Medarex Execs Got 10% Pay Raise Despite Delivering Nothing

If there's a pharma company that rewards executives for delivering absolutely nothing, thy name is Medarex. Consider its record in 2008:
  • Revenues declined from $56.2 million to $52.3 million.
  • Its net loss expanded from $27 million to $38.5 million.
  • The company has never made a profit in the last five years. The deficit on its balance sheet accumulated to more than $1 billion.
  • Its big melanoma cancer product, ipilimumab, a joint venture with Bristol-Myers Squibb, was nixed by the FDA, which asked the company to come back with more phase 3 data that will only be unblinded in late 2009.
  • The stock started the year over $10, it ended at under $6.
  • And next year's revenues will be below analysts' estimates.
How were management rewarded for this? Their pay was increased 10 percent* (see correction below). CEO Howard Pien received $5.1 million. All of the top five execs got raises in both cash and non-cash compensation. And while it is true that they didn't get cash bonuses, some of their options were issued with strike prices as low as $3.43.

Here's the summary.

  • Name, 2008 pay, 2007 pay
  • CEO Howard Pien, $5.1 million, $2.7 million
  • CFO Christian Schade, $2.5 million, $1.9 million
  • SVP science Nils Lonberg, $1.8 million, $1.7 million
  • SVP prod. dev. Geoffrey Nichol, $1.7 million, $1.6 million
  • General counsel Ursula Bartels, $1.1 million, $187,000 Numbers are rounded, includes stock and options whose value changes over time.
Pien and Bartles only worked part of 2007, so a comparison makes it look like they got more money in 2008. Factoring that out, the five between them got 10 percent more in total compensation than last year.

The board's compensation committee used this justification for the raises:

... individual performance is assessed on the basis of more subjective, non-formulaic criteria ... [including] ... contribution to the management team and application of managerial leadership skills ...
CEO Pien seems to think he's running a tight ship. In Medarex's Q4 call, he told Wall Street:
Our business strategy is driven by our commitment to execution and governed by financial discipline...
"Financial discipline"? Twenty-eight percent of his G&A costs are compensation expenses for just five executives.

Here's my promise: If the FDA approves ipilimumab, I'll write a note apologizing to Pien et al for doubting them. In the meantime, Medarex's leadership might want to consider making themselves less expensive for their investors.

* This item and its headline were corrected from the original to account for the part-year pay that Pien and Bartels received in 2007.