Biopharma executive pay and drug pricing gin up plenty of headlines on their own. For the second year in a row, a group of investors is trying to spotlight the links between them.
With shareholder resolutions at six top U.S. drugmakers—AbbVie, Celgene, Johnson & Johnson, Merck & Co., Pfizer and Vertex—the investors aim to learn how price changes factor into sales goals and other exec pay metrics. The resolutions, up for votes at the companies' annual meetings, ask the drugmakers whether they use price increases to meet their sales goals, whether boards must approve price hikes, and more.
As members of the Interfaith Center on Corporate Responsibility, a coalition of 300 faith communities and other organizations that use investments as levers for social change, the biopharma investors have gone after drug companies on pricing several times before. Last year, the investors filed similar resolutions with AbbVie, Amgen, Biogen, Bristol-Myers Squibb and Eli Lilly, and they generated shareholder support ranging from 21% to 28%.
A year later, the investors remain worried that companies use price hikes to meet sales goals—and, given that sales metrics help determine exec pay, that top managers are incentivized to raise prices. Ever-higher pricing hurts public health, and it hurts the companies themselves in the long run, they argue.
“Investors want to ensure that executives are not incentivized to increase the price of drugs to ensure that short-term revenue targets are met, as this is not only an unsustainable practice over the long term, it presents significant financial, legal and reputational risks,” Katie McCloskey, United Church Funds director of social responsibility, said in a statement.
This time around, ICCR’s resolutions survived challenges at the Securities and Exchange Commission from AbbVie and Pfizer. Influential proxy adviser Institutional Shareholder Services has supported the resolutions, too, ICCR says. First up for votes are resolutions at Johnson & Johnson and Pfizer with shareholder meetings set for Thursday.
A Pfizer spokeswoman said the company "does not believe this proposal is in the best interests of the company or shareholders."
"The executive compensation program is aligned with both short-term performance and long-term performance and shareholder value measures that encourage thoughtful pricing actions," she added. Other drugmakers didn't immediately respond to a request for comment.
Most of the drugmakers on ICCR's list have already reported 2018 executive pay. And AbbVie, for one, has run into some pushback on CEO Richard Gonzalez's $21 million compensation package.
At a recent Congressional hearing, Sen. Ron Wyden (D-Oregon) noted that Humira’s prices have mushroomed, and he asked Gonzalez how the drug's prices affect executive pay. Gonzalez acknowledged that Humira sales are one factor that determines his compensation.
Aside from Gonzalez, Celgene CEO Mark Alles made $16.2 million last year, while J&J CEO Alex Gorsky earned $20 million. Merck CEO Ken Frazier nabbed a pay package worth $20.9 million, and Pfizer’s former CEO Ian Read received $19.5 million in compensation. Vertex hasn't yet reported its executive pay for 2018.
ICCR’s member groups started their campaign last year in response to a Credit Suisse report that found many pharma companies derived all of their 2016 earnings growth from price hikes.