#4 AstraZeneca

15 Stanhope Gate
London W1K 1LN
United Kingdom
Tel: (44) 00 7304 5000
Fax: (44) 020 7304 5151

www.astrazeneca.com

Headcount	64,900
Year Established	1999
Pharma Revenues	$23,950	12%
Total Revenues	$24,143	12%
Net Income	$4,724	28%
R&D Budget	$3,379	-3%

Drugs Approved
Drug	Indication
merrem	skin and soft tissue infections
seloken/toprol-XL	HCTZ combination
nexium	NSAID GI side effects – symptom resolution, ulcer healing
atacand	heart failure

Drugs Pending
Drug	Indication
nexium sachet formulation	GERD
seroquel	bipolar depression
symbicort pMDI	COPD, asthma

Drugs in Phase IIB and Beyond
Drug	Indication
azd0837	thrombosis
azd6140	arterial thrombosis
crestor	CHF, renal, artherosclerosis
atacand	diabetic retinopathy
agi-1067	artherosclerosis
aazd9056	inflammatory bowel disease
nexium	extra-esophageal reflux disease
cytofab	severe sepsis
azd3480	cognitive disorders
seroquel	bipolar maintenance, schizophrenia, generalized anxiety disorder, major depressive disorder
nxy-059	stroke
azd2171	NSCLC and colorectal cancer
iressa	breast cancer, head and neck cancer
zd4054	prostate cancer
faslodex	2nd line after aromatase inhibitor failure
patrin	solid tumors
zactima	NSCLC, medullary thyroid cancer
faslodex	1st line advanced breast cancer
azd9056	COPD
azd8955	osteoarthritis
azd9056	rheumatoid arthritis
azd3778	rhinitis
zactima	2nd and 3rd line NSCLC, thyroid cancer

Early Research Projects
Drug	Indication
azd8309	rheumatoid arthritis
azd8309	COPD
azd1981	asthma
azd4769	solid tumors
ku59436	breast cancer
azd6244	solid tumors
azd0530	solid tumors, hematological malignancies
aq4n	solid tumors
azd9272	neuropathic pain
azd9343	GERD
azd2479	dyslipidemia
azd8677	dyslipidemia/diabetes
azd4121	cholesterol absorption inhibitor
azd9684	pulmonary embolism

Drugs Coming Off Patent
Drug	Indication
losec	peptic ulcer, acid reflux
nolvadex	breast cancer
plendil	hypertension
zestril	CV diseases, hypertension

Top Selling Drugs
Drug	Indication	Sales	(+/- %)
nexium	peptic ulcer, acid reflux	$4,633	19%
seroquel	anti-psychotic	$2,761	36%
seloken	hypertension	$1,735	25%
losec/prilosec	peptic ulcer, acid reflux	$1,652	-15%
crestor	cholesterol	$1,268	40%
arimidex	oncology	$1,181	46%
pulmicort	asthma	$1,162	11%
casodex	prostate cancer	$1,123	11%
symbicort	asthma	$1,006	26%
zoladex	oncology	$1,004	9%
atacand	hypertension	$974	11%

Account for 77% of total pharma sales, up from 73% in 2004

PROFILE

AstraZeneca jumped from #6 to #4 in 2005, on the strength of a 12% uptick in drug revenues. That's the best rate of growth among the all but one of the Top 10, and it's more impressive given the pipeline disappointments AZ has suffered. The company has 10 drugs in the billion-dollar category, and another that fell $26 million short of that mark. Losec/Prilosec will fall out of those ranks soon, but Atacand looks ready to replace it.

Still, those pipeline problems haunt AZ's long-term prospects, and may make the company ripe for a takeover. The company's experimental diabetes treatment Galida was cut in May 2006 after Phase III trials showed elevations in serum creatinine and an associated decrease in Glomerular Filtration Rate (GFR). Galida joined Iressa (lung cancer) and Exanta (blood thinner) in the AZ graveyard.

THE LOWE DOWN

AstraZeneca is in decent shape, thanks to all that ulcer medication, but a few years ago they probably figured that they'd be higher in the standings by now. The failures of the antitumor agent Iressa and their anticoagulant Exanta, though, have left them a few billion dollars short in sales. It's also left their late-stage pipeline looking leaner than it had planned on (although they do seem to have a lot going on in the earlier phases). This imbalance has led to talk from their management about how they're going to improve the productivity of their in-house research efforts.

Well, that's always nice to hear. But since (as far as I can tell) no one's figured out a reliable way to do that yet, the company also seems to be ready to buy some help—witness its purchase of Cambridge Antibody. This will give them entry into an area that people have realized is quite a bit more lucrative than it used to be.

Another thing that's probably been irritating the company over the last few years is Crestor's inability to rise up to Lipitor-like levels. Granted, nothing else has ever scaled those heights, but AZ must be wondering what they have to do to break through. There's one category that they match Pfizer in, though: both companies have been fighting off Ranbaxy's attempts to break the patents of their best-sellers. They've arrived at last!
--Derek Lowe

For a company that has had so many disappointing results as AZ has, the recent news about Crestor must have been awfully gratifying. In March 2006 the company released results of a study showing that Crestor reversed plaque buildup in the arteries of patients with coronary artery disease. The trial involved 40mg doses of the statin, while patients usually start with a 5mg dose. Given the safety issues associated with Crestor, I'm sure there will be plenty of risk analysis in the decision to use high doses for a new indication.

Rebuilding the Pipeline

In a recent presentation on the company's pipeline, AZ's new chief executive officer David Brennan remarked, "There are three elements to our strategy to strengthen the pipeline: improve the productivity of our in-house discovery and development efforts; aggressively pursue promising products and technologies from external sources; and, beginning with our offer for Cambridge Antibody Technology, build a major international presence in the research and development of biological therapeutics to complement our small molecule capabilities."

The development news hasn't been all bad for AZ. The company has five new compounds in Phase III and 13 more in Phase II. AZ filed asthma treatment Symbicort with the FDA in September 2005; the drug is already available in Europe, and posted sales of $1.0 billion in 2005. The company predicts a U.S. launch in 2007.

Also, the NDA for NXY-059 (the stroke treatment formerly known as Cerovive) will be filed in early 2007. In addition, line extensions of current products should sustain revenue growth (especially for Nexium and Seroquel) until some of the new products reach the market. Line extensions comprise approximately 25% of AZ's R&D pipeline.

Only one other drug is on pace for approval in 2007: AGI-1067, an atherosclerosis treatment in-licensed from Athero-Genics in December 2005. AZ paid $50 million upfront for the Phase III product, with the potential for $950 million more in development and commercialization milestones. AZ will also fund AtheroGenics' development of a 125-person cardiology sales force in the U.S. to promote it and another AZ CV drug.

ACQUISITIONS

Target: Cambridge Antibody Technologies (CAT)
Price: $1.3 billion
Announced: May 2006
Comment: “This acquisition represents a major long-term strategic investment by AZ in novel biological therapeutics.”
—CEO David Brennan

Target: KuDOS Pharmaceuticals
Price: $210 million
Announced: December 2005

AZ has gone after a number of collaborations and in-licensing agreements to bolster its pipeline. The company is in a strong enough cash position (and has expertise and sales forces in enough therapeutic areas) to warrant that strategy. In addition to the AtheroGenics deal, AZ has signed the following deals in the last year:

Abraxis BioScience: Co-promote Abraxanae for injectable suspension (chemotherapy) in the U.S. AZ sold its branded anesthetics and analgesics in the U.S. to Abraxis as part of the pact. Cost: $200 million for a five-and-a-half-year term, with AZ receiving 22% commission on net sales during the term, plus 10% and 5% commissions in the two years after the term.

Astex: Discover, develop and commercialize PKB inhibitors for cancer treatment. Cost: $5 million upfront, as much as $270 million in milestones and royalties.

Avanir: Discover, develop and commercialize reverse cholesterol transport enhancing compounds to treat CV disease. Cost: $10 million upfront, as much as $330 million in milestones, plus stepped royalties capped in the low double-digits.

Protherics: In-licensing CytoFab (anti-sepsis), which is planned to enter Phase III in 2007. Cost: $30 million upfront, $13.5 million in equity, as much as $315 million in milestones, and 20% of net sales.

Schering AG: Research and licensing collaboration for Selective Glucocorticoid Receptor Agonists (SEGRAs) as anti-inflammatory treatments. Cost: undisclosed.

Targacept: In-licensing TC-1734 (Alzheimer's treatment and other cognitive disorders), which is in Phase II, plus development of other compounds that act on neuronal nicotinic receptors. Cost: $10 million upfront, as much as $300 million in milestones, and stepped double-digit royalties for commercialized products.

GSKAZ?

As I mentioned at the outset, AZ's series of high-profile failures may have left the company vulnerable to a takeover. The main suitor is rumored to be Glaxo-SmithKline, which was believed to be awaiting the result of its bid for Pfizer's consumer division before committing to a pharma acquisition.

A merger would provide GSK with some interesting synergies and entrée into classes where it's not very strong. Plus, it would be an All-England company (sort of), which would continue the "national champion" concept pushed by the Sanofi-Aventis merger. That said, the combined company would have to divest some very good products to satisfy antitrust regulators.

I don't think GSK can afford to acquire AZ (the divestitures, plus labor issues of laying off thousands of 'redundant' employees), but I do wonder how long AZ can go without making a major acquisition of its own. At present, its #4 ranking among Pharma companies marks the beginning of the "second-tier." Even if its 12% growth holds up for another year, the company will still reside $10 billion behind out of the #3 position (either Sanofi or GSK, which were separated by $37 million).

Can the company reside relatively comfortably in that position, or will pressure from below lead it to acquire a "mid-major" company? Last September, outgoing chief executive Sir Tom McKillop said AZ has no interest in a merger. "We have no strategic need to be bigger -- none at all. So there is no reason to engage in major M&A activity," he said in an Reuters interview.

We'll see if the new chief executive shares Sir Tom's sentiments. I'm inclined to think that the sheer number of new agreements and smaller acquisitions (nothing larger than its $1.2 billion acquisition of CAT) may help AZ sustain its growth, rebuild its pipeline, and remain competitive.