While M&A is typically a boon to the shareholders of an acquired startup, it can also be quite lucrative for the executives selling their business.
Many C-suite leaders have special agreements in their contracts specifying a big payout if the company is sold and they leave shortly thereafter. These so-called golden parachutes are often larger in size than the biggest pay packages given to CEOs who ran, rather than sold, their company. And they’re typically meant to line up executives’ incentives with shareholders’, making sure that CEOs and boards don’t refuse a sale in order to hang onto the power and perks of running a company.
Endpoints News previously reviewed over 500 biopharma CEO pay packages for 2023, finding 20 execs making over $20 million. By comparison, the top 10 exit payouts each exceeded $40 million in value, with the largest being just over $220 million. These parachutes are predominantly made up of realized stock awards — a mix of accelerating the vesting on restricted shares and options, but can also include cash bonuses, reimbursement for taxes and other benefits.
For instance, when cancer drug developer Seagen was acquired by Pfizer in December, CEO David Epstein received $11.25 million in cash severance along with a nearly $55 million payment coming from equity.
Drug industry payouts rank among the largest in the broader business world. According to a University of Alabama database tracking golden parachutes, Prometheus Biosciences CEO Mark McKenna’s $220 million payout after the company was sold to Merck was the largest package across all industries for 2023 deals.
Endpoints was able to analyze payout details for 17 public biotechs that were acquired in 2023 or this year. These companies were required to disclose the details in filings with the Securities and Exchange Commission. These include some of the biggest M&A transactions such as Seagen, Catalent and Prometheus, as well as smaller bolt-on deals for startups like Amryt Pharma, CTI BioPharma and Iveric Bio.
The SEC filings provide an estimate on the total value of the parachute package. Some companies caveated that the estimates can vary based on the deal's closing date, final price, and — sometimes — the executives being terminated by the acquiring business. Endpoints reached out to each of the acquiring pharmas to see how the actual payouts compared. None of the acquiring drugmakers that responded provided information on actual payouts.
Two of the deals on the chart — AbbVie's acquisition of Cerevel Therapeutics and Vertex's purchase of Alpine Immune Sciences — have yet to close.