Useful Advices - Business

The annual review and analysis of corporate filings for public companies in full swing. Almost invariably, this scrutiny brings with it an outcry concerning the exorbitant levels of executive compensation and the lack of a direct relationship between what some executives ma

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

de and the financial performance of their companies. In addition to articles that highlight some of the more there are typically investigative reports that identify illegal, or at best, highly questionable activities. Given the propensity of the public and investors to rec

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

il at the issue of excessive executive compensation, it’s no wonder that these two groups have put considerable pressure on regulators to control and/or reduce executive in recent years.

Market-Driven
With recent regulations and structural changes as the baseline, this

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

raises the question of what the future holds. In trying to answer this question, it is important to understand how compensation levels are set. Assuming that the underlying purpose is to enable an organization to recruit and hire the best talent to meet its business needs,

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

it naturally follows that a company will be very interested in what the competitive market levels are for the position to be filled. This places a great deal of emphasis on the availability of reliable market data that will be used to determine what an individual should be

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

aid.

Recruitment of executive talent is typically not as competitive as it is for salespeople or other professions. On the upper rungs of the corporate ladder, multiple offers are rare, since fewer companies are competing for the same individuals. On the other hand, ideal

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

executive candidates can typically raise the ante on their total compensation levels, since oftentimes the individual being recruited is still employed somewhere else. The company then must try to lure them away with an enticing total compensation package, which often requi

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

es buying out an existing package. The “golden handcuffs” that a previous employer put in place to retain executives probably won’t stop them from leaving, but it will have the effect of raising the stakes for the next employer. If the marketplace is intended t dictate the

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

amount of compensation, the specific design considerations of pay programs covering executives are equally important. The basic principle of executive compensation programs, particularly equity-base plans, is to maximize the after-tax dollar to the individual while minimizi

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

g any negative tax and accounting consequences to the organization, such as those set forth by the IRS, FASB and IASB. In addition, Executive compensation plans must adhere to all regulatory requirements, including Sarbanes-Oxley (SOX) the SEC and similar governing bodies.

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

Ceiling or Floor?
Some experts say that the latest requirements, including the proposed SEC regulations on enhanced disclosures, which spell out the use of tally sheets, identification of perquisites down to a lower level, and more transparency - will achieve the long s

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

ught-after-effect goal of reining in excessive compensation. Unfortunately, there’s a good chance that recent and proposed requirements will have the opposite effect: namely, to show an increase in the level of reported total compensation, as the combined value of the diver

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

e components of pay come to light and a total dollar value of the executive compensation package is shown. In a bumber cases, past legistation and IRS changes actually had the effect of raising compensation, setting new “floors” rather than “ceilings” as originally intended

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

One example of this is the infamous “million dollar rule” of Code Section 162(m), which requires base compensation above $1 million to be performance-based in order for a public company to deduct the expense for tax purposes.

Instead of lowering pay, it actually increased

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

the base salary and expanded the amount of performance-based pay. Section 162(m) was one of the main drivers of the increased issuance of stock options in the 1990s; since stock options are considered performance-based compensation for IRS calculation purposes. In addition

t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel

there has been a huge increase in the upside potential of annual incentives. Typically performance-based, they provided the opportunity to raise total compensation without negatively affecting the million-dollar rule. Assuming that the performance measures are real, and ac

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

ually drive the business - and in turn help to increase shareholder value - additional performance-based pay is a little like apple pie and motherhood: a concept that few can argue with. When above-average performance is achieved and increased compensation justified, this c

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

ncept does work. However, it only takes one rotten apple to spoil the barrel and raise the red flags of what is perceived as excessive" compensation.

History Repeating?
Given this, is history destined to repeat itself? Will the new crop of regulations have the effect

.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de

of lowering pay levels as intended? If the past is any indication, probably not. For awhile, at least, they will make Boards and Compensation Committees more cognizant of their responsibilities to better tie compensation to defensible performance standards and achievements

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

But the bottom line is that the market will continue to be a major driver of what an organization needs to pay in order to attract top talent, retain proven individuals and reward them through pay plans tied to the achievement of appropriately selected performance metrics

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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