The pharmaceutical industry’s reputation has undoubtedly been enhanced by its response to COVID-19. The sector has been buoyed by the vaccine launch and distribution news, plus previous research, treatment and testing, backed by impressive cross-sector partnerships.
All of these highly visibly outcomes have presented the sector as responding rapidly to a wider societal need and having put aside competitive differences for the common good.
However, one concern for the industry, which I will go on to discuss at length, is the sense that pharma has been narrower than any other sector in its focus and has, in a sense, put all of its eggs in one basket. The ultimate reputational gains for the sector will depend entirely on the long term successes of the vaccines, and how long the successes take to materialise.
If the reality does not meet the promise, there will be a significant reputational risk to address, with the greatest risk attached to the most visible companies. In addition, historic challenges to the sector around pricing and access are yet to be broached, and these have the potential to wipe out all of the goodwill generated so far.
Against this backdrop, I have presented some insights into how the pharmaceuticals industry is currently perceived, with reference to how it is viewed on the core issue of its Environmental, Social and Corporate Governance (ESG).
Pharma and ESG
Our media insights have found that ESG-focused corporate announcements for all sectors have become permanently listed in the ranking of the top eight news stories. It appears that COVID-19 has broken the rut of ‘business as usual’, and with companies reassessing the future, ESG is standing out as a core priority for many.
However, in the third quarter of 2020, ESG perceptions of pharma stood only just above neutral – +10 out of a possible +100 – according to alva reporting that assigns scores based on publicly available content from social media to NGO research. This score seems surprising considering the advancements towards COVID-19 vaccines made public during Q3.
But if we look a little closer at the components of this score, we can see which areas are dragging pharma’s ESG score down, and which are building it up.
Positive ESG issues for pharma
The most positive ESG issue for the pharma sector during Q3 was drug safety, which scored +21%. This came in a quarter that saw US approvals and COVID-19 vaccine trial results driving visibility of safety discussions; not to mention Roche’s launch of the Elecsys Anti-SARS-CoV-2 S test and report of successful trials.
The sector also performed well on the issue of access to medicines, at +19%, thanks in no small part to production agreements driving worldwide supply deals for access to COVID-19 vaccines. Novo Nordisk also celebrated World Diabetes Day by offering free insulin to diabetic children, helping to boost the access rating.
Employee recruitment, development and training scored +15%, as Takeda Australia was named ‘most attractive company to work for in the life sciences sector’ by Randstad, and Merck won a Trinity Life Sciences TGaSBest of Benchmark Award.
Supply chain management issues brought in a score of +8, thanks to positive stories including Novo Nordisk achieving an RE100 target of 100% renewable power, and Bayer committing to build a Distribution Centre in Pittsburgh and investing in the local community.
Negative ESG issues for pharma
But if we consider the ESG issues where the industry is being dragged down, the leading one is the affordability and pricing of drugs. As an issue, this scores -22%, in a quarter that saw theDepartment of Justice accuse Teva of illegal kickbacks which allowed Copaxone’s price to quadruple. Novartis also settled on its generic drug-price fixing case for $195 million.
Policymakers and social media sceptics remained critical of AstraZeneca’s reported price hikes as the company accepted hundreds of millions of dollars of US government aid, largely negating the company’s no-profit promise.
I expect that the issue of drug pricing is likely to continue to be a decisive factor in Q4’s ESG score for pharma, relating to the supply of COVID-19 vaccines and therapies.
A second issue afflicting the sector’s ESG rating is that of business ethics, in a quarter in which Novartis directors were investigated over potential breaches of their fiduciary duties.
The safety of clinical trial participants as an issue rates at -6% for Q3, with the unexplained illnesses in Johnson & Johnson’s COVID vaccine clinical trials resulting in studies being suspended while independent regulators conducted investigations. AstraZeneca’s own COVID-19 vaccine clinical trials restarted after regulators investigated patient illness.
However, some companies, such as Sanofi and GSK, have been positively impacted on this issue as they have started Phase I/II clinical trials. And Novartis has been positively impacted due to successful trial results of its Phase III ASCLEPIOS trials, Cosentyx trials & Phase IV study of Aimovig.
Key companies and their ESG status
There is more to learn if we look at specific companies in the sector and how they have behaved during Q3.
The company with the best ESG rating is Roche at +64%, largely due to the safety of its clinical trial participants. Furthermore, Roche is well known for its sustainability focus, and for its holistic approach when managing sustainability. In addition to improving access to products, the company’s strategy is well-known to focus on achieving continuous progress in areas such as social responsibility, environmental protection, supply chain sustainability, people attraction and retention.
Contrast this with the aforementioned Teva which has received the lowest score (-21%) in the sector, largely due to a lawsuit from the US government accusing the company of using kickbacks to boost Copaxone sales. This is the company’s third run-in with EU antitrust regulators which have also charged the company with anti-competitive practices over its deal with rival Cephalon to delay selling a generic version of its sleep disorder drug modafinil.
The response to the COVID-19 pandemic from many sectors has been broad in terms of recognising and attempting to address various stakeholder challenges. Other sectors have focused attention on supporting the vulnerable in society, as well as detailing how they are supporting employees with physical and mental health challenges during the crisis.
However, pharma hasn’t taken advantage of this approach. COVID-19 presented an opportunity for the sector to show its human side, for instance by doing more around its NHS support; by focusing on access and pricing discussions; and even delivering philanthropic initiatives.
The partnerships and collaborations have certainly been instrumental in presenting the sector in a positive light, as a way of showing the greater good trumping individual corporate concerns. But the big question remains about what the eventual impact of the vaccines will be on the pharma industry, and how negative issues such as cost and access will hijack that good news story.
Big pharma needs to keep in mind that while it continues to achieve the incredible in terms of saving and improving lives, it must also listen to and learn from its stakeholders if it is to reap the reputational benefits of the huge achievements of 2020.
Siera Torontow is managing director of healthcare and consumer practice, alva