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March 19, 2002
Report Diagnoses Ills in the Pharmaceutical Sector
    by William Baue

A German rating agency reports that many pharmaceutical companies are failing to follow the example of the sector’s leaders in solving environmental and social problems.

Pharmaceutical companies provide a significant social benefit: medicine for those ailing. However, socially responsible investors often exclude these companies from their portfolios when ethical or environmental liabilities, such as genetic testing on embryos or toxic waste production, outweigh the positive benefits. Munich-based social and environmental rating agency Oekom Research pointed out the irony of this divide in a recent analysis of publicly-traded pharmaceutical companies.

The report analyzed the 22 largest pharmaceutical companies in the world, based on more than 200 social and environmental criteria. The findings suggest that the sector’s top performers by these criteria are implementing innovative solutions to environmental and social challenges. These companies may start making their way into socially responsible investors’ portfolios more often, Oekom suggested. However, the sector’s poor performers continue to perpetuate the problems that have plagued the industry, such as disregard for the environment and for those suffering disease in developing countries.

“The leaders in the pharmaceutical industry are making a serious attempt to reconcile economic expectations with social and environmental responsibility,” said Dr. Andreas Stefferl, the researcher who oversaw the analysis. “In addition, many companies have . . . opted out of controversial areas of business. From the ethical and the environmental points of view, a significant potential risk has been eliminated as a result.”

Oekom’s report implements a grading system ranging from A+ to D-. The pharmaceutical sector’s “class” average was a C+. Denmark-based Novo Group and U.S.-based Bristol-Myers Squibb (ticker: BMY) led the class with B grades. U.S.-based Pharmacia (PNU) received the lowest mark, a C-.

The pharmaceutical industry has identified many ways to improve its social and environmental performance. For example, Novo Group has begun implementing the fermentation process of chemical synthesis, which improves upon conventional chemical synthesis by employing renewable raw materials and producing less toxic waste, both qualitatively and quantitatively. Most pharmaceutical companies have yet to make such a commitment to reducing their environmental impact, according to the report.

On the social score, pharmaceutical companies treat their workers very well, largely because they must retain qualified personnel in order to maintain high product quality. However, the sector’s preoccupation with “lifestyle” drugs, such as virility and slimming pills popular amongst well-off consumers in the developed world, diverts resources from drugs for life-threatening diseases such as AIDS. Furthermore, the sector’s obsession with patent protection escalates the cost of vital drugs far beyond the reach of those suffering in developing countries. Public pressure may force the sector to confront this social problem more conscientiously, the report suggested.

The pharmaceutical sector’s overall social and environmental performance is mediocre, according to Oekom’s rating.

“However, there is a yawning gap between the leading companies and those at the tail end,” Oekom concluded. “The leading group has acknowledges the sector’s global responsibility, and now it is up to the stragglers to catch up.”


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