Friday, August 13, 2010

A Golden Parachute for Making Contaminated Drugs?

In late 2009, we posted about problems at a Genzyme plant that manufactured some fabulously expensive drugs, e.g. Cerezyme whose cost to patients approximated $160,000 a year. We thought then that for a drug costing that much, the company ought to have figured out a conservative process to provide pure and unadulterated product. In a later post we also why a company that could afford to make its CEO very rich could not afford to adequately maintain its manufacturing facilities.  In May, 2010, we posted about a legal settlement of charges related to its manufacturing problems requiring Genzyme to pay a $175 million fine and function under US government supervision.

Recent news articles suggest that the fix of the company's inabilities to manufacture pure, unadulterated drug remained remote.  Reuters reported that it had to discard "additional inventories of drugs ... for failure to the meet the company's quality control standards."  Bloomberg reported that it "may take three to four years to complete changes requested by U.S regulators after plant contamination."

Meanwhile, however, the company continues to talk to Sanofi-Aventis about being bought out, and the Boston Globe reported just how much Genzyme CEO Henri A Termeer would stand to make if the buyout takes place:
Under the 'hange of control' agreement currently worth $23 million, Termeer would receive several payments. He would receive a lump sum of $11 million, a figure representing three times his base salary plus a bonus. He would also get $356,000 in benefits, including health, life, accident, and disability insurance, outplacement and relocation services, and legal fees. And he could cash out 175,137 shares through accelerated equity awards. Those shares are now worth $11.9 million, but almost certainly would be worth more if the company is acquired at a premium.

Apart from the golden parachute, Termeer could reap huge stock gains if the company is sold. The 4.1 million Genzyme shares he owns represented about 1.5 percent of its stock as of April 9, the most recent regulatory filing. At the current share price, Termeer’s stake is worth more than $275 million.

So riddle me this: over the last 5 years, Genzyme stock-holders have seen their investment lose 5.7% of its value (according to Google Finance),  while patients have paid outlandish prices for contaminated medicine, or have had to reduce their medication dosages after the defective manufacturing plant was shut down.  So why should the CEO who presided over all this, whose has already become rich as a hired employee of Genzyme, get even richer? 

Once again we demonstrate how massively perverse incentives stupendously reward the top brass of health care organizations for mediocre, or worse leadership and bad results for both patients/ clients/ customers and stock-holders alike.  As long as being a health care CEO is effectively a license to loot the company, is it any wonder that health care organizations continue to be badly lead, and health care costs soar while quality and access suffer? 

Once more with feeling: real health care reform would require us to make health care executives truly accountable for their actions, and penalize them for those that are ill-informed, contemptuous of health care values, self-interested, or corrupt. 


Judy B said...

Why is this information not being seen or heard in the media? Oh wait, the media depends on advertising income....

Cetamua said...

Interesting post by Uwe Reinhardt on economics and morality in health care.

The conclusion is pretty similar to HCR, but the reasoning and arguments are worth a discussion, IMO.

A more general economics take by Nouriel Roubini also reaches a similar conclusion; government regulations are needed, and they need to be, ahem, shall we say, dissuasive.

Cetamua said...


I forgot to post the Roubini lnk: