In this four-part series, we examine the current state of pre-commercial biotech CEO pay, how it is tailored to the sector, and what drives differences between companies. We will explore:
Part One: Tailoring Pay to the Business
Part Two: Founders vs. Non-Founders
Part Three: East Coast vs. West Coast
Part Four: Drivers of Say-on-Pay Results
We encourage you to review:
- Part One for extensive observations and commentary relating to the pre-commercial biotech business model and how the typical CEO pay program within the sector is tailored to that model—but not necessarily aligned with Proxy Advisory Firm (“PAF”) preferred practices.
- Part Two for an examination of whether founder-led companies within the sector demonstrate distinct CEO compensation programs. Founder CEOs are common among pre-commercial small cap biotechnology companies, and led one-third of the 18 benchmark companies in our study.
- Part Three for a review of whether and how CEO compensation programs of East Coast companies (including Boston/Cambridge, New York/New Jersey and the DC Area) differ from programs of West Coast companies (primarily San Francisco Bay Area and San Diego).
As described in Part One, pre-commercial biotech company pay programs have evolved to address the sector-specific business environment and diverge from both typical broader market practices and PAF preferred practices. However, this distinct pay model did not appear to negatively impact SOP results. Overall SOP support for our benchmark companies averaged 96%, well above the 91% average for the broader Russell 3000 during the same time period1. In fact, the lowest level of SOP result for our sample of pre-commercial biotech companies was 82%, and only three of the benchmark companies failed to reach 90% support.
These results indicate that misalignment with PAF-preferred practices alone is unlikely to seriously jeopardize SOP support in this sector. However, lessons may be still learned from examining whether companies with relatively weak Say-on-Pay (“SOP”) support demonstrate markedly different CEO compensation programs than companies with stronger SOP support. This is the focus of Part Four of our series.
CEO Pay Program Design: Key Takeaways
Our research determined that Moderate and Strong SOP outcomes for pre-commercial biotech companies compare to broader sector benchmarks and PAF preferred practices as follows:
Developing a Roster of Pre-Commercial Biotech Benchmark Companies
In order to investigate CEO pay practices, we isolated publicly-traded biotech sector companies that:
- Were NYSE or Nasdaq listed;
- Were pre-commercial;
- Had annual meetings that included a SOP vote in the 12 month period ending June 1, 2020; and
- Had no CEO turnover in this period.
Relative to other sectors, these companies tended to exhibit very strong overall SOP results (averaging 96%). In order to isolate companies with relatively weak SOP results, we used a cutoff of 95% SOP support (i.e., “Moderate SOP” companies had support below 95%).
Ultimately, we identified 18 companies (listed in the Appendix) with median key statistics including:
Moderate SOP companies were, at median, approximately 0.4x the size of Strong SOP companies in this sample and had significantly lower cash and short-term investments at fiscal year-end. However, operating size measures and one-year total shareholder return through fiscal-year end were reasonably aligned with the Strong SOP companies.
In the remainder of this report, we provide further detail relating to general pay practices, bonus/short-term incentive and long-term incentive design for CEOs, and aggregate equity usage statistics for the benchmark companies.
1 Annual meetings during the 12 month period ending June 1, 2020.
Appendix: Companies Included in Study
ADMA Biologics, Inc.
Adverum Biotechnologies, Inc.
Albireo Pharma, Inc.
AnaptysBio, Inc.
Ardelyx, Inc.
Cellular Biomedicine Group, Inc.
CEL-SCI Corporation
Concert Pharmaceuticals, Inc.
Corbus Pharmaceuticals Holdings, Inc.
Denali Therapeutics Inc.
Dicerna Pharmaceuticals, Inc.
Editas Medicine, Inc.
Fate Therapeutics, Inc.
GlycoMimetics, Inc.
Mirati Therapeutics, Inc.
Pfenex Inc.
Pieris Pharmaceuticals, Inc.
REGENXBIO Inc.