Is parting such sweet Soriot for Astrazeneca?

Rumours of Pascal Soriot’s departure from Astrazeneca to Teva remain unconfirmed at this time but the news, if true, would surely count as the most surprising C-suite shenanigans to emerge in the pharma sector. Why an industry veteran who has prided himself on driving innovation at research-led majors would want to jump ship to lead a troubled generics giant with a history of short-lived chief executives is only one of the burning questions to be answered.

Another is what it means for Astrazeneca’s prospects. Perhaps it confirms that the Mystic lung cancer trial, upon which huge significance has been placed, is not equipped to change the company’s fortunes in immuno-oncology. A realisation that the growth he has promised cannot be delivered might have persuaded Mr Soriot to jump ship (see analysis below).

A look at his track record since he took the helm in October 2012 is decidedly mixed. On share price appreciation and improving investors’ perception of the company’s R&D pipeline he has done well. On protecting earnings and the top line through a tough period of patent expiries he has been less successful; the promised revival of Brilinta, for example, is still yet to emerge.

A look at where analysts were expecting the company to be in 2018 when he arrived, compared to how they see it now, shows a deteriorating view. Consensus for earnings per share has almost halved, while the view of the top line has also come down.

There are caveats to this analysis – definitions of “core” earnings can change, for example, and the sell-side tends to adopt an optimistic stance with long-term forecasts. But it still reflects certain criticisms of the executive – despite attempts to flatter Astrazeneca’s profit and loss account with “externalisation” revenues he has failed to generate the growth many wanted to see.

Pascal's performance
2012 view of 2018 Current view of 2018
Topline revenues $23.9bn $22.0bn
Core EPS $6.03 $3.67
Share price  £30.96 (Aug 3, 2012) £51.92 (Jul 12, 2017)

Share price appreciation has undeniably been strong, however – up 68% since his appointment was announced. Notably, the stock is now trading close to the £55 a share that Pfizer was prepared to pay in 2014, although only 45% of that was to be in cash.

And the company is receiving more credit for its R&D work, although of course at the moment it is all about Imfinzi, Astrazeneca's late entry to the PD-(L)1 antibody class. But the Mystic trial is looking more and more like a lose-lose situation for the company – even if the trial were to read out positively, the treatment landscape has changed so considerably since its protocols were designed that the result could well be irrelevant (What to expect from Astra’s big binary event of 2017, 30 June, 2017). 

Mr Soriot must be aware that this is the case, and the company’s recent attempts to downplay the results surely reflect this. The 4% drop in Astrazeneca’s London shares today perhaps shows that investors have finally caught on.

All to gain

On the flip side, the rumoured move would be a huge coup for Teva, whose shares on the Tel Aviv Stock Exchange were trading 6% higher today.

The sell-side is not entirely convinced – Citi analysts, among others, cannot reconcile Mr Soriot’s skill set with Teva’s focus on generics, which make up nearly 60% of its sales. Credit Suisse analysts suggest that the appointment, if it comes about, might reflect a desire from Teva to move away from generics and focus more on its speciality pharma business.

According to the Israeli news site Calcalist, which first broke the news, Mr Soriot is expected to earn twice as much as Teva’s previous chief exec Erez Vigodman, who received around $5.7m in 2015. Mr Soriot is also rumoured to be receiving a $15-20m signing-on bonus.

Last year, Mr Soriot’s total package was worth £13.4m ($17.3m) at Astrazeneca. He has long ranked as one of the best paid pharma chiefs, and will certainly not come cheap. But Teva will need to pay big bucks to pursuade a big name to climb on board, given the recent history of its boardroom.

While the move would please Teva investors, Astrazeneca shareholders would be left wondering why another bigwig has decided to jump ship. Luke Miels, head of the company's European business, left for Glaxosmithkline earlier this year.

Whatever Mr Soriot's movitations – assuming the rumours are true – money and Mystic could have been involved.

To contact the writer of this story email Amy Brown, Edwin Elmhirst or Madeleine Armstrong in London at news@epvantage.com or follow  @ByAmyBrown, @EdwinElmhirst or@ByMadeleineA on Twitter.

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