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Do pharma's executive pay plans push up drug prices? Investors want to know

December 15, 2017
Life sciences

Pharma investors may favor price hikes if the tactic means sales, profits and stock prices climb. But wary members of the Interfaith Center on Corporate Responsibility see things differently, and they’re pushing several top drugmakers to review whether their executive pay contributes to high drug prices.

As investors in AbbVie, Amgen, Biogen, Bristol-Myers Squibb and Eli Lilly, ICCR members have filed resolutions suggesting that compensation plans might incentivize top execs to raise drug prices.

As they see it, price hikes are a short-term strategy that comes with long-term risks for their investments.

If an exec pay package focuses on a short-term metric such as earnings per share, for instance, “it will increase as drug prices increase,” UAW Retiree Medical Benefits Trust chief corporate governance officer Meredith Miller told FiercePharma via email. She’s among a group of ICCR members leading the push to expose any exec pay policies that contribute to high drug prices.

Miller said ICCR would like to see “compensation arrangements that have a balanced strategy that includes rewards for long-term research and development and metrics such as [return on invested capital] that reflect strategies within an executive’s control.”

Alternatively, when an incentive plan is based on “shorter-term market forces,” Miller said, execs might lean on price hikes to grow profits. That approach “can create undue risks when, over time, the market, payers and policy makers push back.”

An Eli Lilly spokesman told FiercePharma that “like ICCR, we are concerned about the price of medications for patients.”

“We’re working to address concerns and to identify solutions so medicine is accessible and affordable to those who need it,” the spokesman added. “We have had a productive relationship and dialog with ICCR over time and will continue to engage with them.”

A Bristol-Myers representative declined to comment, and AbbVie, Amgen and Biogen didn’t immediately respond.

In addition to resolutions at those five drugmakers, ICCR members requested reports from Pfizer and Vertex Pharmaceuticals about how efforts to curb U.S. drug costs could affect their businesses.

For their work, the group looked to an April report from Credit Suisse that found many pharma companies are deriving all of their profits from price hikes. The report found that U.S. net price hikes created $8.7 billion in net income for top pharma companies last year, equivalent to all of the sector’s earnings growth.

The analysts identified the companies who are more at risk than others from the strategy, with BMS leading the pack. Miller said the report “raises serious concerns about price increases as a long-term sustainable business model.”

Amgen, AbbVie, Biogen and Eli Lilly were on Credit Suisse’s list of companies for which net price hikes created additional revenue equal to all of their net income growth for the year.

ICCR has been a thorn in pharma’s side on the pricing issue before. Earlier this year, the group asked more than a dozen drugmakers to disclose detailed information about their pricing decisions, including increases on individual medicines.

In response, U.S. companies Merck & Co., Pfizer, Johnson & Johnson, Amgen, AbbVie, Biogen, Bristol-Myers Squibb, Eli Lilly, Gilead and Vertex pushed back, largely by arguing the issue is complex and that consumers wouldn’t understand the information if it were disclosed. Giving up the details would also put them at a competitive disadvantage, the companies said, according to an ICCR representative.

European companies were more receptive to the request, she added, but ultimately didn’t offer up the details.

A few months later, when the Financial Times broke news that Pfizer implemented dozens of price increases in June, ICCR blasted the company as “increasingly out of step with leaders in the sector.”

A Pfizer spokesperson declined to comment on the ICCR letter but reiterated a previous statement that the company “has always priced responsibly” and that it believes “innovative medicines are one of the most valuable and cost-effective segments of healthcare spend and are an important part of the solution to growing healthcare costs.”

Source: Fierce Pharma

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