The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Aimee Donnellan
LONDON, Sept 15 (Reuters Breakingviews) - Can a CEO be worth $9 billion? That’s the question posed by the 4% fall in AstraZeneca’s AZN.L shares following an article stating boss Pascal Soriot may soon resign. The company has played down the report, and its stock has recovered, but the episode highlights its uncertain position were 64-year-old Soriot to leave. Without a clear succession plan, investors should prepare for further swings.
By most measures, Soriot is a top performer. He joined the $205 billion Anglo-Swedish group in 2012 with a mandate to rebuild its empty pipeline. Barely two years in he had to fend off a 55 pound a share offer from rival Pfizer PFE.N. Today AstraZeneca’s shares are worth twice that amount, and the group has thrived thanks to blockbusters like breast cancer treatment Lynparza, and bold M&A, such as the $39 billion purchase of rare disease specialist Alexion in the middle of the pandemic. Berenberg analysts reckon AstraZeneca’s annual return on research spending has averaged 12% since 2016, comfortably exceeding its 8% cost of capital and trouncing most major pharma groups.
The combination of these tactics has gifted investors with an over 400% return including dividends during Soriot’s tenure, handily beating European rivals like Novartis NOVN.S, Sanofi SASY.PA and GSK GSK.L. Small wonder investors and analysts wonder whether AstraZeneca will be able to find a successor capable of replicating his success. Soriot’s lengthy tenure, more than double the average for a FTSE 100 chief executive, makes the issue all the more pressing.
There are better ways to handle a succession. Take Diageo DGE.L. When Ivan Menezes passed away, he left a clear replacement in Chief Operating Officer Debra Crew. Alternatively, AstraZeneca’s board could line up a of candidate CEOs, giving it ample choice when Soriot resigns.
AstraZeneca has some credible internal candidates. The success of its cancer treatments, which made up 35% of sales in 2022, would put either Susan Galbraith, executive vice president of oncology research and development, or David Fredrickson, who runs the commercial strategy for that business, in a strong position. Others could include Chief Financial Officer Aradhana Sarin. The board could also consider external candidates like Luke Miels, a former protégé of Soriot’s who defected to rival GSK in 2017. It would be hard for any of those to match Soriot’s returns. Still, the lingering uncertainty a quick fix.
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Shares of AstraZeneca fell more than 4% on Sept. 11, following a report in the Mail on Sunday that CEO Pascal Soriot may retire as soon as year.
The company did explicitly deny the report, but said in a statement on Sept. 11 that it does comment on market rumours, adding that it would make an announcement if there were any “truth in a rumour that could significantly impact” its share price.
(Editing by Neil Unmack and Streisand Neto)
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