New prescription for emerging markets

With the Obama administration facing the twin problems of uninsured Americans and costly healthcare, the US domestic ‘cash cow' for pharmaceutical companies may be headed for leaner times.

But according to F&C Investments' Governance & Sustainable Investment (GSI) team, this presents real opportunities for ‘big pharma' to put its relationship with the developing world on a sounder business footing.

"Developing countries have held minimal commercial interest for the global pharmaceutical companies because of poor purchasing power and weak protection of their brands and intellectual property," said Karina Litvack, Head of GSI at F&C.

"For the last 15 years, they have walked a tightrope between defending their commercial interests and acceding to civil society and political demands for affordable drugs. Now, though, as growth in middle-income countries has eclipsed that of the West, these markets present real opportunities, despite their risks."

Litvack said the key is to move beyond philanthropy and develop integrated business strategies for less profitable markets that reconcile the challenge of affordability with commercial solutions.

In line with its philosophy of active share ownership, known as the Responsible Engagement Overlay (reo), F&C has been engaging with industry leaders GlaxoSmithKline (GSK) and Pfizer since 2001, examining the issue of access to medicines in emerging markets from various angles. In May 2009, the two pharmaceutical giants announced the spin-off of their respective HIV portfolios into a jointly-controlled company, heralding a new approach to a deadly disease that has a disproportionate impact in low-income economies. In addition, both companies have recently announced further deals to strengthen their commitment to emerging markets.

Litvack commented: "The GSK/Pfizer partnership is unique in pointing towards a new willingness to confront disease more creatively in order to achieve scientific, social and commercial results. This push into emerging markets is also welcome as it lessens dependence on slower-growing developed markets."