GLOBAL – Two of Europe’s largest pension funds, Stichting Pensioenfonds ABP and the Universities Superannuation Scheme, have warned of continued “downward valuation” of the global pharmaceutical industry.

And they’ve called for a new acknowledgement of the “mutual inter-dependence” between drugs firms and shareholders.

The comments come in a new report called ‘Pharma Futures’ which was convened by ABP, USS and the Ohio Public Employees Retirement System. Funding also came from drugs firms GlaxoSmithKline and NovoNordisk.

“As long-term owners of pharmaceutical companies, these and other pension funds have a substantial interest in the continued profitability of a sector that created considerable shareholder value in the 80s and 90s,” the report states.

The 34-page report says that “fundamental change in the pharmaceutical industry is inevitable to meet society’s changing healthcare expectations”.

“If new science does not bring innovative therapies to market quickly the risk of downward valuation of the industry and societal pressure for change are likely to continue.”

Investors must also play their part – by providing market-based incentives to reward behaviour. “All stakeholders need to work to re-establish an equilibrium that acknowledges mutual inter-dependence.”

Speaking on a conference call, Raj Thamotheram of USS said the schemes, worth a combined 280 billion dollars - have around seven percent of their equity allocations in the pharma industry. “We see this sector as a natural sector for us,” he said.

And he said schemes would have to engage with asset managers and investment consultants on the issues raised in the report.

ABP’s Martin Eijgenhuijsen said: “We are planning to ask our external asset managers what they think about this report, to see how they would deal with it.” He added that there “may be other sectors” to which the model could be applied.

Project director Sophia Tickell said there had been a generally “very positive” response to the report from the pharmaceutical sector.

Asked about whether schemes should be involved in such a project, Thamotheram argued: “This is about doing our day job but doing it more intelligently.” Eijgenhuijsen agreed: “Managing a portfolio is about getting a high return. This could also be seen as an additional research tool.”