Useful Advices - Business

We all succumb to the annual ritual of making a bunch of resolutions about how we will change our lives with the start of the New Year: eat better and healthier foods, exercise more, reorganize our rather hectic and stressful lives in order to live longer, and lear

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

n to enjoy what we have. In most instances, regardless of how dedicated we are to these resolutions, most of our good intentions give way to the realities and pressures of everyday living, and before we know it, we are pretty much back to where we were on December

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

Examples of combination products may in

1.

Executive compensation is, in many ways, treated very much the same way. Boards and their Compensation Committees set forth their resolutions on how they will tighten up the criteria for governing and determining executive compensation going forward. Some of t

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

is idealism is internally generated based on reasonableness and a strong sense of responsibility on the Board’s part. Unfortunately, this desire to tighten up the decision-making process emanates from external pressures, namely the shareholders, investors and their

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

“watchdog groups”, and various governmental agencies and their “knee jerk” regulations, including recent changes in accounting and tax rules. After all, the basic premises behind executive compensation has always been to maximize the value to the individual while m

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

Combination pro

nimizing the taxes to the executive and company, along with minimizing any negative accounting issues for the corporation. These are over and above the basic objectives of any compensation program, which are four-fold:

1. To provide the competitive package necessa

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

y to attract qualified talent;

2. To assist in retention of that talent, the proverbial “golden handcuff”;

3. To provide the motivation needed to achieve desired results, in effect, the “golden ring”; and lastly,

4. To focus the employee’s attention on specific b

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

usiness objectives, so that what is achieved is consistent with the business strategy.

Just as New Year’s resolutions are all too often sidestepped when realities of every day pressures are confronted, the Board’s resolve to “do the right thing” is sometimes forgot

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

en when undue pressures, whether competitive or self-induced, are encountered. For example, in the case of long-term incentives, we have seen the Compensation Committee give in and provide an award, such as stock options, even though the performance goals were not

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

et and no incentive award was warranted. The explanation often given is that “it was out of the hands of the executives, and we can’t afford to lose our top people”. In reality, the Board’s actions have weakened their own policies, and ignored the reality that the

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

e may be more capable individuals available in the marketplace that could achieve the stated business objectives, despite the costs involved in recruiting them. Similarly, a recent example where a Compensation Committee probably did not fulfill its duties to the sh

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

Following aspects would a

reholders, Board or itself, was one in which the Committee provided a severance payment in excess of $5 million to an executive who was forced out for poor performance. Not only did the Committee fail in its duty as the arbitrator of fair and justifiable compensati

dd to the challenges in developing combination products:

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

n, but it also set a precedent for others. The mixed message is that the executives will be rewarded, regardless of whether or not they achieve the company’s business objectives.

How, then, can the Board and Compensation Committee ensure that their “resolutions” r

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

sult in real and lasting changes? As with personal resolutions, changes should be realistic and within the Board’s capabilities to accomplish. Incremental steps are much more palatable and more easily achieved than dramatic changes. Don’t resolve to overhaul the

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

entire executive compensation program in one all-encompassing action; rather, evaluate each portion of the package in a logical sequence over a period of months. Some other thoughts for making resolutions stick:

· Look at the roadmap: Review the organization’s co

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

pensation philosophy to ensure it is consistent with the business strategy and driving the appropriate performance.

· Don’t fix what isn’t broken: If a plan is achieving the goals of the organization and is motivating executives to perform optimally, don’t change

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

Professional from academic institutions, pharmaceutical industries, health care indust

t.

· Prioritize needs starting with the most critically challenged areas: Don’t focus on annual incentives if long-term programs are suffering.

· Seek the guidance of outside advisors: Professional service firms can be utilized to assist in making resolutions ha

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

pen, allowing the Board and Compensation Committee to focus on its most important responsibilities.

· Don’t expect changes to happen overnight: Lasting changes, especially behavioral ones, should happen slowly, giving time for adjustment and refocus.

Ultimately,

.

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

hange should begin at the source. The Board and Compensation Committee should evaluate the Committee’s charter to ensure that responsibilities are clearly defined, so that the document can serve as the baseline for how it will conduct its duties relative to executi

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

Companies that provide selfless information through particip

e compensation.

Contact: Paul R. Dorf, Ph.D., APD

877-934-0505 · Fax: 201-934-0737

prd@compensationresources.com

www.CompensationResources.com

##

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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