Behind The Scenes Of Allergan's Social Contract
By Rob Wright, Chief Editor, Life Science Leader
Follow Me On Twitter @RfwrightLSL
"Allergan CEO fires back on Hillary Clinton tweet.”
That’s how CNBC titled an interview between Brent Saunders, Allergan’s chairman, president, and CEO, and Mad Money host Jim Cramer back on September 21, 2015. The tweet in question, referencing Turing Pharmaceuticals’ significant price increase of a 62-year-old drug, read:
Asked by Cramer for a response to the tweet, Saunders replied, “The example she tweeted about today was just one egregious situation. I think we have to separate the one-off kind of situations with what really happens. And, keep in mind, we need to have good pricing to create innovation.”
Suddenly Saunders found himself squarely in the crosshairs of presidential politics and its laser-like focus on blasting biopharma for its “high-priced” drugs.
Just under one year later, Saunders was once again observing a developing drug-pricing scandal as senators Chuck Grassley (R) Iowa and Amy Klobuchar (D) Minnesota focused the drug-pricing spotlight on Mylan for its price increases of the EpiPen. “Mylan and Turing were anomalies, and it really bothered me that an industry so committed to helping people live better lives was being viewed so negatively by the public,” attests Saunders. It was August 2016, and Saunders was on the “first true vacation” he had taken in roughly 17 years. “On the flight I started thinking about industry’s commitment to finding equilibrium between the need to invest in innovation and pricing treatments so they are accessible and affordable,” he recalls. And while Saunders had previously used the term “social contract” to refer to this notion of balance, it was while on vacation that he was able to crystalize his thinking. What follows is the story behind Allergan’s bold decision to formalize its social contract with patients.
Vacation Sparks The Idea Of A Social Contract
Much like many executives, Saunders says he finds it difficult to turn off the business portion of his brain during the downtime of a vacation. Thus, the genesis of the social contract creeped into his mind during that first flight of his family vacation. After ruminating on the idea for the next few days, he eventually decided to call some of his colleagues back at Allergan to get their opinions.
The first three on his list were Alex Kelly, EVP Corporate Affairs and chief communications officer; Bill Meury, EVP and chief commercial officer; and Bob Bailey, EVP and chief legal officer and corporate secretary. He picked these three because he thought they could provide the most help in terms of developing the first draft of the social contract.
“First, I did bounce the idea off my wife, in terms of how she thought it might be received,” Saunders admits. Articulating it with her and the other family members on the vacation further convinced him he was on to something. “It was a pretty big group, my in-laws, my parents, my brother and sister and their families. The social contract was not the theme of this vacation, but there was a lunch where various family members shared their positive and negative views of the biopharmaceutical industry and what could be done to improve it.” As many of his extended family work in healthcare as providers, they hear the voice of the patient and know how difficult it can be to prescribe a medicine that insurance doesn’t cover or requires a lot of paperwork and prior authorizations.
The initial reactions of both his family and work colleagues further solidified his general notion that the industry needed to do more to show all the good it does. Now he just needed to refine the concept and put it into action.
Refining And Gaining Support
When the initial small team first started working on the social contract, the goal was not to make any kind of public statement. “We started working on it not really knowing where we would ultimately take it,” Saunders admits. The original thought was to see if there was something that could perhaps be constructed as an industry code or maybe even define some kind of standard just for Allergan.
“There was a lot of back and forth as we tried to write down principles we felt were not only important to Allergan but could help define where we stood on fairly sensitive and controversial issues in the public press,” he shares. For example, one of the areas where there was a lot of pushback and debate was around the social contract’s take on raising the price of medicines near the end of a patent-exclusivity period. “Many in our industry tend to take more price increases at the end of a drug’s life as a means of managing the difficult financial impact caused by loss of exclusivity,” Saunders explains. While such price increases can have an impact on patients, there was some discussion as to whether these types of increases were really a burden primarily borne by insurance companies. “We debated that for several days and ultimately agreed the right thing to do, and the place where we felt most comfortable, was operating in an absolute commitment around pricing versus taking a piecemeal approach,” he explains.
Saunders returned from vacation toward the end of August, at which point the team had a pretty good draft of the social contract. “It was then that I started to share it more broadly with the rest of the Allergan executive team to get more feedback,” he explains. Saunders did not want to have a group meeting yet, as he wanted everyone to feel comfortable talking through what it meant. “I did not want anyone to feel there was group pressure, as I was hoping to get very casual and candid feedback,” he continues. “So I started calling each executive leadership team member individually.” Due to vacations, work schedules, and work travel, it took him a few days to meet one-on-one with all the executives. Overall, their responses were positive regarding the social contract in general and how it was written, but there was some debate over when it should be published. “They reacted so positively that I thought maybe we should just share it with the whole organization,” he says. But before it could be shared with 18,000 employees, making the social contract essentially a public document, Saunders needed to first share it with Allergan’s board of directors. “I sent it out to our board and then began calling to get their feedback, which again, was overwhelmingly positive. As the executive management and board of directors embraced the social contract, Saunders felt the company had something that accurately depicted the way Allergan (collectively) felt about the drugpricing issue. “Our next step was to share it with our employees and the public, but we had to be willing to stand behind it,” he explains.
An Informal Exercise, Not A Structured Plan
There are plenty of businesses with corporate value statements; J&J’s Credo is one industry-specific example. But Allergan didn’t use any of those other documents as a model for creating its social contract. In fact, Saunders says that when they started developing the social contract, “We were not viewing this concept as being core, and we did not have a predetermined output. We were simply trying to think about how to memorialize the social contract, what it meant to Allergan, and how we could hold ourselves to it.” He says that, because it began as an informal exercise, no “real research” (that he is aware of) was done to model it after something else.
“I get asked about the social contract all the time,” Saunders chuckles. “Executives and CEOs from other biopharmaceutical companies seem to think Allergan had a committee — a project plan — and that we engaged in some very deliberate strategy to put this thing out.” That couldn’t be further from the truth, though. Instead, he says it was more of a spontaneous process put in motion by a very small group that then spread it to the highest levels of the organization. When Saunders shares this with other CEOs and explains that from start to finish the entire process took less than a month, they are astounded. “Some have stated that if they tried to do what we did at Allergan, it would have taken months, if not years.”
Now, one year after the publication of the social contract via a Sept. 6, 2016, post to his CEO Blog, Saunders has the benefit of hindsight. “If we had turned the development of the social contract into a massive project with lots of consensus building, I think we would have diluted the commitment, overanalyzed the wording, and perhaps extended the period in which it would take to get it out.” He says the social contract really expresses his views, as well as those of the senior leadership and board at Allergan, and as such, has become much bigger than he ever imagined. “I was doing a town hall meeting for one of our new subsidiaries, LifeCell [a regenerative medicine company acquired by Allergan], and the social contract was probably one of the primary things discussed amongst those colleagues,” he shares.
Indeed, the continued interest and positive commentary surrounding the social contract still surprises Saunders. “The day we published it via the blog, I quickly got a sense that it was going to get a lot of attention,” he relates. “But I never thought it would have such a meaningful impact to our colleagues globally.” When they first began the social-contract exercise, it was viewed as more of a U.S.-centric initiative, yet as time went on, the concept resonated loudly with the company’s global field sales force, as well as their customer physicians. “We never thought that audience would be so interested in it,” he confides.
In addition to publishing the blog, Allergan sent letters to its B2B customers, pharmacy benefit managers (PBMs), health insurers, and pharmacies and even took out a few ads in various newspapers announcing the social contract. “That was the full extent of how we planned to promote the blog, outside the use of social media,” he attests. A month or so after it was published, Saunders was at the American Academy of Ophthalmology (AAO) annual meeting in Chicago. For a few hours he worked in the exhibit booth and conducted one-on-one meetings with ophthalmologists. “I had hundreds of customer interactions, during the course of which I began asking if they were aware of our social contract,” he explains. “Almost every person said yes, pointing to the commitment of not increasing drug prices beyond 10 percent.” But when he asked if they had read the whole contract, as there were other important elements (e.g., expanding Allergan’s patient assistance programs, the company’s commitment to education), most answered no, explaining they were only aware of what they read in the press.
At the same time, the sales reps who were working the booth asked Saunders if he had any pamphlets on the social contract they could share with their doctors. Since he did not, and since he was scheduled to be at the meeting for another day or two, he decided to call the company’s head of communications to see how quickly they could put together a pamphlet for sales representatives and customers who wanted to read the whole social contract.
As there was no specific drug mentioned in the social contract, the pamphlet did not have to go through the traditional sales-aid approval process. “We didn’t proactively plan the development of a sales aid, because the social contract wasn’t developed for that purpose,” he explains.
The Risk Of Doing The Right Thing
At the time of the social contract’s publication, the United States was nearing the conclusion of a bitterly contested presidential campaign. As such, there was some risk to Saunders putting himself — and his company — squarely in the drug-pricing spotlight. “To be fair, we did have at least one or two conversations around that, but we didn’t spend a lot of time worrying about it,” he admits. “Within the social contract, we acknowledge that in the past we did not follow these exact rules, but we would be doing so going forward.”
As for the risk of putting himself out there, Saunders says, “To be honest, I really don’t care. I know that may sound a bit cavalier, but I feel very strongly about our industry’s need for a social contract, and as CEO, it is part of my job to articulate what that means for our employees and customers.”
Besides, Saunders didn’t view this as being all that risky. “I view risk as deciding what R&D projects to fund,” he continues. “If we are going to spend several hundred million dollars on something that may or may not work, that is risk. Deciding what acquisitions to go after, what combination of ideas to pursue, which leaders to promote from manager to vice president, or vice president to executive vice president, those are all risks. But I do not view doing what is right and standing up for what you believe in as taking a risk.”
Every quarter Allergan conducts town hall meetings for all employees where quarterly performance and other developments are discussed. Coincidentally, the day after the blog was published was the day of a town hall meeting. “That was the first time I saw how the employees really connected with the idea of the social contract and the pride they had from their company taking a position on some really important issues. That definitely ranks as one of the most gratifying experiences I’ve had in my biopharmaceutical career,” he says.
What, If Anything, Would Brent Saunders Do Differently?
When pressed as to what, if anything, he would do diff erently in developing the social contract, Saunders has few regrets. “Had we done a press release or made it an editorial, we would have likely had to cut back on the wording, but a blog allowed us to put it out there in black and white so people could see it in its entirety,” he says. “But if I could change or add something, it would be to create more balance regarding how the social contract deals with pricing.” He says many people focused too much on the commitment to not increase drug prices more than 10 percent. “It is not about getting to a 9.9 percent increase,” he explains. “If you read beyond the headline you will see that our intent was to increase only the price of our medicines in line with medical inflation, and the double-digit number was a cap, not a target.” As such, Saunders says if he could do anything diff erently, it would have been to add more emphasis to the section that dealt with investing in R&D to meet an unmet medical need or highlight the expansion of Allergan’s patient-assistance programs, which, by the way, have had a 30 percent increase in the number of inquiries following announced enhancements in December 2016.
Where Did You Come Up With The Term “Social Contract”?
Throughout 2015, Brent Saunders, chairman, president, and CEO of Allergan, was a very busy executive. For example, in March 2015 the Actavis-Allergan acquisition was completed. In July 2015, he inked a deal to sell the company’s generic business to Teva Pharmaceuticals for $40.5 billion, the largest deal in Israeli corporate history. In October of that same year, Allergan began merger talks with one of the biggest biopharmaceutical companies in the world, Pfizer — potentially a $160 billion deal. As such, Saunders found himself in high demand for financial-oriented talk shows.
On Nov. 4, 2015, Saunders appeared live via a satellite feed on CNBC’s Mad Money, hosted by Jim Cramer. As the Pfizer and Allergan talks were in the preliminary stages, Saunders wasn’t able to discuss any details. But the day previous, top House Democrats announced the launch of the newly formed Aff ordable Drug Pricing Task Force aimed at taking meaningful action to combat skyrocketing costs of pharmaceuticals. “Jim Cramer asked me on the air what I thought about it,” Saunders recalls. This is live banter, so the questions were not provided to Saunders in advance. “In my off -the-cuff response, I used the term ‘social contract,’ and that stuck with me,” he explains. Here’s exactly what he said:
“If we are going to talk philosophically about this, I believe pharmaceutical companies have a social contract in America, to make sure we continue to invest money in R&D, to raise drug prices in a very responsible way, and make sure we can grow our business for our shareholders. And I believe all those things can live in harmony, and in the vast majority of the pharmaceutical industry they actually do.”
Saunders has since given some thought as to why the social contract concept came out of his mouth that day. “I think it goes back to some of my time at Schering-Plough and working with Fred Hassan,” he shares. “When Fred shared his view of the world as a pharmaceutical company leader, he always talked about the importance of being socially responsible in how an organization does things. Over my life sciences career, I have had similar learnings from other people as well, and so that concept has probably been in my heart and mind for a long time.”
Some Highlights Of Brent Saunders’ Career
- Facilitated Schering-Plough’s acquisition of Organon BioSciences for $14.4 billion
- Served as integration head for the $41.1 billion merger of Schering-Plough with Merck
- Executed the sale of Bausch & Lomb to Valeant Pharmaceuticals for $8.7 billion
- Facilitated Actavis’ acquisition of Forest Laboratories for $28 billion
- Turned hostile takeover attempt of Allergan by Valeant Pharmaceuticals into a $70.5 billion acquisition for Actavis, and retained the combined company under the Allergan name.