Ignominious exits are fast becoming a trend – think Silvio Berlusconi and James Murdoch, to mention a couple. David Brennan’s early departure as chief executive of AstraZeneca, following shareholder disquiet over the drugmaker’s direction, does not quite make that league. But it does reinforce a sense of new-found investor pushiness on both sides of the Atlantic. Unfortunately, it also demonstrates how much easier it is to diagnose a problem than prescribe a cure.

In the six years under Mr Brennan, AstraZeneca’s share price has risen just over 1 per cent. That is way short of the 23 per cent increase in the S&P 500 Pharmaceuticals Index. And although the company has eschewed large acquisitions in favour of passing cash back to shareholders, it has returned about one-sixth less than the index. The biggest problem though, is that the shares now trade at just 7 times 2013 earnings, compared with 10 to 11 times for the likes of Roche or GlaxoSmithKline. That reflects concerns that generic competition will simply intensify for the British drugmaker as core earners – such as Crestor and Nexium – come off patent, and that its pipeline prospects are weak. After a poor first quarter, with sales down even in some emerging markets, AstraZeneca is now forecasting a 2012 revenue decline in the low-to-mid teens.

The problem for Mr Brennan’s successor will be how to re-establish growth in anything like the foreseeable future. One option would be more M&A and/or diversification. AstraZeneca’s balance sheet, with almost $1bn of gross cash, would permit this: cash flow is strong. But, for investors, such an approach would need to be weighed against a reduced cash distribution policy.
The new strategy is likely to be finally decided this summer. Until then, the shares may stay remain stuck in the doldrums.

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