AbbVie investors are calling for a separation of powers in the C-suite, citing Chairman and CEO Richard Gonzalez's outsized pay package and the company's "thicket" of Humira patents.
In an SEC filing Monday, AbbVie investor and Rhode Island General Treasurer Seth Magaziner threw his weight behind a shareholder resolution that would split the board chairman and CEO positions after Gonzalez leaves the company.
Magaziner ticked off a series of reasons why AbbVie needs more oversight, including the repeated price hikes that have fueled Humira sales growth. He also cited AbbVie's aggressive Humira patenting, a technique that's prolonged the drug's monopoly and spawned at least two court cases. And then there's Gonzalez's $4 million bonus, which drew fire in a recent congressional hearing.
“Shareholders would benefit from the leadership and governance of an Independent Chair,” Magaziner said in the filing. “A CEO who also serves as Chair can exert undue influence on the board and its agenda, diminishing the Board’s governance of company management.”
The resolution comes on the heels of Gonzalez’s public shellacking by the Senate Finance Committee in late February over concerns that company executives were profiting off of Humira price hikes.
Of Gonzalez’s $21.27 million salary in 2018, nearly 20 percent—or $3.9 million—came from bonuses tied primarily to the megablockbuster's sales performance. In 2017, Gonzalez collected $4.1 million in incentive pay before Humira’s annual sales dipped from a record high of $20 billion.
AbbVie leadership has also been accused of creating a “patent thicket” in its battle to stave off biosimilar competitors to Humira. Boehringer Ingelheim is among the few still fighting AbbVie over those patents hoping to launch its biosim, Cyltezo, before its rivals do. Top biosimilar makers, including Novartis' Sandoz unit and Mylan, have settled their own Humira patent fights with deals that put off launches until 2023.
AbbVie says Cyltezo infringes about 70 patents the company currently holds for Humira. Boehringer's lawyers say AbbVie's copious patents overlapped in an attempt to exclude competitors from the market.
AbbVie was next hit in March by New York’s UFCW Local 1500 Welfare Fund, which again accused the company of using overlapping patents to exclude biosimilars.
Magaziner said executive pay questions and Humira patent issues have eroded investor trust in AbbVie’s leadership, particularly as the stock's value has crumbled in recent quarters, he said.
“Since the 2018 annual shareholder meeting, share value of our company has continued to decline, and the company is facing mounting legal and reputational risks related to its management of patents and unsustainable pricing of Humira,” Magaziner said.
The call for an AbbVie leadership shakeup comes amid a proxy fight at Allergan that began when activist investor Appaloosa demanded a chairman-CEO split. The hedge fund has taken shots at CEO Brent Saunders' pay—which came in at $33 million in 2017, but sank to $6.6 million last year—and lambasted its M&A failures. Appaloosa ratcheted up the pressure last month after the company’s depression treatment rapastinel couldn’t pass muster at phase 3 trial.
If the plan by AbbVie’s investors succeeds, the drugmaker would join the ranks of publicly traded companies that have forged a gap between their board and corporate leadership. In 2018, just 45.6 percent of companies listed on the S&P 500 still merged their CEO and board chairman roles, the Wall Street Journal reported. In 2017, that figure was 48.7 percent.