When shareholders in Astrazeneca gather at the Landmark London Hotel this month, the pharmaceutical company’s board will be hoping for a warmer reception than in previous years.
Its past two annual meetings were overshadowed by large investor executive pay revolts, but this year, with Glass Lewis, a shareholder advisiory group, recommending that investors vote for the pay report and Astrazeneca having returned to sales growth for the first time since 2009, attention is likely to focus on the prospects of the business as it emerges from a pivotal year.
Astrazeneca, formed from a merger in 1999 of Astra, of Sweden, and Zeneca, the British group, is based in Cambridge and employs about 64,000 people in more than 100 countries. The return to product sales growth last year marked what management called an “inflection point” for the company, which has been investing in rebuilding its drugs pipeline since Pascal Soriot, 59, was appointed chief executive in October 2012 as it faced a testing period of competition to old blockbuster drugs, particularly Crestor, its statin medication.
The growth was driven by $2.8 billion of new medicines sales, up 81 per cent, led by a trio of promising cancer drugs — Tagrisso, Imfinzi and Lynparza — and breakthroughs in China.
They are among the potential blockbusters that, so far at least, have vindicated Astrazeneca’s focus on oncology, alongside respiratory treatments and what it calls CVRM (cardiovascular, renal and metabolism) and, significantly, its decision to reject a £55-a-share bid from Pfizer in 2014. The shares have been rerated since 2016, peaking at £65.25 last month.
Mr Soriot has committed himself to continuing at the head of Astrazeneca and has said that the company is on course to reap sales growth for the next five to six years from the products in its existing portfolio. One drug was added last month when Astrazeneca struck one of its biggest deals of the past decade. The global development and commercialisation agreement with Daiichi Sankyo, of Japan, worth up to $6.9 billion, is centred on a cancer drug that Astrazeneca hopes will become a new blockbuster treatment. Trastuzumab deruxtecan is part of a class of oncology medicines called antibody-drug conjugates, which promise a more targeted treatment than chemotherapy, and is in development for several cancers.
The deal, though, has divided the City and brought back underlying concerns held by those with a more bearish view on the stock. The tie-up is being part-funded by a $3.5 billion share placing, 3.5 per cent of the company’s market capitalisation, which will go towards an initial $1.35 billion payment for a drug yet to be approved by regulators. Another chunk of the placing proceeds are to repay $1 billion of debt due in September. All of which has rekindled doubts about the strength of Astrazeneca’s balance sheet, its pipeline of new medicines, the speed at which it can boost cash generation and the credibility of trastuzumab deruxtecan’s commercial prospects.
Net debt stood at $13 billion at the end of 2018, an earnings ratio of about three times, compared with 0.6 times five years earlier.
However, Mr Soriot has says that trastuzumab deruxtecan can be a “transformative new medicine”, significantly boosting earnings from 2023. Regulatory decisions and results for other late-stage drugs in Astra’s pipeline are set for this year. According to its Pfizer defence, annual revenues should be $40 billion by 2023.
ADVICE Hold
WHY Shares close to record highs but potential of pipeline and prospects in China still emerging
Genel Energy
The sudden departure of a chief executive can be unsettling, but investors in Genel Energy were unfazed yesterday by Murat Özgül, 46, who has led the company since July 2015, resigning with immediate effect (Emily Gosden writes).
They have good reason to be sanguine. Genel has promoted Bill Higgs, 54, an industry veteran who has helped to steer its course as chief operating officer, in what it assures is a planned succession.
Genel Energy was created in 2011 by Mr Özgül’s predecessor, Tony Hayward, the former BP boss, who joined forces with Nat Rothschild, the financier, to float an investment vehicle at £10 a share and used it to buy the Turkish, Kurdish Iraq-focused Genel Enerji.
All did not go according to plan. Genel was hit by the oil price crash, by geological problems at a key field and by the rise of Islamic State, which meant that the autonomous Kurdish region in Iraq had to divert resources to fend off jihadists instead of paying oil companies. By the time that Genel’s founders had left in the middle of 2017, the shares were worth less than a tenth of their float price, with growth pinned on over-ambitious plans to develop two vast gasfields.
There has been some progress since, aided by Mr Higgs’ arrival in late 2017. A settlement was struck with Kurdish authorities over unpaid oil revenues and its gas plans were pared back. This prompted a big writedown, sending it to a loss last year. A gas development remains “a great option” in the longer term, Genel has said, but “the future of the company is not wedded to gas”.
Mr Higgs has focused instead on expanding the oil business to a point where Genel expects to generate more than $100 million of free cashflow this year, even after investing in production growth. The company intends to pay a $40 million dividend from next year and yesterday it secured bondholder approval to pay a $28 million dividend in respect of 2018.
The company remains frustrated by the “misplaced” perception of security risks in Kurdish Iraq, but it is within its means to adjust its risk profile by buying assets elsewhere. The shares rose 3½p, or 1.7 per cent, to 207½p yesterday.
ADVICE Buy
WHY Strong cash generation should fund growth
