SUMMARY: The argument that the first rule of business is to make money is becoming more irrelevant in a time of social chaos. Every company is entitled to make a profit, but when a CEO earns $28 million a year, and can’t afford medications, something is dreadfully wrong.
Let me ask you a question. If you were offered between $2 and 5 million dollars to become a CEO of a pharma company, would you do if you thought you had the skillset? I guess that the majority of you would say “yes” to that question.
The pharmaceutical industry continues to be among the most profitable of any industry. Results From 2000 to 2018 show that 35 large pharmaceutical companies reported cumulative revenue of $11.5 trillion, gross profit of $8.6 trillion, EBITDA of $3.7 trillion, and net income of $1.9 trillion, while 357 S&P 500 companies reported cumulative revenue of $130.5 trillion, gross profit of $42.1 trillion.
According to JAMA “from 2000 to 2018, the profitability of large pharmaceutical companies was significantly greater than other large, public companies, but the difference was less pronounced when considering company size, year, or research and development expense. Data on the profitability of large pharmaceutical companies may be relevant to formulating evidence-based policies to make medicines more affordable”.
Pharma company CEOs are well paid, and even if they leave in failure, they often get golden parachutes that ensure they can retire in luxury. Make no mistake about it; pharma CEOs are compensated based on shareholder return, not whether they add real value to our healthcare system.
As more companies start withholding contributions to the Republican party because they suddenly have a social conscience, CEO compensation will eventually become a hot topic issue again. This is especially true because of drug prices.
In my opinion, most, if not all, American owned pharma companies grossly overpay their CEOs for what they really do. Over drinks or late-night phone calls with industry insiders, I hear stories about leadership failure at the highest levels. While pharma has created a vaccine for the pandemic, let’s not fool ourselves and believe that money had nothing to do with it. Pharma stands to make billions from COVID-19 vaccines.
Slowly a new breed of CEOs is starting to lead companies but as usual pharma lags behind. Here are some of the qualities of a new breed of pharma CEOs.
1ne: She/He should understand that the American healthcare system is a dysfunctional mess and strive to be part of a system that focuses on patients first, not Wall Street.
2wo: She/He has to be someone who can convince Board members that providing good medicines is the way to ensure profits, not by raising prices every year.
3hree: She/He should be a role model for employees. They should have regular meetings with small groups of the rank and file to listen to what they have to say and share her/his vision of where the company is going.
4our: Compensation should not be more than eight-ten million dollars and should be based on how well the medicines developed add to the public’s wellbeing. Me-too medications or medications that only add a few months to patients’ lives should not be considered if they don’t provide a good quality of life.
5ive: Leadership should be by example, not by a company statement.
6ix: She/He has to think about the organizational changes that will make pharma more able to develop breakthrough medications. Cut the layers of bureaucracy.
Frankly, I would have a major problem taking home a $20 million paycheck, knowing that many people can’t afford medications. I know the first rule of business is to make money, but more and more businesses have a social responsibility to all of us, not just to shareholders.