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Investing in Cruelty

Shareholders take many things into consideration when choosing ways in which to invest and, when considering shares, increasingly consider the actual activities in which the company engages.  For example there is a growing interest in environmental, climatic and ethical issues with an increasing number of investors seeking out environmentally-sustainable companies or those that refuse to employ child labour.

Some years ago, HRA conducted a review of the approximately 160 Australian publicly-listed companies that fall under the categories of “Healthcare & Equipment” and “Pharmaceuticals, Biotechnology & Life Sciences”.  We wanted to ascertain:

  1. whether they use animals in their research,
  2. to what extent they are committed to the 3R’s principle[1] (Reduce Refine and Replace), and finally
  3. whether or not they invest in the development and validation of non-animal methods of research.

While not all companies responded to our enquiries, only 28 (17%) confirmed that they do not use animals in any way, although their products may have been previously tested on animals.

Animal testing increases risk

While biotech companies may offer high returns when “breakthroughs” are announced, the high risks are often forgotten by potential investors.  Animal studies very rarely translate to absolute success in human cures and promises of such breakthroughs frequently don’t amount to real cures in the long term.  The US Food & Drug Administration (FDA) released figures in 2006[2] showing that 9 out of 10 drugs that were tested safely on animals failed when translated to humans. It is not a stretch to consider that the remaining 10% worked on humans despite being tested on animals.

In the McKeon Review[3] (Strategic Review of Health & Medical Research, 2013), pre-clinical and early clinical trials have been dubbed “Valley of Death #1 and #2 as these stages of development are difficult areas to attract funding. This is because they are the highest risk investment, due mostly to the inefficacy of currently used preclinical testing – animal tests!

Biotechnology companies are open to the same risk factors normally associated with equities –but they also carry their specific risks – that of failure of clinical trials and even the emergence of unexpected side effects occurring after a drug has been approved and gone to market.  Prior to human trials, drugs will have ‘successfully’ passed animal tests.  Drug companies can lose millions of dollars when large scale human trials fail and such events have proven disastrous over a long period of time.  Consider the examples of large biotechs such as Merck, TeGenero AG, AstraZeneca and Pfizer.

Despite being proven ‘safe’ through animal tests, Merck’s heart drug Vioxx was withdrawn from sale in October 2004 after being linked to an increased risk of heart attack and stroke.  The disaster resulted in over 13,000 lawsuits against Merck.[4]

TGN1412 was a genetically engineered “humanised” protein which was being developed by German pharmaceutical company TeGenero AG.  It was intended to treat inflammatory conditions, rheumatism and leukaemia.  In March 2006 the six male volunteers involved in the trial experienced excessive swelling of the head and neck followed by systemic organ failure.  The company entered into insolvency proceedings later in 2006.  Some of those subjects will never make a full recovery.

In October 2006, a highly promising stroke drug called NXY-059 failed in the final phase of a clinical trial.  On the day of the announcement, AstraZeneca’s share price dropped 7.5% and shares in Renovis, the biotechnology company that licensed the drug to AstraZeneca plummeted over 75%.[5]

In December 2006, Pfizer, the world’s biggest pharmaceutical company suspended its trial of heart drug, torcetrapib, after it was found to increase heart risk (despite its success when tested on animals) resulting in 82 human deaths.  The company had invested US$1 billion in the trials.  As well as the loss of profits to shareholders, the failure was also linked to the redundancy of 10% of its workforce (approx. 10,000 employees).

Companies that rely on non-animal methods provide better results in their trials

Studies show that non-animal methods provide better results than animal tests as there is no ‘species differences’ to take into consideration – differences in anatomy, metabolism, genetics, all of which can render results from one species useless when applied to another.  Non-animal tests are therefore less costly, less time consuming and provide more accurate data.

According to notable author, researcher and veterinarian Dr Andrew Knight, “Alternatives are much more consistent.  Animal tests tend to be very inconsistent.  Alternatives are also much more predictive of human outcomes, and they’re a heck of a lot quicker.  A traditional rodent assay of carcinogenicity takes around three years to design, conduct and interpret whereas a cell culture assay or a database predicting biological activity based on chemical structure will take minutes to hours to days.  They are much cheaper and they are much more accurate in terms of predicting human outcomes.”[6]

The organization Pharmaceutical Research and Manufacturers of America estimates that only 5 in 5,000 compounds that enter preclinical (animal) testing make it to human testing, and only 1 of those 5 again may be effective enough to reach pharmacy shelves. [7] That’s a success rate of 0.02% !  It’s a safe assumption that if you went into business with only a 0.02% chance of success, you may struggle to win investors over.

Regulatory hurdles

A main obstacle in the continued use of animals relates to the safety standards required by regulatory authorities. As quoted by one drug development company “Most companies will try to avoid costly animal studies if regulators allow other more human[e] alternatives.”  In Australia the TGA (Therapeutic Goods Administration) does not specifically require animal tests[8].  However in order to maximize returns, many pharmaceuticals and healthcare products are marketed worldwide, and testing must therefore conform to the requirements of other regulatory bodies. Somewhat amazingly, the FDA for example specifies the requirement that two or more animal species must be tested on – ironically, because the drug may affect one species differently than the other! [9]

Despite the regulatory requirements, a small number of companies that still use animals have recognized the inefficacy of animal tests.  According to Pharmaxis CEO Alan Robertson, “There are many examples, particularly in the pharmaceutical industry, where, despite extensive animal testing, a new drug substance has gone on to actually do more harm than good in humans. Society expects new medicines to be brought to patients and the patients have a right to expect that those new medicines will improve their clinical condition and not cause undue harm.” [10]

Companies that embrace the new non-animal technologies will be better placed

Clearly, companies that embrace the new non-animal technologies will be better placed in the long term as the community becomes more aware and makes ethical choices.  Consider, for example, the growing interest in ethical investments, humane charities and humane slaughter practices for food consumption and the growing demand for free-range as opposed to factory-produced pork and eggs.

The onus is clearly on companies to exert pressure on regulatory bodies by lobbying for acceptance of more ethical and scientifically-valid safety tests.  Importantly though, while we may not expect companies to lobby on the basis of ethical concerns, we can ask of our companies that they consider the bottom line.   As a shareholder and therefore owner, we can voice our concerns to company representatives directly.  Change is often highly dependent on the strength of demand for that change.  This is frequently driven by better returns to shareholders sourced in no small way (for these drug companies at least), by more accurate and transferable testing, leading to lower chance of failure, quicker time to market and ultimately quicker returns on investment.  Because there is a softer reason too, ie the elimination of animal testing is a more ethical, cruelty-free and humane result, companies can also apply all these reasons to justify changes in their methods.

Perhaps such demands for change by smaller investors will result in larger investment companies and fund managers tightening their screening of the pharmaceutical companies in which they invest, and in the long term, a move toward more ethical and progressive medical research.

For further information:

Interview: Lee Coates, OBE, Director of Ethical Money Pty Ltd

Follow the blog ozsheba – ShareHolder Engagement on Behalf of Animals, Australia
Helen Marston’s interview for Cruelty Free Super


[1] William Russell and Rex Burch proposed the three R’s – replacement, reduction and refinement -in their manuscript The principles of humane experimental technique, published in 1959. The recommendations, which have been universally accepted, were intended to reduce the overall amount of suffering caused to animals during research.


[4] The Boston Globe, 27 June 2006. Quoted in AAHR Newsletter 110, September 2006.

[5] Medical Research Modernisation Committee Update Dec. 7

[6] Dr Andrew Knight, Animal Consultants International, ‘Beyond the Cage. Is animal experimentation necessary?’


[8] Personal meeting and correspondence with the author, H Marston

[10] Personal correspondence with the author, H Marston


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