Despite company losses, Maryland CEOs enjoy a payday

Publicly traded biotechs in Maryland gained $2.2 billion in revenue during their most recent fiscal years, but they lost a combined total of $553 million, or $21 million each. Yet the average CEO at a Maryland biotech made an impressive $611,312, which includes extras like housing and transportation benefits, according to The Baltimore Sun. So why do these companies--which lost half a billion dollars--so richly compensate their executives? As we’ve noted before, biotech is an industry of the living dead [1]. Many companies manage to stay afloat despite losing hundreds of millions of dollars and rarely (if ever) producing profitable drugs. Unlike other industries, the long drug development process sucks up hundreds of millions of dollars and companies are constantly running the risk of backing a drug that’s destined to fail. But when a drug is successful, the company--along with its investors and executives--stands to make millions. In order to guide companies through the dicey biotech development process, companies pay top dollar to hire the best management teams, even when the company itself is losing money. "Everything lies on having the right management, so [companies are] going to pay for it, because unlike something that's producing a widget, this [industry] is more of a gamble," noted Ellen Clark, who runs an executive recruiting firm in Shelter Island, N.Y. Aside from having to pilot biotech through the rigors of drug development, top executives constantly run the risk of being unemployed. Biotech buyouts are hot right now [2], because many of the aging pharmaceutical giants are looking to biotech to fill gaps in their pipelines. Such was the case with AstraZeneca's $15.6 billion buyout of Maryland vaccine giant MedImmune [3]. On the flip side, a small biotech that reports poor results can quickly find itself out of business. In either case, execs will be looking for new jobs. So to attract and keep talent, companies have to be willing to generously compensate CEOs even when they have nothing to show for it. Human Genome Sciences lost $251 million--more than any other Maryland biotech--but good pipeline performance [4] helped CEO H. Thomas Watson earn a healthy salary anyway. Noted Charles C. Duncan, a biotechnology analyst with JMP Securities, "[Watson has] refocused the company both in terms of its pipeline focus as well as its drive to commercialization, and he and his team have done a lot to kind of reconcile the costs and the balance sheet issues of the past management.” Watson’s reward? A haul of $1.3 million--$650,000 in salary and $697,000 from a cash incentive award and other compensation. For more on executive compensation: - see The Baltimore Sun article [5]