Kevin Sharer will not go down in history as one of biotech’s most successful, or beloved, CEOs. But how well did Sharer really perform during his decade running the industry’s biggest company?
For those who missed it, Thousand Oaks, CA-based Amgen (NASDAQ: AMGN) said last week that Sharer, 63, will be retiring as CEO in May. In a move that didn’t surprise anybody, he will be succeeded by one of his deputies, Robert Bradway, the company’s president and chief operating officer.
Since becoming CEO in 2000, Sharer has lived through the ups and downs that go with the territory in this most volatile of industries. He graced the cover of Forbes magazine in January 2005 for leading the “Company of the Year,” getting credit for revitalizing a long stalled R&D engine. Two years later, Sharer was the industry goat, as Amgen lost $29 billion of its stock market value when safety concerns cast a cloud over its cornerstone products for the treatment of anemia. At various times, Sharer has been slammed in the press for being one of the nation’s most overpaid CEOs, raking in $21.2 million in total compensation last year.
Amgen’s official statement last week noted that the company had $3.6 billion in revenue when Sharer became CEO, and now has revenues approaching $16 billion. Vance Coffman, the chairman of the board’s nominating and governance committee said in the statement that during Sharer’s time, “Amgen grew significantly in every dimension and is well positioned for the future.”
Still, shareholders had little to cheer about the past decade under Sharer. Investors have gotten by with a 0.5 percent annual stock growth during his tenure, according to Bloomberg News. Even after giving in to shareholder demands to boost the stock price via share buybacks, dividends, and cost-cutting, investors have assigned Amgen stock a price-to-earnings ratio of under 15—not exactly a ringing endorsement of wondrous go-go days to come.
I’ve covered Amgen throughout Sharer’s tenure, and have interviewed him several times. While many executives in this industry come from geeky backgrounds in science or medicine, Sharer is a different kind of cat. A graduate of the U.S. Naval Academy, he got some of his formative experience working on nuclear submarines, and later in the telecom industry. He has the tall, upright bearing, silver hair, and poise that make him look like Hollywood’s idea of a Fortune 500 CEO. He also has a forceful voice that seems to contain no doubt, and sounds like it was born to bark orders and instill fear into subordinates.
Sharer seemed to relish the image of himself as a businessman with military discipline. He famously hung a picture of General Custer on his office wall, he has said, to remind himself of the dangers of overestimating his own abilities, and underestimating the enemy. Yet despite his serious and commanding demeanor, he could be charming: I remember him once calling me a few years ago on my cell phone with that piercing voice, “This is Kevin Sharer…” and I thought, “Oh boy, this could be nasty.” Instead, he wanted to let me know he liked something I had just written about Amgen, while also pointing to one line in the story he didn’t like. He ended by saying how he appreciated the interest and coverage of Amgen. Point taken, handled with class.
Evaluating anyone’s performance is an inherently subjective task, but to come away with a grade for how Sharer performed at Amgen, I’ve tried to look at how Sharer performed in some key areas that are important for leaders of all major biotech companies.
Company leadership: A great leader of a biotech company has to surround himself with stars from all kinds of disciplines—research, development, legal, lobbying, marketing, manufacturing. Amgen has long enjoyed a reputation for top-notch patent lawyering and political muscle, but one of Sharer’s most important early moves was hiring former University of Washington immunologist and Merck executive Roger Perlmutter to be his head of R&D. Perlmutter, who is stepping down in February, led a decade-long mission to improve R&D productivity at Amgen. He did have some success, although it will take a few more years to get a final verdict because of the long nature of product development cycles. But even more importantly, a great CEO has to pick a good successor. Bradway joined the company five years ago, has worked his way up from VP of operations, and will take over as CEO after a six-month transition process. Those are good signs that Sharer was smart enough to put an orderly succession plan in place. Most analysts are expecting no big strategic changes under Bradway. Grade: B+
New Product Development: Former Apple CEO Steve Jobs told his biographer that the company lost its way under CEO John Sculley because it focused too much on maximizing profits, and didn’t focus enough on first making amazing products. Sharer’s one big hit in the product development department was with the introduction of denosumab as an important new treatment for osteoporosis (Prolia) and for cancer-related bone loss (Xgeva). Another drug, cinacalcet (Sensipar) has been a modest success. Aranesp and Neulasta have been major cash cows, but really only incremental medical advances that cleverly extended the life cycle of drugs that Amgen developed in the 1980s. Several other new products have done very little to improve Amgen’s fortunes, including panitumumab (Vectibix), and romiplostim (Nplate). Remember the hype about palifermin (Kepivance) or anakinra (Kineret)? Amgen once had high hopes for those drugs, which were duds. The final tally is one great internally developed product, for two different disease categories, over a decade. There may be more to come, but we can’t say that for sure yet. Grade: C-
Vision: Great CEOs have to articulate a clear, consistent, and inspiring vision to motivate the troops. Sharer was above average on this score, by focusing Amgen consistently on drugs that make a significant difference for patients with “grievous illness.” This is a bold position to take, especially when drug companies tend to become more cautious as they age, focusing on making the eighth different cholesterol-lowering drug, or on “lifestyle” drugs for consumer products for erectile dysfunction or enlarged prostate. Amgen under Sharer stuck to its guns about not treading into such territory, even though it might have been the safer road, and more lucrative. So he deserves kudos for clarity and consistency: Grade: B+
Culture: The best biotech companies have been science-based, and all seemed to have demanding, yet fun, freewheeling, irreverent cultures that allowed creativity to flourish. By contrast, Sharer’s Amgen insisted on being science-based, but it also exuded a command-and-control, disciplined, and insular culture. That may work well in certain departments, but doesn’t always appeal to scientists. While Amgen was respected around the industry for its business achievements, and it made some of the “Best Places to Work” lists, it isn’t looked to as a cultural role model like South San Francisco-based Genentech. Like all big companies, as Amgen has gotten bigger, processes and bureaucracy have taken hold. And that kind of process can be the enemy of creativity and entrepreneurial initiative, for individuals and small teams. Grade: C
Acquisitions: Sharer did a lot of building Amgen through acquisitions. There was Immunex in 2002 for $10 billion, Tularik in 2004 for $1.3 billion, Abgenix in 2006 for $2.2 billion, Ilypsa in 2007 for $420 million, and BioVex in 2011 for as much as $1 billion. Amgen, importantly, expanded its geographic footprint into other regions with these deals, enabling it to tap into established talent pools beyond its headquarters in southern California. But only the Immunex acquisition can be considered a clear win for the bottom line, as it brought the autoimmune drug etanercept (Enbrel) to Amgen. That drug exceeded $3.3 billion in U.S. sales last year. Grade: D
Compensation: Sharer was well compensated for his work at Amgen. He took home $94.3 million in total compensation (salary, bonuses, stock, options, perks) from 2006 through 2010, according to the company’s proxy statements filed with the Securities and Exchange Commission. When Amgen suffered through its anemia drug woes of 2007, Sharer saw his total compensation drop from $19.9 million that year to $13.7 million the following year. And even while Amgen has seen modest stock appreciation since, his total compensation has swelled back up to over $20 million in 2010. Sharer certainly isn’t the only overpaid CEO out there, but it’s too much money for the performance, and it sends a bad message both inside and outside the company. Grade: F
Industry relations: Partnerships are critical to the pharmaceutical industry, since great ideas are found all over the map—in academic centers, small biotech startups, and sometimes at big companies. Amgen under Sharer has never been seriously active in reaching beyond its own corporate walls to other companies. While partnerships are fraught with peril due to cultural contrasts, shared control of projects, and bad communication, Amgen just hasn’t done much to work through those problems and tap into some of the benefits that can come through partnerships. Michael Yee, an analyst with RBC Capital Markets in San Francisco, told Bloomberg last week he’s hopeful that Bradway will “shake up the culture” at least partly through business development strategy. Grade: D
When you add it up, it looks to me like Sharer gets a C for his overall report card, the definition of mediocre.
I’m curious what Xconomy readers hope will change at Amgen under the new boss. Please let me know your thoughts, either in the public comment section below, or via e-mail at email@example.com.
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