EpiPen Maker Mylan Dispenses Outsize Executive Pay

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The drugmaker buffeted by the furor over hefty price increases on its lifesaving EpiPen had the second-highest executive compensation among all U.S. drug and biotech firms over the past five years, paying its top five managers a total of nearly $300 million, according to a Wall Street Journal analysis.

The big pay packages are unusual because of Mylan NV’s relatively small size in the U.S. drug industry, where it is No. 11 by revenue and No. 16 by market capitalization.

Companies generally set their executive pay targets relative to peers in their own industry, with larger companies typically offering more generous pay than smaller ones. Pay also varies somewhat with corporate performance.

Mylan’s combined total of $292.1 million in pay for its top five executives over the five years ended last December outpaced that at industry rivals several times its size, according to the analysis, including Johnson & Johnson, Pfizer Inc., Bristol-Myers Squibb Co. and Eli Lilly & Co.

Of the 22 companies Mylan named in its 2016 proxy as its preferred peer group for pay purposes—some of them much larger than itself—none paid their top managers more than Mylan over the same five years, the analysis showed.

“They’ve chosen a peer group of highly paid executives from much larger pharmaceutical companies, and they’re paid at the top of that list,” said Kevin J. Murphy, a finance professor at the University of Southern California’s Marshall School of Business who studies executive pay. Mylan’s pay package is geared to reward performance, he said, but even so it is difficult to figure out why it is such an outlier in total pay. “They’re clearly very generous,” he said.

Mylan defended its pay practices, saying in a statement that its business is complex and highly competitive, and “our effective management across our regions and portfolio has allowed us to consistently deliver strong performance for shareholders, year after year.”

Mylan’s stock rose 155% over the five-year period, less than the gains for six of the 10 pharmaceutical and biotech companies with the highest executive pay over that period.

Mylan has come under fire in recent weeks over repeated price increases for the EpiPen, its only big-selling branded product, which delivers an emergency shot of epinephrine to counter severe allergic reactions. The EpiPen carries a list price of $608 for a two-pen pack, double its price in early 2014 and up nearly 550% since 2007, according to Truven Health Analytics.

Some analysts have suggested that Mylan raised prices on the EpiPen in part due to incentives approved by the company’s board, including a 2014 long-term incentive plan that rewards executives if they hit ambitious growth targets averaging 16% annually.

EpiPen produced 23% of Mylan’s operating income last year and 12% of its revenue, according to an estimate by Ronny Gal, an analyst at Sanford C. Bernstein & Co. The drugmaker gets more than 85% of its revenue from generic drugs, a generally mature market.

Mylan previously has said it wasn’t possible to achieve its growth targets based on the pricing of a single product in its broad portfolio.

One reason that Mylan ranked so high in the compensation analysis is that the company paid three top executives a total of at least $70 million apiece over that five-year period. The three were Chairman Robert J. Coury, Chief Executive Heather Bresch and President Rajiv Malik.

All three Mylan executives ranked among the 20 highest-paid in the drug industry over the five years, a distinction unmatched by any other company.

Each of these three Mylan executives was paid more than Robert Bradway, chairman and CEO of biotech giant Amgen Inc., which Mylan counts in its peer group. Amgen is more than twice Mylan’s size by revenue and has six times the market value of Mylan.

Amgen’s stock outperformed Mylan’s 155% rise over the five-year study period by 40 percentage points.

© Jim Bourg/Reuters

In its statement, Mylan said shareholders have consistently approved its executive pay programs in advisory votes. It also said changes in its management structure and some extraordinary matters over the five-year period makes “impossible” any “apples to apples” comparison of executive pay with its peers.

The company didn’t cite any such matters specifically, but last year it paid its five top executives a total of $17 million to reimburse them for U.S. excise taxes they owed in connection with the company’s relocation to the Netherlands in a bid to cut its corporate taxes. Though now Dutch for tax purposes, Mylan is managed from Canonsburg, Pa.

For its study, the Journal analyzed data on pharmaceutical and biotech pay from S&P Global Market Intelligence’s ExecuComp service, which collects compensation information on more than 1,500 of the largest U.S. companies.

The study used total annual pay as defined by regulatory rules, including salary, bonus, the estimated value of stock and option awards, and other compensation, and tallied data for the five highest-paid executives at each company in a given year.

The drug company with the heftiest top-executive pay over the five years was Regeneron Pharmaceuticals Inc., a hot biotech firm with a drug that treats age-related macular degeneration, which can cause blindness, and a stock that rose 15-fold over the five years.

Regeneron was the only drugmaker, other than Mylan, with more than one executive in the top 20. It paid its top five executives a total of $518 million during the five-year period, according to the Journal analysis.

A Regeneron spokeswoman said the company had developed new medicines for a range of serious diseases and its stock price has increased significantly. “Management compensation reflects this performance.”

A biotech company with much smaller revenue than Mylan’s but a similar market capitalization, Vertex Pharmaceuticals, had executive pay totaling about $247 million over the five-year period, according to the analysis. Vertex declined comment. It will substantially cut the equity portion of its executive pay this year, according to a regulatory filing.

Mylan’s price increases on the EpiPen have been criticized by parents of school-age children, who often buy several packs of the injectors for school, home and car, and generally replace them when the medicine expires in 12 to 18 months. Although it was approved nearly 30 years ago, the product has almost no competition in the U.S. market.

Ms. Bresch, the company’s CEO, has defended the price increases, saying Mylan is a for-profit enterprise, and blaming high patient costs in part on insurers and drug-benefit managers.

Mylan has tried to tamp down the controversy by increasing copay assistance for some consumers and introducing an identical generic form of the EpiPen priced at about $300 for a two-pen pack.

Mark Maremont

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