Investors tell AstraZeneca chief to waive £1m bonus

The Independent on Sunday 23 January 2005

Shareholders in beleaguered drugs giant AstraZeneca will this week tell its chief executive, Sir Tom McKillop, to waive the £1m bonus he is in line to receive for last year.

Investors want Sir Tom to share the pain after shares in the Anglo-Swedish company fell 30 per cent over 2004, wiping more than £13bn off its stock-market value, because of safety fears surrounding its drugs.

The remuneration committee is expected to meet when AstraZeneca reports its full-year results on Thursday. The company will then meet institutional shareholders. Non-executive directors on the committee have been consulting shareholders over a new executive pay scheme to be introduced this year.

But shareholders have told The Independent on Sunday they are more concerned about how much Sir Tom stands to receive for 2004 under the current scheme. He is eligible for a bonus of up to 100 per cent of his salary, based entirely on the company's earnings per share.

Analysts expect the company to announce an 18 per cent increase in earnings per share for 2004 on Thursday, partly boosted by a share buyback programme, which should net Sir Tom almost £1m in bonuses based on his 2003 salary. Shareholders are unhappy that his windfall is not affected by the fall in the share price and want him to waive it.

Graham Ashby of Deutsche Asset Management, an Astra-Zeneca shareholder, said: "It would be an act of good faith if Sir Tom waived any bonus he will receive for last year, or if he immediately re-invested it in shares in the company."

Richard Singleton, the director of corporate governance at F&C Asset Management, added: "It's something that the remuneration committee should be concerned about. It's important that the chief executive is in line with the committee's thinking and that of shareholders."

Shareholders are also concerned about the number of share options Sir Tom will receive when the remuneration committee sets his pay for 2004 in March. Last March he received options totalling £3m, but these are worthless as the exercise price is above the current share price. Manifest, the corporate governance group, said the award was not transparent, as it was based on ill-defined "strategic targets". Most companies use shareholder return and earnings per share as criteria. The number of share options an individual can receive is not limited.

Some analysts have cut growth forecasts at AstraZeneca by half after a series of setbacks hit three of its potential "blockbuster" drugs (those expected to generate $1bn of annual sales) in the past six months.

The company's new blood-thinning drug, Exanta, failed to get regulatory approval from the US Food and Drug Administration (FDA) in October. An FDA safety director then raised concerns over Crestor, its cholesterol-lowering drug, although AstraZeneca stresses that this does not reflect the opinion of the FDA itself. However, it admitted last month that its lung-cancer drug, Iressa, did not prolong the life of patients, and suspended marketing for it.

Other pharmaceutical firms have been hit by similar safety and regulatory concerns. But shareholders and analysts have singled out AstraZeneca for criticism over its development of new drugs. It acknowledged a problem last month, replacing Martin Nicklasson with John Patterson as executive director for development.

Another top-10 shareholder agreed Sir Tom should waive his bonus and added: "We don't want to see more nasty surprises. They were very bullish about the prospects of Exanta. They have not managed expectations well."

Duncan Moore, an analyst at Morgan Stanley, said: "Iressa and Exanta were going to be the engine of profits and growth and they have both disappeared. There was a lack of data and poor presentation to the regulators, which is why we saw a change in personnel last year. The company is left with little in the drugs pipeline."

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