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Pension funds urge new direction in pharmaceuticals

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  • Pension funds urge new direction in pharmaceuticals

GLOBAL - Pharmaceutical firms operating in emerging markets regions offer huge investment potential for the future, but business models need to be adapted to the local environment and could in turn require new longer-term financing structures, suggests a study conducted by two major European pension funds.

Details of this year's Pharma Future 3 report reveal new approaches to customer needs, along with product affordability and effective distribution are the key factors in the future development of pharmaceuticals in emerging markets as the firms delivering healthcare need to shift away from westernised business practice to meet local customers.

More specifically, the third annual report appears to suggest its pension fund-led backers - the £22bn (€24.68bn) Universities Superannuation Scheme and the €175bn ABP pension fund's asset management division APG Group - might be willing to invest in companies which need a different approach to financing and management.

"The potential of new hybrid financing models able to help develop service-models, infrastructure, differential pricing challenges and micro-insurance was explored and emphasised," said the report.

"This potential also extends to global pharmaceutical firms…to partner with traditional institutional mainstream and philanthropic investors, and possibly sovereign wealth funds, in order to sow the seeds of eventual market growth which will occur well beyond typical investment timeframes," said the PF3 study.

The working group behind Pharma Futures found over the course of a year the revenue potential of pharmas in emerging markets countries is somewhat different and building innovative pricing schemes will need to be sufficiently communicated to potential investors in drug and healthcare companies to prevent investors from responding negatively when lower prices mean lower affordability.

Interestingly, the report is also targeted at pharma giants who have been criticised in the past for their distribution initiatives in emerging markets countries and the high prices sometimes attached to drugs.

Within this report, USS and APG are using their experience in socially-responsible investment (SRI) to argue it might be more willing to invest in companies who are at least transparent about their operations and who clearly communicate their business strategies through:

Percentage of sales in emerging markets (and by country); Percentage of profits; The number of employees; The percentage of assets held; The share pf capital expenditure and R&D; The proportion of stock-keeping units available, and The average price of key products in emering markets versus developed markets.

Both pension funds are already very active in SRI, and only this week APG confirmed it had been involved in the $82m (€64.15m) closing of the DWM Microfinance Equity Fund I, alongside Developing World Markets, TIAA-CREF and SNS Asset Management.

Both USS and APG disclosed they invest approximately €7.2bn, or around 3.2% of their €225bn in assets in healthcare.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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