Investors hold drug companies accountable for rising prices

March 11, 2019
medicine bottle with pills 

Shareholders concerned with making medicines accessible to all citizens have continued to engage pharmaceutical manufacturers on rising drug prices – namely companies’ reliance on price increase to increase their revenues. Because shareholders believe this is unjust and an unsustainable business practice over the long term, shareholders negotiated or filed 14 resolutions asking 12 domestic drug manufacturers – up from five last year – whether their incentive compensation programs reward and incentivize executives to engage in the high-risk practice of increasing drug prices, whether boards are practicing sound governance and overseeing drug pricing, and whether companies are using anticompetitive practices. 

Although drug pricing continues to be a concern in the U.S., companies have demonstrated that they understand shareholders’ concern that using price increases to increase revenue is risky and unsustainable:

 

  • Two drug companies have promised changes to their policies, which gives the board of directors responsibility for overseeing pricing and ensuring that price increases are not arbitrarily used to fill revenue gaps. As a result, shareholders withdrew their proposal from Eli Lilly and agreed not to file at Amgen.
  • Two drug companies, AbbVie and Pfizer, included drug pricing as part of board responsibility.
  • Two drug companies, Celgene and JNJ, developed policies for board oversight on anticompetitive practices. 

 

During their reports to shareholders, many drug companies are now emphasizing that volume – not price increases – drives revenue increases. Credit Suisse reported that 1) price increases accounted for 80% of revenue growth in 2017, compared to 100% in 2016; and 2) increases on drug list prices fell from 12% in 2014 to 7.7% in 2017, the lowest increase since 2007.

 Mercy Investment Services is encouraged by manufacturers’ initial actions to address price increases and will continue to work with these companies to ensure drugs remain affordable and accessible to all people.