Celgene executives whipped up new, lucrative severance plans ahead of Bristol-Myers megadeal

It’s not only Celgene investors who are set for a big payoff with this week’s $74 billion sale to Bristol-Myers Squibb. Thanks to brand-new severance agreements inked days ahead of the deal announcement, its top executives could reap hefty gains, too.

Under change-in-control severance arrangements that took effect Dec. 17, top Celgene managers would collect 2.5 times their salary and bonus in cash if they leave after the deal closes. CEO Mark Alles would get even more—three times his salary and incentive pay—if he departs.

Alles and several of his C-suite executives didn’t have a specific change-in-control severance deal with Celgene before, according to the company’s 2018 proxy statement. New Chief Financial Officer David Elkins did have a change-in-control plan in place, but it was smaller than the new severance deal.

The cash severance comes on top of the equity payouts—likely much larger—that the executives will collect as their stock or option awards vest and the deal wraps up. Bristol-Myers has offered $102.43 in cash and stock per Celgene share, plus milestone payments if Celgene’s three top pipeline drugs win approval by certain dates.

Under his new deal, Alles is eligible for three times his annual salary and cash incentives—plus other benefits—if he is terminated within two years as part of the change in Celgene's control, or resigns for good reason, according to a Thursday SEC filing (PDF). Elkins, R&D head Rupert Vessey and Chief Strategic Officer Peter Kellogg are each eligible for 2.5 times their annual salary and cash incentives, plus other benefits, under the same circumstances.

In addition to cash severance payments, the severance plan also includes health insurance coverage, outplacement services, a prorated incentive award and full accelerated vesting of outstanding equity, the filing says.

If an executive's departure doesn’t qualify as an eligible "change in control termination," the cash severance payments are smaller, and executives only leave with insurance coverage and outplacement services.

After joining Celgene this year, Elkins previously had a change-in-control severance deal that was equal to 18 months salary and stipulated that his stock would fully vest, according to an SEC filing(PDF). Former Celgene CEO Bob Hugin also had a change in control severance plan, but his departure met the qualifications for a retirement, Celgene said in a proxy filing this year.

Celgene and Bristol-Myers Squibb this week agreed to tie up in a megadeal worth $74 billion, one of pharma’s largest ever buyouts. The deal will give BMS access to Celgene’s multiple myeloma blockbuster Revlimid, plus pipeline projects including a CAR-T treatment for multiple myeloma, ozanimod to treat multiple sclerosis and luspatercept for beta thalassemia. BMS expects $45 billion in free cash flow three years after closing. 

As with all megadeals, the buyout is sure to come with job cuts. BMS said it expects to realize $2.5 billion in "synergies," or cost cuts, through 2022.