In a harshly worded letter sent Thursday, New York City Comptroller Scott Stringer chastised the Mylan board because the EpiPen controversy “appears to be the costly consequence of weak oversight of management decisions that prioritize short-term profit at the expense of long-term value creation.”
And Stringer charged that the Mylan board “failed” to properly oversee legal, regulatory, and reputational risks, and align the compensation given to Chief Executive Officer Heather Bresch with her long-term performance.
“As long-term shareowners, we rely on the Mylan board to create and protect sustainable shareowner value,” he wrote to Douglas Lesch, who chairs the Mylan governance committee. The “gross mismanagement” of the EpiPen pricing strategy “exacerbates … a protracted history of weak oversight.”
After citing a litany of specific issues that he said have caused concern, Stringer demanded the drug maker name an independent board chair; remove board members who are not independent from audit and governance committees; and establish board-level oversight of key pricing decisions.
The letter comes as a growing number of lawmakers call for federal investigations and congressional hearings into Mylan’s EpiPen pricing, which has climbed 548 percent over the last decade and now costs $600, much of which many families have had to shoulder as insurers reacted to the price hikes by shifting more costs to its customers.
However, this appears to be the first time that an institutional shareholder has publicly upbraided the Mylan board over the controversy. We should note that the NYC Pension Funds holds almost 1.1 million Mylan shares worth about $45 million, which is a smidgen of Mylan’s nearly $22 billion market cap. But the fund is a high-profile investor, which gives Stringer an unusual perch to broadcast shareholder complaints.
And Stringer is certainly using that perch.
He noted that Mylan’s “executive pay practices have consistently received among the lowest levels of investor support in the S&P 500 Index.” About 60 percent supported its practices in a shareholder vote in 2014, and about 65 percent supported the firm’s practices this year.
Meanwhile, the New York Times reported yesterday that, under a special, one-time stock grant created in 2014, top Mylan execs — including Bresch — will be rewarded if Mylan earnings and stock price meet certain goals by the end of 2018. Those goals can be helped, the story noted, by hefty price increases.
The story also pointed out that Mylan began increasing the pace of the EpiPen price hikes shortly after the special grant was announced. While price increases in the previous four years averaged 22 percent annually, in 2014 and 2015 Mylan increased EpiPen prices 32 percent each year.
As for Stringer, he lambasted Mylan for consistently refusing to create an independent board chair, despite shareholder resolutions asking for such a move in 2012, 2013, and 2014. The current chair is Robert Coury, a contentious, blunt-spoken former Mylan chief executive who is also controversial.
In 2012, The Wall Street Journal reported that federal flight records showed one of Mylan’s two company jets was frequently flown to the same cities in which Coury’s son, who was pursuing a music career, was playing a concert.
Stringer pointed to another questionable episode in which Rodney Piatt, Mylan’s vice chairman and a member of the audit and governance committees, turned out to be the main developer at a Pittsburgh office park where the company built new headquarters.
In closing, Stringer wrote that “Mylan faces a critical juncture.” Legal and regulatory risks are escalating and the stock price has been falling. “Expeditious board action is crucial in order for the board to assert its independence and restore and protect Mylan’s long-term value.”
As for Mylan, a spokeswoman wrote us that the board is “comprised of highly qualified, experienced, and diverse individuals, including 10 independent directors. The board has been actively engaged in overseeing the execution of Mylan’s growth strategy over the past decade,” which has delivered “significant value for Mylan’s shareholders and other stakeholders.”