Investors, even the big and sophisticated ones, can often get it wrong due to short-termism driving their decisions.
However, independent directors of a company can save them from making rash calls by considering the long-term prospects of the business and its ability to deliver shareholder value.
When American rival Pfizer Inc (NYSE:PFE) made a £55 per share bid for AstraZeneca PLC (LSE:AZN) nine years ago, a number of institutions were disgruntled at AZ's decision to reject it.
However, the independent directors of AZ, led by departing chairman Leif Johansson, stood firm and backed the long-term vision of CEO Pascal Soriot, who was only two years into his turnaround of the Anglo-Swedish drugs giant.
Today, AZ's stock is trading at £122 per share, making it worth £188bn and Britain's most valuable company – and crucially it is valued at £6bn more than Pfizer.
This success has also shone a light on the lack of forward momentum at local rival GSK, whose shares have flatlined in that time, and would take rather longer to explain than Soriot’s success.
Soriot's secret to success
French-born Australian Sir Pascal, who was knighted last year for his efforts at AZ, took the line earlier in his tenure that there was no gain without pain.
Practically, this involved heavy investment in research and development (R&D), including a £1.1bn centre of excellence, as well as strategic acquisitions of new products and companies.
The result was a new generation of drugs such as Tagrisso, Farixga, Symbicort, Imfinzi, and Lynparza, which have led to a return to top and bottom-line growth.
The portfolio spans cardio-vascular, diabetes, and chronic kidney disease, and the company has a strong and expanding oncology franchise.
Investment in rare diseases
AZ spent £31.4bn on Alexion, a company that specializes in drugs for rare diseases. While the market for these ailments is small, the economic rewards for developing breakthrough treatments can be very lucrative.
Investors and analysts differ on AZ's approach to COVID-19. While the development of a low-cost vaccine for the world was applauded, the company lost out on the windfall profits made by the likes of Pfizer and Moderna.
Valuation challenges
On most metrics, AZ's stock trades at a significant discount to those at the top of the pile, such as J&J, Novo Nordisk (NYSE:NVO), Eli Lily, Merck, and Abbvie (NYSE:ABBV). Analysts attribute this to the expiry of the company's patents on some of its big-selling products.
Four of its 13 blockbuster drugs, worth over £1bn in annual sales, are estimated to be under threat from copycat competition between now and the end of the decade, with total sales of £10.5bn.
While some parts of AZ's portfolio face challenges, others, such as Enhertu and Tagrisso, have the potential to be versatile across a range of cancers, pushing up lifetime sales and increasing longevity.
The company has also been investing heavily in R&D, underpinned by advances in artificial intelligence, data, and digital health.
It has 179 projects in its pipeline, including 13 potential new medicines, and plans to initiate over 30 phase III clinical trials this year, with ten having blockbuster potential.
A changing of the guard?
AZ's annual meeting on Thursday (April 27) at a London hotel represents a partial changing of the guard, with Johansson handing the baton to Michel Demare.
Soriot, who took control of a "disorientated" and "anxious" staff and a business with an empty drug pipeline almost 11 years ago, shows no signs of flagging at 63.
"Michel and I will be working together and forming an excellent team for the many years to come," he told Reuters last summer, brushing off retirement questions. It suggests the mission is far from complete for the AZ chief.