CEO Gaffe of the Week: AstraZeneca
Mar 10th 2012 10:05PM
Updated Mar 10th 2012 10:06PM
Last month, I introduced a new weekly series, "CEO Gaffe of the Week." Having come across more than a handful of questionable executive decisions last year when compiling my list of the Worst CEOs of 2011, I thought it could be a learning experience for all of us if I pointed out apparent gaffes as they occur. Trusting your investments begins with trusting the leadership at the top -- and with leaders like these on your side, sometimes you don't need enemies!
This week I want to highlight David Brennan, CEO of pharmaceutical juggernaut AstraZeneca (NYS: 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 (NAS: 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 (NYS: FRX) attempted to shore up its pipeline by purchasing Clinical Data for $1.2 billion. Bristol-Myers Squibb (NYS: 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.
Do you have a CEO you'd like to nominate for this dubious weekly gaffe honor? Shoot me an email and a one- or two-sentence description of why your choice deserves next week's nomination, and you just may wind up seeing your nominee in the spotlight.
And if you'd like a surefire way to avoid investing in companies with questionable leadership practices, I invite you to download a copy of our latest special report, "Secure Your Future With 11 Rock-Solid Dividend Stocks." This report contains a wide array of companies and sectors that are likely to keep your best interests in mind, regardless of whether the market is up or down. Best of all, it's completely free for a limited time, so don't miss out!
At the time this article was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He is merciless when it comes to poking fun at dubious CEO antics. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of Teva Pharmaceutical. Motley Fool newsletter services have recommended buying shares of Teva Pharmaceutical. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that never wears a dunce cap.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.