Retired Lilly chief Lechleiter hauls in $18.4M in executive pay as pension value soars

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Retired Eli Lilly CEO took home $18.4 million in executive pay in 2016.

When John Lechleiter retired from his post as CEO of Eli Lilly at the end of last year, the company was reeling from the failure of its long-anticipated Alzheimer’s compound solanezumab and facing falling demand for key blockbusters like cancer drug Erbitux and erectile dysfunction treatment Cialis. Nevertheless, Lilly handed Lechleiter a big payout as he handed over the CEO reins to David Ricks.

Lechleiter, who is serving as nonexecutive chairman of Lilly through May of this year, took in a total of $18.4 million in compensation last year, according to its proxy statement. That bested his 2015 pay by nearly $2 million. Lechleiter’s base salary didn’t change, and his stock awards and nonequity incentive pay actually fell slightly, but the value of his pension soared by more than $3 million.

That change in Lechleiter’s pension value helped offset the impact of the year’s disappointments. In 2015, Lechleiter’s stock awards rose a remarkable 69%, a reward for the 73% gain in Lilly’s share price from 2013 to 2015. Last year, though, Lilly’s stock fell about 12%, reflecting earnings misses. Lilly said in its filing that the company exceeded its targets for revenue and pipeline progress but “narrowly missed” its earnings-per-share target.

As a result, Lechleiter’s nonequity incentive reward dropped from $3.6 million in 2015 to $2.6 million last year. The value of his stock awards fell about 3% to $11 million.

The solanezumab failure took a major toll on Lilly, prompting the company to cut 485 jobs to get control of its expenses. In the fourth quarter, the company’s non-GAAP earnings of $1 billion, or 95 cents per share, missed analyst estimates by 3 cents. For the full year, sales rose just 6% to $21.2 billion and EPS nudged up 3% to $3.52.

Lilly’s diabetes unit is performing moderately well, as its new GLP-1 drug Trulicity picks up steam and SGLT2 drug Jardiance continues to win over physicians and patients. But during the fourth-quarter earnings report, Lilly acknowledged that demand for Cialis is falling, and that the 6% sales increase for the drug during the quarter came entirely from price hikes. What’s worse, Cialis is set to lose patent protection in the U.S. and Europe this year.

In fact, raising prices is proving to be an iffy strategy at best for Lilly. Earlier this week, the company reported that pressure from pharmacy benefit managers and competitive forces caused the company’s list prices to drop by 11 percentage points last year. The company actually raised its list prices by 14% in 2016, but its net price increase turned out to be just 2.4%. That was a big change from 2015, when it netted 9.4% on an average price hike of 16.3%.

Lilly did point to some 2016 pipeline achievements in its proxy statement. Jardiance picked up a cardiovascular indication from the FDA, for example, and psoriasis treatment Taltz won approval in the U.S., Europe and Japan. But investors will no doubt be looking for the company to justify its high payouts to executives—including its retired CEO—with better performance this year.