This Tale of Humira Made Me Doubt My Healthcare Holdings

BenWP

https://www.nytimes.com/2023/01/28/business/humira-abbvie-monopoly.html

This investigative piece from the Times uncovers a lot of unsavory truths about why US drug prices are so high and how the maker of Humira has gamed a rigged system to maintain its massive profit margins. To think that Abbvie has made $114B off this one drug! The system must have been designed by drugmakers because it is perfectly tailored to prevent competition. I have decent-sized holdings in XLV and BHCFX, but I feel sleazy saying so.

WABAC

Your article is behind a paywall.

My investment in the health sector is primarily FSMEX. I don't know if the device market works like the drug market. I invested in FSMEX after spending some time around hospitals and observing how they burn though stuff at an incredible rate. That's in addition to all the fancy gadgets they have.

sma3

It seems to me that the issue for drugs is the patent system was designed for Model Ts and not for molecules.

Simple legislation to clarify how significant a change to a drug had to be to merit additional patent protection would fix this, but out legislators have little interest in doing this.

BenWP

@WABAC and @sma3: I appreciate your responses. A few years ago, while watching my CELG shares make a huge climb upward, I rationalized that I was offsetting my rapidly increasing out-of-pocket healthcare expenses by investing in the sector. Now I feel a certain amount of guilt that I, as opposed to a retiree on a very limited budget, have enough discretionary capital to be able to profit from the misfortune of others. I also realize that I do not screen my funds or stocks with anything like a social responsibility screen. While I own BIAWX, it's not because its "responsible," but because it's a good growth fund. I invest in healthcare because it's "defensive," yet I may not like the fact that profits are made because sick people will always need treatment. I like the fact that healthcare funds don't decline as much as the rest of the market on down days. A Hobson's choice, I suppose.

sma3

@BenWP

It is hard to avoid "participating" in the misfortune of others if you buy any stock or bond, the way the world is set up. Even Treasuries support the activities of our Government which are hardly 100% benign.

I try to avoid Companies where I think one individual ( usually the founder) is really doing evil things to society and is insanely rich because they own a large amount of that stock and retain control.

META is my personal example, after Zuck got involved in the election . Some people hate Peter Thiel's activities so much they refuse to use PayPal.

ESG investing is a big mess as there are so many different definitions.

A more effective way to impact companies is probably to buy some of the new funds that are purposely trying to elect new board members at a Company to change course.

Look at NETZ and VOTE .

You can always put forth a proposal for the annual meeting if you own shares directly. I have never done it but every meeting of XOM there was a lady who owned 300 shares proposing they stop producing fossil fuels. NETZ however was successful.

Old_Joe

"but out legislators have little interest in doing this."

Gee, I wonder why that could be?

sma3

Old_Joe

you are so cynical!

msf

You can always put forth a proposal for the annual meeting if you own shares directly.

While that's what many people think, that's not quite the way it works.

Companies don't want Johnny-come-latelies buying a share just before the record date just to introduce a proposal at an annual meeting. Rather, they want you to have some skin in the game before they accept your proposals for a vote. Not much skin, but skin nevertheless.

The law allows a company to require shareholders submitting proposals to have a small but substantial pecuniary interest in the company. In 2020, the SEC "adopted amendments to Exchange Act Rule 14a-8, the shareholder-proposal rule."

[It] amend[ed] Rule 14a-8(b) by:

• replacing the current ownership threshold, which requires holding at least $2,000 or 1% of a company’s securities for at least one year, with three alternative thresholds that will require a shareholder to demonstrate continuous ownership of at least:
  • $2,000 of the company’s securities for at least three years;
    
  • $15,000 of the company’s securities for at least two years; or
    
  • $25,000 of the company’s securities for at least one year.

https://www.sec.gov/news/press-release/2020-220

For completeness (and to split hairs even more finely), you don't necessarily have to own shares directly (i.e. be shareholder of record) in order to submit shareholder proposals.

What I think you're alluding to are the limited rights that mutual fund owners have with respect to the underlying companies in the portfolio. There, fund owners don't even hold company shares indirectly. Often indirect ownership is sufficient. The most common example likely being street name ownership.

Again looking at Rule 14a-8:

There are two types of security holders in the U.S.: registered owners and beneficial owners [footnote omitted]. Registered owners have a direct relationship with the issuer because their ownership of shares is listed on the records maintained by the issuer or its transfer agent. ...

The vast majority of investors in shares issued by U.S. companies, however, are beneficial owners, which means that they hold their securities in book-entry form through a securities intermediary, such as a broker or a bank. Beneficial owners are sometimes referred to as “street name” holders. Rule 14a-8(b)(2)(i) provides that a beneficial owner can provide proof of ownership to support his or her eligibility to submit a proposal...

https://www.sec.gov/corpfin/staff-legal-bulletin-14f-shareholder-proposals

sma3

Thanks msf

Not a big hurtle to clear if you are really interested. Not that it will do much good.

Most people ignore the proxy voting they get from their stock companies anyway, bu tif you look there are always a few radical proposals

Vanguard Fidelity and State Street etc and other biggies have been criticized for automatically voting with management. Even if they set up a system to allow holders of their funds to vote proxies, most people will ignore them.

Engine No 1 got three board seats on Exxon's board with a smart dedicated activist campaign among large stockholders, (they only owned $12,500,000 in stock ).

https://time.com/collection/time100-companies-2022/6159495/engine-no-1/

I think this is a far better way to approach climate change than divestment.

Their new ETF VOTE proposes to use their ownership of SP500 companies to vote in similar changes focused on "the power to create good jobs, reverse climate change, fight
gender and racial injustice, and bring greater accountability to the
economy’s largest companies."

This will probably not address @BenWP original concern that ABBV was using legal loopholes to continue making billions .

Such strategies technically, (if not morally) are certainly in the best interest of ABBV shareholders, if not the patients or taxpayers. Engine No 1 made the argument that Exxon ignoring CO2 production was a bad business decision.

BenWP

Thanks all. With respect to drug pricing, I would be satisfied if Medicare were given the mandate to negotiate prices directly with the manufacturers. European and the Canadian healthcare systems are able to able to reduce costs considerably by doing this. As is well known, the GWB administration's reforms resulting in Part D of Medicare were simply a license for the drug makers to charge higher and higher prices. There was some "capitalist" malarkey thrown about regarding the role of competition in cutting prices, but it was all hot air dreamed up by lobbyists.

carew388

+1 Ben

sma3

The VA spent 54% than Medicare part D because they can negotiate

Saved 48% on Brand name drugs. Doesn't separate biologics (Humira) per say

https://www.gao.gov/products/gao-21-111

Mark

@sma3 - Did you leave out the word "less" in your statement "The VA spent 54% than Medicare part D because they can negotiate"?

Maybe true but they are still sticking this vet with a much less effective medication to feed their bottom line. I speak of Symbicort v. Wixela.

sma3

@mark

Yes should be "less" Thanks. Don't get me started on VA! They do the best they can, given the restrictions imposed by politics.

@BenWP

Humira Story gets worse.
From Barrons

"ABBV ‘s anti-inflammatory drug Humira, one of the top-selling prescription drugs in history, is facing generic-style competition for the first time this week since its introduction 20 years ago.

Hopes that competition would bring immediate cost savings was tamped down on Tuesday, however, when Amgen (ticker: AMGN) announced a pricing scheme for its generic-style competitor that raises new questions about how effective so-called biosimilars will be reducing spending on high-price drugs.

The first, Amgen Amjevita, launches Tuesday. The company said early Tuesday it will sell Amjevita at two different list prices: One at 55% below Humira’s list price, and one at 5% below Humira’s list price. Humira’s list price is $6,922.62 for a four-week supply.
Both prices buy the same product. It’s up to the middlemen known as pharmacy-benefit managers, or PBMs, which are generally owned by big insurance companies, to decide whether to pay the higher or lower price. The high-price version appears to be intended to allow Amgen to pay higher rebates to the PBMs.
“This pricing strategy is likely designed to give PBMs and plans the flexibility to choose the version that suits their needs, either a low price/low rebate or high price/high rebate version depending on the plan’s individual strategy,” Cowen analyst Yaron Werber wrote in a note early Tuesday."

Seems like this really should be illegal.