In the latest bid to put a lid on rising drug costs, a coalition of 300 institutional investors has filed shareholder resolutions with 11 big US drug makers to explain and justify all price increases and the risks these may pose to stockholders. At the same time, the Interfaith Center on Corporate Responsibility also wrote six large European companies to schedule talks about transparency around their pricing.
The resolutions ask the companies to issue reports by November that list the rates of price increases for all of their top-selling brand-name medicines between 2010 and 2016, along with the rationale and criteria used to raise prices. The coalition also wants the drug makers to assess the legislative, regulatory, reputational, and financial risks associated with the price increases.
“As long-term investors, these risks threaten the health of these companies and, in turn, our investments,” said Cathy Rowan, director of socially responsible investments for Trinity Health, a not-for-profit Catholic health system operating 86 hospitals in 21 states. “The current business model seems to rely on increasing drug prices, which seems to be happening more and more, but how sustainable is it?
“The R&D costs are pretty opaque. We’ve heard over the years that it costs $1 billion or $2 billion to develop a drug, but does it take into account federal funds that support basic research or university research?” she said. “That’s part of what we’re seeking in asking for transparency. The rationale and criteria are hard to know — what is the true cost of getting a drug to market?”
The shareholder resolutions were filed with AbbVie, Amgen, Biogen, Bristol-Myers Squibb, Eli Lilly, Gilead Sciences, Johnson & Johnson, Merck, Pfizer, Regeneron Pharmaceuticals, and Vertex Pharmaceuticals. Here is a sample. And the letters were sent to AstraZeneca, GlaxoSmithKline, Novartis, Novo Nordisk, Roche, and Sanofi.
The move comes amid rising angst over prescription drug costs, which has become a talking point in the presidential campaign and sparked legislation at the federal and state levels. As many as 8 in 10 Americans believe prices are unreasonable and support various ideas to lower costs, such as enforcing caps on some high-priced medicines, according to a recent poll by the Kaiser Family Foundation.
Whether the ICCR succeeds in having the resolutions placed before shareholders or the extent to which shareholders embrace the proposal remains to be seen. But the coalition carries some clout. The institutional investors in the coalition collectively manage about $200 billion in assets, according to a spokeswoman for ICCR, which has previously coordinated shareholder resolutions that tied increases in drug prices to inflation.
Indeed, employing shareholder activism toward prescription drug pricing is not a new tactic, but shows signs of becoming a more popular tool for confronting drug makers. Last year, the UAW Retiree Medical Benefits Trust squabbled with Gilead and Vertex over proposals that would have required the companies to evaluate the various risks of their pricing policies. Gilead sells the hepatitis C treatments that caused a stir due to their cost, while Vertex markets a pricey cystic fibrosis treatment. Shareholders rejected both resolutions.
Last week, meanwhile, the National Academy for State Health Policy, which is a collection of people who work for a variety of state governments around the country, issued several proposals for state governments to consider as they seek to control their budgets for medicines, such as leveraging their public pension funds to confront companies over pricing.
The ICCR is also proposing shareholder resolutions to force AbbVie, Johnson & Johnson, Pfizer, and Eli Lilly to provide more disclosure about their lobbying activities. Yet another resolution will be proposed to shareholders of AbbVie, Johnson & Johnson, and Pfizer in hopes of having the chief executive and chairman roles separated.
About the Author Reprints
Given how conflicted both sides of the aisle in Congress have become with their over dependence upon the largesse pushed to them by Big Pharma lobbyists, shareholders rising up with torches and axes to attack the castles of Big Pharma may be one of our best opportunities to level this playing field for the sake of the taxpayer and patient. Through its awesome power of lobbying and financial influence in Congress, Big Pharma has succeeded in perverting the concept of the open, free market by using its monopolistic powers to totally control pricing and access. Consequently, Big Pharma has imposed its will that has yet to be effectively challenged:
1-R&D is treated no differently than Big Oil, as a convenient opaque mechanism funding its vast marketing machine, including tax-deductible consumer advertising pushing demand of prescription drugs; an extensive, well-oiled lobbying effort. (Remember how Big Pharma spent over $250 Million just to pass the Medicare Part D Act of 2002 (“the open spigot at retail cost act”)-and to ensure Medicare was denied ability to negotiate drug pricing, but not VA?)
2-Legal abuses of anti-trust laws playing “shell games” including:
a) Bullying generics with litigation.
b) Conniving with generics to withhold product from market.
c) Coupons to extend brand life at expense of generic.
d) Creating “new & improved” brand to falsely extend patent life, as it drug was a detergent.
e) Stifling competitive pricing by eliminating multiple GPO sources and reducing to only 2-3 players, allegedly to control quality (despite participating in “brown bagging” of drugs).
3-Unanswered questions continue to be ignored:
a) As NIH is tax-funded research, what percent of this work is “cherry-picked” by Big Pharma to introduce new products; why no split with NIH?
b) Why did the FDA relinquish in 1997 to allow consumer advertising of prescribed drugs; why has this remained, let alone tax-deductible, given the detriment to society no different than tobacco advertising had been?
c) Given that over 50% of our health care is now funded by taxpayers (VA, Medicare, Medicaid) what percent of profit does tax-funded health care represent to Big Pharma; what percent of total profits, R&D, etc. is relegated towards lobbying? In essence, to what extent are tax dollars turned around and utilized as a weapon against the taxpayer to protect profiteering?
In parallel to finance taking over from scientists as CEOs, Big Pharma’s excuse has morphed from “it’s the high R&D costs” to the brutally arrogant, “whatever price the market will bear.” To prevent the incessant gouging of the taxpayer, we will need an Executive Action by the next president to get around the paralysis of Congress focusing only on their self-interests with Big Pharma:
1-Require CMS and Treasury to perform a “market basket” (monthly?) identifying drug prices paid by Canada, UK, and EU; as well as percent of allowable profit. Take the average of price and profit to identify what will be allowed in the USA.
2-Ideally, this will help to neuter the unrelenting power of Big Pharma lobbyists.
3-Despite the incessant threats of Big Pharma to react by cutting R&D, as the USA remains its largest market, this is merely Big Pharma’s bluff and siren call to its shareholders. Why else do foreign firms continue to move into the USA?
In view of the hospitals inability to understand the difference between cost : price, and the apparent incapacity of Big Insurance to competently proforma price of coverage, nobody has the leverage to negotiate real pricing with Big Pharma. Consequently, this recommended action is required to prevent the excessive profiteering by Big Pharma at the expense of society, given we are the only nation that tolerates this openly abusive pricing and profiting of drugs.
Vertex shareholders should be more concerned with the 45%drop in stock price than how the sausage is made. Shareholder resolutions are non binding. Moreover the acute lack of detail in what they are asking for will become a self fulfilling prophecy. Essentially the company can produce any response it wants because no specific questions were asked. I think socially responsible investing is an altruistic goal, but you won’t find any takers in pharma. Publically traded companies are in business to make money for their shareholders without having to explain how.