A week before his inauguration, Donald Trump said that when it came to drug prices, pharmaceutical companies were “getting away with murder” — and he pledged to take decisive action to reduce the rising cost of medicine. Six weeks into his presidency, though, his government has moved to help drug companies block shareholder initiatives designed to help bring more scrutiny to drug price increases.
With drug prices skyrocketing in the United States, investor groups last year filed shareholder resolutions with 13 drug companies that — if passed — would force their boards to more meticulously detail their price increases for major medicines, and to provide “the rationale and criteria used for these price increases.” Days after Trump met with pharmaceutical industry CEOs at the White House, the Securities and Exchange Commission endorsed drug companies’ moves to block the resolutions from being voted on by shareholders at their annual meetings. The SEC move followed Trump promoting Republican SEC commissioner Michael Piwowar to serve as acting chairman of the agency.
The SEC win for the pharmaceutical industry represents the latest victory for an industry that has been ramping up efforts to stop governments from taking action to lower — or force more disclosure about — drug pricing. Last month, federal lawmakers from both parties helped the industry block Senate legislation to let Americans purchase lower-priced FDA-approved medicines from Canada. Meanwhile, in the last two years, drug companies have been largely successful in their fight against a barrage of price transparency bills. Such legislation has been stymied in all but one state, Vermont.
At the SEC, the recent help for the pharmaceutical industry came in the form of “no action” letters, assuring the companies that regulators would not recommend punishment if the firms omitted the resolutions from their shareholder ballots. In all, the SEC issued 10 “no action” letters in February, including eight on a single day.
The SEC letters said the resolutions could be omitted because they related to “ordinary business matters” that, it asserted, are not subject to shareholder resolutions under federal securities law. In their requests for the no action letters, the companies argued that the initiatives sought to inappropriately meddle in management’s day to day operations.
“The proposal seeks to micromanage the company's business by requiring detailed, year-over-year disclosure from 2010 to 2016 of price increases for the Company's top ten selling branded prescription drugs as well as the rationale and criteria for each price change,” wrote Eli Lilly lawyers in a letter whose argument was echoed by all the companies opposing the resolutions.
As the companies asked regulators to approve their move to block shareholders from voting on the initiatives, proponents of the resolutions issued a press release expressing outrage that their push for more information was so forcefully opposed.
“Skyrocketing drug prices have thrust pharmaceutical companies into the public eye as health care is a growing concern for the public,” said Donna Meyer of Mercy Investment Services, one of the shareholder groups that filed the resolutions. “As shareholders concerned about the long-term prosperity of these companies, we are mystified as to why they are not willing to engage in a more fulsome discussion of pricing strategies. This active obstruction to a simple request for transparency has raised some serious concerns about their commitment to those who rely on these critical drugs versus their commitment to profits.”
Another investor group asserted that the moves to block a vote on the resolutions denied shareholders vital corporate information they are entitled to as owners of the companies.
“Apart from the obvious risk to public health, we view transparency around how prices are developed as a fundamental tenet of good governance,” said Susan Vickers of Dignity Health. “Investors believe the information to be material, as we see continued secrecy around pricing strategies as a clear legal, reputational and financial risk to our investments.”
Even when voted on, shareholder resolutions opposed by management typically do not pass. But Meyer told International Business Times that when resolutions get on the ballot, they are powerful tools to pressure corporate boards for change.
“The value of having a resolution like this on the proxy is that so many people become aware of the concern, and you can try to get large institutional investors on board,” Meyer said. “If you get 20 or 30 percent support on a resolution, then then the board is more likely to listen to the concerns.”
The SEC has not always helped drug companies squelch such shareholder initiatives: Under the leadership of President Obama’s appointees in 2015, the agency told Gilead Sciences and Vertex Pharmaceuticals that the companies were obligated to let shareholders vote on a separate proposal that would have forced the companies to disclose the risks they face from their pricing policies. The companies’ shareholders ultimately voted down the measures.