The biotech industry is trying to catch the ESG investing bug.
But the push for social responsibility still isn't applied evenly across the industry. According to a February report from consulting firm Fenwick, the majority of pre-commercial biotech companies, 70%, don't have any ESG — environmental, social or governance — disclosures.
Complicating matters, biotechs don't have a squeaky-clean public image. Despite the work to quickly launch Covid vaccines and treatments in 2020-21, controversies surrounding drug pricing and the opioid epidemic have sometimes aimed harsh spotlights on the industry.
Further, while biotechs tend to embrace green initiatives, the industry has its own specific challenges to improve its ESG efforts. Chief among them are diversifying clinical studies and ensuring access to medicines by underserved communities.
C-suite executives think they're up to the challenge. In fact, in the Fenwick report, three-quarters of respondents said they would increase their ESG investing disclosures over the next year. This comes amid rising pressure from clients and investors, as well as better alignment across standards.
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"The interest from investors has only grown," Vertex Pharmaceuticals Chief Financial Officer Charles Wagner told Investor's Business Daily. "Fifteen years ago, it was not a topic. It's very much a topic now. I don't think there's an investor out there who isn't focused on this in some shape or form."
ESG Investing: Biotechs 'Getting Started'
Most biotechs "are just getting started when it comes to addressing ESG," the Fenwick authors said.
They assessed public filings for a handful of biotech companies and found younger companies were less likely to report ESG metrics. Of the 13 companies that had initial public offerings within the past two years, just one reported ESG measures.
On the flip side, two of the four companies that have been public at least 16 years reported ESG metrics.
At Regeneron Pharmaceuticals, Linnea Texin holds the title of senior director of corporate responsibility. She says ESG is one of the few areas biotech doesn't compete. Improving corporate responsibility is an area that lifts all boats, she told IBD.
"ESG issues are not just nice things to do," she said. "They are important to the long-term success of the business. I think as there's more attention on this and as we see more folks demanding more information, we will see more and more companies increasing their activities."
At Regeneron, that looks like three focus areas. The first seemingly echoes across biotech: Improve the lives of patients with serious diseases. Other areas of focus include workplace and manufacturing excellence, and building sustainable communities.
On the latter point, Regeneron hopes to reach 2.5 million students by 2025 with science, technology, engineering and math — also known as STEM — activities. Since 2020, Texin says the company has reached more than 1 million students.
Biotechs Aim To Reduce Footprint
In some ways, ESG is easier for biotech, Texin says. The industry faces heavy regulations, but some of those green measures in place — lowering energy consumption and waste consumption — are already in place across biotech companies. Many have tied compensation to those efforts, in fact.
Such is the case at Amgen. To bolster ESG investing standards, the company aims to be "net zero" by 2027. This includes achieving carbon neutrality at all Amgen-owned facilities and reducing water use and waste disposal by a respective 40% and 75% from a 2019 baseline, according to a company report.
Other companies expressed similar goals.
Amgen started its ESG work in 2007, says Judy Brown, the company's vice president of corporate affairs. There are multiple frameworks companies can use to measure ESG investing efforts. But the biotech industry doesn't have one specific to it.
Further, that makes measuring biotech-specific issues — like drug pricing, diversity in clinical tests and equal access to health care — more difficult. Brown says Amgen is paying attention to those issues. The "summer of social justice" after George Floyd's murder in May 2020 helped open a conversation around disparities facing communities of color, Brown said. That includes health disparities.
"It became very clear that the best medicines, if not shared equally, can't do the job," she said in an interview. "No one company can solve it. Health equity is a dream space."
Improving Diversity: Key In ESG Investing
Diversity is a big piece of the ESG investing effort by biotech companies. The clinical test component of it is particularly tricky, and biotech execs know they're under the microscope here.
Gilead Sciences and Vertex Pharma executives say they partner with boots-on-the-ground groups to get the message out about clinical studies. Still, even this is "not a quick fix," said Korab Zuka, who heads up Gilead's ESG communications. "It requires resilience and not giving up."
Also, for the HIV and hepatitis B and C drugmaker, that sometimes means donating medicines, he says.
The challenge is particularly difficult for Vertex. The company leads the cystic fibrosis treatment realm. The lung disease is most common in the white population. But now Vertex is partnered with Crispr Therapeutics on sickle cell disease and beta thalassemia, blood disorders that are more dominant in the Black community.
"We are well aware that the Black community has been underserved by medicine over the years and, in some cases, there is distrust in the system," said Wagner, Vertex's CFO. "At the highest level, we are engaging with senators who have passion for these causes. At the lowest level, we have sponsored education programs on the web or at local community events."
Katharine Jensen, Vertex's head of corporate responsibility, says patient advocacy groups are key to spreading information about clinical study enrollment and access to medicines. She also noted that Vertex just announced a $50 million commitment over five years to health equity. The effort will focus on expanding diversity in studies and broadening access to care.
Are Biotechs Getting Credit?
The key question, though: Are biotech companies getting credit for their ESG investing efforts?
Daphne Zohar, chief executive of privately held PureTech, says no. Zohar recently penned a post for Rapport, a biotech insight and opinion website, titled "Biotech and ESG: Does saving lives get you extra credit?"
She says biotech has a messaging problem where ESG investing is concerned.
Further, after a whirlwind 2020-21 that saw biotech stocks rocket, investors have since pulled back from the segment. Instead, she contends, they are looking at more lucrative opportunities that might not be as devoted to ESG efforts but could be safer bets.
Still, "if you're committed to ESG, then looking at an industry whose primary purpose is to make life better for millions of people — outside of climate-related companies — there are really few places where your finance dollars could make an impact on the world."
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
