$3 million is not bad for three months work.
PPD CEO Ray Hill has stepped down from the clinical research organization a week after PPD’s acquisition by The Carlyle Group and Hellman & Friedman was finalized. He departs with a $3 million severance package for running the company since September.
But it could have been more. Had equity awards been part of that package, Hill could have departed with more money.
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PPD disclosed in securities filings that a possible acquisition of the CRO factored into Hill’s compensation. Hill and PPD agreed that because the company was in talks with a Carlyle and H&F that could be completed soon after Hill’s hiring, the equity awards that Hill received upon hire would not be part of the merger consideration.
The stock options of PPD founder and former CEO and chairman Fred Eshelman are valued at $9.7 million. Former CEO David Grange, the executive Hill was hired to succeed, holds options valued at $2.7 million. Hill holds no stock or options eligible for a payout.
The appointment of the former IMS Health executive to lead the top-tier CRO actually stanched talk of a possible takeover. Several analysts expressing skepticism that PPD would hire a new executive if an acquisition was imminent.
But on Oct. 3, two weeks after Hill’s hire, the $3.9 billion deal with Carlyle and H&F was announced.
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There was a chance Hill could have stayed on at PPD, but that decision was ultimately up to PPD’s new private equity parents. PPD said in regulatory filings that through Nov. 11, no members of PPD’s management had been offered positions under the new owners but the company expected discussions with management would start before the deal closed. PPD spokesman Ned Glascock said that Hill’s resignation comes with “the milestone of PPD completing the transition from a public to a private company.”
That future starts with a link to PPD’s beginnings. Eshelman, who founded PPD as a one-man consultancy in 1985, will stay on with the company as a senior adviser to PPD’s new board of directors and executive management team through next year, Glascock told the Wilmington StarNews.
Hill’s base salary was $575,000, according to his employment agreement. The severance agreement pays Hill 2.99 times that amount for a full year of work even if his PPD tenure lasted three months. He’s also eligible for bonuses under the PPD incentive cash bonus plan.
Hill’s severance was part of a “double trigger” agreement that calls for payment upon the occurrence of two events: a change in control of the company and termination of the executive’s employment within one year of that ownership change. Hill’s compensation totals $3 million. PPD shareholders approved the payout, part of $21.2 million in golden parachute compensation for departing executives.
Hill may yet work again in the CRO industry but not in the near future. His separation agreement includes a non-compete clause bars him for one year from working with any company that competes with PPD worldwide.
Now Carlyle and H&F must begin the search for a new CEO. Hill had not previously worked for a CRO but his IMS work brought international experience to PPD; Hill had overseen acquisitions for IMS while also keeping an eye on the growing role that emerging markets play in Big Pharma’s strategy. If Carlyle and H&F remain hungry for additional acquisitions, they might want someone who brings greater CRO experience.
Regardless of who PPD’s new board selects as the company’s new CEO, cognizance of emerging markets remains important. It’s where most pharmas are looking for new business opportunities. That means CROs must look there as well.
