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Allergan CEO says 'the American people deserve to be angry' at price gouging

Allergan CEO says 'the American people deserve to be angry' at price gouging

As the pharmaceutical industry faces intense pressure for drug pricing, Allergan CEO Brent Saunders said he is committed to responsibly pricing his company's products.

"The American people deserve to be angry, and only we through self-police and self-regulation can fix it. A government takeover of healthcare is not what we need. We need discipline, we need responsibility, we need companies to do the right thing," Saunders told Jim Cramer in an interview on Wednesday.

Allergan released a "social contract with patients" in the beginning of September to address the cost of medicines and the company's approach to pricing and innovation. While Saunders understood that the contract could put pressure on management to innovate in the future, he said that's what investors should expect from his company.

Cramer noted that Allergan's stock has not performed well, possibly due to fears from shareholders over how much money the company can make. Saunders was not deterred.

"This has no impact on our guidance, this has no impact on our ability to grow … If you're investing in my stock and I took 15 percent price increases on old drugs and I got called in front of Congress, the stock would be down 50 percent in a week. Why would you want to invest in that kind of risk?" Saunders said.

Brent Saunders, CEO of Allergan.
Adam Jeffery | CNBC

Saunders added that the performance of Allergan's stock stems from a change in shareholder base as a result of the Teva Pharmaceuticals deal and failed deal with Pfizer this year, bad publicity for the companies engaged in price gouging and the political season. Thus, it has been tough for Allergan to get the message out to shareholders.

"It's more painful for me than it is for you. I pride myself, I take great pride in being a CEO who is shareholder friendly that really does care about driving shareholder return short, medium and long term," he said. "…We are going to get that stock price up. We are committed to it. It's the right thing. We are undervalued and it should solve itself if we keep executing and we keep innovating."

In the past two weeks, Allergan has announced two large-scale acquisitions. It acquired Vitae Pharmaceuticals for $639 million to strengthen its dermatology pipeline. It was a 260 percent premium for the company.

Allergan also announced it would buy Tobira Therapeutics for what could be as much as $1.7 billion, a 700 percent premium for the company. Tobira has a phase 3 liver disease drug that generated what was interpreted as disappointing clinical trial results, which prompted Tobira's stock to plummet 60 percent in a single session. The upfront payment for Tobira is only $595 million.

Saunders insisted that Allergan did not overpay for Tobira, stating "I love to get the feedback from shareholders, but I don't think we overpaid. I think we paid a competitive price for Tobira. I think we got a home run on Vitae."

Saunders explained that he thinks the results from Tobira this summer were misunderstood. The secondary endpoint, which was an impact on fibrosis, was meaningful, and that is the surrogate endpoint that the FDA looks for in registration. However, the FDA requirement changed during the time of the study.

"This is a long progressive disease. Potentially, it's reversing the disease at 52-weeks. That's pretty impressive," he said.

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