Astra: It's Not Over Yet

Despite his efforts to clean house, CEO Mogren finds himself under fire at the scandal-plagued drugmaker

Hakan Mogren has had a fabled career as CEO of Astra. In a decade at the top, Mogren has delivered 30% annual price gains in shares of the drug company controlled by Sweden's powerful Wallenberg clan. So far, his reputation has remained untainted as allegations of sexual harassment, first revealed in a BUSINESS WEEK cover story (May 13, 1996), have mired Astra USA Inc. and its former CEO, Lars Bildman, in scandal.

But the affair has cost the company plenty. On Feb. 5, Astra USA agreed to pay a record $9.8 million to settle sexual harassment charges brought by the U.S. Equal Employment Opportunity Commission. A day earlier, Astra filed a lawsuit against Bildman seeking $15 million for allegedly defrauding it. The suit claims Bildman used Astra funds to pay for prostitutes, vacations, and home renovations. "We had to sue him because of the damage to our company both in monetary and image terms," Mogren told BUSINESS WEEK in an interview. "We hope this is the end of it."

BIG SPENDER? That may be wishful thinking. As the U.S. scandal ripples back to Sweden, Mogren is coming under pressure. Questions are being raised about his management style and corporate spending habits just as Astra faces the loss of patent protection on Losec, its blockbuster anti-ulcer drug. Company morale is low, and heads of key units have been replaced.

Now, Bildman and other former execs are threatening to drag Mogren personally into the new case. Bildman's defense attorney, Erik J. Frick of Eckert Seamans, Cherin & Mellott, insists that Bildman's alleged misuse of corporate funds was "consistent with the way Astra and its subsidiaries across the world operated" and that Bildman "did nothing out of the ordinary for Astra." To support this, Frick threatens to produce witnesses and evidence that may damage Mogren.

Gerhard Miksche, former head of the company's patents office, who says he was maltreated by Mogren and left in a dispute in the early '90s, is one potential witness. Miksche said in an interview that Mogren's "extravagant eating, drinking, and high living" permeated the company's culture and that Mogren "is doing things he's accusing other people in the company of doing." Specifically, Miksche and another former Astra executive describe Mogren receiving tax-free "gifts" of cases of wine worth tens of thousands of dollars annually from Astra subsidiaries. Mogren denies the allegations but admits he received small gifts of wine from Bildman.

Miksche also alleges that Mogren, a carpenter's son, had costly renovations done at company expense on a lavish 13-room property where Mogren and his family live. Located on Stockholm's exclusive Soder island, it consists of two adjoining apartments connected by sliding doors. One is owned by Mogren. The other, owned by the company, is used for business purposes. Mogren insists that the allegation of personal misuse of coporate funds is "a complete lie," and says the board approved payment for renovations to the coporate apartment, an assertion that Katarina Bystrom, an Astra director and union representative, confirms.

A former Astra executive says that in 1995 he flew with Mogren and his family at company expense to attend an opera in Finland. According to this executive, Mogren repeatedly used company jets to indulge his passion for opera. Astra confirms that the 1995 trip took place but says it was a legitimate business expense and that transporting family members didn't cost any more.

Mogren claims Bildman, who pleaded guilty in the U.S. on Jan. 26 to criminal charges of filing false tax returns and may face up to 21 months in prison, is hawking such stories because "he's in a desperate situation to defend himself."

All along, Mogren has denied any knowledge of problems in Bildman's unit before BUSINESS WEEK's investigation. He says the wrongdoers were confined to Bildman and a small group of his U.S. and European colleagues. He alleges that Bildman went to great lengths to conceal misdeeds from him and other executives at the company's headquarters outside Stockholm. But the spate of high-level sackings begs the question of how Mogren could not have known.

On Jan. 23, Andreas Feulner, former head of its German operation, left the company. An Astra spokesman claimed Feulner participated with Bildman in company-paid cruises with prostitutes. Feulner admits taking yacht trips but denies any wrongdoing. Although Feulner was a member of Mogren's five-member executive committee until the fall of 1996, Mogren says that Feulner never informed him or Astra investigators about the improprieties.

Feulner wasn't the only top executive to take a fall. In June, 1996, at the same time Astra fired Bildman and several of his U.S.-based employees, it also terminated Anders Lonner, its Nordic regional director based in Stockholm. Astra says Lonner was fired for failing to inform it of Bildman's and the U.S. unit's misdeeds. Lonner says he left after refusing to participate in Mogren's effort to scapegoat Bildman for actions typical of Astra's corporate culture.

The latest twists and turns in the Bildman case come as Astra's management continues in turmoil. Some current and former Astra employees characterize Mogren as an imperial CEO, distant from day-to-day operations. Morale is low, insiders say. Mogren acknowledges that the scandal has taken a toll but insists he is restoring morale.

Mogren's steps include replacing the heads of Astra's U.S., German, and Nordic units over the past 20 months. Separately, the female head of its British operation quit to join another company. The four areas account for a third of Astra's $5.6 billion annual sales. "The whole business has taken up a lot of management time," says board member Bystrom.

Mogren is under pressure for reasons other than the scandal. Patents on Losec start to expire next year. Mogren propelled the anti-ulcer medication into the world's top-selling prescription drug, accounting for 47% of Astra sales and 60% of its $1.8 billion annual earnings. In the crucial U.S. market, the drug has patent protection until at least 2001.

Investors are worried that Astra won't find it easy to replace such a potent profit-spinner. Astra's stock has traded at a steep discount to other drugmakers for much of last year. In January, the company hosted a research-and-development update for analysts to promote the commercial potential of perprazole, another anti-ulcer drug, which Astra estimates could hit a peak $1 billion in annual sales. But perprazole is only now entering clinical trials, and so is unproven. And it is so closely related chemically to Losec that Astra concedes that it may not qualify for full patent protection.

There's even talk that Mogren should resign. A poll published on Jan. 27 by the respected Swedish business paper Dagens Industri showed that 88% of financial analysts believed Astra's share price would rise if Mogren stepped down. "I've been on a pendulum between a hero and a zero," frets Mogren.

MERGER MANIA. The industry's consolidation wave is another worry. News of Glaxo Wellcome and SmithKline Beecham PLC's advanced merger talks has sent share prices of Astra and other drugmakers soaring on takeover speculation. Astra looks especially vulnerable.

Mogren may be able to hold on to his job. Investor, the Wallenberg unit that controls about 12% of Astra's shares, still supports him publicly. Chairman Percy Barnevik says Mogren faces a "pack mentality" among analysts, investors, and journalists. Joseph Kunan, an analyst at Franklin Mutual Advisers Ltd., a big owner of Astra and Investor shares, insists that Mogren is "still the right guy to run Astra." Two Astra board members say they're still backing the embattled CEO. "Hakan has been a very good leader," says one, L.M. Ericsson CEO Lars Ramqvist. "He has not at all been involved in the scandals." But it's less sure that Mogren can remain unsullied.

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