As we enter the last few weeks of the 2016 election cycle, the pharmaceutical industry is once again facing increasing scrutiny from politicians, the media and the public. From morphine and quinine 100 years ago, to EpiPen today, the outcry about drug-price increases is not new. But the intensity is.
Recent drastic drug-price increases have triggered intensifying calls for reform. As part of thoughtful reform, the industry must look at executive compensation and how it is linked to drug pricing.
The most recent chapter in the long-running debate has begun to reveal to the public the obscure roles that pharmacy-benefit managers, insurers, hospitals and others play in the economics of delivering health care. Through rebates, each of these parties profits from increasing drug prices and, accordingly, broad solutions must involve all players — the pharmaceutical, biotechnology and generic companies as well as PBMs, insurers and hospitals.
Some will urge doing nothing, hoping the problem will go away. It won't. Nor will efforts to educate and explain what we are doing and how our efforts create value for individuals, society and our economy at large quell the outcry.
However, there are a number of steps we innovator companies, who invest in the discovery and development of novel medicines, can take today.
For example, Allergan President and CEO Brent Saunders announced on Sept. 6 that his company will limit price increases to single-digit percentages, and only once a year. This was a demonstration of leadership in one area, but the problem needs action on multiple fronts.
One neglected and often forgotten front is central to the debate: the requirement to address misalignment of management compensation with value creation.
There is a very long and uncertain lag that occurs between new drug discovery, development and commercialization. Sometimes decades elapse, often the expenditure is enormous and always the success rates for novel medicines are low. Compensation needs to be aligned with this cycle.