Bristol-Myers Squibb asked to cure high drug costs…
It’s still high season for proxies, which means we’re spending a lot of time wading through pages filled with discussions about executive compensation, board members’ qualifications to serve, the justification for perquisites, and so forth. But yesterday, we came across another shareholder resolution that reminded us of the post from a few weeks ago (the one about the Sisters of St. Francis of Philadelphia asking McDonald’s Corp. (MCD) to respond to the public’s concern about the connection between fast food and childhood obesity).
In this week’s example of unusual proxy finds, the Interfaith Center on Corporate Responsibility – a group formed in 1971 by mainly Protestant denominations to pressure companies that were doing business in Apartheid South Africa – has filed a Proposal for Pharmaceutical Price Restraint, asking Bristol-Myers Squibb’s (BMY) shareholders to vote on at their upcoming annual meeting on May 3. This is the first year that it has filed such a proposal with the company.
The resolution in question – Number 7, found on page 70 of the proxy – was submitted by 14 religious investor groups that are members of the ICCR. They express concern about the continually escalating cost of name-brand drugs and cite a number of sources and statistics on the point, including this one: “The Government’s General Accountability Office (GAO) found that between 2000-2008, 416 brand-name drugs had ‘extraordinary price increases’; most of these increases ranged from 100% to 499%.”
It states, in part:
“This resolution’s sponsors are not satisfied that the Company has made a clear case offering fiscal and moral justification for such exorbitant price increases. Neither has it given sufficient assurances that the present pattern of increases that far exceed the Consumer Price Index will not continue.
RESOLVED: Shareholders request the Board of Directors create and implement a policy of price restraint on branded pharmaceuticals, utilizing a combination of approaches to keep drug prices at reasonable levels, such as an increase that would not exceed the previous year’s Consumer Price Index, and report to shareholders by September 2011 on changes in policies and pricing procedures for pharmaceutical products (withholding any competitive information, and at reasonable cost).”
Not surprisingly, Bristol-Myers Squibb’s directors recommend that shareholders vote against the proposal. It argues that a better approach to the challenge of getting prescription drugs into the hands of people who need, but cannot afford them, is to expand insurance coverage, which it says the new health care law passed in 2010 should help to accomplish. It also added that in 2010, Bristol-Myers Squibb’s Patient Assistance Program Foundation, Inc. and other assistance programs provided approximately $458 million worth of free medications to more than 263,000 people.
Then the response points out that the high cost of prescription medications reflects how expensive the process is to develop new drugs, which it characterizes as a “difficult and risky effort.” According to the filing, only 1 out of 5,ooo to 10,000 potential drugs make it through the R&D process and are eventually approved by the Food and Drug Administration.
The response concludes by stating, “In this fast-paced and highly competitive industry, we need the flexibility to price our products appropriately so that we may invest aggressively in the research and development of promising new and innovative medicines.”
Like the McDonald’s proposal, we don’t expect this one to garner much interest. But it’s an interesting question all the same: How much is too much when it comes to certain drugs?
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