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Drug Companies Block Shareholders' Voting on Price Transparency

The Wall Street Journal. logo The Wall Street Journal. 3/1/2017 Peter Loftus
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Several major U.S. drug companies have squelched an investor campaign aimed at forcing companies to disclose more information about when and why they raise prices.

In October, a group of institutional investors, including many with ties to religious organizations, submitted shareholder proposals asking 11 U.S. drug companies, including Pfizer Inc. and Merck & Co., to issue reports listing average annual price increases for their top-selling drugs between 2010 and 2016, and to state the rationale for the increases. The investors asked the companies to include the proposals on proxy ballots that will be put to shareholder votes at annual meetings this spring.

But 10 of the companies plan to omit the drug-price transparency proposals from their proxy ballots, generally on the grounds that they would interfere with “ordinary business,” according to company documents filed with the Securities and Exchange Commission.

An SEC rule allows a company to omit a shareholder proposal from a proxy ballot if the proposal deals with the company’s ordinary day-to-day business operations, rather than a “significant social-policy issue.”

The SEC notified 10 companies that it won’t pursue any enforcement actions if the companies exclude the drug-price proposals, according to letters posted on the SEC’s website. The investor group withdrew the transparency proposal it had submitted to the 11th drug company, Regeneron Pharmaceuticals Inc., because the company said it hasn’t raised the prices of its drugs and shared information about its approach to drug pricing, according to a spokeswoman for the investor group.

The investors, which own shares of the companies, are members of the New York-based Interfaith Center on Corporate Responsibility. Different members of the group sent the proposals to different drug companies.

Merck sent a letter to the SEC in January saying it planned to omit a price-transparency proposal submitted by several Catholic religious orders. Merck called the proposal “a clear attempt to exert influence on the pricing decisions made by the Merck management team. Such an attempt is perhaps the perfect example of ‘micromanaging’ the business affairs of Merck,” the letter said.

A Merck spokeswoman said the company recently released information about its price increases that allows people to understand its practices while protecting proprietary information negotiated with customers.

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Pfizer said in a letter to the SEC in January that it should be permitted to exclude a transparency proposal submitted by Trinity Health, a Catholic hospital group, and other religious shareholders. Pfizer said it has already addressed the underlying concerns of the proposal by disclosing on its website and in SEC filings its rationale for pricing decisions. A Pfizer spokeswoman declined to comment beyond the letter.

“We’re really disappointed the companies did not allow their shareholders to express themselves on this issue,” said Donna Meyer, director of shareholder advocacy for Interfaith member Mercy Investment Services Inc. of St. Louis, which runs retirement funds for the Roman Catholic congregation Sisters of Mercy.

Ms. Meyer said Interfaith investors plan to attend several of the drug companies’ annual meetings to ask boards of directors about drug pricing. She said price increases pose a risk to the companies’ long-term prosperity because they could hurt corporate reputations and trigger government action. She also said the U.S. health-care system can’t afford continuing drug price increases, and the lack of transparency is hurting the system.

The drug industry has faced mounting criticism for high and rising drug costs. In response, some companies have put limits on their price increases this year, though the median increase was little changed from last year, at 8.9%.

Some companies also have begun to release more information about pricing, including Merck and Johnson & Johnson .

A J&J spokeswoman said the company’s transparency report “is a significant step forward in addressing stakeholders’ transparency concerns.” She said the SEC determined that the transparency shareholder proposal is “appropriately excluded” from the company’s proxy statement.

Ms. Meyer said the Merck and J&J transparency reports don’t go far enough because they don’t provide details about individual product price increases, and only provide averages across the companies’ product lineups.

“We didn’t feel it was what the public needs to either decide on the value of a drug or to try to keep drug prices within reason,” she said.

The other companies that petitioned the SEC to exclude the price transparency proposals from proxy ballots are Amgen Inc., AbbVie Inc., Biogen Inc., Bristol-Myers Squibb Co., Eli Lilly & Co., Gilead Sciences Inc., and Vertex Pharmaceuticals Inc.

Write to Peter Loftus at peter.loftus@wsj.com

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