Thursday, May 05, 2005

Importing from Canada

Drug companies have argued that Canadian law requires them to sell drugs to Canadian pharmacies at below-market-value prices. These drugs are then sold to US customers, saving their insurers money.

So, the drug companies have refused to increase exports to Canada to replace the drugs sent back into the US. This article describes resolutions submitted by shareholder groups to the boards at three pharmaceutical companies, requesting a change in this policy.

Shareholders at three of the United States' biggest drugmakers have voted down a Minnesota state-sponsored resolution urging them to keep supplies flowing to Canadian pharmacies that cater to American customers.

But the Minnesota Board of Investment's resolution garnered significantly more support than shareholder-sponsored moves usually do. At Pfizer Inc.'s shareholder meeting last Thursday, 28 per cent voted to examine the company's policy of restricting Canadian inventories.

The resolution got 24 per cent support at Merck & Co.'s April 26 meeting and 14 per cent at Eli Lilly & Co.'s April 18 meeting. A similar resolution won 23 per cent of shareholder votes at Wyeth's April 21 meeting.

Executives at all four companies opposed the resolution for safety reasons, saying that importing Canadian drugs puts consumers at risk of getting counterfeit or substandard products.

As more Americans have turned to Canada for cheaper medications, the drugmakers have responded by cutting supplies to pharmacies that fill American orders.

Without management support, it's unusual for shareholder resolutions to collect more than five per cent of the vote, said Howard Bicker, the state investment board's executive director.

"I assume we've got to be getting some institutional support" from other large pension plans, Bicker said. He didn't have details on investors that supported the state's move.
Now, why would a shareholder want a company, on whom they depend for income, to participate in an activity that would decrease the income of the company? Is it altruism? Perhaps these "shareholders" are pension companies that lose more money paying for drugs than they earn from the pharmaceutical companies. Is it even legal for a board of directors to approve a resolution requiring the company to participate in an illegal activity? Isn't this conspiracy to commit a crime?

Don't get me wrong. I believe in the free market and the right of shareholders, regardless of their motivations, to bring resolutions to the board. But when the board votes, don't portray them as evil or greedy, especially if the primary motivation of the shareholder is financial.