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It is five years since Oxfam, VSO and Save the Children banded together to publish a report calling for urgent action from big pharmaceuticals companies to help the poor and the young around the world get access to desperately needed medicines.

Entitled Beyond philanthropy, the report criticised the reliance of pharmaceutical giants, known collectively as Big Pharma, on ad hoc charitable donations, and pressed them for longer-term strategies to provide drugs at affordable prices in the developing world.

The report struck a chord at the time in the drugs industry, which was still reeling from one of its biggest ever public relations disasters: fighting the South African government over access to HIV drugs.

Since then, many of the world's biggest drugs companies - including GlaxoSmithKline (GSK) in the UK - have done much to improve their record. Their initiatives include forming joint ventures with local manufacturers, striking voluntary licensing agreements that allow generic companies to make cheap versions of their medicines, and setting tiered pricing schemes, under which the same drug is sold in a poor country at a fraction of its price in places such as the US and the UK.

Stewart Adkins, a former top-rated analyst at Lehman Brothers and now a consultant to the pharmaceuticals sector, explains: 'There is a growing acknowledgement that making reasonable efforts to grant access to affordable medicines is a quid pro quo for the right to pursue and protect intellectual property rights.' He also says some companies at least subscribe to the view that 'if you are going to seek intellectual property protection in a country, you have to be prepared to offer drugs at affordable prices, otherwise it is one-sided'.

Balancing act

Sophia Tickell , chairman of SustainAbility, a think tank whose client s include pharmaceuticals companies, has made presentations to the boards of several large players in the sector. 'The challenge is how to balance day-to-day operations in mainstream markets with the issue of access to medicines,' she explains. 'Is this fully perceived at board level? No. But discussions are beginning.'

Charities and other pressure groups believe there is a long way still to go. Large drugs manufacturers are still having bruising battles with developing countries. Last month Swiss pharmaceuticals giant Novartis lost a high-profile legal case with the Indian government over its heavily used cancer drug Gleevec (also spelt Glivec).

Novartis argued Gleevec should be protected by a patent. The High Court in Chennai in southern India rejected the case, saying the patent Novartis sought was not sufficiently novel to merit awarding it protection for the expensive medicine. As a result, Indian companies will be free to continue making less expensive generic drugs, many of which flow back to the developing world.

Aid groups declared the ruling a victory for the 'rights of patients over patents', but Novartis argued that it represented a setback for patients instead. 'This is a significant weakening of patent law, which is not to the benefit of patients,' says Paul Herrling, Novartis' head of corporate research. 'We consider intellectual property protection to be a fundamental requirement if there is to be any innovation in medicine.'

Access all areas

Despite the tough talk, Novartis says it will not appeal the Chennai court's ruling, a decision interpreted by some as an admission the case had taken a heavy toll on its image with charities, governments in developing countries and the public at large. 'The firm was clearly taken aback by the public response,' notes Tido von Schoen-Angerer, director of the Access to Essential Medicines campaign at Médecins Sans Frontières. 'Novartis is one of the few companies to make a big contribution by giving access to medicines for neglected diseases such as malaria and TB. In a way, the case undid what the firm was doing for these diseases.'

Novartis was keen to point out its broad programme to give away Gleevec as well as its malaria drug, Coartem, to millions of patients. Other companies have similar well-honed programmes to give access to medicine. GSK - a high-profile member of the group that sued the South African government, only to drop the case in 2001 - supplies stacks of its HIV treatments and other drugs at no profit to developing countries. GSK sets itself 'hard targets', including how many tablets of a certain medicine it has given away free in any one year, and 'soft targets', including reviewing its CSR policies.

Sanofi-aventis of France, one of the world's three largest drugs makers (Pfizer of the US and GSK are the other two), also has a programme. Robert Sebbag, vice president of access to medicines at sanofi-aventis, says the firm started to get serious about trying to find ways to make its drugs available to the poor in 2004.

'Donations are fine for emergencies such as tsunamis and earthquakes but we wanted to find sustainable business models to provide long-term access to medicines,' he explains. Such initiatives have not come too soon - and do not go far enough - according to non-governmental organisations. What is perhaps more striking is that some large investors agree. Three major pension funds - the UK's Universities Superannuation Scheme, Hol land 's Algeme e n Burgerlijk Pensioenfonds and the Ohio Public Employees Retirement System - are part of Pharma Futures, a group that lobbies drugs companies to improve their act, in the hope it will boost the sector's share price.

The group, which has a total of £240 bn invested, including £10 bn in healthcare, contributed to 'Pharma futures: prescription for long-term value', a 12-month investigation into the challenges facing the sector. The conclusions, published in a report in June, argue that the poor share price performance of many large drugs makers is linked to various problems, including a tarnished public image.

The report makes clear that some of the challenges facing the drugs sector are hard to solve, including the slowing rate of discovery of new drugs. The number of approvals by the world's largest pharmaceuticals regulator - the Food and Drug Administration (FDA) in the US - of drugs made from new molecular entities has fallen slightly in the past 10 years, while spending on research and development has almost doubled.

Affordable action

Another major headache is the increasing tightening of government purse strings when it comes to healthcare budgets. This is leading to an increasing push for reimbursement for drugs to be based on exactly how effective they are, and what their wider benefit to society is in terms of keeping people out of hospitals and freeing up loved ones who might otherwise have to be carers.

This 'evidence-based reimbursement' is challenging for drugs companies because while they have to spend about £500 mn on average to develop a drug over about 10 years, they might not know what they can make from its sales until years later. What's more, despite the wealth of western countries, most show a reluctance to pay for some of the complex new drugs made from biological entities coming down the pipeline. A further challenge is the ever-higher hurdles imposed on the drugs industry, especially by the famously risk-averse FDA.

While all of these issues need solving to address the fall in share price of many big drugs makers, the Pharma Futures group chose to include, for the first time, a section on the importance of finding ways to make medicine affordable in large parts of the world. The drugs sector has a unique problem, according to Sebbag. 'People do not mind profits being made in computers or other businesses, but they do not like to see profits being made in healthcare,' he says.

In fact, Big Pharma does make enormous profits, despite the slowdown in discovering new drugs and the battle over pricing with governments across the world. But because about 80 percent of the world's population cannot afford the price many blockbuster medicines are sold for in the West, finding a way to sell them at either a lower price or no profit can provide an enormous boost for drugs companies that previously have been vilified for testing drugs on people in Asia and Africa. It can also lay the groundwork for opening up huge new markets in the future.

'A flexible business model can allow a firm to access more customers, albeit at lower prices,' says Adkins. 'The realisation that provision of affordable access is both the right thing to do and potentially offers huge profits reduces reputation risk for investors, a growing number of whom recognise that sticking to the old business model has so far not been a great success in the 21st century.'

Investor backlash

Not all pharmaceuticals firms buy this theory, though. There is a perception that European manufacturers of medicines tend to be closer to engaging with poor countries and setting up requisite business models to sell them drugs than their US counterparts.

This is partly due to historic reasons. GSK - whose heritage is linked to the charitable foundation the Wellcome Trust, which did a lot of work on tropical diseases - has several drugs in its portfolio that fit well with the needs of developing countries . Other European companies also have suitable drugs due to their home country's colonial history.

US investor s have been less concerned with reputational issues in the past. But attacks on Big Pharma are mounting in the US, as evidenced by Michael Moore's attack on the healthcare industry in his documentary Sicko.

And with changes in the political climate since the Democrats gained control of Congress, analysts believe US investors want large drugs companies to be able to demonstrate what good they are doing for society in general.

There are many genuine challenges for Big Pharma in engaging with poor countries. Almost everyone agrees drugs firms need patent protection to generate enough money from sales to fund future innovation. Yet by giving away, or providing very cheaply, medicines to low-income nations, Big Pharma has to rely on income generated from patients in rich countries to fund its humanitarian programmes and its research and development. As a result, some analysts feel there could be a backlash in western countries, where certain drugs can seem prohibitively expensive, against subsidising poorer patients.

Novartis' bust-up with India highlights another problem. While India has many people still living in poverty, it also has a burgeoning middle class. Pharmaceuticals companies have to decide whether fast-growing emerging economies such as India, China and Brazil should receive free medicines or pay for them. The latter option, drugs companies argue, will stimulate faster growth and innovation in those countries.

A final challenge for companies is control of distribution. If a pill is supplied for a few pennies in one country, it can be difficult to ensure it is not resold to higher-cost markets, generating a profit for enterprising middlemen while the drug companies lose out on profits - and patients still don't benefit.

Oxfam is preparing to issue another report on the state of the drugs sector next month. The broad consensus is it will not be as hard-hitting as the 2002 report, but there is still much to be done.

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