Healthcare & Wellness

Amid Opioid Crisis, Shareholders Push for Better Governance in the Pharmaceutical Sector

As the opiate crisis continues to unfold, a shareholder coalition representing $4.4 trillion in assets is pushing for better governance in the pharmaceutical sector.

Investors for Opioid Accountability (IOA), which represents 44 faith-based groups, state treasurers, asset managers, and pension and labor funds, has filed 26 shareholder resolutions at 10 opioid manufacturers and distributors to push for more board oversight of business risks.

The group’s strategy has been to engage opioid companies through dialogue and shareholder resolutions, said Meredith Miller, chief corporate governance officer of the International Union, United Automobile, Aerospace, and Agricultural Implement Workers of America (UAW) Retiree Medical Benefits Trust. The trust co-leads the IOA along with Mercy Investment Services, a socially responsible investment fund of the Sisters of Mercy.

“The IOA is seeking multiple corporate governance reforms at each company to ensure board accountability and preserve investors’ long-term interests,” Miller said. The group is pushing for sustainable business practices that protect against financial, legal, and reputational risks by fostering an ethical and compliant corporate culture.

A Crisis Takes a Toll as Litigation Rises

Opioid abuse has become an epidemic of historic proportions since a wave of powerful painkillers started hitting the market in the 1990s. The Centers for Disease Control and Prevention say the death rate from opioid overdoses quintupled between 1999 and 2016, with no signs of slowing. More than 2.1 million people in the US suffer from substance abuse related to opioids.

Meanwhile, litigation against manufacturers and distributors for misleading advertising and other alleged business abuses continues to rise. OxyContin maker Purdue Pharma, for example, is facing a multistate lawsuit alleging that it misled doctors about how addictive opioids are and failed to report (as required by law) suspiciously large orders of the drug. In February 2018, the company announced that it was cutting its staff and would stop promoting the drug to physicians, though it denied the allegations in the lawsuit.

Likewise, more than a dozen states, cities, and counties sued Endo International in 2017 for fraudulent marketing of its highly addictive opioid drug Opana ER. Endo agreed to pull the drug from the market in July 2017, though it also denied any wrongdoing.

Attorneys general in 41 states issued subpoenas seeking more information from drugmakers and distributors about their opioid businesses. More than 60 cities, including New York, Philadelphia, and Chicago, have also initiated lawsuits against a range of companies.

Governance in the Pharmaceutical Sector: New Momentum

Since the IOA’s founding in July 2017, Miller said the coalition has logged a number of successes with governance initiatives, including misconduct clawbacks at Endo International, Cardinal Health, Mallinckrodt Pharmaceuticals, and Depomed, as well as greater transparency around political contributions and lobbying expenditures at Mallinckrodt, Endo, and Alkermes. The board of Cardinal Health agreed to separate the roles of CEO and chairman to improve accountability.

In March 2018, three shareholder proposals at AmerisourceBergen garnered strong support among independent voters at the company’s annual meeting. 62% of voters supported a board report on opioid risk accountability. 52% voted in favor increased disclosure around executive pay clawbacks, which can be used as a financial incentive to curtail risky behavior among senior management. And 49% supported an independent chair of the board.

Busy Calendar for Governance Proposals in 2018

Meanwhile, the 2018 proxy season is shaping up to be a busy one for shareholder proposals that push for better governance in the pharmaceutical sector. Thus far, nine resolutions are scheduled for votes, Miller said. They include measures to curb accelerated stock vesting, to set up new policies on misconduct clawbacks, and to require independent reports on opioid business risks, among other objectives.

Annual meetings have been scheduled for April 26 at Pfizer and Johnson & Johnson and for May 8 at Depomed. Other dates haven’t yet been set.

At Pfizer, shareholders will vote on measures requiring disclosure on lobbying expenditures and the separation of CEO and chairman roles. Meanwhile, Johnson & Johnson shareholders will consider a measure to stop the practice of excluding legal fees and settlement costs from executive pay calculations. Depomed shareholders will vote on a resolution to require a new report on governance practices. All three firms have recommended no votes in their recent proxy statements.

Only time will tell the ultimate legal and social brunt of the opiate crisis. But certain shareholders, including IOA members, aren’t going to wait to take actions that may reduce long-term financial risks and help communities most affected by opiate addiction.

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