Healthy Skepticism Library item: 1432

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Publication type: news

Rowland C.
Springfield mayor urges fiscal strike at drug companies
The Boston Globe 2003 Sep 29
http://www.boston.com/news/nation/articles/2003/09/29/springfield_mayor_urges_fiscal_strike_at_drug_companies_boston_globe/

Full text:

Seeking to increase political pressure on US prescription drug companies, the mayor of Springfield is resorting to a tactic employed during protests against Big Tobacco and forced racial separation in South Africa: divestiture.

Mayor Michael Albano plans to ask the Springfield Retirement Board as early as tomorrow to sell all the city pension investments in drug stocks, representing about $6 million, or 2.6 percent of the $223 million fund. The action is justified, Albano said, by the behavior of US drug companies, which he accused of manipulating markets to protect high prices in the United States.

‘‘It would send a message to the industry that these profits at the expense of the American consumer are outrageous,’‘ he said. ‘‘They’re clearly flexing their muscles. It’s like a cartel, the oil cartel or the illegal drug cartel. That’s how they impact the marketplace and control pricing.’‘

Albano grabbed a national profile for himself and his city in July when, seeking to lower the city’s drug costs, he made Springfield the first municipality in the nation to sign up a Canadian drug supplier for its employee health plan. That drew warnings from the Food and Drug Administration and plaudits from senior groups who advocate the importation of drugs from Canada to reduce costs.

The fiscal impact of Albano’s move on multibillion-dollar drug companies would be tiny. Springfield’s four largest pharmaceutical stock holdings are $1.59 million of Johnson & Johnson, $1.45 million of Pfizer Inc., $635,000 of Eli Lilly & Co., and $601,000 of Merck & Co. But in adopting protest tactics perfected in the struggle against government-imposed racial discrimination in South Africa and used in a similar way against cigarette manufacturers, Albano said he is trying to spark broader financial pressure on the pharmaceutical industry.

‘‘You can’t claim the pharmaceutical industry is gouging consumers while at the same time allowing the retirement system to derive profits from them,’‘ he said. Albano would not predict the response of the Springfield Retirement Board. Three of its five members were appointed by him.

The Springfield plan drew an immediate objection from the drug industry. At Pharmaceutical Research and Manufacturers of America, a Washington-based trade group, spokesman Jeffrey Trewhitt said putting drug companies in the same category as South Africa’s apartheid government and cigarette makers was off base. ‘‘I think they are gross distortions,’‘ he said. US drug pricing has helped support innovation and development, he said. He added that ‘‘prices in these other countries, like France and Canada, are artificially low because of widespread, government-mandated price-fixing schemes’‘ that stifle pharmaceutical innovation.

Specialists in the field of socially responsible investing said they had never heard of a government pension fund refusing to invest in pharmaceutical securities. The closest collorary was the divestiture of tobacco stocks by some states and municipalities in the 1990s, as states were suing the industry and negotiating settlements. Massachusetts passed legislation requiring the sale of its pension-fund tobacco stocks in 1997. Minnesota followed suit in 1998. After putting up resistance, CalPERS, the California Public Employee Retirement System, offered a tobacco-free stock index fund in 1999.

Although pharmaceutical companies have been vilified in the public debate over US health care — with fraud investigations, fines, and accusations of unfair pricing — their stocks have not received protest attention. Richard Daynard, a law professor at Northeastern University and president of the Tobacco Control Resource Center, who has organized tobacco divestiture drives, said it takes a lot of grass-roots pressure to produce an authentic movement.

‘‘You have to say something more than just divest,’‘ he said. ‘‘You need a really overwhelming argument that these companies are morally abominable, that civilized people just should not have anything to do with them. You had that with the tobacco companies. You had that with South Africa. I haven’t yet seen the case that would put the pharmaceutical industry in the same class.’‘

Calls to governors, treasurers, and union pension funds in Massachusetts, Wisconsin, Minnesota, Iowa, and Illinois — which have all expressed varying degrees of interest in importing Canadian drugs — did not produce any immediate response to Albano’s initiative, which has not been reported previously.

CalPERS spokesman Brad Pacheco would not specifically address whether CalPERS executives would consider taking action like Albano, but said, ‘‘Our board historically has not pursued divesting of stock holdings as a sign of protest.’‘

When CalPERS created a tobacco-free index fund in 1999, it was because of concerns that tobacco litigation nationally would cause tobacco stocks to sink, he said. To manage health care costs, CalPERS, which administers health insurance programs, has chosen to negotiate prices with individual drug companies.

Nonetheless, two New England managers of socially responsible mutual funds, Cambridge-based Domini Social Investments LLC, and Citizens Advisers, based in Portsmouth, N.H., said Springfield’s action could catch the eye of investors. ‘‘The mayor may be the catalyst to a much larger trend,’‘ said Amy Domini, founder and principal fund manager at Domini. She said the South African divestiture movement began in a small way, when a Baptist minister, Leon Sullivan, used his position on the board of General Motors Corp. to put economic pressure on the South African government to end apartheid.

Sophia Collier, president of Citizens Advisers, said Albano’s gesture was ‘‘gutsy’‘ and ‘‘innovative.’‘ She added, ‘‘It might be a good stock call, too, because the big pharmaceutical companies are under a lot of pressure, with patents expiring, so they might not be that attractive of an investment.’‘

Spokesmen at Johnson & Johnson and Merck said their companies would have no comment on Albano’s plan. Eli Lilly did not respond to phone messages seeking comment. Pfizer spokesman Andy McCormick said Pfizer is in the business of producing lifesaving drugs. It’s a good company with a good record, he said.

‘‘Pharmaceutical companies in general have been among the better performing sectors over time for investors,’‘ McCormick said. ‘‘Obviously, the city retirement board should look at the record of the pharmaceutical sector over time, including our company.’‘