A couple of days ago I received one of the regular emails from the Financial Times Moral Money team. This one was about anti-obesity drugs. An attempt to evaluate these products for their ESG value.
I must admit I was somewhat surprised. We are used to seeing ESG evaluations of companies, but ESG evaluation of individual products was new to me. Is it a good idea to go there? Personally, I’m not convinced. But let’s leave that for another day.
What was the narrative around the ESG value of these products?
First was commentary about the health benefits – which are clear, proven, and incontestable. No more need be said.
But, of course, no press review is complete without attempts to raise questions and find some fault – real or imagined.
The first issue raised was that supply of these drugs is unable to meet demand. As a result, some physicians are prescribing diabetes drugs (from which these new anti-obesity agents are derived) to fill the gap, potentially leading to shortages of those products for diabetes patients.
Pharmaceutical companies know full well that they are not allowed to promote drugs for use outside their approved indications. And mainly they do not. Yet physicians are allowed to issue such ‘off-label’ prescriptions if they deem it appropriate. If physicians are choosing to behave in this way for their own reasons, it is not at all clear what that has to do with a supposed ESG rating for the companies involved – assuming they are abiding by the rules and not promoting such use.
Another issue raised related to the price of these anti-obesity products.
“Another factor worth considering for ESG-minded investors in the health sector is the pricing of these drugs. Without insurance coverage, they typically cost about $1,300 per month in the US, making them inaccessible for many. This is especially problematic as obesity is more prevalent in lower income households,” according to the FT.
Should ESG investors really be looking at these detailed product-by-product issues? And, if they do, on what basis should they evaluate such things?
The pricing of pharmaceutical products has always been and will always remain a subject of much discussion and controversy. Having myself worked on this very subject in detail for over a decade, I challenge anyone to come up with how to determine what a ‘fair’ price is for a pharmaceutical product.
Many methodologies have been developed by those who pay for such products (usually third parties) to decide whether they will choose to pay for individual products or not. Yet none of those methodologies tell us what constitutes a ‘fair price’. They are simply methods to determine whether payers will pay for them or not. And each payer has its own framework for making such decisions depending on their own individual circumstances.
As the piece points out, the cost of these and all other therapies may be particularly problematic for uninsured people who may be unable to afford them. But that is not a corporate issue, it is a public policy issue.
If public policy is set up in such a way that some people are not able to afford healthcare, that is a political issue to be discussed and resolved through policy intervention. It is not a matter for companies that provide healthcare products or services.
That said, in the USA, most pharmaceutical companies have, for decades, provided patient assistance programmes to help such patients – either by helping them navigate the byzantine system and obtain coverage, or by providing free product for those who fall through the net.
Overall, I found the idea of trying to evaluate such new products from an ESG perspective baffling. Even more so considering the complexities and difficulties involved – complexities of which no ESG investor can possibly ever get into in the necessary level of detail and nuance. Are we now supposed to evaluate every individual product in every company portfolio as part of ESG evaluation?
The whole ESG rating system is shaky enough and challenging enough as it is. Let’s not try to take it to places where it doesn’t belong.
This post first appeared in Joe’s Random Thoughts newsletter on LinkedIn.
Have just discovered Radix and am finding all the articles so far informative and readable, including this one.
Small point on this one though: this is not my field and I don’t know what ESG is. A bracket with the phrase in full after the first mention of the acronym would be very helpful for those who want to learn stuff.
I could ‘duck duck go’ it, but instead, I’m abandoning this article. I teach writing in a university and one of our mantras is, ‘don’t make the reader work harder than necessary’.
Thank you, stork. you’re quite right and i apologise!
David
Editor