The Boston Globe devoted its top story this morning to criticizing Vertex Pharmaceuticals for paying $54 million in retention bonuses to top executives (Cystic fibrosis drug could bring millions to executives. Critics decry plan to compensate executives if costly new drug is profitable.) The Globe story argues that the bonuses are undeserved, unnecessary, and harmful to patients.
Thankfully, the story includes enough facts so that a perceptive reader can draw their own conclusions. Here’s my take:
- The bonuses are performance based. They will only be paid if the company reaches profitability, which has taken 25 years to achieve. Profitability is key for the long-term success of Vertex and it’s reasonable for executives of this company to have that as an explicit, public goal
- The new drug that could take Vertex to profitability is likely to offer major benefits to cystic fibrosis patients, enabling them to live longer and enjoy a better quality of life. We’re not talking about a toenail fungus or “me-too” treatment here
- Vertex management is delivering returns to shareholders: more than a $15 billion increase in value in the past year. The bonuses are small compared to that
- There is a rationale for retention bonuses, because these executives are attractive to others hoping to emulate Vertex’s success
Of course there are other important issues here: drug pricing, the increasing gap between the richest and everyone else, cost of drug development, government involvement in healthcare, etc. But attacking this particular bonus plan strikes me as a distraction and not worthy of the attention the Globe is providing.
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—May 1, 2015