Mutual Fund Industry to Drugmakers: Stand Up and Defend Yourself

  • Fidelity, T. Rowe and Wellington said to attend meeting
  • Funds urged drugmakers to defend industry amid public bashing

In a sign of how U.S. political pressure to rein in drug pricing is weighing on pharmaceutical companies and their investors, a group of major funds called an unusual meeting with top biotech and pharma lobbyists, urging them to do a better job defending their industry.

The conclave occurred in March in a conference room at a Boston hotel. There, fund representatives, including those from Fidelity Investments, T. Rowe Price Group Inc. and Wellington Management Co., exhorted drug industry executives and lobbyists to do a better job defending their pricing by educating the public about the value of their medicines, according to people familiar with the meeting. Failing to do so, the fund representatives warned, would leave the path open for lawmakers to attempt to impose caps. The drug industry, just as eager to bolster slumping biotech shares, appears receptive to the message.

“Biotech lives and dies on investors being willing to put money at risk for long periods of time,” said Ron Cohen, board chair of Biotechnology Innovation Organization, an industry group known as BIO, who attended the meeting. BIO is now mobilizing to take a more prominent stance on drug pricing, he said, fearing shareholders will flee the sector: “Ninety percent of companies fail, and investors are putting hundreds of millions of dollars over 10 to 15 years -- they have to believe that if they win, they win big.”

Top Players

Cohen said officials from six or seven funds were present at the meeting, declining to identify them. Jim Greenwood, chief executive of Washington-based BIO, attended. So did George Scangos, the chief executive of Cambridge, Massachusetts-based Biogen Inc., according to the people, who spoke on condition of anonymity because the session was private. Scangos is also chairman of the board of industry organization Pharmaceutical Research and Manufacturers of America, or PhRMA.

Representatives for Fidelity, T. Rowe and Wellington declined to comment. Each fund invests about a fifth or more of their U.S. stock holdings in health care. A representative for Scangos at Biogen also declined to comment, and a spokesman for PhRMA said Scangos wasn’t there on behalf of the organization.

Third Rock Ventures, a venture capital firm based in Boston, was invited and sent a representative to the meeting, according to spokesman Dan Budwick.

‘Price Gouging’

Investors are stepping up pressure on pharma lobbyists at a critical time for the industry as drug pricing has become a potent political issue on the presidential campaign trail and in Congress. Democratic candidate Hillary Clinton sent biotech stocks tumbling last year when she first talked about “price gouging,” and Donald Trump has suggested that Medicare should negotiate with manufacturers. Drugmakers like Valeant Pharmaceuticals International Inc. and Turing Pharmaceuticals AG, which boosted sales by buying old drugs and raising their prices, were lambasted during Congressional hearings.

While Valeant and Turing aren’t members of the trade groups, the rest of the industry has suffered from the criticism -- and so have their shareholders. The Nasdaq Biotechnology Index has lost 34 percent as of Monday’s close since its all-time peak last July, before the intense scrutiny from politicians began. By comparison, the Standard & Poor’s 500 Index is down just 3.3 percent in the period.

Almost 27 percent of Wellington’s U.S. stocks holding are health-care shares, 21 percent at T. Rowe Price and 19 percent at Fidelity, according to data from December 2015 filings compiled by Bloomberg. The health-care stock holdings include non-drug companies like hospitals and insurers.

At the meeting, the funds urged industry executives to take responsibility for educating the public about the value that medications bring to the health-care system, according to one of the people who attended. They also encouraged them to investigate innovative pricing models such as “pay-for-performance” contracts, in which insurers pay drugmakers based on how well the medication works, the person said.

Cohen, who’s also chief executive officer of Acorda Therapeutics Inc., said industry representatives suggested that the investors make their concerns known to policymakers.

“If they point out they are running funds that among them contain 401(k) dollars from maybe tens of millions of Americans and they’re integral to economic well-being, that is going to carry more weight,” Cohen said. “We can go in and make our cases, and people look at us and say ‘Well, of course, you’re self-interested.’”

They’ll have a daunting task trying to convince lawmakers that the current drug-pricing system should be left alone. While Valeant and Turing’s drug price hikes were extreme, the whole industry has been raising prices: a recent survey of about 3,000 brand-name prescription drugs found that list prices more than doubled for 60 and at least quadrupled for 20 since December 2014.

Education Efforts

Greenwood, BIO’s chief executive, said it’s not fair to look at list prices, because they don’t take into account the discounts that drugmakers give to insurers. BIO is working on a new website that will seek to educate the public and the media, he said.

For instance, BIO will seek to highlight that IMS Health Holdings Inc. estimates that spending on medicines will grow in line with overall health-care costs through 2024, and that the net price growth for branded drugs was 2.8 percent in 2015, after discounts and rebates, he said.

PhRMA has already set up a dedicated webpage called “Costs in Context” with infographics and fact sheets, and has also tried to peg responsibility on insurance companies for making it hard for patients to access medicines.

BIO has also started an advertising campaign, “Time is Precious,” that delivers an emotional appeal to consumers.

“Another decade with a spouse; a few more years with your best friend; a rich, full life rather than one cut short -- how do we place value on these?” the voiceover asks, before reminding viewers that “today’s breakthroughs in biopharmaceutical medicines are delivering more than stunning outcomes, more than cures. They are giving us hope.”

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