What Is This CEO Doing to Earn $450 Per Hour? – Geron Corporation (GERN)

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The questions from analysts at the end of a company’s conference call typically fall in the softball category. There’s often a lot of backslapping when things go well, “Congrats on the great quarter.” And when things aren’t all right, many analysts tiptoe around the issue, asking necessary questions to understand where things went wrong, but avoiding calling out management as part of the problem.

Call me cynical, but I think there’s a clear reason for the buddy-buddy relationship. Analysts work for investment banks that link companies with investors for secondary offerings. If analysts aren’t nice, their co-workers on the banking side aren’t going to get any business.

The one that got through…
So it was rather refreshing this week when Geron Corporation (NASDAQ:GERN) let Robert Lawson, an analyst from Catoosa Fund, ask a few questions at the end of its fourth-quarter earnings conference call this week. Presumably without any need for love from Geron Corporation (NASDAQ:GERN)’s management, Lawson was free to say whatever he wanted.

And, boy, did he let management have it.

First, a little background
If you haven’t been following the company, let’s get you up to date quickly.

Geron Corporation (NASDAQ:GERN) is most famous for being a stem-cell company, but the biotech dropped the program in late 2011. I thought it was a pretty good move considering the program was expensive and risky. The biotech had two cancer drugs that were further along. Dropping the stem-cell program allowed the company to conserve cash and focus on drugs that would get to market quicker.

Unfortunately, they blew up. First, imetelstat failed a phase 2 trial in breast cancer. Then GRN1005 failed a trial testing its activity on brain metastases in patients with breast cancer.

The company cut back spending, laying off much of its workforce. Operating expenses fell 37% in the fourth quarter.

The new plan involves focusing on imetelstat in other types of cancer. A phase 2 trial in a blood cancer called essential thrombocythemia came back positive. The company plans to wait for data from an investigator-sponsored trial in another blood disorder called myelofibrosis expected this year before launching its own trial, a prudent move for a drug that’s only batting .500.

Back to our story
So, what’s got Lawton’s feathers ruffled? Since John Scarlett took over as Geron Corporation (NASDAQ:GERN)’s CEO and decided to shift directions, shares are down about 40% while the AMEX biotech index is up more than 60%.

GERN Chart

GERN data by YCharts.

Despite the poor performance, Lawton claims that Scarlett made $900,000 last year, including a $300,000 bonus. Assuming 40 hours a week with two weeks of vacation, that’s $450 per hour. “I guess, put simply, what are you doing on a daily basis in 2013 to sort of earn your $450 per hour?” Lawton asked on the conference call.

Scarlett pleaded innocent, claiming that he has no control over his pay that’s set by “external advisors and consultants” that use the going rate for a biotech CEO as a guide. Of course, his peers have earned their keep, according to the chart above.

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