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This Aug. 8, 2016, photo provided by Allergan shows Brent Saunders.  Saunders, CEO of Botox maker Allergan PLC, last September 2016, announced a new "social contract" under which the company would limit annual list price increases for its drugs to below 10 percent. After deducting the discounts insurers and other payers get off the higher list price, Allergan will receive net price increases of around 2 percent to 3 percent on its drugs, Saunders said.   (Jeff Weiner/Allergan via AP)
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Insider Q&A: Allergan CEO on impact of limiting price hikes

This Aug. 8, 2016, photo provided by Allergan shows Brent Saunders. Saunders, CEO of Botox maker Allergan PLC, last September 2016, announced a new "social contract" under which the company would limit annual list price increases for its drugs to below 10 percent. After deducting the discounts insurers and other payers get off the higher list price, Allergan will receive net price increases of around 2 percent to 3 percent on its drugs, Saunders said. (Jeff Weiner/Allergan via AP)

As drugmakers pushed back against rising criticism over sky-high U.S. prescription drug prices, one pharmaceutical company went public with a pledge.

Brent Saunders, CEO of Botox maker Allergan PLC, last September announced a new “social contract” under which the company would limit annual list price increases for its drugs to below 10 percent.

After deducting the discounts insurers and other payers get off the higher list price, Allergan will receive net price increases of around 2 percent to 3 percent on its drugs, Saunders said. Several companies have followed suit, pledging annual increases below 10 percent. Others said that’s been their practice, though most have generally been raising prices just under that benchmark.

Allergan, which is based in Dublin but operates from its U.S. headquarters in Parsippany, New Jersey, also sharply boosted financial aid for eligible patients.

In a recent interview, Saunders said his executive team, board and long-term investors supported his move. He said the strategy also helps Allergan, forcing it to plan for the future, focus on internal drug development and make deals to get promising experimental drugs from other companies. His comments have been edited for clarity and length.

Q: Why did you make this social contract?

A: I’ve always believed the industry has a societal obligation to invest in new drug discovery and to make drugs affordable and accessible to patients. I wanted to really take a bold step. We need to solve this issue, or the government will for us.

Q: How does restraining price increases improve Allergan’s prospects?

A: You can get complacent as a company if your growth is predominantly through price increases. If you think beyond one quarter, it’s good for business.

Q: How does limiting price hikes do that?

A: It forces you to stay sharp and competitive in innovation and operational excellence. You focus on your pipeline with (patent expirations) in mind, so if your big drug’s patent is ending, you need three to four R&D programs that, if successful, can cover that and provide growth.

Q: How will you accomplish that?

A: We’re going to invest to find cures and treatments needed in areas including depression, Alzheimer’s and diabetic gastroparesis (a disorder that causes vomiting, abdominal pain and bloating, and limits absorption of food and medicines).

Q: What else is key to Allergan’s strategy?

A: Instead of being a big, sprawling company with various brands, we picked seven areas where we can be best in class. We have scale and depth of expertise in those, and we’re No. 1 or 2 in four of them (eye care, medical aesthetics, gastroenterology and central nervous system disorders).

Q: What should the industry do to address the drug price issue?

A: Across the whole health care system, we need transparency on prices and a level playing field. These things can happen over the next couple years.

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