Opinion

John Stoehr: We must demand our corporate citizens act responsibly

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When Alexion Pharmaceuticals announced in 2016 that it was moving back to New Haven after nearly a decade in Cheshire, elected officials and civic leaders hailed the news as a sign that the Elm City was fast becoming a force in biomedical research.

Supported by more than $50 million in grants, loans and tax breaks from Gov. Dannel P. Malloy’s First Five program, the drugmaker was set to join Yale University, Yale New Haven Hospital, Achillion Pharmaceuticals Inc., Melinta Therapeutics and Arvinas Inc. to solidify the area’s reputation as a hub of 21st-century innovation.

The company spent $15 billion to bring its marquee drug, Soliris, to market the year before. It planned to relocate about 1,000 employees to New Haven’s brand-new Downtown Crossing, a building that Mayor Toni Harp called “the crown jewel.” It posted revenues of $2.6 billion in 2015, up 17 percent from 2014. Success breeds success, successful people tend to say. The best was yet to come.

That was then.

Alexion’s founder, Leonard Bell, announced his retirement in March and in December top executives left the company. In May, another wave of top officials left suddenly. All that happened days before Bloomberg Businessweek published a devastating exposé on Alexion’s business strategy along with allegations about its sales strategies and a report of a U.S. Securities and Exchange Commission investigation into potential violations of the Foreign Corrupt Practices Act.

The story was so damaging, it had me wondering: Does the public know what’s going on at Downtown Crossing? Yet, more pressing: Do city and state taxpayers know what they are underwriting? Do elected officials know what they have done in the public’s name?

I’m guessing no.

Alexion specializes in what are called “orphan diseases,” meaning illnesses that are so rare (like one in 500,000 people), it’s nearly impossible to make money making drugs to treat them. Soliris, for instance, is used for a rare blood-disorder. To people the drug has helped, Alexion’s research and development have been a godsend.

But because Alexion’s business is treating rare diseases, that means its clientele is vanishingly small. According to Businessweek, Soliris accounts for nearly all of Alexion’s revenue, and all of that is from an estimated 11,000 people around the world. That small clientele generated last year $3 billion in sales, making Alexion as valuable to Wall Street as Hewlett-Packard and Pizza Hut.

Pricing is the reason. One treatment of Soliris costs more than $18,000. The average patient last year needed $136,000 in therapy, a price tag that climbed nearly 40 percent over six years. Federal law meant to encourage entrepreneurs to develop drugs for rare diseases that had no market gives them the right to monopoly. A policy expert told Bloomberg that this gives Alexion and others “a blank check to price the drug where they think it’s reasonable.” When first pricing Soliris in 2007, “reasonable” for Alexion was almost $390,000 a year.

Alexion says it price is high to recoup the cost of developing Soliris, but that rationale doesn’t much square with facts unearthed by Bloomberg. Alexion can’t afford to lose patients, so it goes to great lengths to find and retain them. These lengths include: allegedly harassing doctors not to take their patients off Soliris; hiring nurses to exploit their medical authority to sell Soliris; funding lawsuits against Brazil to force the government to pay for Soliris; striking deals with commercial laboratories — familiar ones like LabCorp and Quest Diagnostics — to send “blind test data” with which to grow the Alexion’s client list.

Not only do these sales practices cost a lot, Businessweek reported they appear to transgress ethical boundaries.

On Tuesday, Alexion said it hired a new CFO to clean house.

Paul J. Clancy better hurry. New Constructs, a Wall Street analysis firm, urged investors in May to hurry up and sell stock in Alexion. Alexion had earned its “very dangerous rating,” meaning there’s more downside than upside to owning Alexion’s stock. Of the 337 health care sector stocks it examines, Alexion’s ranks 312.

But Wall Street isn’t the only stakeholder.

Connecticut taxpayers ponied up $6 million in grants for Alexion to move to New Haven (in other words, free money). That’s not to mention $20 million in loans forgivable after Alexion creates 650 jobs. That’s not to mention $25 million in state and local tax breaks.

But more importantly, New Haven needs Alexion, just as it needs all private enterprise to succeed. There’s only so much land to tax and a large portion of that is owned by Yale.

New Haven must do what it can to encourage entrepreneurship, promote growth and retain smart, talented and industrious people who buy homes, send their children to school, and pay taxes.

But we can’t be made captive to our need. We demand that individual citizens act responsibly. We must demand no less from our corporate citizens. Time will tell if that’s the case.

Let’s hope, for New Haven’s sake, that it is.

John Stoehr is a lecturer in political science at Yale and a New Haven resident.