The New York Times - 30.07.2019

THE NEW YORK TIMES BUSINESSTUESDAY, JULY 30, 2019 N B5

Nathalie Walker, a director at the
National Wildlife Federation. “I
don’t think anyone is taking a per-
sonal view or an emotional view
about a company. It’s judging
them by their actions.”
Cargill, which acts as a middle-
man between farms and big food
companies, is one of the top ex-
porters of Brazilian soy. Before it
committed to the soy moratorium
in 2006, advocacy organizations
like Greenpeace had pressured
the company to stop working with
farmers who cleared native vege-
tation in the Amazon, where
rampant deforestation was creat-
ing an environmental catastro-
phe. Eventually, Cargill agreed to
the moratorium — a move that en-
vironmental groups say has
helped significantly reduce defor-
estation in the region.
The largest privately owned
company in the United States,
Cargill has never exactly been the
darling of the environmental com-
munity. But over the years, advo-
cacy groups, often pugnacious in
their criticism of powerful corpo-
rations, have occasionally lauded
the company for its promises to do
better. Cargill even received a
Leadership in Environment
Award for its role in the Amazon
moratorium from the Keystone
Policy Center, a nonprofit focused
on compromise and civil dialogue.
Recently, however, the good will
seems to have evaporated. Last
month, Greenpeace questioned
the company’s commitment to
ending deforestation in Brazil,
shortly before Mighty Earth re-
leased its scathing 7,000-word
condemnation of Cargill, which
criticized the company for pollu-
tion and meat contamination, as
well as deforestation.
“It’s hard to hear,” said Ruth
Kimmelshue, Cargill’s chief sus-
tainability officer. “It doesn’t feel
very good.”
Much of the recent criticism of
Cargill is focused on the continu-

ing deforestation in the Cerrado, a

vast Brazilian savanna where the

company buys large quantities of

soy from local farmers. The Cer-

rado accounts for around 60 per-

cent of Brazil’s total soy produc-

tion, roughly 20 times the amount

grown in the Amazon.

“The economic stakes are much

greater,” said David Cleary, the di-

rector of global agriculture at the

Nature Conservancy.

Cargill’s experience also high-

lights the thorny politics facing

American companies in Brazil,

whose new populist president,

Jair Bolsonaro, has sought to roll

back environmental regulations

and accelerate economic growth.

The Brazilian section of the Ama-

zon has seen a major uptick in for-

est loss since Mr. Bolsonaro took

office in January.

Over the past few years, advo-

cates have called for the company

to establish a soy moratorium in

the Cerrado, which has lost more

than half its native plant life and

has significantly less protection

under Brazilian law than the Ama-

zon does. Experts say the damage

to the region has disrupted the lo-

cal water system and exacerbated

climate change.

Cargill has refused to agree to a

Cerrado moratorium. Last month,

the company acknowledged that

it would miss an environmental

target it had set a decade ago: the

elimination of deforestation from

its supply chain by 2020. Instead,

it released a new “soy action plan”

that pledged $30 million toward

the development of “economically

viable options for farmers as al-

ternatives to converting native

vegetation.”

The plan is light on specifics.

But, in an open letter sent to Bra-

zilian farmers this month, Cargill

made its opposition to a second

moratorium explicit, assuring the

agricultural community that “we

understand that this is not the ap-

propriate instrument to solve the

issue.”

Glenn Hurowitz, who runs

Mighty Earth, said Cargill’s chief

executive, David MacLennan,

told him privately this year that

the company would get behind a

Cerrado moratorium.

“They’re speaking out of both

sides of their mouth,” Mr.

Hurowitz said. “They’re being

two-faced in a fairly transparent

way.”

Ms. Kimmelshue denies that

the company ever committed to

instituting a new moratorium and

insists that the situation in the

Cerrado is more complicated than

in the Amazon.

“Different place, different time,

different circumstances,” she

said.

One important distinction:

While Cargill was the largest soy

trader operating in the Amazon, it

faces significantly more competi-

tion, both local and international,

in the Cerrado. Chinese compa-

nies buy most of Brazil’s soy.

“While we could stand up and

say we’re not going to buy any-

more, and declare a moratorium

individually, that just pushes the

problem,” Ms. Kimmelshue said.

“We exit, and somebody else

moves in. We’ve got to get more

deeply involved to help find a solu-

tion.”

Another potential complication

is the importance of soy to the

Brazilian agriculture industry. A

Cerrado moratorium would likely

create tensions with local farm-

ers, who are legally entitled to

clear vegetation across much of

the region, said Carlos Klink,

Brazil’s former national secretary

for climate change. “They want to

be a part of the decision making,”

Mr. Klink said.

But environmental advocates

argue that Brazilian farmers

could continue growing soy on al-

ready-cleared land in the Cerrado

without damaging the habitat.

“There’s nine times more

cleared land than there is habitat

you could clear,” said Ms. Walker

of the National Wildlife Federa-

tion. “There’s a real win-win.

Farmers can produce more and

expand.”

Environmental advocacy

groups are not alone in their ef-

forts to protect the Cerrado. A

number of business coalitions are

working on solutions to deforesta-

tion in the region, including the

Cerrado Work Group, a collabora-

tion among soy traders and Bra-

zilian nongovernmental organiza-

tions. And dozens of companies —

including McDonald’s, one of

Cargill’s biggest customers —

have signed the Cerrado Mani-

festo, a pledge to halt forest loss

associated with the agriculture

business.

McDonald’s did not respond to a

request for comment on Cargill’s

opposition to a Cerrado moratori-

um.

Dr. Cleary, the Nature Conser-

vancy official, said he expected

Cargill and other companies to

eventually agree to a cutoff date

after which they would not buy

soy from newly cleared areas.

“What’s going to happen in the

Cerrado is some kind of agree-

ment with a financial package,” he

said. “And it would have to be big

enough to encourage enough

farmers to move in that direction.”

Still, at least for now, Cargill is

being pilloried by advocacy

groups for its failure to meet its

deforestation target and for its op-

position to a Cerrado moratorium.

Cargill is not the first major com-

pany to fall short of an envi-

ronmental commitment, and it is

unlikely to be the last.

“As more companies step up to

the plate and start doing some-

thing, there are going to be more

companies that are unable to meet

those commitments,” said Nancy

Landrum, an expert on sustain-

able business management at

Loyola University Chicago. “I just

hope they can learn from their

mistakes.”

Ms. Kimmelshue, the sustain-

ability officer, acknowledged that

Cargill had not acted quickly

enough to combat deforestation.

“We need to move with a greater

sense of urgency,” she said. But

she said the company did not re-

gret making ambitious commit-

ments.

“We feel really proud that we

were willing to make the commit-

ment and that because of the com-

mitment, we were able to make

progress,” Ms. Kimmelshue said.

“The progress didn’t get up to

where we wanted it to be, but that

doesn’t mean we are stopping.”

Cargill Goes From Environmental Leader to ‘Worst Company in the World’

FROM FIRST BUSINESS PAGE

Brazil’s president, Jair Bolsonaro, wants to roll back environmental regulations and accelerate economic growth.

ERALDO PERES/ASSOCIATED PRESS

Pfizer agreed on Monday to com-

bine its off-patent drugs division,

which sells treatments like the

cholesterol drug Lipitor, with the

pharmaceutical company Mylan,

creating a potential powerhouse

in the increasingly challenging

business of producing generic

medicines.

The deal follows years of con-

solidation in the generic-drug in-

dustry and could spur more acqui-

sitions, as companies struggle to

maintain sales amid falling prices

for their products. It’s a develop-

ment that has been largely over-

looked as consumers grapple with

the escalating cost of branded

treatments.

Pfizer’s decision to combine the

off-patent unit, Upjohn, with My-

lan in an all-stock deal coincides

with the pharmaceutical giant’s

narrowing of its focus on more

profitable, branded drugs.

Though Mylan mainly produces

generic drugs, it is best known for

its EpiPen emergency allergy

treatment.

The shift has led Pfizer to ac-

quire promising new drugs

through big deals like its $10.6 bil-

lion takeover bid last month for

Array BioPharma, which makes

specialized cancer treatments.

Along the way, Pfizer has un-

loaded lower-margin businesses,

as it did last year by agreeing to

combine its consumer health care

division with a similar unit owned

by GlaxoSmithKline.

Pfizer used Upjohn to package

older products like Lipitor and the

erectile dysfunction drug Viagra

— whose patents have expired or

are about to — with its generics

business. Sales of those drugs

have plummeted in the United

States, but Pfizer hoped Upjohn

would be able to capitalize on the

growing market for so-called

branded generics in countries like

China, where low-quality and

even fraudulent generic drugs

proliferate and consumers seek

out brands like Pfizer as a guaran-

tee of quality. Pfizer even moved

Upjohn’s headquarters to Shang-

hai this year.

But the creation of Upjohn as a

stand-alone unit also prompted

questions about whether Pfizer’s

ultimate plan was to spin it off. In

April, Albert Bourla, the compa-

ny’s chief executive, told analysts

that he might make such a move

one day, “but this is not what is in

my mind right now.”

The combined business, which

will eventually be renamed, is ex-

pected to have about $19 billion to

$20 billion in annual sales. The

companies anticipate annual sav-

ings of $1 billion by 2023 as a result

of the deal.

“We are creating a new cham-

pion for global health — one

poised to bring world-class medi-

cines to patients across a wide

range of therapeutic areas,” Mr.

Bourla said in a statement.

Mylan, whose stock price is

down about 30 percent this year,

has faced a series of controversies

in recent years, including the sky-

rocketing price of the EpiPen and

a continuing federal inquiry into

price-fixing in the generic drug in-

dustry.

Heather Bresch, Mylan’s chief

executive, will relinquish that

role. Ms. Bresch, whose father is

Senator Joe Manchin III, Demo-

crat of West Virginia, spent nearly

her entire career at Mylan and be-

came chief executive in 2012. She

drew public outrage in 2016 when

it emerged that her compensation

had increased even as the price of

the EpiPen soared.

She was among the first in the

industry to try to pin the blame for

rising drug prices on rebates paid

to pharmacy-benefit managers.

In 2014, she and other executives

angered many shareholders by

moving their headquarters to the

Netherlands from Pennsylvania

to reap tax savings and to block a

takeover by Teva that many in-

vestors favored.

Ms. Bresch, who declined to

comment on Monday, will be suc-

ceeded by the head of Upjohn, Mi-

chael Goettler.

The generic industry’s strug-

gles extend well beyond Mylan.

Fewer blockbuster drugs are los-

ing their patent protection, de-

priving makers of generics the

chance to capitalize on the lucra-

tive period immediately after a

patent expires. Pharmacies and

wholesalers are making things

more difficult by teaming up to in-

crease their ability to bargain for

lower prices. That has forced mak-

ers of generic drugs to consider

mergers as a way of regaining

leverage.

Last fall, Novartis sold portions

of its generic unit, Sandoz, to Au-

robindo Pharma, and in 2016, the

generics maker Teva acquired Al-

lergan’s Actavis generics busi-

ness. The Actavis acquisition has

not solved Teva’s challenges, and

the company has continued to

struggle.

David Maris, an analyst at

Wells Fargo, cited the Teva deal in

a note on Monday that signaled

caution about the prospects for

the combination of Upjohn and

Mylan. “The combined company

is bigger, but we are not sure it is

better, and integration risks are

not minimal, in our view,” he

wrote.

The transaction is expected to

close by the middle of next year,

pending the approval of regula-

tors and Mylan shareholders.

Pfizer shares were down nearly

3 percent on Monday, closing at

$41.45. Mylan shares were up

more than 12 percent, at $20.78.

Mylan produces generic drugs, but it is known for its EpiPen. The company came under fire in 2016 for the soaring price of the emergency allergy treatment.

PABLO MARTINEZ MONSIVAIS/ASSOCIATED PRESS

By KATIE THOMAS

and MICHAEL J. de la MERCED

$19B-$20B

Estimated annual sales from the

combined business.

Pfizer to Merge Off-Patent Drug Unit With Mylan

HEALTH CARE | ENVIRONMENT

The Trump administration on
Monday said it would begin forc-
ing hospitals to publicly disclose
the discounted prices they negoti-
ate with insurance companies, a
requirement intended to help pa-
tients shop for better deals on a
range of medical services, from
hip replacements to CT scans.
The plan, issued as a proposed
federal rule, would take effect in
January, but would likely be chal-
lenged in court by an industry that
has long held such rates secret.

“The reality is in every other
part of our economy you can get
pricing information, but somehow
in health care, which is arguably
some of the most dollars that we
spend, you can’t,” said Seema
Verma, the administrator for the
Centers for Medicare and Medic-
aid Services, announcing the pro-
posed rule. “We’re trying to
change the paradigm.”
Administration officials and
others have criticized hospitals
and insurers for keeping the deals
they strike a secret, making it im-
possible for patients to seek less
expensive places to get care. They
argue that by making public the
actual prices that insurers pay —
and not just the standard list
prices for various services, which
the Trump administration started
requiring hospitals to post earlier
this year — hospitals will be under
more pressure to compete. Over
time, prices will drop, Ms. Verma
predicted.
After failing to carry out the
long-held Republican Party goal
of repealing and replacing the Af-
fordable Care Act, the Trump ad-
ministration has made medical
and drug prices a focus of its
health policy. Monday’s an-
nouncement is part of a broader
program to make information
about health care pricing and
quality more readily available to
patients, and it fleshes out Presi-
dent Trump’s executive order
from last month.
But some economists argue
that posting negotiated prices is
meaningless because it does not
tell patients their actual out-of-
pocket costs. Patients with insur-
ance don’t pay the full price of a
procedure; how much they owe
depends on the deductible and co-
payments in their health plan.
Pricing information also does

little to help patients determine

the quality of an individual doctor

or hospital. “This is not the infor-

mation that patients want or

need,” said Tom Nickels, an execu-

tive vice president at the Ameri-

can Hospital Association.

The proposal, if implemented,

has the potential to rock the health

care industry, which critics argue

thrives on the secrecy of the nego-

tiations between hospitals and in-

surers. Both groups have objected

to making public what they con-

sider proprietary information,

and they are expected to mount le-

gal challenges to any mandated

disclosure. In Ohio, a state law re-

quiring price transparency that

was passed two years ago is still

mired in the courts.

Both the hospitals and insurers

argue that disclosing prices would

lead to higher costs, not lower

ones, because each institution

would know the prices of its com-

petitors and could be reluctant to

settle for less.

“Publicly disclosing competi-

tively negotiated, proprietary

rates will push prices and premi-

ums higher — not lower — for con-

sumers, patients and taxpayers,”

said Matt Eyles, the chief execu-

tive of America’s Health Insur-

ance Plans, an industry trade

group, in a statement.

Ms. Verma said requiring hospi-

tals to post negotiated prices on

the internet, in a searchable for-

mat, is becoming more important

as many Americans’ health insur-

ance deductibles — the amount

they have to spend on medical

care before their coverage kicks in

— steadily grow. She acknowl-

edged, however, that the prices

would not help people understand

how much they would personally

owe.

Asked what legal authority the

administration had to require hos-

pitals to post negotiated rates, Ms.

Verma cited a provision of the Af-

fordable Care Act — a law that the

Trump administration is support-

ing efforts to overturn in court —

that requires hospitals to make

public a list of standard charges.

Another attempt by the Trump

administration to create transpar-

ency in health care prices — a re-

quirement that pharmaceutical

companies disclose the list price

of their drugs in their television

ads — has been put on hold by the

courts. A federal judge ruled earli-

er this month that the Department

of Health and Human Services ex-

ceeded its regulatory authority

with the rule, which was seen as

largely symbolic since list prices

are not what patients typically

pay.

Proposed New Rule

Would Make Hospitals

Disclose Insurer Rates

By REED ABELSON

and ABBY GOODNOUGH

Shaking up an

industry that critics

say thrives on secrecy.