An asset management firm that specializes in socially responsible investing has submitted a shareholder proposal to Johnson & Johnson in an attempt to force the health care giant to change its approach toward patients who were allegedly injured by its Levaquin antibiotic. So far, though, J&J has resisted the effort, according toThe Star-Ledger of New Jersey.
The move comes as some 2,600 lawsuits have started to move through federal and state courts over allegations that the antibiotic causes severe and lasting tendon damage, among other side effects. Three months ago, a New Jersey state court jury ruled that J&J was not responsible for damage suffered by two men who took the antibiotic. The decision was the second consecutive verdict that the drugmaker won, although J&J lost the first trial (back story).
The extent of the litigation and the ensuing publicity - including a PBS segment - are what prompted Jack Ucciferri, director of research and advocacy for Harrington Investments, to submit the shareholder proposal. “When something generates this much litigation and this much negative attention, maybe it’s time to take a look at whether the product is worth the hassle, and the expense,’’ he tells the paper. “We were appalled at the number of lawsuits.’’ His firm manages a total of about 16,000 for various clients.
[UPDATE: We spoke with Ucciferri and he told us this: "People are in tears and they feel they have no recourse. They're getting shut out by the courts. By the amount of litigation there seemed to be something worthy of consideration. And this is an issue area that I'm going to be looking at more closely. I believe the more communication between management and boards and shareholders the better.
"Management does all it can to silence an issue rather than bring out in the open. The notion that filing a proposal that we would cost a company unnecessary resources just to discuss the potential dangers of a product is a scurrilous argument... When that happens, the shareholders pay the price. It's unfortunate we have to battle with management to such an extent."]
However, a J&J spokesman tells the paper that the health care giant has asked the US Securities and Exchange Commission to disqualify the proposal because safety issues concerning Levaquin have been addressed in product warnings. “We’re very sensitive to the issues,’’ he tells the paper. [UPDATE: Here is the shareholder proposal submitted by Harrington].
This is far from the first time that socially responsible investing has emerged as an issue for drugmakers. Generally, the topic is raised in connection with prescription-drug prices. Last year, for instance, several religious groups - including an order of Catholic nuns and a chain of Catholic hospitals - unsuccessfully attempted to pressure a few drugmakers to exercise price restraint and placed proposals for votes at annual shareholder meetings (see here).
Whether Harrington will prevail is unclear. Paul Hodgson, a senior research associate at GMI, a corpoate governance researcher at GMI, notes that shareholder proposals are often disqualified based on the SEC’s ordinary business rule, which applies when a company and regulators believe shareholders are trying to make decisions for management. However, he tells the paper, that "if a drug is the subject of large litigation, it can affect the company’s bottom line and that is of concern to shareholders.’’
Initially, the Levaquin labeling warned about possible risks of tendon ruptures, but an upgraded Black Box warning was added nearly four years ago, following a lawsuit filed against the FDA by Public Citizen, which sought warnings on the entire class of antibiotics called fluroquinolones, which includes Levaquin (see here and here).
Even if Harrington succeeds in seeing its proposal make it to the J&J proxy for a shareholder vote, there is no guarantee the issue will resonate. As Sid Wolfe of Public Citizen notes, Levaquin has been a consistently big seller - generating nearly $1.5 billion in sales last year, for instance. “The company had every ability to do something earlier," he tells the paper. "But the truth is, the more warning there is on a drug, it will arguably reduce the use of it.’’ Meanwhile, patent protection expired last year.