Cephalon CEO Baldino Dies During Med Leave
38 CommentsBy Ed Silverman // December 17th, 2010 // 11:55 am
After being away several months for an unexplained medical leave, Cephalon ceo Frank Baldino passed away yesterday. He was 57 and was one of the founders of the drugmaker, which got its start in 1987. J. Kevin Buchi, the coo, who has been filling in for Baldino, will continue to do so, although no succession plan has been discussed (see the statement). Until last week, Baldino had been expected to return by year’s end.
Baldino, who received a PhD in pharmacology from Temple University in Phildelphia, began his career as a research biologist at EI DuPont de Nemours, where he worked from 1981 to 1987 and identified research strategies for identifying novel molecules. He then left to start Cephalon (you can read the complete bio here). Since its founding, Cephalon has grown into a $2.2 billion enterprise with a market cap of $4.7 billion, and eight meds for treating central nervous system disorders, cancer and pain.
Cephalon also made news, though, for pleading guilty two years ago to a criminal misdemeanor for promoting three drugs, including the Provigil narcolepsy pill, for unapproved uses, paid a $425 million settlement (see this) and signed a corporate integrity agreement requiring the drugmaker to disclose payments to docs (look here). More recently, the US Federal Trade Commission has challenged settlements made with generic rivals to delay generic competition for Provigil. For its part, Cephalon has denied any anti-trust actions (read here).
A big challenge facing Buchi, or whoever succeeds Baldino, is convincing patients to switch to Nuvigil from Provigil, which generated nearly half of 2009 sales of $2.15 billion. The changeover is crucial because Provigil loses patent protection in two years. European regulators may have made this more difficult by recently restricting Provigil to treat sleepiness associated with narcolepsy over safety concerns, although Nuvigil is so similar, the move raised the specter that both drugs may face restrictions (back story). Nuvigil also failed to win FDA approval to treat jet-lag disorder (look here).
industry insider
Very curious. Steve Jobs also took an “undisclosed medical leave” from Apple until forced to disclose that he indeed had a serious illness. This is a fiducuary responsibility of the CEO to the shareholders, and appears to have been abdicated in the case of Baldino. This is the first mention I’ve seen that he was expected to return. I suspect this may be a cover story for the absence of succession planning.
Truth
Cephalon is not such a great company. Financially successful, but plays on the “dark side.”
Condor
When it became clear that Brenda Barnes, Sara Lee’s CEO was too ill (stroke) to return, the board promptly disclosed — and has begun the search & replace process.
I am very curious as to how Cephalon’s securities lawyers became comfortable with no updating disclosure, as the CEO was indisputably dying — in these last few weeks.
Starting in the first week of December, it could be argued that the stock decline reflects a “leak” of the news of the severity of his condition.
All nurses, doctors and hospital people who saw him, since early November should presume that the SEC is closely examining all larger Cephalon trades, and working backwards, looking for connections between any trader(s), and any health care worker — using phone-, and email-records subpoenas.
There is little that is more material under the securities laws than an unexpected death of the CEO. Prepare for recriminations, oh Cephalon board members.
Namaste
Common Decency
Its so sad that all the comments seem to be about money and putting down Pharma…A human being died much before most people expect to nowadays. No one seems to wonder what happened.
Condor
Dear Common Decency:
As I am not remotely ashamed of being chief among the critics of Cephalon’s disclosure policies here, permit me to offer a countervailing point of view:
I am — of course — saddened by the passing of any human being. But that is not the story. The story is what has happened to the money of people that put their trust in him, and the company.
That is, I am keenly aware of the astonishingly immense priviledge it is to lead a public company — and in a series of literally life-saving endeavors, to boot. So, too — with leadership comes responsibility. Responsibility at both at the board level, and in the executive officers’ suites.
I am sure that Frank Baldino would be the first to say he “enjoyed the ride” — in 2009 alone, he was paid over $11 million, for his role. Over just the three years 2006 to 2009, he was paid over $42 million. During 2010, he likely received more than $10 million, while on sick leave for a good chunk of it. He also owns over 1.6 million shares of Cephalon.
Now, it may be that he was encouraging his board, and the COO, the CFO and General Counsel to disclose this increasingly material information, to his stockholders — as they had put their faith, and (in many cases) their lifes’ savings, in his (and their) hands.
He knew full-well the responsibilty he assumed — as did the GC for certain. The GC was paid $6.8 million, for just the last two years, alone — to be sure this sort of thing would be disclosed appropriately.
In a truly Owellian twist, on December 10, 2010, the company filed and buried his “I shall not return in 2010” disclosure — as a second, uncaptioned Exhibit 99, to a Form 8-K that was all about restated credit agreements, and an unrelated joint-venture.
Now, only a week later, we learn that he has died.
This is about responsible stewardship of the public’s investment(s), and faith in him.
The sympathy cards will arrive at his memorial — but not here — and not on Wall Street. I am sorry if that sounds cold, but all of them assumed a responsibilty that they, in my opinion, have obviously shirked — despite taking immense amounts of pay from the company — a company owned by lots of us small investors. You may disagree.
So be it. I have $41 million reasons to be disappointed in the leadership, here.
Namaste
Sinking to new lows
Obviously not a lot has been disclosed about his death and you seem to have everythign decided before anything comes in. Maybe he thought he was doing better and died suddenly. At this point, you just look like an idiot and unsympathetic a-hole (and using namaste as a salutation does not impart any sort of respect when you act like that).
industry insider
Dear Sinking. Condor and I are on the same page. In SEC disclosure language anything that may affect the financial performance in a negative way is called a “Material Adverse Event” and must be promptly disclosed in the next 10K filing. Failure to do so is a breach of fiduciary responsibility of the Board of Directors to the shareholders such as you and I, who actually own the company. The late Frank Baldino worked for us, the shareholders and owners of the company, not the other way around. While the grief counselors are massing at the entrance to Cephalon you can bet that the securities lawyers are massing to file a big time shareholder lawsuit against the publicly traded entity known as Cephalon for breach of fiduciary responsibility.
Sinking to new lows
And more of a reason for me to enjoy working for a private company, instead of people badmouthing the dead over money for being just that….dead. Blame the board and the other people running the company and not the guy that died.
Condor
Dear Sinking –
I am sorry to come back to this, but your last line needs to be addressed:
“Blame the board and the other people running the company and not the guy that died. . . .”
First, we both clearly agree that the board of directors (to the extent that the CEO was candid with them about his condition — although they had a duty to inquire and investigate, on their own, even if he was not being forthcoming) — once the December 10, 2010 Form 8-K was filed, burying the “I won’t be back at all, in 2010” disclosure (a December 6, 2010 press release). It is the compressed timeline — December 10: “I won’t be back this year“; December 16: death notice — that suggests something less than complete candor was employed, by some actor in this drama (though it is clearly possible, that the board, on its own — decided to ignore the CEOs pleas to make a more timely set of disclosures, in October or November).
But I think we may fairly assume that the CEO was aware of his condition at the time the December 6, 2010 press release was drafted, and therefor, we may certaily fault his leadership, at the end. It must be very difficult to face one’s impending death, and at a relatively young age — but from 2006 through 2010, he was paid some $52 million (with $10 million of that likely paid to him in 2010, under the “disability” golden handshake provisions, outlined in the 2009 proxy I just linked) to make these tough calls, and make them very promptly. That he apparently did not do.
Finally, the company’s General Counsel, probably more than any other single officer, was responsible for challenging “the party line,” whatever that was — given that the CEO had earlier made statements to the effect that he’d be back in 2010 (a la Jobs, at Apple; contra Barnes, at Sara Lee). In all, it seems each of these actors may have failed in one or more significant respsects, to protect the shareholders, and bondholders.
But do not kid yourself, “Sinking” — the owners of any private company are — as a matter of securities law, and general corporate law — entitled to the very same candor. If the CEO also happens to own all of the private company you work for, then he has only injured his own estate (his family and children, and grandchildren). . . but if there are VCs, or other non-affiliated stockholders, these duties apply to every sale of securities, whether through public offerings, or private placements. I do not blame; I simply recite that “with outsized priviledges, come outsized responsibilties. . . .”
नमस्ते [and I offer that, as a bow to the higher-purpose energy, present in all of us] to all.
Suzanne
“Mr. Baldino, 57, who had been on medical leave from Cephalon since August, lost his battle Thursday evening with leukemia.”
Read more: http://www.philly.com/inquirer/front_page/20101218_Frank_Baldino_Jr___57__founder_and_chief_of_biotech_firm_Cephalon.html#ixzz18TZNQ1rQ
Watch sports videos you won’t find anywhere else
Sinking to new lows
Again….all you are worried about is money. Just puts things in perspective.
industry insider
I would further Condor’s comments to say that between 2000 and 2007 I worked for a start-up privately held pharmaceutical company that was funded with $150 million in four rounds of financing by private investors until the company was acquired by a Big Pharma company. Every year, without fail, the CEO of the company was required to undergo a rigorous physical examination, the results of which were fully disclosed to the Board of Investors in a timely fashion. Failure to do so would have represented a breach of the CEO’s contract, for which he could be subject to termination.
Bottom line. Private investors have a direct, vested interest in the health of the CEO of the company they are funding. You had better believe that they want to know everything about the CEO’s state of health, right down to the last ingrown toenail.
NJBiologist
I’m sorry, but the question of whether the existing disclosure was sufficiently informative (was he dying, or merely very sick) seems out of proportion.
At this writing, a publicly-traded former employer of mine is closing up shop; I don’t know anything with enough certainty to swear to it in court, but I believe they consistently overstated the efficacy data for their lead compound.
A friend’s pre-IPO employer is working over their VCs; they appear to be dramatically understating the tox issues in their lead molecule.
And you’re worried about CEOs’ health, “down to the last ingrown toenail”?
industry insider
I’m talking about a CEO who started the company from scratch, and built the company from the ground up. I was hire #5, so I had a front row seat for the entire ride. Without this CEO, there is no company, period. Anybody who has worked for a startup that was started by an energetic, risk-taking entrepreneur will say the exact same thing. That CEO’s health is of paramount importance, right down to the last toenail.
We’re talking a bit of apples and oranges here. Baldino’s death is a matter of securities disclosure; what you’re talking about with understating tox data is securities fraud. Both types are subject to litigation, and your case may be more likely to trigger a lawsuit by the VC firms to get their money back, or if the IPO went through, a shareholder lawsuit.
Yes, we are talking about human lives here, and potential human suffering. But in the end, it all boils down to dollars and cents. Even the Workers Compensation courts assign dollar values to body parts that may be injured or lost.
Condor
Sure, “Sinking” — if you insist, I’ll be happy to let you paint me that way.
I did mess up my last post’s opening thought: it was that we may all agree the Cephalon board of directors will be criticized here — for failing either to (i) disclose what they knew — between August and December 10, 2010 — or for (ii) failing to investigate in detail, as to the CEO’s health problems during the Fall of 2010.
To suggest that the CEO should NOT have to waive his otherwise inviolate right to keep personal health information private, under HIIPA — is to ignore that the man was paid over $52 million, to do an admittedly VERY DIFFICULT job he apparently refused to do, at the end — release even the worst of news.
I suspect, Sinking, that if he was holding $52 million of your money to do this job, you’d feel a little differently. Death is as much a part of the adventure called life, as life itself is. We all need to see it as just another part of what all of our experiences will lead us to. How we handle it, is up to each of us.
That’s all.
Again, Namaste. . .
Condor
Persistent silence, in the face of a duty to speak (about one’s cancer progression) — or failing to resign, outright — is (in the SEC’s view) securities fraud.
Other than that, I concur with Industy Insider.
Namaste
Mr. Experience
It seems there are two things going on at this post: Long stories as if the article was theirs and, jaded to the max. I agree that money talks, etc. but we do have a person here who apparently is nothing more than a blip on the screen. Maybe he is.
Many CEOs are indeed looked upon as a benefit (share appreciation) or negative (share value down). This man was part of a family and had value to them. Now that he is down, kick the body.
Some of you talk with such great authority, that you keep on impressing yourself when your words are in print and the world to see your narcissism. Tell me which one of you can’t pass a mirror without looking at yourself?
Condor
Mr. Emotional
Experience, yours is an understandably emotional reaction — don’t worry, it doesn’t bother me — it is just that, though. An emotional reaction.That your emotions have caused you to miss the point of Ed’s story — and those amplifying points made most of the ensuing dialogue — is obvious, beyond peradventure.
I wish you well, just the same. I will seek to hold highly paid executives accountable for their performance, their disclosures — and, their lack of the same. And we will both be fine.
Namaste, And Merry Christmas!
Cheers! It’s almost time for Sunday brunch, and with it. . . eggnog!
Mr. Experience
Condor,
I was giving another perspective and only that. You are totally right as to executive responsibility to the shareholder. I subscribe to your comments.
I am in a situation with a biotech company whose chief has (my opinion) done a poor job in execution of his duties. The shares have languished for about ten years, due in part to poor company purchases and a less than enthusiastic interest in the shareholders benefit. Huge cash horde and not a dime for a dividend, as a reward to the investor for all those empty, no return years.
Yes, first serve your stockholder, then we can have the emotions.
EddieVos
I have no dog in this debate since I don’t own pharma stock but the general picture of this man running a $b2.5 company that just paid $b0.5 in fine to the gov’t clearly ra
EddieVos
I have no dog in this debate since I don’t own pharma stock but the general picture of this man running a $b2.5 company that just paid $b0.5 in fine to the gov’t clearly behaved with the ethics of a Bernie Madoff, including the last months of his life.
For the community who gives pharma patent rights and for the share holders, it was a lose lose.
How about slashing patent protection by 3 years year every time a pharma is given a federal fine for off label or unethical practices for a particular drug? That’d be a win win.
Moreover, how about making executive pay packages exclusive of legal action settlements [such as gone into after Vioxx] illegal?
Those 2 actions should alter executive behavior like few other actions! Cleaning up pharma.
Patrick Cotter
I care about Mr. Baldino about as much as he cared about others, which is nil. Doctor payoffs, medicaid fraud, and anti-trust suits are all things Mr. Baldino knew well. My wife had to end her treatment because, although modafinil could be bought overseas for $75/mo, Mr Baldino retrieved $720/mo and the pharmaceutical industry was able to persuade our government to eliminate the overseas choice.
Hire # 5, you know what I’m talking about.
PharmaDrama
@condor
Your sign-off line is so typically a sign of a person, trying to be what he is not. Behind this i-am-devoid-of-emotions persona lies one that is brimming with emotions, seeking solace in the fake personality.
The guy is dead. Give him a thought. I understand this is not a funeral gathering, but this is not a shareholder meeting either.
Christopher
What a thoroughly unpleasant and callous discussion this has become. Not even the untimely death of a relatively young man can escape the pontificators for whom, as usual, the temptation to drag out the soapbox is irresistible.
EddieVos
Unpleasant it is: any premature death including those 110,000 in American hospitals each year from the ‘as-prescribed’ use of drugs [JAMA]. What did this man and his company do to reduce those deaths? His company “pleading guilty to” “criminal misdemeanor”, misrepresenting drugs. Does not that the CEO a criminal make?
$m300 we know of to makers of generics to keep them off the market, see above. How many people suffered? Drugs ain’t candy. Callous? Spare me.
Condor
Hello, and Good Morning, PharmaDrama, and Christopher –
It has often been my experience that — when confronted with an uncomfortable truth — a natural human defense mechanism urges us to question (or impugn) the motives, psychological makeup or morality of the opposing view’s proponent (a trivial form of the classical ad hominem fallacy).
And. . . I am at peace with that.
You both (apparently) are not. Fair enough. Be well, anyway.
नमस्ते, just the same.
Think You Know
What you people are saying is, the man was no good, dead or alive.
Is this constructive? The game’s over.
Mr. Experience
For those that invest in start-ups and other doubtful bio and pharma companies, I was involved in several health companies and did quite well but, had to wait longer than I thought, to make a profit.
The last ten years in biotechs have been lean and as some of you may know, have become real laggards. The fact is, venture capital has dropped off significantly.
Investors don’t want to wait ten years to make it or break it. My position is zero with start-ups. I am not so sure that holding on another few years will bring back the giddy numbers. There are other non related industries out there that move faster than a glacier.
industry insider
Mr. Experience is correct. As I recently learned in a 2010 Business of Healthcare conference in Chicago, the vast majority of VC funding last year went to later rounds in companies that were close to FDA approval. Virtually nothing for Series A.
industry insider
To paraphrase Shakespeare from Julius Caesar:
“The evil that men do lives after them; the good is oft interred with their bones. So let it be with Baldino”.
Christopher
Were I related to Dr Baldino I would be horrified at the way his memory and accomplishments were derogated here, especially with would-be aphorisms and presumptious literary epitaphs. Point is, he’s dead, and his family will mourn him. No need for posthumous attacks just now regardless of your perceived righteous causes. Let’s be resectful in our discussions.
industry insider
Sorry you didn’t like my quote, Christopher. Maybe this one fits better, again from Julius Caesar:
“Ambition should be made of sterner stuff”.
That one work better for you?
in and out
Interesting to see Pharmalot commentary become Cafe Pharma . . . better educated, maybe, and better writers . . . but the same attitude.
Observer
It may inform this discussion that Baldino sold $15 million worth of shares on December 8, eight days before his death. His non-return for 2010 was mentioned in a press release after the close of trading on December 6, but not disclosed in any 8-K until after the close of trading on Friday, December 10 (yes, buried after a joint venture announcement). Those high-volume sales apparently drove the stock price down for a few days, but it recovered nicely on news of his passing - gain of $2 on December 17 after the 8 AM press release, ironically.
Another irony: Cephalon developed very few drugs in-house, and at least two of its failed drugs were anti-cancer, one being primarily aimed at leukemia, lestaurtinib. Also, Cephalon has supported the Leukemia Society for several years, and has made leukemia-related acquisitions in recent years, including Treanda (for which the company has already received an FDA warning letter for deceptive promotional materials). A suspicious person might conclude that Baldino’s interest in leukemia treatments was more than strictly financial, for several years. Since we know the company hid his disease from August 25 to December 17, was it also hiding it for years before that?
industry insider
Good catch, Observer. It should also be noted that Baldino’s family won the estate tax lottery. With him dying in 2010 during the one year estate tax hiatus his estate tax bill (at least Federal) will come to zero dollars.
EddieVos
Christopher, read your posting above. This stuff — and the man with it– stinks and the family with which you so sympathize can rest in peace, or at least in exceptional comfort. Cancer victims, not so much.
Condor
A few clarifying points — it looks like all Dr. Baldino did on December 8, 2010 was sell shares to pay taxes on other grants (per his SEC filed Form 4) — it only resulted in a 150,000 share direct reduction in his holdings (and a gain on the difference between $64 and $51) — so his net cash sale was under $2 million, NOT $15 million (as errantly reported by Observer, above). And of course, his does better to have held the shares, past the date of his death (from a tax perspective), in any event.
Still, $2 million would be a fair amount of money to us mere mortals here on the ground in Main Street America (but it is an afterthought — a smallish car-park tip, even — to Dr. Baldino’s estate).
Next, one interested in really figuring out the Cephalon compliance riddles might do well to take a closer look at the Chief Compliance Officer at Cephalon (since 2007), viz — from the SEC filed 10-K (page 42):
Fascinating.
Namaste
Condor
Drats — the links in the last pull-quote were
broken — see the corrected one, below:
“. . . .Ms. Valli Baldassano joined Cephalon in October 2007 as Executive Vice President and Chief Compliance Officer. From April to September 2007, Ms. Baldassano served as Partner with Fox Rothschild LLP in Philadelphia where she was a member of the litigation department and the founding member of the White Collar Compliance and Defense Practice Group. Between January 2004 and March 2007, Ms. Baldassano served as Vice President Global Compliance for Schering-Plough [Consider that a good portion of this ENHANCE study disclosure delay was on her watch (and thus, the foreseeable results -- a stock market drubbing, of vast proportions), there -- and (SURPRISE!) overseen by Fred Hassan-Carrie Cox]. Between 1999 and 2003, Ms. Baldassano service as Senior Director, Global Compliance and Associate General Counsel for Pharmacia [which puts these Celebrex/Bextra study delay and off-label promotions — yet another another Cox-Hassan trainwreck — on her watch, under the same two, as well!]. . . .”
Namaste