PROFILE
Vultures are spiraling around AstraZeneca. A boardroom coup in April 2012 led to the retirement of chief executive officer David Brennan and the early departure of retiring chairman Louis Schweitzman. Pharma revenue was almost flat in 2011, then fell 11% in the first quarter of 2012. Crestor’s meteoric revenue growth (+26% in 2010, +16% in 2011) looks likely to falter now that generic Lipitor is on the market. One high-profile approval has been delayed, a promising compound failed in Phase III, another fell in Phase II, and its one significant approval is struggling to find traction in the market. And now a restructuring program promises to bring AZ’s total number of layoffs since 2007 to almost 30,000.
It is, to put it bluntly, a mess. We’ve gone on for years about the massive hole that AZ faces when its biggest drugs — Atacand, Seroquel, Symbicort, Iressa and Nexium, Crestor — lose patent protection, and now that those expirations are hitting, the situation looks increasingly desperate. The IR version of Seroquel lost its U.S. patent protection in March 2012, and sales took an immediate nosedive. AZ did win a patent fight for the extended release version of the drug in the U.S., prevailing against a number of infringing generics firms, but the company lost that same XR patent fight in the UK.
By April, AZ’s board appeared to lose faith that David Brennan could guide the company out of this morass. It didn’t help his cause when the FDA sent AZ and development partner Bristol-Myers Squibb a complete response letter in January 2012 for diabetes treatment dapaglifozin, requesting additional clinical data, possibly from new trials. It also didn’t help that Brilinta, AZ’s Plavix-killer, has made little headway in hospital market for acute coronary syndrome (ACS).
To try to fix the Brilinta bind, AZ signed a four-year commercialization agreement in April with The Medicines Company to promote Brilinta in the U.S. (and beyond). TMC’s sales force began supporting Brilinta in May, and will make $15 million each year along with as much as $5 million in performance milestones. Several months before this move, AZ announced plans to fire 24% of its U.S. sales force, at a cost of $50 to $100 million. Brilinta posted revenues of $9 million in 1Q12.
As we said, it’s a mess. The sales rep layoffs preceded another major restructuring announcement — they seem to come biannually at AZ — that will result in 7,300 layoffs and $2.1 billion in charges, for a projected annual savings of $1.6 billion. Around 2,200 R&D staffers are expected to get the axe, in order to “create a simpler and more innovative R&D organization with a lower and more flexible cost base.” Another 1,350 will be laid off from Operations as the company streamlines its supply chain and API outsourcing activities.
With so little in the late-stage pipeline, and so much revenue about to fall off the table, what’s AZ to do? There’s some chatter — among banks and institutional investors, which have an interest in maximizing the share value of AZ — that the company may be better off shedding R&D assets and becoming a “Big Specialty Pharma.” Such a move would put AZ’s cost structure more in line with its radically reduced revenues, but it would also be akin to running up a white flag. As we’ve noted in other profiles, several of the majors are backtracking on their diversification strategies and selling off non-pharma assets, but none of them are suggesting making themselves small enough to become an acquisition target. A move like that would primarily benefit the investment banks that would roll up consulting fees, not pharma.
Just after press time last year (June 2011), AZ sold off its dental implants and medical devices unit, Astra Tech, to Dentsply International for $1.8 billion. The unit had sales of $535 million in 2010. Some analysts felt that AZ could have gotten more for that unit, but it’s not uncommon for the British to undervalue dentistry.
AZ has earmarked some of its cash for stock buybacks, to keep shareholders happy, and has also committed $350 to build manufacturing sites in Russia and China, but the company is still looking at growth prospects and partners.
R&D head Martin Mackay told Reuters last March, “We are very actively talking to a number of companies, including potential peer-to-peer and biotech deals. I would be very disappointed if we do not do some deals this year that the market will be pleased by.” Mr. Mackay admitted that there’s no single deal that could turn AZ around, but that a series of low-billion-dollar ones could help the company build its way out of this mess.
At press time, AZ contributed $3.4 billion towards Bristol-Myers Squibb’s purchase Amylin, Lilly’s former Byetta partner. You can find more about that deal in As We Go To Press on page 127. It appears that non-executive chairman Leif Johansson and interim chief executive officer Simon Lowth (who moved into the role from the CFO slot) still believe that there are good uses for AZ’s cash beyond dividends and buybacks.
Examining AstraZeneca in detail just seems cruel. This is a company that was riding high not too many years ago, and all they needed was for a few of their pipeline hopes to work out, or a few of their external deals to pay off. But it’s been one damn thing after another — expensive deals that went nowhere, compounds that blew up late in development, regulatory troubles of all kinds. If you’d wanted to draw up the hurricane scenario back in 2005 or so, you’d have come up with, well, with pretty much what actually happened. And all of this when Crestor hasn’t even come off patent yet.
So, unfortunately, I don’t see much happiness around there for some time to come. The company might stagger through these troubles and emerge, smaller and with something to sell. And lots of people are telling them that they need to merge with someone, perhaps Lilly. Wouldn’t that be a happiness explosion! But whatever happens, it’s not going to yield the AstraZeneca of old. Getting back to that, at this point, would be like unscrambling an egg.
—Derek Lowe
Target: Ardea Biosciences
Price: $1 billion (net of existing cash)
Announced: April 2012
What they said: “The Ardea team has done a great job developing lesinurad [Ardea’s Phase III oral treatment for gout] along with a promising next-generation gout program. These compounds have real potential to benefit patients.”
—David Brennan, CEO, AZ (ret.)
Target: Guangdong BeiKang Pharmaceutical Company Ltd.
Price: not disclosed
Announced: December 2011
What they said: “Our new acquisition further underscores our intention to serve the health needs of Chinese patients through our innovative medicines and, increasingly, high quality branded generic treatments that are locally produced to global standards.”
—Mark Mallon, president, AZ’s Asia-Pacific region
In March 2012, AZ entered a multi-year collaboration with Galapagos’ service companies, BioFocus and Argenta. The companies will assist in finding new compounds against key targets of interest to AZ’s research programs in respiratory and inflammatory diseases. According to an AZ statement, “Each Astra-Zeneca project will engage the medicinal chemistry, biology and ADME/PK capabilities of either BioFocus or Argenta, and will also be able to access the full suite of in vivo respiratory pharmacology models which reside within Argenta.”
In another sort of outsourcing announcement, several scientists who were laid off by AZ opened a preclinical CRO last year, near the company’s former Loughborough, UK site. Aurelia Bioscience was founded by managing director Kevin Hart (previously head of scientific operations for AZ at Charnwood), business development director and chief scientific officer Gary Allenby (previously a senior associate scientist who joined AZ in 2000), and science director Kathy Dodgson (previously a senior research scientist at AZ and a pioneer in label-free screening).