Institutional investor drops Lundbeck

The first institutional investor Unipension have dropped their Lundbeck shares due to its controversial drug Nembutal that have been used in executions.

Lundbeck have been under attack for several months due to its unwillingness to take a definite stand on capital punishment in the United States. While the issue has been growing in Denmark and several key stakeholders have raised their voice there have not been much movement in terms of real economic pressure until now.

While Unipension is a relative small shareholder (40 million Dkr) in Lundbeck they do represent a group of stakeholders who have significant influence on the general discourse on ethical investments.

“We are an active owner and always try to establish a constructive dialogue with the companies we invest in. We have done this many times and in most cases, we have detailed and complete answers to our queries. This also applies to Danish companies, which usually take their social responsibility and reputation seriously. Contrary to what we normally experience, it has actually been our impression that Lundbeck did not want to engage in a genuine dialogue with us as an investor ” said Niels Erik Petersen, Chief investment officer at Unipension. And he continues.

“It has not been possible for Unpension to get a detailed report on Lundbeck’s efforts to ensure that its products are not being used in undesirable ways.”

While there hasn’t been much movement in terms of negative share price on the contrary the company have experienced a steady increase in the last year but this could be a turning point for the company. There are several ingredients, which can make this case troublesome for the company.

  1. Lundebeck have until now been one of the model companies in terms of CSR commitment and reporting. This have in it self created a platform from which critical stakeholders can hold the company accountable.
  2. The company has in the past been involved in somewhat dubious affairs when it was engaged in the UN food-for-oil-program despite the company had a very explicit anti-corruption policy. For this it the company was heavily criticized together with a number of other companies.
  3. The company is involved in the production of drugs, which normally would be associated with improving people’s life not helping life come to a rapid end.
  4. Lundbeck is a major player in the anti-depressant drug industry and have a major stake in the US and European market making them highly visible to a lot of consumers. It is estimated that about one in twenty will have a depression at any given time making the decease common place among the majority of the population.

All of these factors, and properly one or two more, can create a situation were Lundbeck’s image and the brand value of the company could suffer resulting in a fall in its total value and share price. From an investors point of view I would rather miss the 1% of total sales that Nembutal is then risking the value of the remaining 99%.

The Lundbeck case in short:

  • In January this year U.S. Hospira stopped production of the anesthetic, as 35 U.S. states use when they execute death convicts. Hospira would produce it in Italy, but the U.S. authorities intervened.
  • Since the first German and later British authorities, under pressure from grassroots organizations slowed other European companies’ exports of anesthetic to the U.S..
  • Therefore, the preliminary four U.S. states have switched over to using the Lundbeck product Nembutal, which Lundbeck is the only supplier of the U.S..
  • The means is the longest course of the patent. Last year sold Lundbeck 50 million. doses, which according to IMS earned 25.5 million. dollars.
  • Lundbeck has protested against the use, but will not pull the product back, particularly as it approved for treating severe epileptic seizures.