“Pivotal”. “An inflection point”. “Defining”. “Critical”. “Key”. Listening to Pascal Soriot describe 2017, one wonders if the AstraZeneca chief executive has swallowed a thesaurus. And misread the recommended dose. In truth, the multilingual Frenchman would have no need of such a prescription. But he does seem to have been self-administering his own choice of dramatic adjectives — orally, every four hours — for some time.
On a summary reading of the pharma group’s quarterly results, it is hard to see why. They appear a few pivots short of a critical inflection.
Sales declined by 12 per cent in the period, to $5.4m, but exactly in line with consensus estimates of the impact of drug patent expiries. So Astra left its full-year revenue and earnings guidance unchanged.
When talking about drugs in the pipeline, though, Mr Soriot reached for the extreme lexemes again. He spoke of a “most extensive set of highlights”, an “inflection point approaching” and the “potential to be a defining year”.
On a detailed reading of upcoming trial results, it becomes easy to see why. In the next three quarters, Astra investors should find out whether new products can finally reverse five years of falling sales and offset patent expiries. In 2011, a year before Mr Soriot’s appointment, $19bn of the group’s $30bn sales were from products losing patent protection. Now, rating agency Moody’s rates Astra’s new product pipeline as one of “the strongest” among global pharmaceuticals groups.
Which superlatives prove most apposite will depend on trial data readouts in the second half of 2017 — most notably for the combination of Astra’s immuno-oncology cancer drug durvalumab with tremelimumab.
Here, though, the extra words tagged on to Mr Soriot’s 2017 descriptors bear some textual analysis — notably “potential to be” and “approaching”.
Astra’s combination trial may not have a binary outcome. It comes with “optionality” in terms of the patients and treatments assessed, and could require more time, events and data points to gauge overall survival rates.
In other words, Astra’s pivot or inflection point might not come until 2018 — affecting the rate at which sales growth returns.
Will shareholders wait? On Thursday, one suggested that the “jury remains out” on Mr Soriot, given he rebuffed a £70bn offer from Pfizer on the basis that Astra’s annual sales could reach $45bn by 2023. For 2017, the consensus estimate is less than half that. To have any chance of hitting the target, Astra’s pivot will need to come soon.
Patience so far has been rewarded: Astra shares have delivered double the total return of rival GlaxoSmithKline’s in the past 12 months, and a near 5 per cent yield. Waiting a bit longer offers another benefit, too. With no more patent expiries until 2024, new drug sales growth will not be watered down — and the next few years need not be such pivotally critical inflection points in a key defining way.
Nothin’ but the rent
PPI, short for payment protection insurance, now appears to have become shorthand for any egregious or extortionate product.
Social media newsfeeds have been called “the marketing equivalent of PPI”. Sewerage surcharges have been attacked by Ukip members as “the PPI of the water industry” (they appear strangely expert on the subject). Then, on Thursday, fast-rising ground rents on leasehold properties were described as “the PPI of housebuilding industry”, as Taylor Wimpey revealed it was paying £130m to compensate homebuyers.
This new usage of “PPI” is perhaps not surprising — coming as Lloyds Banking Group earmarked another £350m for mis-selling compensation. It is perhaps also a rather appropriate appropriation — because, just as there are two sides to the PPI story, so there are with ground rents.
While the original PPI scandal involved clear mis-selling, its remedy added at least 0.5 percentage points to household incomes in 2012, according to The Office for Budget Responsibility, and much more thereafter. Similarly, while ground rents can double in cost for some households every 10 or 25 years, they provide long-term income to others via specialist funds.
So, to FT columnist Merryn Somerset Webb, “A £275 ground rent that doubles every 25 years is worth £30,000 at 2 per cent . . . Loose modern monetary policy meets medieval property law to create tenant hell.” But to fellow FT columnist David Stevenson: “Ground rent [funds] are a classic defensive inflation hedge . . . at least a [fund] means access to this flow of regular payments is ‘democratised’”.
Would even a Ukip member hold his nose at that?
Take the high road
Aggreko has pulled a share plan that would have given directors 75 per cent of salary just for staying three years. Apparently, City types objected. But do they not realise these poor execs are based in Glasgow?