Leverage collaboration

The pharmaceutical industry is under intense scrutiny as the COVID-19 pandemic unfolds, with the world watching and waiting for effective treatments and vaccines.

Want to learn more? Read on the discover the details of our findings.

Can pharmaceutical companies restore public trust?

In recent years, the reputation of the pharmaceutical industry has been severely tarnished – particularly in the US – due to a toxic cocktail of drug pricing scandals, the opioid crisis, and a seemingly constant stream of bribery and corruption allegations, among other factors. In Gallup’s August 2019 poll of the US public’s perception of 25 industries, the pharmaceutical industry ranked last: Americans were more than twice as likely to rate the pharmaceutical industry negatively (58%) as positively (27%)1. Indeed, 2019 marked a new low for the pharmaceutical industry’s image in the US:

American’s views of the pharmaceutical industry, 2001-2019

Net positive = % holding a positive view of the industry minus % holding a negative view

Risk Disclaimer

The value of investments and any income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested.

Investing in emerging markets is generally considered to involve more risk than developed markets.

Views and opinions have been arrived at by BMO Asset Management Limited and should not be considered to be a recommendation or solicitation to buy or sell any stocks or products that may be mentioned.

Descending line graph of net positive
Source: Gallup, as at September 2019
For an industry whose core purpose is improving people’s quality of life and extending the human lifespan, this poll reflected an extraordinary crisis of confidence.
Logo of Good health and well being

COVID-19 has presented pharmaceutical companies with the opportunity to demonstrate the value of their investments in vaccines and treatments, and to communicate their positive contribution to society and Sustainable Development Goal (SDG) 3: Ensure healthy lives and promote well-being for all at all ages.

Our engagement has revealed that major pharmaceutical companies have – to a greater or lesser extent – seized this opportunity, and US public opinion of the pharmaceutical industry has already changed for the better: a Harris Poll survey conducted in May revealed that 40% of Americans have developed a more positive view of the industry2. This is good news, but public trust is hard-earned, and progress could easily be undermined.

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In a 2019 poll, Americans were more than twice as likely to rate the pharmaceutical industry negatively (58%) as positively (27%).

Highlighting the critical importance of socially responsible practices via engagement

At BMO GAM, we have long prioritised engaging pharmaceutical companies on issues related to access and affordability. We recognise that these issues present significant business risks and opportunities, and that improvements in global health have far-reaching economic and social benefits. This year, global inequalities have become starkly apparent, hence our engagement with pharmaceutical companies is pivoting around equitable access for all. We are paying particular attention to access in low- and middle-income countries, which have less developed health systems and are also battling HIV/ AIDS, tuberculosis and malaria, alongside other debilitating communicable diseases.

Of course, access is just one key element of building public trust while navigating through this crisis. We are therefore investigating all facets of pharmaceutical companies’ response to COVID-19. We are continuing to engage on a one-to-one basis with companies, but recognise that collaborative engagement is crucial in the current environment. In April, we joined two initiatives focusing on a range of responsible practices during this pandemic, one co-ordinated by Achmea Investment Management and the other by the IOPA (Investors for Opioid Accountability). Both initiatives have explored human capital management, health & safety, and measures to ensure supply chain continuity. The Achmea-led initiative has also emphasised the importance of global access to health products and sustained research and development (R&D) for infectious diseases, while the IOPA initiative has sought clarity on the financial implications of COVID-19.

As the pandemic progressed, collaborative engagement provided us with valuable insights into which pharmaceutical companies are stepping up and prioritising socially responsible practices, and which seem more reticent. We have a particularly good understanding of how AstraZeneca has responded to COVID-19 because we led engagement with this company via the Achmea initiative.

The issues at play in the pharmaceutical industry are complex and multi-faceted, and in this Viewpoint we delve into three key issues:
1 Protecting and supporting employees
2 Maintaining and broadening access to products
3 Leverage collaboration
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Our engagement with pharmaceutical companies is pivoting around equitable access for all.

1 How are pharmaceutical companies protecting and supporting their employees?

Regardless of industry, companies should take steps to protect the health, safety and welfare of their employees. We believe that companies with progressive employee-centric practices during this pandemic are more likely to reduce employee turnover, attract talent, and build trust, with potential financial and reputational benefits.

Major pharmaceutical companies have several thousand employees in a wide variety of roles, some of which, including positions in research, manufacturing, and distribution, cannot be performed remotely. Alongside standard measures, such as the provision of PPE (personal protective equipment), we have identified a number of positive initiatives which really stand out:

AstraZeneca published a comprehensive COVID-19 employee toolkit3, which contains practical resources aimed at maintaining employees’ physical and emotional wellbeing. It also published a COVID-19 leader toolkit4 to help leaders manage their teams through the crisis.

Johnson & Johnson announced a one-time award of $1,000* to eligible employees working onsite at the company’s facilities in recognition of their dedication. The company has also introduced a new global medical personnel leave policy: medically trained employees who are either called up or who volunteer can take a period of paid leave of up to 14 weeks over the course of a year to contribute to the fight against COVID-19.

Novartis committed to provide childcare assistance for select associates who cannot work from home. The company has also collaborated with an online learning platform, Coursera, to support family learning and homeschooling.

Given that the retention of intellectual capital is an important factor in pharmaceutical companies’ success, we are very encouraged by initiatives such as these, and are optimistic that the pharmaceutical industry will continue to strengthen its approach to human capital management through COVID-19 and beyond.

2 How are pharmaceutical companies maintaining and broadening access to their products?

In this global crisis, pharmaceutical companies have had to rapidly mobilise employees and supply chain teams to not only maintain access to their products, but also to broaden access to them.

COVID-19 has highlighted the importance of building supply-chain resilience

Initially, there were widespread concerns about drug shortages, not least because China plays a critical role in pharmaceutical supply chains. China is the world’s largest producer of APIs (active pharmaceutical ingredients), accounting for c. 40% of all APIs. India, the third-largest producer of pharmaceuticals by volume, imports c. 70% of its APIs from China5.

Fortunately, although COVID-19 highlighted vulnerabilities in pharmaceutical supply chains, significant global drug shortages have not materialised. Major pharmaceutical companies responded rapidly to mitigate supply chain risks, and investors have been assured that there is currently minimal disruption. The following business continuity measures, which we have gained insights into via our engagement and research, appear to have been effective in ensuring continuity of supply:

  • Dual sourcing – using two suppliers – for each API
  • Enhanced monitoring of supply levels and product demand
  • Increased production of products in very high demand, e.g. respiratory drugs and anti-inflammatory drugs
  • Maintaining high levels of “safety stock”
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We are working tirelessly to honour our commitment to ensure broad and equitable access to Oxford’s vaccine across the globe and at no profit9.

Pascal Soriot, CEO, AstraZeneca

It appears that pharmaceutical companies have faced more distribution challenges than manufacturing challenges due to logistical complications resulting from global lockdowns. GSK, for example, admitted that it is experiencing some delays with distribution and delivery “as countries around the world introduce different virus containment measures, such as border closures and flight suspensions”6. The company is working with logistics service providers to find alternative distribution routes to mitigate disruption. It is likely that logistics-related challenges will persist for the foreseeable future – therefore, those pharmaceutical companies with the most sophisticated approaches to supply chain risk management are less likely to face difficulties in ensuring access to their products for patients around the world.

A global pandemic necessitates global access to treatments and vaccines

Measures to overcome manufacturing and distribution challenges must go hand-in-hand with taking steps to enable access to treatments and vaccines for COVID-19. Viruses do not recognise borders, and bringing COVID-19 under control will require solutions in all countries, regardless of income level. Actions deemed as nationalistic and/or exclusive have – unsurprisingly – attracted considerable criticism.

In March, Gilead Sciences sparked anger by seeking orphan drug designation for remdesivir, a potential treatment for COVID-19. Seven-year market exclusivity with price-setting power is granted to the manufacturer of an orphan drug and there are significant tax incentives, among other benefits. Gilead Sciences was accused of “profiteering” from the crisis, and took the unusual step of asking the US FDA (Food and Drug Administration) to rescind remdesivir’s orphan drug designation. Only weeks later, the CEO of Sanofi provoked an uproar in France when he told Bloomberg News that the US “has the right to the largest pre-order [of its vaccine candidate] because it’s invested in taking the risk”7. He subsequently apologised and backtracked on his comments. As the world grows impatient for treatments and vaccines, these two incidents demonstrate that pharmaceutical companies’ social license to operate is on fairly thin ice.

On a more positive note, there are very encouraging examples of pharmaceutical companies working at breakneck speed to lay the groundwork for ensuring global access to potential vaccines for COVID-19. We were not surprised to learn that AstraZeneca and GSK are prioritising access. Both companies, especially GSK, are recognised as leaders in the Access to Medicine Foundation’s Index, which compares pharmaceutical companies’ approach to access to medicine8.

We are particularly interested in AstraZeneca’s development of a vaccine access strategy because – unlike GSK – the company is not a vaccine specialist. AstraZeneca has collaborated with the University of Oxford to further develop, manufacture, and distribute the Jenner Institute’s potential vaccine. Our meeting in June highlighted the company’s commitment to broad and equitable access to this vaccine: agreements have already been reached with CEPI (the Coalition for Epidemic Preparedness Innovations), Gavi the Vaccine Alliance, and SII (the Serum Institute of India). If successful, these agreements will facilitate access to the vaccine in countries of all income levels. One important point to note is that neither AstraZeneca nor GSK expect to profit from their vaccines, if they prove successful, while the pandemic is ongoing. In contrast, representatives from Merck & Co and Pfizer, have said that they expect to profit from their respective vaccines.

Although the spotlight has largely been on new vaccines, we have also been monitoring the steps pharmaceutical companies – and companies in the broader healthcare sector – are taking in other key areas: developing diagnostic products; supporting investigations into drugs to treat COVID-19; and providing access to customers who may be facing financial hardship.

  • Becton Dickinson, QIAGEN and Thermo Fisher have all produced COVID-19 diagnostic products to enable rapid testing, with results generated in as little as one to four hours.
  • AbbVie donated a supply of Kaletra/Aluvia (lopinavir/ ritonavir) to Chinese health authorities in January for use as an experimental treatment option (since found to be ineffective).
  • Novartis committed to donate up to 130 million doses of hydroxychloroquine in March for use in patients infected with COVID-19 and in clinical trials (also since found to be ineffective); and in February Novartis’ generics division, Sandoz, committed to keep prices stable for a basket of essential medicines.
  • Eli Lilly announced in April that it is introducing a Program in the US in response to COVID-19, enabling anyone – regardless of employment status – to fill their monthly prescription of Lilly insulin for $35.
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We’ve created a virtual table of collaboration that has allowed us to challenge the status quo…It is our job to make sure we don’t go back to our silos, and keep the same spirit as we think about other health [problems]10.

Giovanni Caforio, CEO, Bristol-Myers Squibb

3 How are pharmaceutical companies leveraging collaboration?

Collaboration has always played an important role in the pharmaceutical industry, and COVID-19 has sparked a number of high-profile collaborations to accelerate the development of potential treatments and vaccines. It is testament to the power of collaboration that as of July, seven of the twelve vaccine candidates which are in phases II or III of clinical trials were developed between small biotech companies, biopharma giants, and academic institutions11 – entities which can leverage each other’s strengths.

GSK is an example of a pharmaceutical company which excels at collaboration. In April it was announced that GSK had joined forced with Sanofi to develop a COVID-19 vaccine candidate. Both companies have significant manufacturing capacity and a long history of making vaccines available to people in low- and middle-income countries. GSK is also collaborating with the University of Queensland, Clover Biopharmaceuticals and Xiamen Innovax Biotech because it believes that more than one vaccine will be needed. Indeed, a number of successful vaccines could be developed with GSK’s pandemic adjuvant technology, which can decrease the amount of vaccine protein required per dose, potentially enabling more doses to be produced.

With regard to treatments, a key milestone was the launch of the CTA (COVID-19 Therapeutics Accelerator) in March12. This collaborative initiative, funded by the Bill & Melinda Gates Foundation, Wellcome and Mastercard, is working with the WHO, the research community, governments, private sector organisations and global regulators. Several major pharmaceutical companies have agreed to share their proprietary libraries of molecular compounds (which already have some degree of safety and activity data) with the CTA to rapidly screen them for potential use against COVID-19. We are hopeful that pharmaceutical companies will continue to build on their collaborative efforts to accelerate drug discovery and development, thereby continuing to improve public health.
The path to recovery and the need for broad-based innovation

Although the pharmaceutical industry has been relatively unscathed by COVID-19, a mixed picture has emerged. At the beginning of this year, some pharmaceutical companies, including Eli LillyNovartisPfizer, and Sanofi, benefitted financially from drug stockpiling and/or patients filling prescriptions earlier than normal, whereas both Johnson & Johnson and Merck and Co were negatively affected due to lower demand for medical devices as a consequence of medical procedures having to be delayed and drugs which are usually administered in clinical settings, respectively.

Unfortunately, all pharmaceutical companies have faced some degree of disruption to clinical trials. It seems that studies in the start-up phase or the planning phase have suffered the most, and there have been challenges in recruiting patients. In order to minimise disruption, AstraZeneca has increased recruitment in areas less severely affected by COVID-19, and is offering home-based treatment and monitoring. Novartis is planning to permanently use remote monitoring visits (where possible) to increase the efficiency of its operations. This is a good example of innovation in response to a significant challenge posed by COVID-19. We will use engagement to explore other strategies to ensure clinical trial continuity.

When the pandemic subsides, pharmaceutical companies will need to re-focus on their drugs in development, because innovation is key to the pharmaceutical industry’s reputation and success. But innovation has to be broad-based. COVID-19 has shone a light on difficult, unresolved issues, including a lack of sustained R&D in EIDs (emerging infectious diseases). Research by the Access to Medicine Foundation revealed that R&D in EIDs comprised only 1% of R&D projects in 2018, and no reported projects targeted coronaviruses13.

The other conundrum we are continuing work on is antimicrobial resistance (AMR) – the natural phenomenon in which microorganisms develop resistance to antimicrobial agents. It is a serious cause for concern that this pandemic could further exacerbate AMR because a high proportion of patients admitted to hospital with COVID 19 are being given antibiotics to treat or prevent secondary bacterial infections. A comprehensive review of COVID-19 cases, mostly in Asia, found that more than 70% of patients received antimicrobial treatment despite less than 10%, on average, having bacterial or fungal coinfections14. The pipeline of new antibiotics remains worryingly dry, partly as a result of major pharmaceutical companies having largely abandoned antibiotic R&D due to low return on investments. In order to mitigate the risk of more global public health crises, we think that major pharmaceutical companies have to take more responsibility for both EIDs and antibiotics, two areas we will prioritise engagement on.

Final thoughts

COVID-19 has provided the pharmaceutical industry with a platform which comes with significant risks and opportunities. It is undoubtedly positive that pharmaceutical companies have largely adopted a “whatever it takes” mindset to combat COVID-19 and maintain access to their existing products. However, our engagement and research have revealed that approaches to broadening access are on a spectrum. In order to restore public trust and clearly demonstrate their underlying commitment to improve global health, pharmaceutical companies need to consider all facets of responsible business conduct during this pandemic. Specifically, they must consider how employees are being treated; how products are reaching and will reach people in countries of all income levels; and how collaboration can accelerate progress.

We have confidence that pharmaceutical companies will outride this storm, and are optimistic about the benefits of enhanced supply chain resilience and the prospect of greater collaboration. However, we are concerned about companies being distracted from other storms, most notably EIDs and AMR. We recognise that our engagement will have to continue to stress the importance of long-term thinking.

Responsible Investment – a glossary of terms

Its wide-ranging nature means that responsible investment involves a host of associated language and jargon. Here we explain some of the most commonly used terms.
  • Active ownership – Discharging responsibilities as investors and owners in a company through engagement and voting to influence the management of environmental, social and governance (ESG) issues.
  • Stewardship – The responsible allocation, management and oversight of capital to create long-term value for clients and beneficiaries leading to sustainable benefits for the economy, the environment and society.*
  • Environmental, Social and Governance (ESG) – A framework that breaks the broad concept of sustainability down into these 3 key issues.
  • Engagement – Entering dialogue with companies after investment, to support and encourage positive change in the management of key ESG issues.
  • Proxy voting – Exercising the right to vote on resolutions at company shareholder meetings. It compliments engagement as a key tool for influencing change.
  • Sustainable Development Goals (SDGs) – The 17 goals set by the United Nations in 2015 are a global framework for achieving a better and more sustainable future. They address the global challenges we face, including those related to poverty, inequality, climate, environmental degradation, prosperity and peace and justice. The UN is targeting completion of all 17 interconnecting goals by 2030.



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