Sunday, March 11, 2012

CEO Gaffe of the Week: AstraZeneca (AZN) - The Motley Fool

This week I want to highlight David Brennan, CEO of pharmaceutical juggernaut AstraZeneca (NYSE: AZN  ) .

The dunce cap
AstraZeneca is another company that I easily could have written about last month, but I simply had too many companies built up in the gaffe backlog – which is actually rather sad if you think about it.

In February, Brennan announced yet another round of job cuts. This round will eliminate 7,300 jobs, of which 2,200 will be research and development, 1,350 operations, and a whopping 3,750 sales and administration. Since 2006, when Brennan took the helm, the company has shed approximately 21,000 jobs. With this new round of cuts, that number is nearing 30,000!

In response to these layoffs, Brennan was quoted as saying, "We are acutely aware that these decisions will affect many employees, and we will strive to support our people as we implement these changes."

How "acutely aware" is Brennan of his employees' plight? Apparently not much, because it didn't stop him from increasing his compensation package every year since 2007, despite the company's proclamation that it needs to cut another $1.6 billion from its annual costs.

In 2007, he took home $4.3 million. In 2008 and 2009, that figure increased to $4.7 million and $4.9 million, despite the layoffs. In 2010, he received a 163% bonus on top of his salary. While we don't have data yet for 2011, I can tell you that his base salary rose by 2.5%.

To the corner, Mr. Brennan ...
But wait -- there's more!

In 2009, British corporate-governance watchdog group PIRC noted that AstraZeneca had donated $816,000 to U.S. political parties. Perhaps not the best use of shareholder money. And don't look now, but it's an election year yet again. One can only imagine how much money is being appropriated to political parties this year as AstraZeneca plans another round of layoffs.

The real problem underlying AstraZeneca is its lack of pipeline innovation. The company lost patent exclusivity to Arimidex in 2010, and Teva Pharmaceutical's (Nasdaq: TEVA  ) generic Anastrozole helped contribute to a 50% decline in sales in 2011. AstraZeneca also lost the patent rights to schizophrenia medication Seroquel, which expires for pediatric use as well this month.

Other patent expirations are waiting in the wings. Asthma treatment Symbicort is expected to lose patent protection this year, Iressa in 2013, and the company's top-selling heartburn drug, Nexium, in 2014. Together, these four drugs (not including Arimidex) combined for $14 billion of Astra's $33.5 billion in total sales for 2011.

Since purchasing MedImmune in 2007, the company has been floundering, while its peers are doing what they can to avoid the patent-cliff maelstrom. Forest Laboratories (NYSE: FRX  ) attempted to shore up its pipeline by purchasing Clinical Data for $1.2 billion. Bristol-Myers Squibb (NYSE: BMY  ) made an even riskier move by purchasing Inhibitex for $2.5 billion, even though its hepatitis-C treatment had cleared only phase 1 clinical trials.

Astra has instead sat on its laurels, slowly bleeding employees and lining the pockets of its CEO. If Brennan was truly aware of and sympathetic to his employees' needs, he'd do something about his rising compensation package. But I guess they just don't make a pill to cure poor decision-making.

Posted via email from Jack's posterous

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