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In 2014, Vertex CEO Jeff Leiden raised eyebrows all over Wall Street when he took home a $45.8 million pay package—a remarkable sum for a biotech company just starting to make its mark in the cystic fibrosis market.

Vertex responded to the backlash: Last February it overhauled its compensation rules, vowing to strengthen the link between executive pay and the company’s progress toward its strategic goals. And those changes are starting to show.

For 2016, Leiden racked up just $17.4 million, a 40% drop from his 2015 pay, according to Vertex’s newly released proxy statement.

Leiden’s package included a $1.3 million base salary, a $2.2 million cash bonus and $13.9 million in equity awards, a big decline from 2015 stock and option awards together valued at more than $23 million.

In 2016, Vertex stopped awarding stock options and restricted stock under a share-based program and instead switched to a “value-based” program, which reduced the number of shares awarded to Leiden and other top executives. Under the new program, the company said in last year’s proxy, Leiden’s annual equity award will not exceed $14 million.

The value of Leiden’s pay began its upward slope after Vertex started gaining market traction for its flagship cystic fibrosis drug Kalydeco, approved in 2012, and more recently its CF combo Orkambi. The two drugs brought in $703.4 million and $980 million in sales respectively last year.

But Orkambi hasn’t been quite as big a blockbuster as analysts had been expecting. In January, Vertex said sales of Orkambi would come in between $1.1 billion and $1.3 billion this year—17% lower than sell-side analysts had projected.

The problem? Reimbursement negotiations in Europe were slow, and uptake in the U.S. was not as strong as expected, even as Vertex expanded the potential market, winning approval for Orkambi in children ages 6 to 11.

In its 2016 proxy, Vertex attributed Leiden’s pay decrease to the lower value of his equity grants. The company extended the length of his employment contract to “ensure leadership stability during a critical period for our company,” but it did not boost his compensation, the company said.

It was also Vertex’s first year of “performance vesting equity,” which directly ties equity awards to company performance—a change Vertex made in response to shareholder concerns, it said.

Those concerns emerged after Leiden’s 2014 pay landed him at No. 40 on the list of the highest-paid executives at publicly traded companies, and second place on FiercePharma’s ranking of biopharma CEO pay. Among the protesters was corporate governance adviser, Institutional Shareholder Services (ISS), which called Leiden’s pay “excessive” and not based on rigorous performance metrics.

Now that Vertex is vowing to tie Leiden’s pay to those rigorous measures, investors will be paying close attention to what he’s doing to earn his paycheck. For instance, the company said in January that it would need to make progress on reimbursement in Europe for Orkambi to hit the high range of the sales outlook the company provided for this year.

But its execs are clearly not very optimistic: They told analysts to expect first-quarter Orkambi revenues to be about the same as they were in the fourth quarter of last year. Vertex will announce its first quarter results on April 27.

By Arlene Weintraub

Source: Fierce Pharma