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AstraZeneca Faces "Tremendous Operational Challenges"

By Mark Rogers - Apr 23, 2013 at 10:30AM

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A major AstraZeneca shareholder gives the pharma group's boss a vote of confidence.

LONDON -- Pharmaceutical group AstraZeneca (AZN 0.21%) (AZN 1.78%) was in the headlines at the weekend after the Telegraph anonymously quoted a top-five shareholder speaking out over the uphill struggle facing the FTSE 100 member, while insisting chief executive Pascal Soriot is the right man for the job.

The major shareholder claimed AstraZeneca faces "tremendous operational challenges" to develop a new pipeline of successful products against a backdrop of regulatory hurdles, company restructuring, and austerity-driven pricing.

However, the shareholder apparently remains confident the company is moving in the right direction, by simplifying the business and focusing on organic growth through internal R&D, rather than "disruptive" major takeovers.

AstraZeneca could face a potentially awkward annual general meeting this Thursday, after the Local Authority Pension Fund Forum, which owns 2% of the company, advised its members to vote against the "golden hello" pay package awarded to Soriot.

The generous payout, worth up to 11 million pounds this year, includes 1 million pounds in compensation for Soriot's lost bonus at previous employer Roche.

AstraZeneca responded in a statement:

Our remuneration policy promotes long-term, sustainable growth in shareholder value. We are committed to levels of remuneration that are sufficient to attract, retain and motivate senior employees of the requisite quality, while avoiding paying more than is necessary.

Since joining the company in October, Soriot has made sweeping changes to the company's management, and in March unveiled a "new strategy to return to growth and achieve scientific leadership."

In a six-point plain, he emphasized "dramatically simplifying the business," "rebuilding the R&D engine" and "launching a steady flow of specialty care products."

Speaking ahead of last month's Investor Day briefing, Soriot laid out his vision:

AstraZeneca is committed to delivering great medicines to patients through innovative science and excellence in development and commercialization  Our vision is clear -- to be a global biopharmaceutical company with a focused portfolio in core therapy areas. We see no case for diversification.

I'm confident that we have set out on the right path to return to growth and achieve scientific leadership, and I'm equally confident that our people possess the talent, determination and focus to deliver for patients as well as our shareholders.

The company will report its first-quarter results this Thursday. With a market cap of 42 billion pounds, AstraZeneca trades at around 9.5 times expected earnings and on an impressive prospective dividend yield of 5.6%.

While that yield might appear attractive, there aren't many global companies whose dividend can match the long-term stability or visibility laid out by "The Motley Fool's Top Income Stock For 2013."

In fact, the Fool's choice recently revealed its dividend supports a market-beating 5.1% yield, would increase "at least in line with the rate of UK inflation for the foreseeable future," and has been subject to stress tests under different economic and business scenarios.

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