By Ed Silverman
June 15, 2018
A pair of investor coalitions is successfully using shareholder proposals to pressure drug makers and wholesalers to change their pricing and oversight of opioid distribution, respectively. And the outcomes reflect the extent to which concerns over these issues are resonating with stockholders.
Example one: On Friday, 28 percent of Biogen (BIIB) shareholders voted in favor of a proposal that requires the drug maker to compile reports about the risks created by high prices and examine how pricing strategies propel executive compensation.
This also marks the fifth time in recent weeks that at least 20 percent of shareholders in a big drug company have signaled that rising prices for medicines are an issue. The other votes were registered by shareholders in AbbVie (ABBV), Amgen (AMGN), Bristol-Myers Squibb (BMY), and Eli Lilly (LLY).
Although each proposal lost, the fact that more than 20 percent of shareholders in each company supported such a resolution underscores that investors see danger ahead. Typically, such initiatives garner less support at the outset, according to shareholder advisory experts.
Rising drug costs have put the entire industry on the defensive as a growing number of Americans complain their medicines are unaffordable. In response, the Trump administration recently released a blueprint, although there is considerable debate over some of the approaches that were proposed.
“We view the success of this campaign as clear evidence that investor concerns about these risks are much more widespread than previously thought. If companies fail to adequately respond, investor concerns are sure to grow,” said Joshua Brockwell of Azzad Asset Management.
The resolutions were sponsored by a coalition of 51 institutional investors that were led by the Interfaith Center for the Corporate Responsibility, which has about 300 members that include faith-based communities, socially responsible asset managers, unions, and pension funds.
Some coalition members are part of another group called Investors for Opioid Accountability, which is pressuring the three largest pharmaceutical wholesalers to ramp up oversight of opioid distribution and change executive compensation to reflect fines and legal costs associated with infractions.
This coalition, which accuses the wholesalers of exacerbating the opioid crisis, is also meeting with some success.
Two of its members — the New York state comptroller and the Connecticut treasurer — earlier this year proposed a resolution asking McKesson to issue an annual report detailing efforts to more closely track opioid distribution. The distributor subsequently agreed last March to do so and, after a recent meeting with state officials, on Wednesday, the coalition and states agreed to withdraw the resolution
“This is a very difficult issue and things are not going to be made right overnight, A lot of things happened in the past that were problematic,” Patrick Doherty, the director of corporate governance for the New York State Comptroller Thomas DiNapoli, told us. “We’re very concerned that the company avoid risks as much as possible and mitigate those risks.”
Progress aside, one IOA member has been sharply critical of some McKesson steps. Two months ago, the McKesson board absolved senior management of failures to oversee opioid distribution. The findings were dismissed by the International Brotherhood of Teamsters, which called the probe inconsequential because the board failed to identify executives responsible for instances in which the company did not adequately track opioid shipments.
Meanwhile, another wholesaler, Cardinal Health, has also met with members of the IOA, and a Cardinal spokeswoman told us the company is “in the process of posting information on our website” concerning boosting oversight of opioid distribution and related matters that have attracted investor interest.
“What we want is for the three big distributors to have better oversight of their distribution of opioids, get away from incentivizing executives to increase sales of these products, and do a better job of monitoring if they send a disproportionate amount of opioids to a certain area,” Donna Meyer of Mercy Investment Services, the asset manager for the Sisters of Mercy, told us.
She noted, by the way, that members of the Interfaith Center for Corporate Responsibility will be meeting soon to sort out how to build on the recent votes among drug company shareholders, and examine the possibilities for sponsoring resolutions for stockholders in other drug makers.
“When we get more than 25 percent voting for a resolution, we have no trouble getting those companies to talk,” she explained. “But I’m more interested in change than a higher vote next year. So if we can negotiate change, we’ll try that. But otherwise we’ll refile our proposals next year.”