Calvert Analyzes ESG Impacts in the Pharmaceutical Industry
Calvert completed an analysis of the environmental, social and governance in the pharmaceutical industry and determined that Baxter International Inc., Eli Lilly & Co., Merck & Co., and Pfizer Inc. now meet all criteria for investment in the Calvert Funds that apply the Calvert Signature Strategies®.
Calvert Investments (“Calvert”) recently determined that Baxter International Inc., Eli Lilly & Co., Merck & Co., and Pfizer Inc. now meet all criteria for investment in the Calvert Funds that apply the Calvert Signature Strategies®. These decisions were made as part of a larger pharmaceutical industry review which included careful research and analysis of key sustainability impacts for each company and the industry as a whole. Calvert has been encouraged by each company’s progress in managing key environment, social and governance (ESG) risks – in particular those related to product safety and product marketing – even as the industry continues to face serious challenges.
The objective of the Calvert pharmaceutical industry review was to assess and update sustainability investment criteria to account for significant changes within the industry and to reflect Calvert’s own growing analytical sophistication. This review took note of recent events particular to the industry against its broader economic backdrop, while determining specific criteria related to key areas of industry impact including product safety, product marketing, animal welfare, environment, workplace safety, governance and human rights. In accordance with the minimum industry requirements developed as part of this industry update, each company reviewed below demonstrated that it has adequate policies and programs to address each key ESG issue, as well as adequate overall ESG disclosure.
Baxter develops, manufactures and markets products for people with hemophilia, immune disorders, infectious diseases, kidney disease, trauma and other chronic and acute medical conditions. Baxter has demonstrated that it has adequate policies and programs to address each key ESG issue, as well as adequate overall ESG disclosure. While the company has performance issues, which are common in the pharmaceutical industry, Baxter has addressed past issues and does not currently have any outlier adverse events.
In 2007 and 2008, Baxter’s product safety practices were called into question when contaminated vials of Heparin were linked to more than 80 deaths. Since those incidents, Baxter has made significant improvements in its product safety policy and program framework. Beginning in 2009, Calvert has dialogued with company representatives from multiple business functions, including product safety. Via this venue, Calvert has discussed with the company the importance of enhanced product safety policies and programs and has contributed to their development. Overall, Baxter is now on par with its peers for overall ESG performance.
Eli Lilly & Co.:
Eli Lilly is a large pharmaceutical company that discovers, develops, manufactures and sells pharmaceutical products worldwide. Eli Lilly has demonstrated that it has adequate policies and programs to address each key ESG issue, as well as adequate overall ESG disclosure. After a large settlement in 2009 related to the off-label marketing and product safety concerns of Zyprexa, the company revamped its policies and programs to curb the practice company-wide. Eli Lilly is under a Corporate Integrity Agreement and has not experienced any additional significant settlements. The company still faces product liability lawsuits related to DES (a drug to prevent miscarriages that results in infertility and high risks of cancer) and Thimerosal (a mercury-based vaccine additive). These issues are significant, but there is no indication that the company withheld critical health data or otherwise knowingly sold a defective product. The company’s reporting on ESG issues is considered strong and overall, Eli Lilly is on par with its peers for ESG performance.
Merck & Co:
Merck’s pharmaceutical products include prescription medicines, vaccines, biologic therapies, animal health, and consumer care products. Merck has demonstrated that it has adequate policies and programs to address each key ESG issue, as well as adequate overall ESG disclosure. Similar to its industry peers, Merck has faced many disputes and lawsuits regarding product safety, marketing, bribery and corruption, most notably with Vioxx and Vytorin. Since 2004, Merck has re-vamped its corporate operations, restructured its R&D efforts, as well as had significant leadership change. The company reorganized its corporate responsibility function and has greatly improved its ESG policies, programs and most importantly the disclosure of its ESG performance. Calvert has held several in–person meetings with Merck’s Corporate Responsibility (CR) and Investor Relations (IR) teams, most recently in 2012, as well as met with representatives from several business functions. During these meetings, the company has discussed the structural and cultural changes taking place at Merck and assured Calvert that it has learned important lessons from the problems it faced in the past.
Pfizer is a diversified biopharmaceutical company that discovers, develops, manufactures and sells medicines for people and animals worldwide. Pfizer has demonstrated that it has adequate policies and programs to address each key ESG issue, as well as adequate overall ESG disclosure. In 2009, Pfizer plead guilty to a criminal felony for multiple instances of illegal product marketing, the company’s fourth settlement of this issue over 10 years. The company paid a record fine and signed a five year Corporate Integrity Agreement. Since 2009, Pfizer has made significant changes and addressed its major outstanding issues. Calvert has worked with Pfizer as part of the SAGE process and has met with the company in person and via phone multiple times in 2010, 2011 and 2012. The company now has strong policies and programs to address product marketing and promotion, as well as enhanced disclosure so stakeholders can measure progress in this area. The company has met the requirements of its Corporate Integrity Agreement, which includes regular monitoring and audits. Moreover, Calvert has made significant progress with the company regarding the care and welfare of mares used to make its Premarin products as well as influenced a meaningful change in how the company promoted its infant formula products (prior to that division’s sale last year). Lastly, Calvert has continued to have fruitful conversations with the company about its governance and human rights practices, specifically regarding Say on Pay and Access to Medicines. Overall, Pfizer has made significant improvements to its marketing and sales practices. The company has also been open and willing to discuss a wide range of ESG issues in various stakeholder forums.
Calvert Investments, 4550 Montgomery Avenue, Bethesda, MD 20814.
As of 9/13/13, accounts managed by Calvert Investments held securities issued by Baxter International Inc., Eli Lilly & Co., Merck & Co., and Pfizer Inc. Calvert may or may not still invest in, and is not recommending any action on, Baxter International Inc., Eli Lilly & Co., Merck & Co., and Pfizer Inc.