Mutual fund industry to drug makers: stand up and defend yourself
In a sign of how US 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 chairman 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.”
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, Mass.-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 its US 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.
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. Drug makers 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 US stock holdings 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 nondrug companies like hospitals and insurers.
At the meeting, the funds officials urged industry executives to take responsibility for educating the public about the value that medications bring to the health care system.