Shareholders in Regeneron Pharmaceuticals will vote at the company’s 2023 AGM on June 9 on a proposal regarding its use of patents.
Regeneron is one of several major pharmaceutical companies to receive the proposal this year as part of an initiative co-ordinated by the Interfaith Center on Corporate Responsibility (ICCR). Other companies where the proposal was filed are AbbVie, Amgen, Bristol Myers Squibb, Eli Lilly and Company, Gilead Sciences, Johnson & Johnson, Merck & Co and Pfizer.
In each case, ICCR member organizations ask the relevant company’s board ‘to establish and report on a process by which the impact of extended patent exclusivities on product access would be considered in deciding whether to apply for secondary and tertiary patents. Secondary and tertiary patents are patents applied for after the main active ingredient/molecule patent(s) and which relate to the product.’
The supporting documents for the proposals state: ‘Intellectual property protections on branded drugs play an important role in maintaining high prices and impeding access. When a drug’s patent protection ends, generic manufacturers can enter the market, reducing prices. But branded drug manufacturers may try to delay competition by extending their exclusivity periods.’
The ICCR members are concerned about the presence of ‘patent thickets’, which consist of many ‘secondary patents covering the formulations, dosing or methods of using, administering or manufacturing a drug’ granted after the drug’s primary patent has been granted.
The supporting statements note that ‘[a]ccess to medicines, especially costly specialty drugs, is the subject of consistent and widespread public debate in the US.’ They cite a 2021 Rand Corporation analysis as finding that US prices for branded drugs were nearly three and a half times higher than those in 32 other member countries of the Organization for Economic Co-operation & Development.
Drug prices are also attracting lawmakers’ attention. For example, the Inflation Reduction Act gives the federal government power to negotiate some drug prices, and states have taken steps such as introducing drug-price transparency legislation and Medicaid purchasing programs.
The proponents conclude: ‘In our view, a process that considers the impact of extended exclusivity periods on patient access would ensure that [the company] considers not only whether it can apply for secondary and tertiary patents but also whether it should do so. [The company’s] current approach subjects [it] to reputational risks and potential regulatory blowback resulting from high drug prices and perceptions regarding abusive patenting practices.’
ICCR has been engaging with pharmaceutical companies on drug accessibility since the 1970s, but the proposals filed with the nine companies are new for this year.
Meg Jones-Monteiro, senior director for health equity at ICCR, told Corporate Secretary, IR Magazine's sister publication, last month that member organizations understand the benefits of patent protections but want to know what it means when producers make secondary or tertiary extensions. If a company’s strategy is simply to extend its patents with no new products in the pipeline it is facing financial risk, she said.
Jones-Monteiro notes that there have been congressional hearings on drug prices and that legislation is being prepared, in some cases with bipartisan support. The Covid-19 pandemic raised concerns about drug access and potential misuse of the patent system. With political and public attention on the issue, ‘this is the right time to file,’ Jones-Monteiro says. ICCR has spoken with the companies where it has filed resolutions and she expects to reach agreements with and withdraw proposals at some of them but not others.
Opposition to proposal
Regeneron, like other companies where the proposal has been filed, asked the SEC for no-action relief if it omitted the resolution from its proxy materials on the grounds that it deals with matters relating to the company’s ‘ordinary business operations’.
‘Decisions with respect to how Regeneron safeguards and protects the intellectual property rights associated with the pharmaceutical products it discovers, invents, develops and commercializes are at the heart of [the company’s] business as a fully integrated biotechnology company and are so fundamental to its day-to-day operations that they cannot, as a practical matter, be subject to direct shareholder oversight,’ Regeneron argued.
The SEC did not agree, writing: ‘In our view, the proposal raises issues that transcend ordinary business matters and does not micromanage the company.’
In its 2023 proxy statement, the board urges shareholders to vote against the proposal. ‘For the last 35 years, Regeneron has generated a robust pipeline of diverse product candidates designed to address unmet patient needs. We protect intellectual property (IP) rights in our innovations and discoveries to facilitate continued innovation, protect patients and promote collaboration,’ the board writes.
It adds: ‘By protecting our IP, we prevent others from inappropriately benefiting from our hard work and investment, thereby protecting shareholder interests. Patent protection also helps ensure patients receive authentic, safe and effective treatments by preventing others from making substandard copies or counterfeits of our medicines… Since our founding, we have been responsible when it comes to pricing our medicines. We have publicly recognized our responsibility to set fair, value-based prices for our medicines and break down barriers to patient access, and already publicly disclose our pricing philosophy.’
Among other things, Regeneron argues: ‘We believe we have the appropriate governance mechanisms and internal processes in place to ensure that pricing decisions are thoroughly and appropriately vetted prior to implementation and are made in line with our values and commitments.’
A spokesperson for Regeneron told Corporate Secretary last month, before the proxy was filed: ‘We always welcome and engage in good-faith conversations with shareholders and will continue to do so.’