In early 2019, several board members of Bristol Myers Squibb reached out to the company’s top shareholders for advice as to how they should revise the executive compensation plan in light of the pending $74 billion acquisition of Celgene. As a result of those discussions, BMS tied elements of both its short-term and long-term incentive payouts to its top executives to the success of what promised to be a complicated integration.
That may explain why CEO Giovanni Caforio didn’t get the big raise investors might have expected in light of the massive merger. In fact, his base salary of $1.65 million was flat over the previous year, and both his stock awards and non-equity incentive plan compensation dipped slightly, to $12.6 million and $3.9 million, respectively. All told, his total pay package for 2019 fell to $18.8 million from $19.4 million.
In a Securities and Exchange Commission filing, BMS explained that it revised its 2019 executive compensation program, changing the way it calculates the long-term incentive awards that it pays out in shares. Rather than awarding performance shares only based on operating margin, total revenues and total shareholder return, the company started including “key integration metrics” in the calculation for its most senior executives, including Caforio, according to the filing (PDF).
Caforio and his executive team didn’t have much time to prove the integration plan was working, given the acquisition closed in November. Still, there are strong indications the merger is already starting to pay off for BMS. The company’s fourth-quarter revenues of $7.9 billion came in well above expectations, with much of the gain coming from Celgene products such as blood cancer drugs Revlimid and Pomalyst. The company was so optimistic about its future, it estimated it would record adjusted earnings per share of between $6 and $6.20 for 2020 and $7.15 and $7.45 for 2021, which also blew past analysts’ estimates.
But in addition to focusing on the transition, BMS’ board tied executive pay to lofty goals for its pipeline last year—and the company did fall short there, it acknowledged in the filing. It succeeded in completing 27 regulatory submissions and approvals, well within its target of 23 to 34. But the 19 pipeline projects that met “transition milestones” missed the company’s goal of advancing 22 to 34 drug candidates.
BMS’ regulatory wins in 2019 included eight approvals for new medicines or added indications for marketed drugs. A combination of BMS’ checkpoint inhibitors Opdivo and Yervoy was approved for the first-line treatment of kidney cancer in Europe, for example.
Still, there were some notable disappointments last year. A trial of the Opdivo-Yervoy pairing in melanoma patients post-surgery didn’t demonstrate that the combo was better than Opdivo alone at preventing recurrence. And Opdivo plus chemotherapy failed to top chemo alone in previously untreated patients with non-squamous non-small cell lung cancer. The Opdivo setbacks are making it that much harder for BMS to compete against Merck’s blockbuster checkpoint inhibitor Keytruda.
As Caforio works through the integration and pipeline challenges, he’ll be backed by an executive team that’s seen quite a few changes since the Celgene deal was announced. Chief Scientific Officer Thomas Lynch was replaced by Samit Hirawat, M.D., who previously led oncology development at Novartis. Celgene Chief Financial Officer David Elkins stepped into the same job at the combined company, replacing BMS’ retiring CFO Charlie Bancroft. Elkins took home $4.4 million in pay in 2019, including a $1.05 million sign-on bonus.
Last month, BMS announced it had hired Elizabeth Mily as executive vice president of strategy and business development, replacing Paul Biondi. Mily, a veteran of Goldman Sachs and Barclays, brought with her a wealth of M&A experience that Caforio said would be crucial to advancing BMS’ strategy of looking for more deals to boost its pipeline.
For 2020, BMS’ top executives will continue to see both their short-term and long-term compensation tied to the success of the Celgene acquisition. Any increase in their base salaries will hinge on EPS (30%), revenues (25%), integration synergies (20%) and pipeline accomplishments (25%).
There’s one new element in the pipeline piece of that makeup: the contingent value right (CVR) that was included in the Celgene deal. As BMS was sealing up the acquisition, it changed the offer from $57 per share in cash and a one-to-one share trade to $50 plus one CVR. The CVR wouldn’t pay anything unless three Celgene assets reached the market by March of 2021.
One of those assets, multiple sclerosis drug Zeposia (ozanimod), made it to the finish line last week and will make the market deadline in spite of a pandemic-related delay. A second, the CAR-T liso-cel for large B-cell lymphoma, is slated for a decision from the FDA this August. As for the third candidate, CAR-T bb2121 for multiple myeloma, BMS said late last year it was preparing to apply for approval following positive results from a phase 2 trial.