Allergan's CEO wants to be the drug industry's good guy

Brent SaundersAllerganAllergan CEO Brent Saunders

Drug prices are in the national conversation again, this time with the focus on the EpiPen, an emergency injection used to treat extreme allergic reactions, which has increased in cost by more than 500% since 2007.

At the heart of this debate lies a straightforward question: who do drug companies serve, their shareholders or patients who use the drugs?

Brent Saunders, the chief executive of Allergan — one of the largest and fastest growing drugmakers — says the answer can be both.

On Tuesday, his company pledged to put limits on the size and frequency of drug prices hikes. For example, the company will only increase drug prices once a year, Saunders wrote in a blog post.

Also, the hikes will only be in single digit per cent amounts — you won’t see any 100% jumps — and won’t be on drugs that are about to lose patent protection. The latter is a drug industry practice aimed at squeezing the most out of a drug before it faces generic competition, but — of course — also means a drug’s cost could spike while customers have no alternative.

Saunders says he’s out to prove that it’s possible to grow the business and develop new drugs, without gouging consumers.

“We are drawing a line in the sand and saying we can be one of the fastest-growing companies in our industry, we can invest in R&D and innovation, and we can have a social contract where we act responsibly and make our drugs accessible to people and patients,” Saunders told Business Insider in an interview.

But it’s not just about being a good guy

Saunders is exposing a serious concern among drugmakers. The drug-price debate has caught the eye of Congress and both candidates for President. Outside of hearings and investigations by various House of Representatives and Senate committees this has led to Hillary Clinton’s proposal of steps to promote competition for generic drugs, importation of drugs, and potential penalties on drugmakers that are egregious price gougers.

Allergan’s “social contract” is aimed at heading this off.

“I do hope that at least part of the reaction to today’s commitment from Allergan is that other companies in the biopharmaceutical industry take a step back and look at their own practices,” he said. “Because I do believe that self-policing is the best way for this industry to be disciplined, rather than government intervention.”

All this isn’t to say that Allergan won’t be hiking drug prices. The company offered an example of a case in which it thinks this would be appropriate: The company owns Vraylar, a drug that’s approved to treat bipolar disorder and schizophrenia.

Allergan’s working to develop the drug so it could one day be approved to treat other conditions, but

that kind of research costs a lot of money — and it could be paid for from existing sales of Vraylar.

“If we’re successful in continuing to research that molecule in other conditions we may need to raise the price to balance the investment needed in other hard-to-treat unmet medical conditions,” Saunders said.

What this will mean for Allergan’s shareholders

The move, Saunders said, is really also Allergan codifying practices that it has had in place already.

Allergan has a number of high-profile shareholders, including Carl Icahn, who picked up a stake in the company in May. The pledge laid out Tuesday wasn’t something Saunders specifically discussed with shareholders, but something he’s been broadly talking about for a while. But from a financial standpoint, it shouldn’t make a big difference to Allergan’s numbers.

If anything, Saunders said, it will put more pressure on the company to grow by increasing the volume of the drugs the company sells, and by getting new drugs to approval.

“Those are things that we should feel the pressure as a pharmaceutical company to do,” he said.

“My senses are shareholders will applaud what we’re doing today, but let’s also be clear. Our shareholders want us to deliver leading performance, and they should hold us accountable to do just that.”

So far, investors seem OK with this. Allergan’s stock was up 1.73% Tuesday afternoon.

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