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In terms of winning friends and influencing people, this was not a bad start. Shares in pharma group AstraZeneca rose 2 per cent on Thursday as Pascal Soriot, chief executive officer since October, outlined his plans. Investors might be warming to him, but it has taken a while – the shares have underperformed European rivals since he arrived.
The challenge is to counter the impact of patent expiries, which are expected to drive revenue down from $35-billion (U.S.) in 2011 to $20-billion by 2018. Mr. Soriot hopes that revenue from new drugs, such as cardiovascular treatment Brilinta, along with expansion in emerging markets and Japan, will ease the pain. He is also planning to keep research and development spending flat, despite the fall in sales, and to focus the spending on later-stage drugs. And if there is any spare cash after that, acquisitions are on the cards. Over all, he believes, 2018 revenue will "significantly exceed" $20-billion.
And therein lies the main problem with the new strategy. A belief that revenue can beat a forecast in five years time is not exactly the same as giving a clear idea of when and where a recovery will start. Other commitments, such as the promise to produce core, pre-R&D margins of 48 to 52 per cent, also give plenty of room for manoeuvre. The only real certainty is on costs, where AstraZeneca is planning to cut 5,000 jobs (9 per cent of the total) for a saving of $800-million by 2016, which could boost operating profits by a tenth.
Where Mr. Soriot helps investors out is by providing choice. Other big pharma groups, such as Sanofi and Novartis, see diversification as a solution to patent cliff problems. By focusing on a small group of core markets, AstraZeneca is a purer play on pharma hopes, so offers higher risks and higher rewards. Its rating of nine times forecast earnings, against 13 for the sector, suggests Mr. Soriot has not yet convinced the skeptics.