Access to Generics – improving outcomes for people and investors

Access to Generics – improving outcomes for people and investors

All insights
As long-term investors with a focus on sustainability, we’ve long been interested in how healthcare companies approach the issue of access to medicines. The Access to Medicine Foundation, based in the Netherlands, aims to stimulate and guide healthcare companies to provide greater access to their products to people in low and middle-income countries. The Access to Medicines Index seeks best practices in each of the areas it measures and once identified, these are shared to accelerate their uptake by other pharmaceutical companies, to help raise the level of standard practice and to achieve greater access to medicine. We have used their index since it was launched to help us assess how companies are addressing this critical issue.

The launch of a new Generic and Biosimilar Medicines framework

Earlier this year, we entered into a strategic partnership with the Access to Medicine Foundation to support the launch of their Generic and Biosimilar Medicines framework. This new framework has been developed to assess the performance of both generic and biosimilar medicine manufacturers with respect to key access-to-medicine priorities. Without clearly defined roles and responsibilities for these manufacturers, and without sustained effort and collaboration, there is a risk that healthcare inequalities will continue to widen, and the target of universal health coverage (UHC) by 2030 may not be achieved. The manufacturers of Generics and Biosimilar Medicines play a crucial role in expanding access to essential medicines to the poorest people in the world.

  • Generics are based on drugs whose patent has expired, which allows them to be made and sold by a different company to the one who discovered them. Examples include common painkillers and drugs to treat diabetes, high blood pressure, high cholesterol and depression.
  • Biosimilars are biologic medicines which are also offpatent. Although they will be made the same way as the originator medicine, the biological processes and the drugs’ complexity introduce natural variations. They cannot be classed as generics but should offer the same benefits and safety profile as the drug they are based upon.

Due to these medicines being off-patent, there are greater opportunities for them to be manufactured and sold by multiple companies, including those based in low and middle-income countries, driving greater access and affordability. When you consider that only 10% of the drugs on the World Health Organisation’s list of essential medicines are on-patent1, the size of the opportunity becomes clear. And this is not only a human development opportunity but also an opportunity for investors to generate sustained shareholder value on their investments.

Cipla: Harnessing access to medicines for sustainable growth

The structural growth tailwind provided by improving access to affordable care led us to consider and eventually purchase shares in Cipla in 2001. Cipla is a global pharmaceutical company based in India offering affordable access to medicines for over eight decades. In response to the AIDs crisis, they designed a business model that provided access to antiretroviral in developing countries at $350 per year, compared to the price of $10,000 per year for similar medicines in developed countries.2 This equates to less than a dollar a day and 1/30th of the standard price, a dramatic example of how drugs can be made affordable to those who need them. We recognised this as a huge growth opportunity for Cipla and a potential challenge to the profits of their competitors.

This demonstrates the broad appeal of generics. Using access to medicines as its cornerstone, the business model is designed around manufacturing higher volumes of drugs at lower prices, creating a path to sustainable long-term profitability. When taking a long-term view, a business model like this is lower risk than a franchise built upon protecting high prices. While high prices might lead to increased profitability in the short term, even in developed markets the price of drugs is coming under closer scrutiny from cash-strapped healthcare providers, and there is always the risk of drawing scrutiny from regulators and competitors.

Dr. Reddy's: Empowering affordable healthcare

Also based in India, Dr. Reddy’s was founded 40 years ago to support affordable access to medicines in India. Its founder, Dr Anil Reddy, realised that if medicines are going to fulfil their purpose, they have to be offered at a price that people can afford. Dr. Reddy’s’ started manufacturing generic medicines, such as painkillers and antacids, before moving into biosimilar drugs to treat cancer and autoimmune diseases. They have since grown into one of the largest providers of generic and biosimilar medicines in India while also providing affordable treatments across the rest of Asia, Africa, the Middle East and Latin America. At the same time, their revenues have grown by 14% per annum over the last 20 years.3 Throughout, the number of patients they can reach remains front of mind and have set themselves a target of 1.5 billion people by 2030.3

Sustainability outcomes; a driver of investment returns

Fast forward from 2001, and currently, one in three people living with HIV rely upon Cipla drugs for their treatment. The launch of their low-cost, life-saving drug came at a time when generics had a bad reputation,being seen as counterfeits. Now, generic and biosimilar medicines are recognised as playing a critical role in addressing health inequalities and generating rewards for investors. Over the last 25 years Cipla has returned 18% per annum in USD.4

This isn’t just altruism; it is good business with continued reinvestment and growth potential. We believe that further understanding the role of generics manufacturers in improving access will continue to deliver both excellent sustainability outcomes and drive investment returns.

* Reference to the names of each company mentioned in this communication is merely for explaining the investment strategy and should not be construed as investment advice or investment recommendation of those companies. Companies mentioned herein may or may not form part of the holdings of Stewart Investors.

Want to know more?

Important Information

This material is for general information purposes only. It does not constitute investment or financial advice and does not take into account any specific investment objectives, financial situation or needs. This is not an offer to provide asset management services, is not a recommendation or an offer or solicitation to buy, hold or sell any security or to execute any agreement for portfolio management or investment advisory services and this material has not been prepared in connection with any such offer. Before making any investment decision you should consider, with the assistance of a financial advisor, your individual investment needs, objectives and financial situation.

We have taken reasonable care to ensure that this material is accurate, current, and complete and fit for its intended purpose and audience as at the date of publication. To the extent this material contains any measurements or data related to environmental, social and governance (ESG) factors, these measurements or data are estimates based on information sourced by the relevant investment team from third parties including portfolio companies and such information may ultimately prove to be inaccurate. No assurance is given or liability accepted regarding the accuracy, validity or completeness of this material and we do not undertake to update it in future if circumstances change.

To the extent this material contains any expression of opinion or forward-looking statements, such opinions and statements are based on assumptions, matters and sources believed to be true and reliable at the time of publication only. This material reflects the views of the individual writers only. Those views may change, may not prove to be valid and may not reflect the views of everyone at First Sentier Investors.

To the extent this material contains any ESG related commitments or targets, such commitments or targets are current as at the date of publication and have been formulated by the relevant investment team in accordance with either internally developed proprietary frameworks or are otherwise based on the Institutional Investors Group on Climate Change (IIGCC) Paris Aligned Investment Initiative framework. The commitments and targets are based on information and representations made to the relevant investment teams by portfolio companies (which may ultimately prove not be accurate), together with assumptions made by the relevant investment team in relation to future matters such as government policy implementation in ESG and other climate-related areas, enhanced future technology and the actions of portfolio companies (all of which are subject to change over time). As such, achievement of these commitments and targets depend on the ongoing accuracy of such information and representations as well as the realisation of such future matters. Any commitments and targets set out in this material are continuously reviewed by the relevant investment teams and subject to change without notice.

About First Sentier Investors

References to ‘we’, ‘us’ or ‘our’ are references to First Sentier Investors, a global asset management business which is ultimately owned by Mitsubishi UFJ Financial Group. Certain of our investment teams operate under the trading names FSSA Investment Managers, Stewart Investors, RQI Investors and Igneo Infrastructure Partners, all of which are part of the First Sentier Investors group.

We communicate and conduct business through different legal entities in different locations. This material is communicated in:

  • Australia and New Zealand by First Sentier Investors (Australia) IM Ltd, authorised and regulated in Australia by the Australian Securities and Investments Commission (AFSL 289017; ABN 89 114 194311)
  • European Economic Area by First Sentier Investors (Ireland) Limited, authorised and regulated in Ireland by the Central Bank of Ireland (CBI reg no. C182306; reg office 70 Sir John Rogerson’s Quay, Dublin 2, Ireland; reg company no. 629188)
  • Hong Kong by First Sentier Investors (Hong Kong) Limited and has not been reviewed by the Securities & Futures Commission in Hong Kong. First Sentier Investors, FSSA Investment Managers, Stewart Investors, RQI Investors and Igneo Infrastructure Partners are the business names of First Sentier Investors (Hong Kong) Limited.
  • Singapore by First Sentier Investors (Singapore) (reg company no. 196900420D) and this advertisement or material has not been reviewed by the Monetary Authority of Singapore. First Sentier Investors (registration number 53236800B), FSSA Investment Managers (registration number 53314080C), Stewart Investors (registration number 53310114W), RQI Investors (registration number 53472532E) and Igneo Infrastructure Partners (registration number 53447928J) are the business divisions of First Sentier Investors (Singapore).
  • Japan by First Sentier Investors (Japan) Limited, authorised and regulated by the Financial Service Agency (Director of Kanto Local Finance Bureau (Registered Financial Institutions) No.2611)
  • United Kingdom by First Sentier Investors (UK) Funds Limited, authorised and regulated by the Financial Conduct Authority (reg. no. 2294743; reg office Finsbury Circus House, 15 Finsbury Circus, London EC2M 7EB)
  • United States by First Sentier Investors (US) LLC, authorised and regulated by the Securities Exchange Commission (RIA 801-93167)
  • other jurisdictions, where this document may lawfully be issued, by First Sentier Investors International IM Limited, authorised and regulated in the UK by the Financial Conduct Authority (FCA ref no. 122512; Registered office: 23 St. Andrew Square, Edinburgh, EH2 1BB; Company no. SC079063).

To the extent permitted by law, MUFG and its subsidiaries are not liable for any loss or damage as a result of reliance on any statement or information contained in this document. Neither MUFG nor any of its subsidiaries guarantee the performance of any investment products referred to in this document or the repayment of capital. Any investments referred to are not deposits or other liabilities of MUFG or its subsidiaries, and are subject to investment risk, including loss of income and capital invested.

© First Sentier Investors Group