File this under praying for relief. Several religious groups - including an order of Catholic nuns and a chain of Catholic hospitals - are pressuring a few big drugmakers to exercise some price restraint and have placed proposals that will be voted on during upcoming annual shareholder meetings. Such efforts are not new, but the latest attempt comes after one Wall Street analyst reported that prices for 130 best-selling brand-name drugs rose 6.9 last year, which was the biggest increase in a decade.
For instance, a shareholder proposal in the Pfizer proxy from The Sisters of Charity of Saint Elizabeth, which is based in New Jersey, states that the cost of medicines has "skyrocketed in this country in recent years" and the "failure to control costs could undermine the goals of health care reform." The answer? An official policy of "price restraint" (see page 33).
Why? The order offered this explanation: "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." Last year, the CPI was 1.5 percent.
Identical language appears in the Johnson & Johnson proxy (see page 63) and the Abbott Labs proxy (see page 45). Trinity Health, a string of Catholic hospitals and clinics, along with other religious investors who are members of The Interfaith Center for Corporate Responsibility offered the proposal in the Bristol-Myers Squibb proxy (see page 70). The ICCR describes itself as raising "the prophetic voice of faith to change the way companies conduct themselves as good corporate citizens."
The proposals come as drugmakers have been increasing prices to compensate for the discounts offered as part of health care reform and the loss of revenue as big-selling drugs lose patent protection, as noted by The Wall Street Journal (subscription may be required), which first reported the shareholder proposals. A notable example is Pfizer's Lipitor cholesterol pill, which saw a 12 percent price hike in January alone, according to Barclays Capital. And the price for the Plavix bloodthinner, which is sold by Bristol-Myers and Sanofi-Aventis, rose by 11.9 percent in February.
The religious groups say the overall rate and magnitude of industry price hikes are, increasingly, making medications unaffordable for a growing segment of society. "More and more people can't afford this, and more and more fall back on taking either less pills or half a pill," Sister Barbara Aires, coordinator of corporate responsibility in investments for the Sisters of Charity of Saint Elizabeth, tells the paper.
As for the drugmakers, they are having 'nun of it'. For instance, the J&J board members insist they "strive to ensure that our average price increases across the full range of our health care products is within the CPI," and the weighted average compound annual growth rate of net price increases for the total basket of health care products has been below CPI for many years."
And the board cites the cost and risk of developing drugs. "We are in a high risk/high return industry, with only 1 out of every 10,000 potential medicines making it through the research and development process to receive FDA approval. On average, this process takes over 10 years of lab and clinical research, and costs more than one billion dollars per product. Consequently, we must balance our desire to price products competitively with the need to cover these enormous costs, while also providing a fair return to investors." pic thx to michael 1952 on flickr