Poison pills remain as Lilly shareholder vote falls short

Shareholders of Eli Lilly and Co. failed once again Monday morning to remove the drugmaker’s tough poison-pill provision against unwanted buyers.

The proposal garnered support from owners of 62.4 percent of Lilly's shares. To pass, the proposal needed approval from the owners of 80 percent of Lilly’s shares. The Indianapolis-based drugmaker's annual meeting of shareholders took place Monday morning.

That means Lilly’s corporate bylaws still contain an 80-percent approval threshold for hostile takeover bids, even after the company’s board has recommended removing the 27-year-old policy in each of the past three years.

The proposal that failed Monday would have required just a bare majority of shareholder votes to approve key moves commonly used in hostile takeovers.

In the past two years, the same proposal received 74 percent and 73 percent of all shares, respectively.

The supermajority vote requirement dates from the 1980s, the heyday of “corporate raiders” making unsolicited bids to buy public companies. Lilly’s board, which has been fiercely independent during multiple waves of consolidation in the pharmaceutical industry, began to support the removal of the high threshold in 2010.

That decision followed three straight years in which a majority of Lilly shareholders expressed support for removing the supermajority voting requirements.

In Lilly’s proxy statement filed March 5, its board members noted that Indiana law would still give Lilly significant protections against unwanted takeovers. Indiana has some of the highest hurdles in the country for slowing down and thwarting hostile takeovers.

Investors typically favor low barriers to hostile takeovers because an acquiring company almost always pays a premium price to entice shareholders to approve such mergers. But the votes of the past two years were hindered because the owners of 13 percent or more shares did not vote on the measure.

Some investors suggest Lilly could be vulnerable to a takeover soon because its major patents expired late last year on its best-selling drug, the antipsychotic Zyprexa, allowing cheaper generic copies to rapidly drain the medicine’s $5 billion in annual revenue.

Zyprexa was the second in a string of five blockbuster Lilly drugs that lose patent protection between 2010 and 2014, sapping the company of more than $10 billion in annual revenue.

Lilly’s research-and-development efforts have produced little new revenue since a string of drugs was launched from 2002 to 2004. Investors are hoping a new Alzheimer’s drug, solanezumab, pans out and becomes a huge seller.

Lilly CEO John Lechleiter has repeatedly rejected the notion of a mega-merger, and he has constantly argued that Lilly’s pipeline eventually will start producing new drugs—and badly needed revenue.