The 2019 Pharma Resolutions and Proxy Exempt Solicitations

Senior Executive Incentives - Integrate Drug Pricing Risk

2019 – AbbVie 

Read the AbbVie Exempt Solicitation 

RESOLVED, that shareholders of AbbVie Inc. (“AbbVie”) urge the Compensation Committee (the “Committee”) to report annually to shareholders on the extent to which risks related to public concern over drug pricing strategies are integrated into AbbVie’s incentive compensation policies, plans and programs (together, “arrangements”) for senior executives. The report should include, but need not be limited to, discussion of whether (i) incentive compensation arrangements reward, or not penalize, senior executives for adopting pricing strategies, or making and honoring commitments about pricing, that incorporate public concern regarding the level or rate of increase in prescription drug prices; and (ii)  such concern is considered when setting financial targets for incentive compensation arrangements. 

Supporting Statement: As long-term investors, we believe that senior executive incentive compensation arrangements should reward the creation of sustainable long-term value. To that end, it is important that those arrangements align with company strategy and encourage responsible risk management. 

A key risk facing pharmaceutical companies is potential backlash against high drug prices. Societal anger over exorbitant prices and pressure over limited patients’ access due to unaffordability may force price rollbacks and harm corporate reputation. 

We applaud AbbVie for committing not to increase prices by more than 10% for 2018, yet we are unaware of a like commitment for 2019 or beyond. Moreover, we are concerned that the incentive compensation arrangements applicable to AbbVie’s senior executives may undermine any such commitment. 

AbbVie uses net revenue, income before taxes and Humira sales as metrics for the annual bonus and earnings per share (EPS) as a metric for certain long-term incentive awards to senior executives. (2018 Proxy Statement, at 31) A 2017 Credit Suisse analyst report stated that “US drug price rises contributed 100% of industry EPS growth in 2016” and characterized that fact as “the most important issue for a Pharma investor today.” The report identified AbbVie as a company where price increases accounted for at least 100% of EPS growth in 2016. (Global Pharma and Biotech Sector Review: Exploring Future US Pricing Pressure, Apr. 18, 2017, at 1.) It has been noted that the company’s 2018 9.7% price increase for Humira could add $1.2 billion to the U.S. healthcare system (https://www.fiercepharma.com/pharma/drug-price-hikes-a-few-bad-actors-or...).

In our view, excessive dependence on drug price increases is a risky and unsustainable strategy, especially  when price hikes drive large senior executive payouts. We believe that the company’s strategy to use “nursing support,” which the California Department of Insurance claims in its suit against the company to be largely a kickback scheme to boost Humira sales, may have been better managed by leadership if Humira sales were not an explicit part of the payment incentive plan (https://www.law360.com/articles/1084008).  

The disclosure we request would allow shareholders to better assess the extent to which compensation arrangements encourage senior executives to responsibly manage risks relating to drug pricing and contribute to long-term value creation. We urge shareholders to vote for this Proposal.

 

Senior Executive Incentives - Integrate Drug Pricing Risk

2019 – Biogen, Inc.   

 

RESOLVED, that shareholders of Biogen Inc. (“Biogen”) urge the Compensation Committee to report annually to shareholders on the extent to which risks related to public concern over drug pricing strategies are integrated into Biogen’s incentive compensation policies, plans and programs (together, “arrangements”) for senior executives. The report should include, but need not be limited to, discussion of whether (i) incentive compensation arrangements reward, or not penalize, senior executives for adopting pricing strategies, or making and honoring commitments about pricing, that incorporate public concern regarding prescription drug prices; and (ii) such concern is taken into account when setting financial targets for incentive compensation arrangements. 

Supporting Statement: As long-term investors, we believe that senior executive incentive compensation arrangements should reward creation of sustainable long-term value. To that end, it is important that those arrangements align with company strategy and encourage responsible risk management. 

A key risk facing pharmaceutical companies is backlash against high drug prices. Public outrage over high prices and their impact on patient access may force price rollbacks and harm corporate reputation. Legislative or regulatory investigations regarding drug pricing may bring about broader changes. In May 2018, the Trump administration unveiled its “Blueprint” to lower drug prices. 

Biogen was publicly criticized in 2017 for the $750,000 first-year price tag, and $375,000 annual cost thereafter, for spinal muscular atrophy treatment Spinraza. (E.g., https://www.npr.org/sections/health-shots/2017/08/01/540100976/drug-puts...) Congressional attention has also focused on the price of drugs for multiple sclerosis, including Biogen’s. (https://www.investors.com/news/technology/biogen-teva-slip-after-democra...

We are encouraged by Biogen’s improved transparency on pricing. We are concerned, however, that incentive compensation arrangements applicable to Biogen’s senior executives may not encourage senior executives to take actions that result in lower short-term financial performance even when those actions may be in Biogen’s best long-term financial interests. 

Biogen uses revenue and earnings per share as metrics for the annual bonus (together with strategic goals), and revenue as one of two metrics for the cash settled performance units program. (2018 Proxy Statement, at 42, 47) Credit Suisse analyst reports identified Biogen as a company where U.S. net price increases accounted for at least 100% of 2016 and 2017 EPS growth. (Global Pharma and Biotech Sector Review: Exploring Future US Pricing Pressure, Apr. 18, 2017, at 1; Global Pharmaceuticals: Scoring Sensitivity to Trump’s Reforms, May 25, 2018, at 24, 27)      

In our view, excessive dependence on drug price increases is a risky and unsustainable strategy, especially when price hikes drive large senior executive payouts. For example, media coverage noted that a 600% rise in Mylan’s CEO’s total compensation accompanied the 400% EpiPen price increase. (See, e.g., https://www.nbcnews.com/business/consumer/mylan-execs-gave-themselves-ra... they-hiked-epipen-prices-n636591) 

The requested disclosure would allow shareholders to assess the extent to which compensation arrangements encourage senior executives to responsibly manage risks relating to drug pricing and contribute to long-term value creation. 

We urge shareholders to vote for this Proposal. 


Senior Executive Incentives - Integrate Drug Pricing Risk

2019 – Bristol-Myers Squibb Company 

 

RESOLVED, that shareholders of Bristol-Myers Squibb Company (“BMS”) urge the Compensation and Management Development Committee (the “Committee”) to report annually to shareholders on the extent to which risks related to public concern over drug pricing strategies are integrated into BMS’s incentive compensation policies, plans and programs (together, “arrangements”) for senior executives. The report should include, but need not be limited to, discussion of whether (i) incentive compensation arrangements reward, or not penalize, senior executives for adopting pricing strategies, or making and honoring commitments about pricing, that incorporate public concern regarding prescription drug prices; and (ii) such concern is taken into account when setting financial targets for incentive compensation arrangements. 

Supporting Statement: As long-term investors, we believe that senior executive incentive compensation arrangements should reward the creation of sustainable long-term value. To that end, it is important that those arrangements align with company strategy and encourage responsible risk management. 

A key risk facing drug companies is the increased criticism from the public and actions that legislators and regulators are taking regarding pharmaceutical prices. A March 2018 Kaiser Family Foundation poll found that 52% of respondents ranked lowering drug prices as a “top priority” for the President and Congress. The White House released a “Blueprint” for lowering drug prices in May 2018. The NY Times reported that as of August 2018, twenty-four states have passed 37 bills this year to curb rising prescription drug costs. <https://www.nytimes.com/2018/08/18/us/politics/states-drug-costs.html> 

We are concerned that the incentive compensation arrangements applicable to BMS’s senior executives may not encourage them to take actions that result in lower short-term financial performance even when those actions may be in BMS’s best long-term financial interests. BMS uses revenue and non-GAAP earnings per share, along with a pipeline goal and individual performance factors, as metrics for the annual bonus, and revenue and non-GAAP operating margin as metrics for performance share unit awards. (2018 Proxy Statement, at 41-43, 46) 

A May 2018 Credit Suisse analyst report stated that “US drug price rises contributed 80% of industry EPS growth in 2017”. The report identified BMS as having the “greatest exposure to specialty drug pressure” of major pharmaceutical firms. (“Global Pharmaceuticals: Connection Series”, May 25, 2018, at 9) In our view, excessive dependence on drug price increases is a risky and unsustainable strategy, especially when price hikes drive large senior executive compensation payouts. For example, coverage of the skyrocketing cost of Mylan’s EpiPen noted that a 600% rise in Mylan’s CEO’s total compensation accompanied the 400% EpiPen price increase. (See, e.g., https://www.nbcnews.com/business/consumer/mylan-execs-gave-themselves-ra... https://www.wsj.com/articles/epipen-maker-dispenses-outsize-pay-1473786288; https://www.marketwatch.com/story/mylan-top-executive-pay-was-second-hig...

The disclosure we request would allow shareholders to better assess the extent to which compensation arrangements encourage senior executives to responsibly manage risks relating to drug pricing and contribute to long-term value creation. We urge shareholders to vote for this Proposal. 

 

Senior Executive Incentives - Integrate Drug Pricing Risk

2019 – Celgene Corporation 

      

RESOLVED, that shareholders of Celgene Corporation (“Celgene”) urge the Management Compensation and Development Committee to report annually to shareholders on the extent to which risks related to public concern over drug pricing strategies are integrated into Celgene’s incentive compensation policies, plans and programs (“arrangements”) for senior executives. The report should include, but need not be limited to, discussion of whether (i) incentive compensation arrangements reward, or not penalize, senior executives for adopting pricing strategies, or making and honoring commitments about pricing, that incorporate public concern regarding prescription drug prices; and (ii) such concern is considered when setting financial targets for incentive compensation arrangements. 

Supporting Statement: As long-term investors, we believe that senior executive incentive compensation arrangements should reward the creation of sustainable value. To that end, it is important that those arrangements align with company strategy and encourage responsible risk management. 

A key risk facing pharmaceutical companies is backlash from high drug prices. Thirty percent of respondents to a 2018 Gallup survey viewed the pharmaceutical industry positively, with 53% viewing it negatively. (https://news.gallup.com/poll/12748/business-industry-sector-ratings.aspx

We are concerned that the incentive compensation arrangements applicable to Celgene’s senior executives may discourage them from taking actions that result in lower short-term financial performance, like foregoing price increases, even when those actions may be in Celgene’s best long-term interests. Celgene has faced significant criticism for the high price of cancer drug Revlimid; a 2018 episode of HBO’s “Vice” portrayed the struggles of a woman who had used all her savings and refinanced her house to pay for Revlimid. (“The Cost of Living/Paradise Lost,” 2018) 

Celgene uses revenue and adjusted earnings per share (EPS) as metrics for both the annual bonus and performance share units. (2018 Proxy Statement, at 32) In our view, risks to long-term value arise when large senior executive payouts can be driven by price hikes, and those risks are magnified by rewarding senior executives for increasing revenue in both short- and long-term plans. Public attention may focus on both high senior executive payouts and drug pricing, fueling public outrage. Ovid Therapeutics CEO Jeremy Levin has argued that incentives to boost short-term performance, such as EPS, lead executives to raise prices (and rebates to middlemen), starve research and development and buy back shares. (https://www.biocentury.com/biocentury/strategy/2016-09-19/why-jeremy-lev...

Incentives may even have societal implications, as one critic of high pay for healthcare executives has noted: “[I]f the most influential executives of these companies are being paid to keep that [cost] trajectory up, that's money that's being taken away from education or infrastructure or other parts of the economy that may not be growing as quickly, and maybe that we'd want to grow more quickly.” (https://www.npr.org/sections/health-shots/2017/07/26/539518682/as-cost-o...

The disclosure we request would allow shareholders to better assess the extent to which compensation arrangements encourage senior executives to responsibly manage risks relating to drug pricing and contribute to long-term value creation. We urge shareholders to vote for this Proposal.

 

Senior Executive Incentives - Integrate Drug Pricing Risk

2019 – Eli Lilly and Company 

     

RESOLVED, that shareholders of Eli Lilly and Company (“Lilly”) urge the Compensation Committee (the “Committee”) to report annually to shareholders on the extent to which risks related to public concern over drug pricing strategies are integrated into Lilly’s incentive compensation policies, plans and programs (“arrangements”) for senior executives. The report should include, but need not be limited to, discussion of whether (i) incentive compensation arrangements reward, or not penalize, senior executives for adopting pricing strategies, or making and honoring commitments about pricing, that incorporate public concern regarding prescription drug prices; and (ii) such concern is taken into account when setting financial targets for incentive compensation arrangements. 

Supporting Statement: As long-term investors, we believe that senior executive incentive compensation arrangements should reward the creation of sustainable value. To that end, it is important that those arrangements align with company strategy and encourage responsible risk management. 

A key risk facing pharmaceutical companies is potential backlash against high drug prices. Public outrage over high prices and their impact on patient access may force price rollbacks and harm corporate reputation. Lilly has come under fire for rising insulin prices.  Minnesota’s attorney general sued Lilly in October 2018 alleging a “scheme” to inflate list prices in order to pay higher rebates to pharmacy benefit managers. (http://www.startribune.com/minnesota-attorney-general-lori-swanson-sues-...) The media regularly reports on patients rationing or going without insulin due to cost. 

We applaud Lilly for improving transparency on drug pricing and supporting alternative pricing approaches. We are concerned, however, that the incentive compensation arrangements applicable to Lilly’s senior executives may not encourage them to take actions that result in lower short-term financial performance even when those actions may be in Lilly’s best long-term interests. 

Lilly uses revenue and earnings per share (EPS) as metrics for the annual bonus and EPS growth as the metric for performance awards. (2018 Proxy Statement, at 43-45) A 2017 Credit Suisse analyst report identified Lilly as a company where price increases accounted for at least 100% of 2016 EPS growth. (Global Pharma and Biotech Sector Review: Exploring Future US Pricing Pressure, Apr. 18, 2017, at 1) In Credit Suisse’s 2018 report, Lilly was one of three companies with U.S. list price increases over 10%. (Global Pharmaceuticals: Scoring Sensitivity to Trump’s Reforms, May 25, 2018, at 20) 

In our view, excessive dependence on drug price increases is a risky and unsustainable strategy, especially when price hikes drive large senior executive payouts. In 2017, Lilly made a special $3 million equity grant to Enrique Conterno, head of Lilly’s diabetes unit, who “built the diabetes business into [Lilly’s] largest franchise.” (2018 Proxy Statement, at 43) We are concerned that this grant appears to reward raising prices, which could create risks for Lilly. 

The disclosure we request would allow shareholders to better assess the extent to which compensation arrangements encourage senior executives to responsibly manage risks relating to drug pricing and contribute to long-term value creation. We urge shareholders to vote for this Proposal.

 

Senior Executive Incentives - Integrate Drug Pricing Risk

2019 – Johnson & Johnson 

Read the Johnson & Johnson Exempt Solicitation

RESOLVED, that shareholders of Johnson & Johnson (“JNJ”) urge the Compensation and Benefits Committee (the “Committee”) to report annually to shareholders on the extent to which risks related to public concern over drug pricing strategies are integrated into JNJ’s incentive compensation policies, plans and programs (together, “arrangements”) for senior executives. The report should include, but need not be limited to, discussion of whether (i) incentive compensation arrangements reward, or not penalize, senior executives for adopting pricing strategies, or making and honoring commitments about pricing, that incorporate public concern regarding the level or rate of increase in prescription drug prices; and (ii) external pricing

pressures are taken into account when setting targets for financial metrics. 

Supporting Statement: As long-term investors, we believe that senior executive incentive compensation arrangements should reward the creation of sustainable longterm value. To that end, it is important that those arrangements align with company strategy and encourage responsible risk management. 

A key risk facing pharmaceutical companies is potential backlash against high drug prices. Public outrage over high prices and their impact on patient access may force price rollbacks and harm corporate reputation. Legislative or regulatory investigations regarding pricing of prescription medicines may bring about broader changes. In May 2018, the White House released a ‘Blueprint to Lower Drug Prices’ that included promoting generics and biosimilars, as well as a different system for buying Medicare Part B drugs, such as JNJ’s Remicade. 

We applaud JNJ for improving transparency on drug pricing and supporting alternative pricing approaches. We are concerned, however, that the incentive compensation arrangements applicable to JNJ’s senior executives may not encourage senior executives to take actions that result in lower short-term financial performance even when those actions may be in JNJ’s best long-term financial interests. 

JNJ uses sales growth and earnings per share (EPS) as metrics for the annual bonus and EPS as a metric for performance share awards. (2018 Proxy Statement, at 43) Increasing revenues, either by increasing volumes or raising prices (or some combination), can boost both sales growth and earnings. A recent Credit Suisse analyst report identified JNJ as at significant risk from certain proposals in the Blueprint and ranked it in the bottom third on “overall resistance to emerging pressures.” 

In our view, excessive dependence on drug price increases is a risky and unsustainable strategy, especially when price hikes drive large senior executive payouts. For example, media coverage of the skyrocketing cost of Mylan’s EpiPen noted that a 600% rise in Mylan’s CEO’s total compensation accompanied the 400% EpiPen price increase. 

The disclosure we request would allow shareholders to better assess the extent to which compensation arrangements encourage senior executives to responsibly manage risks relating to drug pricing and contribute to longterm value creation in line with the company’s stated credo to “maintain

reasonable prices,” “bear our fair share of taxes,” and “put the needs and well-being of the people we serve first.” We urge shareholders to vote for this Proposal.

 


Senior Executive Incentives - Integrate Drug Pricing Risk

2019 – Merck & Co., Inc. 

Read the Merck Exempt Solicitation 

RESOLVED, that shareholders of Merck & Co., Inc. (“Merck”) urge the Compensation and Benefits Committee to report annually to shareholders on the extent to which risks related to public concern over drug pricing strategies are integrated into Merck’s incentive compensation policies, plans and programs (“arrangements”) for senior executives. The report should include, but need not be limited to, discussion of whether (i) incentive compensation arrangements reward, or not penalize, senior executives for adopting pricing strategies, or making and honoring commitments about pricing, that incorporate public concern regarding prescription drug prices; and (ii) such concern is considered when setting financial targets for incentive compensation arrangements. 

Supporting Statement: As long-term investors, we believe that senior executive incentive compensation arrangements should reward the creation of sustainable value. To that end, it is important that those arrangements align with company strategy and encourage responsible risk management. 

We are concerned that the incentive compensation arrangements applicable to Merck’s senior executives may discourage them from taking actions that result in lower short-term financial performance even when those actions may be in Merck’s best long-term interests. Merck has committed to limit average price increases of its drugs to no more than the rate of inflation (https://www.marketwatch.com/story/merck-to-lower-price-of-hep-c-treatmen...), but incentive compensation arrangements may be inconsistent with that commitment. 

Merck uses revenue and pre-tax income as metrics for the annual bonus, and earnings per share (EPS) is a metric for performance share units granted after January 1, 2017. (2018 Proxy Statement, at 51, 61) A 2017 Credit Suisse analyst report identified Merck as a company where U.S. net price increases accounted for at least 100% of 2016 net income growth. (Global Pharma and Biotech Sector Review: Exploring Future US Pricing Pressure, Apr. 18, 2017, at 22) 

In our view, risks to long-term value arise when large senior executive payouts can be driven by price hikes. Attention may focus on both high senior executive payouts and drug pricing, fueling public outrage. Ovid Therapeutics CEO Jeremy Levin has argued that incentives to boost short-term performance, such as EPS, lead executives to raise prices (and rebates to middlemen), starve research and development and buy back shares. (https://www.biocentury.com/biocentury/strategy/2016-09-19/why-jeremy-levin-says-executive-compensation-and-drug-pricing-must-

Incentives may have societal implications, as one critic of high pay for healthcare executives has noted: “[I]f the most influential executives of these companies are being paid to keep that [cost] trajectory up, that's money that's being taken away from education or infrastructure or other parts of the economy that may not be growing as quickly, and maybe that we'd want to grow more quickly.” (https://www.npr.org/sections/health-shots/2017/07/26/539518682/as-cost-of-u-s-health-care-skyrockets-so-does-pay-of-health-care-ceos

The disclosure we request would allow shareholders to better assess the extent to which compensation arrangements encourage senior executives to responsibly manage risks relating to drug pricing and contribute to long-term value creation. For example, it would be useful for investors to know whether incentive compensation target amounts reflect consideration of pricing pressures. 

We urge shareholders to vote for this Proposal. 


Senior Executive Incentives - Integrate Drug Pricing Risk

2019 – Pfizer, Inc. 

Read the Pfizer Exempt Solicitation      

RESOLVED, that shareholders of Pfizer Inc. (“Pfizer”) urge the Compensation Committee (the “Committee”) to report annually to shareholders on the extent to which risks related to public concern over drug pricing strategies are integrated into Pfizer’s incentive compensation policies, plans and programs (“arrangements”) for senior executives. The report should include, but need not be limited to, discussion of whether (i) incentive compensation arrangements reward, or not penalize, senior executives for adopting pricing strategies, or making and honoring commitments about pricing, that incorporate public concern regarding prescription drug prices; and (ii) such concern is considered when setting financial targets for incentive compensation arrangements. 

Supporting Statement: As long-term investors, we believe that senior executive incentive compensation arrangements should reward the creation of sustainable value. To that end, it is important that those arrangements align with company strategy and encourage responsible risk management. 

A key risk facing pharmaceutical companies is potential backlash against high drug prices. Pfizer has been criticized for repeated price increases, and in July 2018 President Trump called out “Pfizer & others” in a tweet, saying they “should be ashamed that they have raised drug prices for no reason”; Pfizer then postponed planned increases. 

We are concerned that the incentive compensation arrangements applicable to Pfizer’s senior executives may discourage them from taking actions, like foregoing price increases, that result in lower short-term financial performance even when those actions may be in Pfizer’s best long-term interests. 

Pfizer uses revenue and earnings per share (EPS) as metrics for the annual bonus and operating income as a metric for performance share awards. (2018 Proxy Statement, at 66, 68) A 2017 Credit Suisse analyst report identified Pfizer as a company where U.S. net price increases accounted for at least 100% of 2016 net income growth. (Global Pharma and Biotech Sector Review: Exploring Future US Pricing Pressure, Apr. 18, 2017, at 22) In its 2018 report, Credit Suisse characterized Pfizer’s 2017 10% net price increase as above-average for the industry and noted that its list price increases were the second highest. (Global Pharmaceuticals: Scoring Sensitivity to Trump’s Reforms, May 25, 2018, at 15, 20) 

In our view, excessive dependence on drug price increases is a risky and unsustainable strategy, especially when price hikes appear to drive large senior executive payouts. Highlighting this connection, a March 2018 article carried the headline, “Pfizer CEO Gets 61% Pay Raise—to $27.9 Million—As Drug Prices Continue to Climb.” (https://arstechnica.com/science/2018/03/amid-drug-price-increases-pfizer... see also https://www.usnews.com/opinion/articles/2017-08-30/bernie-sanders-take-o...) We are concerned that large payouts based on financial metrics that can be affected by pricing create risks for Pfizer. 

The disclosure we request would allow shareholders to better assess the extent to which compensation arrangements encourage senior executives to responsibly manage risks relating to drug pricing and contribute to long-term value creation. For example, it would be useful for investors to know whether incentive compensation target amounts reflect consideration of pricing pressures. We urge shareholders to vote for this Proposal.

 

Senior Executive Incentives - Integrate Drug Pricing Risk

2019 – Vertex Pharmaceuticals Incorporated 

     

RESOLVED, that shareholders of Vertex Pharmaceuticals Inc. (“Vertex”) urge the Management Development and Compensation Committee (the “Committee”) to report annually to shareholders on the extent to which risks related to public concern over drug pricing strategies are integrated into Vertex’s incentive compensation policies, plans and programs (together, “arrangements”) for senior executives. The report should include, but need not be limited to, discussion of whether (i) incentive compensation arrangements reward, or not penalize, senior executives for adopting pricing strategies, or making and honoring commitments about pricing, that incorporate public concern regarding prescription drug prices; and (ii) such concern is taken into account when setting financial targets for incentive compensation arrangements. 

Supporting Statement:  As long-term investors, we believe that senior executive incentive compensation arrangements should reward the creation of sustainable long-term value. To that end, it is important that those arrangements align with company strategy and encourage responsible risk management. 

A key risk facing drug companies is the increased criticism from the public and actions that legislators and regulators are taking regarding pharmaceutical prices. A March 2018 Kaiser Family Foundation poll found that 52% of respondents ranked lowering drug prices as a “top priority” for the President and Congress. The White House released a “Blueprint” for lowering drug prices in May 2018. The NY Times reported that as of August 2018, twenty-four states have passed 37 bills this year to curb rising prescription drug costs. (https://www.nytimes.com/2018/08/18/us/politics/states-drug-costs.html)        

Recent news articles identify pricing pressures that Vertex is facing.  Officials from New York State’s Medicaid program have said that the cystic fibrosis drug Orkambi is not worth its price, a case “that is being closely watched around the country.”  (https://www.nytimes.com/2018/06/24/health/drug-prices-orkambi-new-york.html)  As part of a two-year dispute between Vertex and the UK’s National Health Service over Orkambi cost-effectiveness, a committee of the House of Commons has requested to see documents the Company supplied to the government related to price and evidence supporting the drug’s benefit. (https://pharmaphorum.com/news/vertex-told-to-reveal-cf-drug-price-as-mps...)      

We are concerned that the incentive compensation arrangements applicable to Vertex’s senior executives may not encourage them to take actions that result in lower short-term financial performance even when those actions may be in Vertex’s best long-term financial interests. Vesting for half of the performance share units Vertex’s named executive officers can earn depends on one-year net product revenue goals, and for 2017, revenue growth for two of Vertex’s cystic fibrosis drugs was the most heavily weighted factor in the quantitative portion of the annual bonus formula. “Increase revenues and manage operating expenses” was another 2017 annual bonus quantitative factor. (2018 Proxy Statement, at 56-57) 

The disclosure we request would allow shareholders to better assess the extent to which compensation arrangements encourage senior executives to responsibly manage risks relating to drug pricing and contribute to long-term value creation. We urge shareholders to vote for this Proposal.

 

Board Oversight - Drug Pricing

2019 – AbbVie 

           

RESOLVED, that shareholders of Abbvie, Inc. (“Abbvie” or the “Company”) recommend that the Board of Directors take the steps necessary to strengthen Board oversight of prescription drug pricing risk by formalizing oversight responsibility, which could take the form of creating a new Board committee or assigning responsibility to an existing committee, and by adding drug pricing risk expertise to the director qualifications skills matrix. 

Supporting Statement: High prescription drug prices are the subject of widespread public debate in the United States. Public outrage over high prices and the impact on patient access garner substantial media attention and scrutiny from policymakers; a 2018 New York Times article focused on the price of Abbvie’s Humira, which more than doubled from 2012 to 2017.Even the head of industry trade association PhRMA recently admitted that “patients are increasingly facing affordability challenges in the marketplace.”2 

A March 2018 Kaiser Family Foundation poll found that 52% of respondents ranked lowering drug prices as a “top priority” for the President and Congress. The White House released a “Blueprint” for lowering prices in May 2018. In October 2017, California began requiring companies to notify regulators when they intend to raise a drug’s price by 16% or more over two years and explain why the increase is necessary. Other states have enacted measures addressing pricing transparency, importation and price-gouging. 

Accordingly, pushback against high drug prices is an important risk facing pharmaceutical companies; we believe Abbvie is especially vulnerable. A 2018 Credit Suisse report highlighted Abbvie as among the companies most at risk from specialty pricing pressures in commercial insurance.3 Humira, which accounted for 65% of Abbvie’s revenues in 2017,4 now faces competition in Europe from biosimilars, which are expected to cost less.  

In our view, robust board oversight of risks related to drug pricing would provide a valuable outside perspective and help ensure that those risks are being managed for the long term. Currently, no Board committee charter explicitly assigns responsibility for oversight of drug pricing risk, though the Public Policy Committee reviews and evaluates “Abbvie’s policies and practices with respect to social responsibility” and reviews “public policy issues that affect or could affect Abbvie’s business activities.” We believe that mounting pressures justify formalizing oversight responsibility. Doing so by creating a new committee or designating an existing committee would permit additional time to be devoted to the issue without burdening all directors and could allow for more frequent communication with management. 

To ensure that the relevant committee includes one or more directors with appropriate expertise, we advocate adding expertise related to drug pricing risk, such as previous work for a payer or purchaser or pharmacoeconomics expertise, to the director “skills, knowledge and experience matrix,” which reflects the skills considered “most relevant to the board’s oversight role.”5 

We urge shareholders to vote for this proposal.

  

https://www.nytimes.com/2018/01/06/business/humira-drug-prices.html
https://www.biopharmadive.com/news/gottlieb-rebuffs-pharma-ceo-nostrum-l...
3  “Global Pharmaceuticals: Scoring Sensitivity to Trump Reforms,” May 25, 2018, at 9.
https://www.sec.gov/Archives/edgar/data/1551152/000155115218000014/abbv-..., at 12.
https://www.sec.gov/Archives/edgar/data/1551152/000104746918001843/a2234..., at 16-17. 

 


Board Oversight - Drug Pricing

2019 – Pfizer, Inc. 

           

RESOLVED, that shareholders of Pfizer, Inc. (“Pfizer” or the “Company”) recommend that the Board of Directors take the steps necessary to strengthen Board oversight of prescription drug pricing risk by formalizing oversight responsibility, which could take the form of creating a new Board committee or assigning responsibility to an existing committee. 

Supporting Statement: High prescription drug prices are the subject of widespread public debate in the United States. Public outrage over high prices and the impact on patient access garner substantial media attention and scrutiny from policymakers. Even the head of industry trade association PhRMA recently admitted that “patients are increasingly facing affordability challenges in the marketplace.”1 

Stories of patients delaying treatment due to drug costs appear regularly in national media outlets. A March 2018 Kaiser Family Foundation poll found that 52% of respondents ranked lowering drug prices as a “top priority” for the President and Congress.       

The White House released a “Blueprint” for lowering prices in May 2018, which included removing barriers to generics. In October 2017, California began requiring companies to notify regulators when they intend to raise a drug’s price by 16% or more over two years and explain why the increase is necessary. Other states have enacted measures addressing pricing transparency, importation and price-gouging. 

Accordingly, high drug prices are an important global business risk facing pharmaceutical companies; we believe Pfizer is especially vulnerable. Unlike some competitors, Pfizer has been unwilling to commit to single-digit annual price increases. A 2018 Credit Suisse report characterized Pfizer’s 2017 10% net price increase as above-average for the industry and noted that its list price increases were the second highest.2 President Trump singled out Pfizer in a July 2018 tweet, prompting the Company to postpone price increases intended to take effect that month.3 Pfizer was fined in 2016 by the UK Competition and Markets Authority for raising the price of an epilepsy drug by 2600%.4 

In our view, robust board oversight of risks related to drug pricing would provide a valuable outside perspective and help ensure that those risks are being managed for the long term. Currently, no Board committee charter explicitly assigns responsibility for oversight of drug pricing risk, but we believe that mounting pressures justify formalizing oversight responsibility. Doing so, either by creating a new committee or designating an existing committee, would permit additional time to be devoted to the issue without burdening all directors and could allow for more frequent communication with management. 

We urge shareholders to vote for this proposal. 

 

https://www.biopharmadive.com/news/gottlieb-rebuffs-pharma-ceo-nostrum-l...
2  “Global Pharmaceuticals: Scoring Sensitivity to Trump Reforms,” May 25, 2018, at 15, 20.
https://www.nytimes.com/2018/07/10/us/politics/pfizer-trump-drug-prices....
https://www.bloomberg.com/news/articles/2016-12-07/pfizer-flynn-pharma-f...

 

Anti-Competitive Practices

2019 – Johnson & Johnson           

 

RESOLVED, that shareholders of Johnson & Johnson urge the Board of Directors to issue a report to shareholders by December 31, 2019 assessing the reputational and financial risks to the Company from rising pressure to reduce high prescription drug prices in the United States by removing barriers to generic competition. The report should address, but need not be limited to, the Food and Drug Administration’s (“FDA’s”) publication of a list of branded drugs about which the FDA has received inquiries from generic manufacturers unable to obtain branded drug samples, regulatory and legislative efforts to increase generic manufacturers’ access to those samples and measures to allow generic manufacturers to create their own Risk Evaluation and Mitigation Strategy programs. 

The report should be prepared at reasonable cost and should omit confidential and proprietary information. 

Supporting Statement: Drug companies that manufacture higher cost, branded drugs have recently come under public, legislative and regulatory scrutiny for potentially engaging in practices that block the development of less expensive generic drugs. These practices extend branded drugs’ monopolies, perpetuate monopoly pricing and thwart innovation. Studies have shown that without three or more generics on the market, market competition is difficult to achieve. Investors are concerned with mitigating business risks associated with reactions to anticompetitive practices and efforts to open up profitable generic and biosimilars markets which are expected to grow to $11 billion in value by 2020. (https://www.biosmilardevelopment.com/doc/biosimilars-market-worth-billio...). 

The FDA’s Commissioner recently released to the public a list of 50 branded drugs whose manufacturers have refused to provide samples to would-be generic manufacturers, despite having received FDA assurance that the generic company had adequate safety measures in place. (https://www.fdanews.com/articles/186871-fda-reference-drug-list-flags-co...) A Kaiser Health Network analysis found that Medicare and Medicaid paid almost $12 billion in 2016 for 47 of the drugs. Bi-partisan Congressional action resulted in the CREATES ACT, which recently passed the Senate and would provide generic companies with a private right of action to sue branded companies for denying access to drug samples. 

Johnson & Johnson’s unit, Actelion Pharmaceuticals, has the second-highest number of entries in that FDA list. Of the 26 inquiries to the FDA from generics manufacturers seeking access to Actelion products, 14 concerned Tracleer and 8 concerned Opsumit, both of which lack generic equivalents in the U.S. A Kaiser Health Network analysis reports that in 2016, Tracleer cost Medicare $90,700 per patient, an increase since 2012. Negative press accounts have focused on the high cost of Tracleer and Opsumit and patients’ struggles to pay for the drugs. (https://www.bostonglobe.com/lifestyle/health-wellness/2014/07/20/special... https://santamariatimes.com/opinion/editorial/our-view-here-s-to-our-tru...

Investors rely on pharmaceutical companies’ boards to oversee key risks that affect shareholder value, including pursuing business strategies that could undermine long-term growth. Already, the broader investment community is raising concerns about potential losses due to the increased scrutiny over the practices described above. (https://www.wsj.com/articles/investors-brace-yourselves-for more-drug-price-drama-152546300) 

We urge shareholders to vote for this proposal.

 

 

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