What is the social impact of a medicine?

PGGM has received the results of two impact measurement projects that we’ve set up with two pharmaceutical companies. These data can help us to become a better impact investor, writes Martin Eijgenhuijsen.

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What is a patient’s benefit when using a new medicine? Will he or she live longer and healthier than when using an older medicine? With fewer side effects and hospitalisations? Will the new medicine help make our healthcare system more affordable?

PGGM conducted two projects in 2017 to measure this ‘social impact’. Two publicly traded pharmaceutical manufacturers supplied a new medicine that has been marketing authorised in the Netherlands and had their impact data validated by the independent institute for Medical Technology Assessment (iMTA), a part of the Erasmus University Rotterdam.

This is the first time that an institutional investor (PGGM manages EUR 218 billion in pension assets) has asked large pharmaceutical companies to measure this type of impact in this manner. The benefits are twofold: pharmaceutical companies who are currently being critically monitored with regard to their pricing policy will gain experience in formulating their social contribution, and PGGM will use the data to illustrate its basic position - that financial returns and social returns can go hand in hand.

This position is explained in a mandate that the Healthcare and Wellness Pension Fund (Pensioenfonds Zorg en Welzijn, PFZW) gave PGGM for investing in solutions: pension assets, profitably invested in publicly traded companies, help contribute to things such as healthcare, water and food availability, and climate solutions. The challenge is to ‘catch’ the true social returns in a language that everyone understands.

Both pharmaceutical companies were included in a specially designed portfolio for publicly traded companies, an ‘impact portfolio’ aimed at obtaining at least market-aligned financial returns. The total invested assets amounted to EUR 2.5 billion. For the water, energy and food sectors, the impact is expressed in prevented tonnes of CO2, produced cubic metres of clean water, generated megawatts of renewable energy and tonnes of food, respectively. These can all be measured reasonably well using standards that we have developed together with other parties.

Things get more complicated when it comes to the healthcare impact, however. Publicly traded company Novartis, with which we conducted a joint project, sells about 200 medicines worldwide, some of which have been on the market for a long time and some for a shorter period. How can we ascertain that pension euros invested in this company will help make a positive impact on healthcare? Does the respective pharmaceutical company pursue a sustainable pricing policy for its products, thereby contributing to the sustainability of healthcare systems?

Because this is unexplored territory, we started with a single medicine that was marketed fairly recently in the Netherlands – it takes an average of 13 years for a new medicine to be marketing authorised. In the future we want to measure the impact of more medicines, in more countries.

The medicine in question, marketed under the name Entresto, is prescribed for people with chronic heart failure, an illness that currently affects about 167,000 primarily older Dutch people. Chronic heart failure leads to all sorts of health problems and a shorter life span with decreased quality of life. According to the iMTA, which compared the effect of the new medicine to that of the customary medicine, the risk of hospitalisation decreases by 21% when using the new medicine.

The risk of dying from heart failure decreases by 20%. This means that patients live on average five months longer with an overall survival of about five years. The quality of life is also improved. Length and quality are combined into QALIs, an international unit that expresses the additional survival in terms of healthy years. The medicine produces 0.33 additional QALI (Quality Adjusted Life Years), which shows that the additional months of survival are not spent in complete health.

The new medicine is more expensive for society than the current customary medicine with which it was compared in the study: the price is higher, the hospital costs are lower and the other medical costs due to additional years of life are higher. So on balance we lose more. But it does fall well within the limit of what we stipulated in the Netherlands as being reasonable costs for an additional healthy year of life.

More insight into the impact – for the entire product range of pharmaceutical companies – is needed in order to make pension investments more than just a means to ‘make money with money’. Ideally, these types of investments will show a nurse or doctor that their premium not only contributes to their own pension but to improved healthcare as well.

Senior Investment Manager

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