Lydia Kuykendal, Director of Shareholder Advocacy – Mercy Investment Services
Investors recognize that the pharmaceutical sector strategy of expanding monopolies through anticompetitive practices such as high list prices, pay-for-delay deals to keep generics off the market, evergreening tactics to extend patent lives, and pricing collusion without any meaningful new science or innovation does not help create long-term value for companies or for shareholders. More importantly, anticompetitive conduct exacts a heavy cost on health systems and communities. Engaging in such practices presents legal, financial, regulatory, and reputational risks that, unmanaged, may threaten a company’s social license to operate.
In fact, the Food and Drug Administration has focused on promoting competition as one way to moderate drug prices, issuing a Drug Competition Action Plan with policy guidance as well as a Biosimilars Action Plan. Further, the Federal Trade Commission (FTC) has focused on curbing anti-competitive conduct stating that “[f]or decades, the FTC has challenged a number of illegal anticompetitive practices in the pharmaceutical industry that can lead to high drug prices”.
This mounting pressure on industry could increase pressure for new regulation, increase risk for investors, and have substantial impacts on the public. We believe that robust board oversight would improve the industry’s management of risks related to anticompetitive practices and that shareholders would benefit from more information about the board’s role.