Shares of AstraZeneca, a leading Anglo-Swedish pharmaceutical company, experienced a 4% decline on September 11th in response to an article speculating that CEO Pascal Soriot could be considering retirement in the near future. While the company has downplayed the report, reassuring investors that it does not comment on market rumors, the incident has shed light on the uncertain position AstraZeneca would find itself in if the 64-year-old Soriot were to step down. With no clear succession plan in place, investors should brace themselves for potential fluctuations in the company’s stock.
Pascal Soriot has established himself as a top performer during his tenure as CEO, which began in 2012. He took on the challenge of reviving AstraZeneca’s pipeline, and in just two years, successfully fended off a £55 per share takeover bid from rival Pfizer. Today, AstraZeneca’s shares are valued at almost double that amount. The company’s success can be attributed to breakthrough treatments like the breast cancer drug Lynparza and strategic mergers and acquisitions, such as the acquisition of rare disease specialist Alexion for $39 billion amidst the ongoing pandemic.
Berenberg analysts have praised AstraZeneca’s annual return on research spending, which has averaged 12% since 2016. This figure comfortably surpasses the company’s 8% cost of capital and outperforms most major pharmaceutical groups. As a result, investors have enjoyed an impressive 400% return, including dividends, during Soriot’s leadership. This substantial achievement has placed AstraZeneca ahead of its European counterparts, including Novartis, Sanofi, and GSK.
Given Soriot’s remarkable track record, both investors and analysts are concerned about AstraZeneca’s ability to find a successor capable of replicating his success. This concern is further exacerbated by Soriot’s lengthy tenure, which is more than double the average for a CEO in the FTSE 100. To address this issue, AstraZeneca could take inspiration from Diageo, a multinational alcoholic beverages company. When its CEO Ivan Menezes passed away, he left behind a clear replacement in Chief Operating Officer Debra Crew. Alternatively, AstraZeneca’s board could identify a pool of potential candidates to ensure a smooth transition when Soriot eventually steps down.
There are credible internal candidates within AstraZeneca who could be considered for the CEO position. Susan Galbraith, the executive vice president of oncology research and development, and David Fredrickson, who oversees the commercial strategy for the cancer treatment business, have demonstrated their competence through the success of AstraZeneca’s cancer treatments, which accounted for 35% of the company’s sales in 2022. Another viable option could be Chief Financial Officer Aradhana Sarin. Additionally, the board might also explore external candidates, such as Luke Miels, a former protégé of Soriot’s who joined rival company GSK in 2017.
While finding a successor capable of matching Soriot’s impressive achievements may prove challenging, the lingering uncertainty surrounding the CEO’s potential retirement demands a prompt resolution. AstraZeneca’s shareholders, as well as the wider pharmaceutical industry, will be closely monitoring any further developments in this matter.
More detail via Yahoo News here… ( Image via Yahoo News )