- Takeda's board of directors laid out a three-pronged performance plan for CEO Christophe Weber and senior executives to meet, as the pharma seeks to integrate Shire into its operations following last year's acquisition.
- Beyond revenue, profit and cash flow targets, performance benchmarks include initiation of pivotal trials and integration costs to justify the $62 billion takeover of Shire.
- Announcement of the performance plan follows reports that Takeda employees in Korea objected to higher compensation received by former Shire employees.
Big pharma executives often cite integration costs and hassles as one reason to not acquire other big companies. Takeda's $62 billion takeout of Shire, completed in January, was viewed skeptically by some shareholders for that reason, and the public announcement of executive performance plans may help assuage some of those doubts.
Executive and employee bonus plans are common in biopharma, but the Takeda board's public disclosure of the bonus plan is unusual.
The Shire acquisition is addressed in two ways: Beating integration cost targets and generating enough cash to pay down debt.
A special integration plan will reward employees for beating overall operating costs, integration costs and debt-to-earnings ratio targets between 2019 and 2021. As long as operating and integration costs stay below 105% of target, executives will be eligible for a bonus.
A long-term incentive plan includes a bonus for hitting free cash flow benchmarks to enable debt retirement. At least 90% of that target must be met before bonuses will be paid.
Takeda borrowed about $30 billion, or about one and a half times its annual revenue, to finance the Shire deal.
Broadly, if corporate revenue falls below 97% of target and operating profit and earnings per share fall below 95% of target in the current fiscal year, which ends in March 2020, Weber and his executive team will not be eligible for bonuses based on those metrics.
The board also put in place a long-term incentive plan to "focus participants on sustained performance during and after the integration of Shire." In addition to free cash flow generation, the bonus plan will pay out if at least 96% of three-year accumulated revenue targets and 93% of operating profit goals are achieved.
The long-term incentive plan includes a pivotal trial initiation target that Takeda did not reveal because of competitive concerns.
This part of the plan can be increased or reduced based on Takeda's stock performance relative to a basket of 16 big pharma companies.
A Takeda spokesperson did not respond to an email seeking comment.