Engagement with Roche: What's in it for the company?

Robeco’s active ownership team recently concluded an engagement on ESG risks and opportunities in the biopharmaceutical industry. Roche was one of the eleven companies under engagement. Robeco talked to Alexander Klauser about five material topics, i.e. innovation management, product quality & safety management, business ethics, clinical trial transparency and access to medicine.

Innovative medicines tend to be expensive, which is the subject of heavy debate in society. What is your take on this?

“Medicines account for only a small part of health costs (16%, WHO 2017). When we do our job right – extend patients’ lives – we help to reduce the other

“In our pricing, we strive for the right balance between ensuring people have access to the medicines they need, while investing in future breakthroughs. We have a very high threshold for new medicines. It’s no use developing a subpar product which will not deliver additional benefit for patients. Our business is a lot more riskier than ten years ago, and as a company we need to earn a premium to take this risk. After all, we might fail in certain medicines and when this happens, we need to have the financial power to carry on. We have open discussions about this with our stakeholders.

During our engagement, we spoke about product quality & safety management. What did you take away from our conversations?

“We know that quality and safety – not harming patients – are our license to operate. We are among the most highly regulated industries. We appreciate that you flagged this topic, as it confirmed the high importance we attach to it. In our talks, you highlighted very important issues, such as product recalls. You made us more aware that any warning letter or recall will result in Roche being punished by the market.”

20 years ago, the pharmaceutical industry did not have the best reputation in terms of business ethics. Which concrete actions has Roche taken to improve this?

“We can exclude systematic, but we cannot exclude individual violations. However, we guarantee that we do not turn a blind eye if things go wrong. There is zero tolerance, and any wrongdoing will be sanctioned. To enable our company to operate with high standards, we transformed from ‘formal compliance’ to ‘business-integrated sustainable compliance’. For example, we do not simply record payments we make to doctors and hospitals, but our line management critically examines the purpose of the payments. Why are we making these payments? What is their impact on society? Being transparent about this creates trust.”

Are there any initiatives to improve transparency on clinical trials?

“We share information on all Roche-sponsored safety and efficacy studies, also when the outcome is negative. This helps physicians, patients and healthcare providers to make informed treatment decisions. It can also enable researchers to build on our research and that of others, in the hope of advancing scientific progress. We are making progress but acknowledge that our work is far from complete. We are committed to working with industry partners and others in the scientific community to advance opportunities for data sharing.

“The engagement with you confirmed that it doesn’t help healthcare if companies are not transparent about their clinical trials. We have to address this as an industry.”

Finally, we talked about access to medicine. What did our discussions reveal on this topic?

“Access to our products is a critical part of our strategy. Also from a business perspective, it’s important to know how we can get the medicine and tests to people who really need it. Many patients lack access to the most essential health services. Often, the problem lies not only in the price of medicines but also in the system - for example, if the medical infrastructure or mandatory health insurance is lacking. The only way to achieve enduring solutions is working together in each country to ensure that all factors such as awareness, diagnosis, healthcare capacity and funding are addressed. We have access plans for 75 countries.

“In addition, access to medicine needs to be tackled by multiple stakeholders. Certain governments, for example, allocate more money to military purposes than to medicine. They should reevaluate their priorities and look beyond the next elections. In countries with little money to spend, we work with insurance companies to find financial solutions and make sure people get the medicine they need.

“In our discussions, you made us aware of the importance of transparency. We now make our internal access goals publicly available.

How did our other work over the past three years add value to Roche?

“You really pointed our attention to questions that you as investors have. This makes us more aware of what you need. We now have a more integrated way of talking about our business, addressing both financial and non-financial issues. All our employees are subject to impact analysis in their performance review. This is in line with your focus on impact investing, as you explained during our conversations. Also, the questions we get from investors such as Robeco form an important input for our discussions within the company.

“What was particularly insightful was your input on the impact of our business on the UN Sustainable Development Goals. We have a strategy that aims to make a ‘net positive impact on society’. Our honest discussions about the UN SDGs helped our internal processes. In short, our work with you continues to support Roche in staying ahead of the curve on sustainability.