What is the Pharmaceutical Shareowners Group (PSG)? The Pharmaceutical Shareowners Group (PSG) is an international grouping of fourteen institutional investors that have significant exposure to the pharmaceutical sector (see www.pharmashareownersgroup.org).1 PSG is concerned that the sector has faced extensive public criticism over the last five years, with potential negative impacts on its reputation and licence to operate. While this criticism has spanned many issues, including drugs pricing in the USA and allegations of misconduct in areas such as clinical trials and marketing, a key issue has been the sector’s response to the HIV/AIDS pandemic and wider public health crisis in emerging markets. PSG has a particular interest in the impact of this issue on long-term shareholder value. In March 2003, the group launched the Investor statement and framework on pharmaceutical companies and the public health crisis in emerging markets (see Appendix 1), which outlined our understanding of best practice based on extensive interviews with specialists from both within and outside the pharmaceutical sector. The aim of the statement and framework was to encourage companies to ensure that they were fully briefed about the risks stemming from the public health crisis in emerging markets and also to assess how well companies were managing these challenges. PSG has since met with seven global pharmaceutical companies to assess their responses and performance against the framework.2 We are grateful to these companies for the valuable insights that these meetings provided. What does PSG want to achieve? PSG members want to protect the long-term value of their investments. To this end PSG thinks it is important for investors to understand the business impact of the crisis and encourage companies to adopt best practice where this can protect long-term shareholder value. PSG does not presume to micro-manage companies and does not offer ‘one size fits all’ prescriptions: we fully endorse the importance of management deciding how to implement companyspecific solutions that are consistent with good practice standards. Where companies are faced with demands that are not in the interests of shareholders, PSG also thinks it important that this is made clear both to company management and also to other stakeholders.3 Why is the public health crisis in emerging markets an issue for institutional investors? There have been marked shifts in societal perceptions of pharmaceutical companies following the lawsuit involving 39 pharmaceutical companies and the South African government in March 2001 and the negative publicity surrounding the WTO TRIPs negotiations in 2003. A view has emerged that pharmaceutical companies have not been playing their part in tackling the public health crisis. PSG was concerned that this negative perception could have a significant impact on the sector’s reputation and licence to operate with potential effects on its ability to defend the case for strong patent protection globally and to sustain ‘premium’ pricing in industrialised markets. This view has been echoed by companies, many of which argue that a proactive response to the crisis is justified for several bona fide commercial reasons. These include: • Defending the ‘social contract’ between governments, society as a whole and pharmaceutical companies, upon which intellectual property law and future innovation depends; • Limiting the potential for emerging market countries to opt out of or otherwise weaken international patent treaties; • Protecting company reputation and licence to operate with potential impacts on pricing power in the USA and other lucrative markets; • Building political goodwill to help secure future markets; • Improving stakeholder relations; • Enhancing employee morale and recruitment prospects.