Organization: Vertex Pharmaceuticals Incorporated

Year: 2019

Whereas: 0

Resolved: Resolved: That shareholders of Vertex Pharmaceuticals Incorporated ("Vertex") urge the Management Development and Compensation Committee (the "Committee") to report annually to shareholders on the extent to which risks related to public concern over drug pricing strategies are integrated into Vertex's incentive compensation policies, plans and programs (together "arrangements") for senior executives. The report should include, but need not be limited to, discussion of whether (i) incentive compensation arrangements reward, or not penalize, senior executives for adopting pricing strategies, or making and honoring commitments about pricing, that incorporate public concern regarding prescription drug prices; and (ii) such concern is taken into account when setting financial targets for incentive compensation arrangements.

Supporting Statement:Supporting Statement: As long-term investors, we believe that senior executive compensation arrangements should reward the creation of sustainable long-term value. To that end, it is important that those arrangements align with company strategy and encourage responsible risk management. A key risk facing drug companies is the increased criticism from the public and actions that legislators and regulators are taking regarding pharmaceutical prices. A March 2018 Kaiser Family Foundation poll found that 52% of respondents ranked lower drug prices as a "top priority" for the President and Congress. The White House released a "Blueprint" for lowering drug prices in May 2018. The NY Times reported that as of August 2018, twenty-four states have passed 37 bills this year to curb rising prescription drug costs. (https://www.nytimes.com/2018/08/18/us/politics/states-drug-costs.html). Recent news articles identify pricing pressures that Vertex is facing. Officials from New York State's Medicaid program have said that the cystic fibrosis drug Orkambi is not worth its price, a case "that is being closely watched around the country." (https://www.nytimes.com/2018/06/24/health/drug-prices-orkambi-new-york-.html) As part of a two-year dispute between Vertex and the UK's National Health Service over Orkambi cost-effectiveness, a committee of the House of Commons has requested to see documents the Company supplied to the government related to price and evidence supporting the drug's benefit. (https://pharmaphorum.com/news/vertex-told-to-reveal-cf-drug-price-as-mps-begin). We are concerned that the incentive compensation arrangements applicable to Vertex's senior executives may not encourage them to take actions that result in lower short-term financial performance even when those actions may be in Vertex's best long-term financial interests. Vesting for half of the performance share units Vertex's named executive officers earn depends on one-year net product revenue goals, and for 2017, revenue growth for two of Vertex's cystic fibrosis drugs was the most heavily weighted factor in the quantitative portion of the annual bonus formula. "Increase revenues and manage operating expenses" was another 2017 annual bonus quantitative factor. (2018 Proxy Statement, at 56-57). The disclosure we request would allow shareholders to better assess the extent to which compensation arrangements encourage senior executives to responsibly manage risks relating to drug pricing and contribute to long-term value creation. We urge shareholders to vote for this Proposal.