It sounds like the maker of EpiPen is freaking out ahead of a big shareholder meeting

Heather Bresch Mylan EpiPenMylan CEO Heather BreschAP

The letters started flying at the beginning of this week.

Mylan, the maker of EpiPen, asked to see a report written by Institutional Shareholder Services (ISS), a company that provides advice to shareholders ahead of company votes and shareholder meetings, before its publication.

As we are sure you would agree, the facts presented in our proxy this year are complex. Nobody knows the facts better than the company itself and, therefore, we believe that we can be an important resource in making sure that the report is factually accurate,” Mylan said. “We are certain that you would also agree that ensuring that the report is factually accurate from the outset is far preferable to a situation where the report must be corrected after the fact and after it has already influenced some voting decisions.”

ISS said no.

Here’s why: Most of these votes are pretty standard, and so the reports are shared with interested parties. But not this time, and not under these circumstances. This time, Mylan is under siege. Big shareholders like the New York City and State pension funds and the California Teachers’ Retirement System are trying to kick 6 directors off the board at a meeting on June 22.

ISS will recommend whether shareholders should stand with Mylan, or with the agitators.

This drama is taking place in part because these directors have insane compensation packages — they’re massive, despite the fact that the company has been engulfed in scandal for the last year.

Mylan makes EpiPen, the life-saving anti-allergy medication, and since it bought the drug in 2007, it has raised the medication’s price over 500%. During the public outcry that followed, CEO Heather Bresch was called to testify before Congress in fall 2016 and Mylan’s stock price was hammered. Still, the price of an EpiPen didn’t change, and Chairman and former CEO Robert Coury walked away with $97 million that year.

So these shareholders, who collectively own $170 million worth of Mylan shares, are mad. They include three of the four biggest pension funds in the United States.

Last year was a new low for the Mylan Board. At its core, the EpiPen price-hiking controversy was the costly consequence of a Board with a history of oversight failures,” said NYC Comptroller Scott Stringer. “From allegedly overcharging both the government and consumers for its life-saving EpiPen to approving exorbitant pay for its deeply entrenched Chairman, Mylan’s Board has repeatedly enabled self-serving executives at shareowners’ expense. The New York City police officers, teachers, firefighters and other City employees who rely on our pension funds for their retirement security deserve better.”

Under these contentious circumstances, ISS does not normally share letters with companies. It’s afraid that if it does, those companies — in this case Mylan — will then turn around and try to lobby shareholders to bend to their will.

“A public ‘vote no’ campaign aimed at sitting board members transforms the uncontested election of directors into a ‘contentious’ ballot item. As such, an investor-driven ‘vote no’ campaign precludes pre-publication review of the draft research report by the targeted corporate issuer,” ISS wrote in its response to Mylan.

So, no. Not sharing the report.

Mylan responded in a statement to Business Insider, “The company does not view the sentiment expressed by less than 1% of its outstanding shares as a matter of concern, and we fully expect a showing of continued shareholder support at our upcoming AGM. We simply disagreed with ISS’ decision to depart from its prior practices.”

Quite a package

Mylan’s compensation package is, without a doubt, something to behold. That is because it is very much tied to the company’s stock price, which is in turn linked to the price of an EpiPen.

CEO Heather Bresch, who is the daughter of West Virginia Senator Joe Manchin (D), has 87% of her compensation tied to her company’s stock price, compared with 82% for her executive board.

Of Bresch’s payout, 67% is based on long-term targets. The next target mentioned over and over in the company’s compensation documents is the $6 EPS goal to be hit by March 2018. If this goal is met “on March 4, 2018, Ms. Bresch is expected to vest in 76,984 shares,” according to Mylan’s compensation structure.

The rest of her team wins too. Director Rajiv Malik is expected to vest in 47,375 shares; Anthony Mauro, also a director, is expected to vest in 18,506 shares; and Robert Coury, the executive chair, is expected to vest in 71,951 shares.

(We should also note that in 2014 the company awarded Coury $20 million for his performance contingent on his continuation at the company to December of 2016. He’s also the former CEO.)

You can see how this structure could tempt Mylan to raise the price of its blockbuster EpiPen (as it has) or drive sales of the injector. However, they may have gone too far. At the end of last month, Senator Chuck Grassley (R-IA) said the Department of Health and Human Services (HSS) calculated that Mylan may have overcharged the government by about $1.27 billion for EpiPens.

That accusation is part of a scandal shareholders thought was already over. Last fall the company announced that it was negotiating a settlement with the Department of Justice for the same matter, and that it would likely pay $500 million.

But if Senator Grassley is correct, Mylan is liable for much, much more than that.

And so you can see why shareholders have a problem. A spokesperson for New York City Comptroller Scott Stringer’s office, which has been agitating for change at the company since 2012, told Business Insider that price hikes may have benefited Mylan in the short term, but the long term reputational risk is killing the company — and shareholders are the ones holding the bag for it all.

mylan shareholders filingNYC Comptroller

In the past, the Comptroller’s office has lost battles against Mylan, sometimes by a hair, but this time they think they have a shot.

Recalcitrant companies do not like dogged shareholders. As such, they like ISS even less. Mylan is no exception.

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