Since their introduction, antibiotics have saved millions of lives by reducing complications and mortality associated with infectious diseases. However, widespread use of antimicrobial drugs is also closely associated with an increase of antimicrobial resistance (AMR). As the makers of these drugs, pharmaceutical companies can play a big role in battling AMR. Without their efforts, the prospects for successfully combating the issue are dim.
The increased consumption of antibiotics globally, and the resulting AMR, is leading to additional healthcare costs and contributing to patient deaths. The European Medicines Agency and the European Centre for Disease Prevention and Control estimated that 25,000 people die each year in Europe due to resistance to antimicrobials, as viruses change and build resistance to the medications used to cure the infections, making them ineffective. The extra healthcare costs resulting from AMR have increased by approximately EUR 1.5 billion in Europe, year-over-year. Similarly, in the United States, the Centre for Disease Control and Prevention estimated USD 20 billion in additional healthcare costs related to treating AMR and that 23,000 patients die every year due to antimicrobial resistance.
Among developing countries, India and China, who are the biggest manufacturers of generic drugs, are also leading in antibiotic consumption. According to research, between 2000 and 2015, the antibiotic consumption rate by populations in India and China increased by 63% and 65%, respectively. The magnitude of this issue is clearly widespread in both developing and developed countries and likely to grow.
How are companies contributing to the spread of AMR?
One of the main causes of AMR is improper environmental practices among pharmaceutical companies, which discharge antibiotics through wastewater into the environment. Improperly discharged waste is especially problematic in developing countries, such as China and India, where environmental legislation and regulations are weaker.
Currently, India is at the epicenter of the global drug resistance crisis, with an estimated 56,000 newborn babies dying each year from drug-resistant blood infections and approximately 70% of travelers to India returning home with multi-drug-resistant bacteria in their bodies. Over the past few months, we have seen an increasing number of incidents and media investigations of pharma companies contributing to drug-resistant bacteria through pollution at their manufacturing facilities located in India or China. For instance, in Hyderabad, India, one of the world’s biggest pharmaceutical hubs where a fifth of the world’s generic drugs are produced, companies are discharging waste into drinking water, polluting the environment and contributing to the spread of AMR.
While to date India’s environmental enforcement has been limited, national and international regulatory attention is growing. In some European countries such as the UK, Germany, and France, civil society is calling on government health and insurance agencies to blacklist the worst offending polluters and embed environmental criteria in all contracts with pharmaceutical suppliers. Poor management of effluents and waste could also exclude companies from large government-sponsored contracts in Sweden.
Our ESG analysis shows only 6% of pharmaceutical companies within Sustainalytics’ universe have a strong hazardous waste management program in place, which would help avoid issues related to emissions, effluents, and waste.
Percentage of Companies with Hazardous Waste Management Programs
Source: Sustainalytics Research. The Hazardous Waste Management indicator provides an assessment of whether companies have taken initiatives to reduce hazardous waste generation from their operations. This includes setting quantitative targets and implementing relevant programmes. Programmes should cover at least 50% of operations. A substance is considered hazardous if it is toxic, flammable (solvents or cleaning products), corrosive (like acids or alkaline that can burn human tissue) or reactive (unstable, explosive or can create toxic fumes).
Additionally, Sustainalytics’ incidents research shows that eight of the pharmaceutical companies within our universe are involved in incidents related to emissions, effluents, and waste, specifically connected to the spread of AMR. This issue is particularly a problem for pharmaceutical companies that have manufacturing plants in India, such as Mylan, Dr. Reddy, and Aurobindo, or that supply drugs from Indian manufacturers, such as Roche.
Emissions, Effluents and Waste-related Controversies within the Pharmaceuticals Industry
Source: Sustainalytics Research. Controversies are assessed on a 0 to 5 scale, where “0” indicates no controversy and “5” indicates extremely severe controversy. Controversies shown above are captured under Emissions, Effluents, and Waste.
Besides regulatory risks, companies also face the risk of public scrutiny, increased media attention and increased reputational risk if their manufacturing operation is linked to the spread of this life-threatening issue.
As a best practice example, GlaxoSmithKline (GSK) has set hazardous waste discharge limits, as well as operational waste reduction targets which include hazardous and non-hazardous waste. The company has committed to reduce its hazardous and non-hazardous waste by 50% by FY2020, compared to the FY2010 benchmark. Furthermore, GSK is the first pharmaceutical company to extend its discharge limits to both third-party manufacturers and external waste-treatment plants.
We anticipate the issue of AMR will continue to grow in importance and that environmental regulations will become more stringent in India, the US and the EU. Therefore, investors should consider engaging with pharmaceutical companies, especially the ones with manufacturing operations in India or that have suppliers from the region, on how they are managing this risk. This includes analyzing how companies ensure that environmental standards, especially related to hazardous waste discharge, are applied both at their own manufacturing sites, as well as at third-party operations.
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