This year would be “pivotal” for AstraZeneca, its chief executive, Pascal Soriot, has said for ages. It would mark the moment when the firm would display the new wonders from its laboratories. The march towards annual revenues of $45bn (£34.5bn) by 2023, the target set when Pfizer’s takeover offer was rebuffed three years ago, would begin in earnest. So how is 2017 shaping up?
Horribly. The share price has just crashed by 15% because a key lung cancer drug flopped in clinical trials. In January, Luke Miels, the European boss, hopped off to join its arch-rival, GlaxoSmithKline. And Soriot himself has spent a fortnight declining to shed useful light on the story that he considered quitting to join the Israeli outfit Teva.
The failure of the so-called Mystic lung cancer drug trial is plainly the most serious in that list. Success would have demonstrated AstraZeneca’s credentials in the new field of immunotherapy, with drugs that use the body’s own defence mechanisms. Imfinzi, the drug in question, was spoken about as a potential replacement for chemotherapy.
All is not lost yet, it should be said. The first stage of the trial merely measured the drug’s ability to prevent a cancer becoming worse. The second stage, which looks at survival rates, is arguably more important. The results are due next year and Soriot has appealed for patience. But you can’t blame investors for assuming more bad news could follow: AstraZeneca chose a two-stage structure because it was expecting to celebrate early.
Soriot was on firmer ground when he argued there’s more to AstraZeneca’s pipeline and new products than just Mystic. That’s definitely true. Another lung cancer pill, Tagrisso, has produced good data and the company is forming a potentially big partnership with Merck on another immuno-oncology drug, Lynparza. Jolly good, but neither development fills the Mystic-sized hole. The $45bn revenue target now has a huge credibility deficit. The City can’t see how the growth can possibly be achieved.
There was a parallel credibility shortfall in Soriot’s answers about the Teva tale. Having said he wouldn’t comment on rumours, he then offered a series of ambiguous comments, such as “I’m here” and, finally: “I’m not a quitter.” Did the latter mean he’s the sort of chap who is generally up for a challenge, or was it a 100% commitment to AstraZeneca? It was impossible to tell.
The board should hope Soriot is unswervingly loyal because it would look even sillier for paying him £13m last year. The largest slice compromised rewards for supposed long-term success. Now that the long-term is arriving, success is revealed as a work in progress, to put it mildly. The share price is £43, a far cry from the £55 that Pfizer was waving. Failures in clinical trials are part of life, of course. Rewarding success before it has happened doesn’t have to be.
At last, the last Lloyds PPI provision?
The state is no longer a shareholder, but some things never change at Lloyds Banking Group. There’s always another provision for past mis-selling of payment protection insurance, or PPI. The bill this time was £1bn, taking the running total to £18.1bn. The latest whack is intended to be the last. We’ve heard the same boast many times, but it sounds more believable now because an industry-wide deadline for claims has been set for 2019.
So does a nice clean set of accounts lie over the horizon? Don’t hold your breath. Banks’ ability to confess to fresh “conduct” issues seems limitless. Lloyds’ out-of-leftfield announcement was a £340m bill for giving redress to customers who were mistakenly hit with fees when they were in arrears on mortgage payments.
That episode does, genuinely, seem to have been an honest mistake, as opposed to the deliberate gouging of customers that was PPI. Lloyds, as the chief executive, António Horta-Osório keeps saying, is a much-improved bank these days. But half a billion, here and there, saps investors’ enthusiasm.
Sky’s limited earnings
Sky’s outside shareholders won’t care how much its chief executive, Jeremy Darroch, and finance director, Andrew Griffith, earn as long as they get their hands on Rupert Murdoch’s takeover cash eventually. All the same, there’s something odd about the latest share-based windfalls for the top duo.
Darroch will collect £11.5m and Griffith £6.75m after an incentive scheme allocated a maximum payout based on Sky’s operational performance to the three years to the end of June. This seems surprising. In terms of hard financials, 2014-17 will not be remembered as a vintage period for Sky.
What were the performance yardsticks? One was earnings per share, which makes the maximum award even odder. From a base level of 57p in 2013-14, Sky’s earnings, expressed in its preferred “adjusted” format, were: 56p, then 63.1p and now 61.4p. In other words, earnings fell in two out of the three years.
Yes, the earnings may count as respectable in a rough media climate. But isn’t Sky supposed to believe in better?