Advisory Firms Urge Vertex Shareholders to Reject Executive Compensation Package at June 4 Meeting

Advisory Firms Urge Vertex Shareholders to Reject Executive Compensation Package at June 4 Meeting
May 27, 2015
By Alex Keown, BioSpace.com Breaking News Staff

BOSTON -- Two advisory firms say planned executive compensation packages at Vertex Pharmaceuticals are excessive and are encouraging shareholders to vote against the package that includes $29 million in retention bonuses awarded to the top five executives, the Boston Globe reported this morning.

In 2014 Jeffrey Leiden, chief executive officer of Vertex, was paid a total of $36.6 million, including a retention bonus of $14.9 million. Since Leiden assumed the reins of the cystic fibrosis-drugmaking company three years ago, the company’s shares have gained 226 percent, while the Nasdaq Biotechnology Index rose 207 percent.

Vertex stock jumped earlier this month after a U.S. Food and Drug Administration (FDA) panel voted 12 to 1 to approve its cystic fibrosis drug Orkambi.

Company stock was down slightly this morning trading at $122.48 per share, down from its close of $122.64 per share.

Institutional Shareholder Services Inc, a corporate governance adviser, recommended shareholders cast a non-binding vote of disapproval at the company’s annual meeting on June 4, Bloomberg News said. The news agency said ISS told shareholders “The total level of CEO pay is excessive and is not contingent upon rigorous performance conditions.”

The bonuses are set to be paid if Vertex earns an annual profit in any of the next three years. Bloomberg reported Vertex has not been profitable since 2012, nor is it estimated to make a profit until 2016. In its 26 year history Vertex has earned an annual profit only one time, the Globe noted.

However, ISS said if Vertex fails to make a profit over the next three years, the “award may still vest if it is achieved in the following two years,” the Globe noted in its report.

Glass Lewis & Co., another advisory firm, also issued a report criticizing the Boston-based pharmaceutical company’s executive pay plan.

While the advisory companies are critical of the plan, a Vertex spokesperson told Bloomberg the compensation packages are necessary to retain top talent while the company awaits regulatory approval for a cystic fibrosis drug and other treatments.

All eyes will be watching Vertex Pharmaceuticals’ newest cystic fibrosis drug Orkambi to see if it outperforms the drugmaker’s current cystic fibrosis medication Kalydeco, which earned $130 million in the first quarter of 2015. Since its approval by federal regulators three years ago, Kalydeco has steadily improved its earnings year after year. But while Kalydeco has been a steady performer for Vertex, analysts are carefully watching the launch of the Orkambi, which is expected to launch this summer and earn $5 billion by 2018. The company expects 3,900 patients to be eligible to take Kalydeco by the end of the year, but Orkambi will “be able to treat 20,500 cystic fibrosis patients in the EU and U.S. older than 12 with the F508del mutation,” the Motley Fool reported. If Orkambi is approved for younger patients, that number could swell by another 5,000.

Vertex is not the only pharmaceutical company to offer large compensation packages to its executives. In April Valeant Pharmaceuticals International, Inc. awarded its top five executives approximately $123 million in compensation in 2014, about five times the $23.8 million they earned in 2013. Valeant, which specializes in eye medications, including glaucoma-treating medication Vesneo, reported the compensation in a proxy filing with the U.S. Securities and Exchange Commission on April 9. In its filing the company said high executive compensation was commiserate with achieving revenue goals. In 2014 Valeant Pharmaceuticals International, Inc. reported total revenues increased by 43 percent over 2013.

But some companies have gone the other route. In March Regeneron Pharmaceuticals, Inc. , the maker of vision-loss drug Eylea, announced it was cutting perks and expenses for Chief Executive Officer Leonard Schleifer and Chief Scientific Officer George Yancopoulos, part of a move aimed at simplifying executive compensation packets. In a filing with the Securities and Exchange Commission Regeneron said the benefits “were no longer consistent with our overall compensation program.”



Will PfizerKline Become the Next Pharma Player?
The speculation surrounding a possible bid from Pfizer Inc. for struggling GlaxoSmithKline is heating up, after one closely-watched biotech analyst said in a note last week that Pfizer buying the company would “unlock access to its balance sheet and improve its tax situation.”

Gregg Gilbert, a biotech analyst at Deutsche Bank, wrote in a note to investors “Introducing PfizerKline” that he thinks a deal would be “materially accretive” for both companies. Gilbert estimated that a bid priced at $29.86 a share, via half stock and half cash, which would push up Pfizer’s earnings per share by 10 percent to 16 percent beginning in 2016.

“We believe that the company has a sense of urgency to create value by leveraging the power of its balance sheet to do needle-moving deals,” Gilbert wrote. “Since media reports in the past have pointed to the potential for a Pfizer/GSK combination, we are revisiting that theme.”

We want to know, dear readers, if you agree? Should Glaxo continue going it alone, or might Pfizer buy it and create one of the world’s largest pharma players in history?

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