Compensation and Bailouts
The current economic situation in our country is pretty ugly. Stimulus packages, bailouts, failures, bankruptcy…they all seem to be in the headlines in some form or another these days. I was browsing through the stories on FierceBiotech and FiercePharma and it seems that neither industry has been immune to the deluge of bad news, regardless of the size of the organization. Kevin Tang, owner of Tang Capital Managment in San Diego and a 15 percent stake in Vanda Pharmaceuticals proposed that the company sell its assets and shut down, distributing the returns to shareholders and minimizing the impact of the struggle the company has been facing while dealing with the Food and Drug Administration rejection of its flagship schizophrenia drug (click here for the full story). Giants like Pfizer and Johnson & Johnson have felt the sting too, with Pfizer stock price at a 10-year low and Johnson & Johnson reporting its first revenue decline (4.9%) in 76 years.
Well, if things are so bad all around, is there room in the government bailout for biotech and/or small pharma? Dr. Daniel J. Nevrivy writes that there should be in his FiercePharma article, “Does the U.S. biotech industry deserve a bailout?“ Government money would be helpful to those companies whose pool of capital has dried up, and especially welcome by the third of publicly traded companies Nevrivy cites that have less than six months of cash on hand. But, from his point of view, the strongest argument for giving some public funding to these sectors is our position as a global leader in these industries; for that reason one can’t equate a Biotech bailout with the one proposed for U.S. Automakers, where we seriously lag behind other countries in quality and innovation.
FierceBiotech ran a poll in conjunction with its article asking its readers to rate whether the Biotech industry deserved a bailout, and the answer was no, but not resoundingly so. Only a small majority of readers indicated that the Biotech industry didn’t deserve a bailout, and the comments received by the author of the article, Maureen Martino, indicated that the opposition was more to financial assistance than any type of assistance. For more details, you can see FierceBiotech’s “Biotech Bailout: Thanks but no thanks,” but you can also give your own opinion in our poll to the right of this article…it would be interesting to compare results!
In response to all of this, there seems to be at least some attempt to take on responsibility within the Pharmaceutical arena. As reported in FiercePharma, Johnson & Johnson CEO Bill Weldon refused a merit salary increase for 2009 according to a filing with the Securities and Exchange commission. Weldon cited current economic conditions for turning down the raise offered him by compensation committee in charge of reviewing his salary. Though respectable, you probably don’t have to worry about his livelihood — he made $1.8 million last year as his base salary, and will reap $3.5 million in bonuses for last year. To me, a more powerful statement would have been an agreement to little or no bonus for 2008, taking some accountability for that revenue decline rather than stating, in essence, things would get better.
Those who know me also know how much I love Apple. Though Steve Jobs is not always, by many accounts I’ve read, an easy man to work with, he does seem to carry the right philosophy when running his company. When he took Apple back over in the late 1990s, he made it his mission as CEO to make the company a success. He took a paltry salary of $1/year, asking only to be compensated with a bonus if the company did well. And there were no bailouts for his company; he and his team had to figure it out on their own. We all know how the story has progressed thus far — Apple has done incredibly well, as has Steve Jobs, but he still earns only $1/year as his base salary. Perhaps he is a somewhat exceptional case because Apple is the company he helped to found, and thus he had a more personal attachment to its success. But maybe we should examine his commitment and apply it, at least in part, to other CEOs earning millions in bonuses at other companies that are suffering through this economic turbulence.
As with many industries, there are going to have to be tough changes in order for companies to survive. The formula doesn’t necessarily have to be the same for every company, and certainly I don’t want to minimize Bill Weldon’s refusal of a pay raise; the move was an admirable first step. But there is no doubt these are exceptional times, and it seems that they will get worse before they get better. Perhaps it’s time to demand some exceptional leadership.
Update 04/17/2009: Dr. Daniel Nevrivy, Attorney and Life Sciences Ph. D, wrote to me and sent a link on a follow-up article to the one mentioned in this post. Feel free to peruse it if you wish — there’s all kinds of information on his background and more about the industry will be affected by the current economy. Find the article here.
Does the U.S. biotech industry deserve a balout?
- No (50%, 1 Votes)
- Not Sure (50%, 1 Votes)
- Yes (0%, 0 Votes)
Total Voters: 2
Loading ...If you enjoyed this post, please consider leaving a comment or subscribing to the feed and get future articles delivered to your feed reader.
[...] friend Mariano at Avelient BioPharm Blog had an interesting post about whether the biotech industry deserves – or even WANTS – a [...]