07.17.13
2 Kingdom St.
London W2 6BD
United Kingdom
Tel: (44) 00 7604 8000
Fax: (44) 020 7604 8151
www.astrazeneca.com
Top Selling Drugs
Account for 82% of total pharma sales, down from 83% in 2011
AstraZeneca is the last of our top six companies to post a sales drop in 2012, and it was a doozy. A wave of expirations and other price pressures led to a $5.6 billion shortfall, with little to offset it. Only Pfizer posted a larger total sales drop, and only Bristol-Myers Squibb (coming in at #11) fell by such a large percentage. The loss of patent protection for Seroquel IR was the main culprit, lopping $3.0 billion off of 2012’s results, and another $627 million from 1Q13.
Even AZ’s top performer, Crestor, showed weakness, as the statin faced pressure from generic Lipitor. Its 6% drop last year accelerated in 1Q13, with sales falling 12% to $1.3 billion. The drug lost a patent battle in Australia in March 2013, where it brought in approximately $350 million in 2012 sales, but AZ successfully defended Crestor’s patents in the U.S. in December 2012, leading to a settlement with several generic companies and opening the door for an off-brand Crestor several months prior to its July 2016 pediatric exclusivity extension. Nexium will go next, likely cratering its $4.0 billion in revenues.
There’s little growth from AZ’s newer products, certainly not enough to hold back the next wave of patent expirations. This situation cost chief executive officer David Brennan his job in April 2012, and the company now has to hope that the new top dog, Pascal Soriot, can turn things around.
Mr. Soriot previously served as chief operating officer of Roche’s pharma division and chief executive at Genentech, so he has some idea of what a productive pharma company looks like. His first move after joining the company in August was to conserve the company’s cash by suspending $2.2 billion in share repurchases.
In March 2013, Mr. Soriot offered his strategy for AZ’s future. In his words, the company’s strategic priorities are
None of these moves look like they’ll cover the short-term devastation that AZ faces. Even doubling Phase III assets by 2016 doesn’t offer much growth before the end of the decade. As is, if everything breaks right, Mr. Soriot contends the company can exceed revenues of $21.5 billion in 2018. (In a sign that not everything is going to break right, AZ took a $140 million writeoff in June 2013 when it gave up in Phase III on a co-developed compound, Rigel’s fostamatinib, an oral RA treatment.)
So a best-case scenario means that 2018 AZ will be almost 25% smaller than the 2012 version. You can bet that AZ isn’t planning to support the current infrastructure with (at least) 25% lower revenues, so Mr. Soriot has to slash costs while still getting something out of R&D.
Last year’s writeup included a pre-Soriot restructuring announcement intended to “create a simply and more innovative R&D organization with a lower and more flexible cost base.” This year’s overlapping attempt at “dramatically simplifying the business [and] improving productivity” will involve firing 5,050 employees by 2016, at a cost of $2.3 billion and savings of $800 million each year.
As part of the reorg, AZ announced plans to build R&D centers close to bio-clusters, in order to take advantage of talent and partnership opportunities. The company will focus on Cambridge, UK, Gaithersburg, MD and Möldnal, Sweden. For Cambridge, AZ will spend around $500 million on a new site to house its HQ and consolidate its small molecule and biologics R&D.
AZ has also restructured its executive team to reflect its R&D priorities. Research head Martin Mackay was ousted in January 2013, after barely two years on the job, and AZ now has three senior R&D positions covering discovery and early-stage development for small molecules and for biologics, and late-stage development.
Can AZ survive long enough to accomplish its goals? The company still has high hopes for anti-platelet drug Brilinta. Once projected as a Plavix-buster, Brilinta posted revenues of $51 million in 1Q13, with a 29% increase in prescriptions from 4Q12. Early analyst estimates of $1 to $2 billion (or greater!) by 2015 have been revised to $1.3 billion or so by 2018. AZ has a diagnostic that identifies a subset of patients who may stand to benefit from the drug, but will that be enough to get Brilinta to break out against Lilly’s Effient and generic Plavix?
In addition to Brilinta, AZ hopes for growth from its diabetes partnership with Bristol-Myers Squibb. Their co-developed Onglyza treatment brought in $90 million (+27%) for AZ in 1Q13, but reimbursement issues have hampered prescriptions this year. They received EU approval for Forxiga, an SGLT2 inhibitor for type 2 diabetes, in November 2012, but it’s in the early stages of rollout, with negligible sales. The FDA issued a complete response letter for Forxiga’s U.S. application early last year; no word on how that’s advancing.
In August 2012, BMS and AZ closed their deal to co-buy Amylin, giving each a share of Byetta and Bydureon revenues ($69 million in 1Q13). It’s early days for that partnership, but the $3.2 price tag for half of Amylin (along with a $135 million option to “certain additional governance rights over key strategic and financial decisions regarding Amylin’s portfolio”), means AZ needs to see significant results.
It’ll get darker for AstraZeneca in the next few years; we hope the board, the shareholders and every other relevant party has the patience to see Mr. Soriot’s strategy through.
Lowe Down
So here’s another company trying the Totally New Research Site gambit, this one in the original Cambridge (UK, that is). At least the construction crews in the New World’s Cambridge can dig away without fear of disturbing hordes of Roman silver, although the recent identification of Richard III’s gravesite does at least take him out of the equation. I recommend caution. Given the way things have been going for AstraZeneca the last few years, I wouldn’t rule out someone digging through the roof Beelzebub’s living room. Admittedly, Cambridge is not its traditional location, but you never know.
But whatever magic this location (or any location) can work won’t be apparent for another several years. In the meantime, AZ is dealing with an absolutely hair-curling string of costly clinical failures and patent expirations, with little prospect of near-term relief. The company is making a lot of deals, up and down its whole development timeline, in the hopes that these will do what it hasn’t been able to do for itself. There have been layoffs, initiatives, re-organizations, and consolidations, and there will surely be more. By the time the new site gets opened, what sort of AZ is going to be moving into it?
Acquisition News
Target: Pearl Therapeutics
Price: $560 million, plus $590 million in milestones
Announced: June 2013
What they said: “Pearl’s novel formulation technology, together with its development products and specialist expertise, are a great complement to AstraZeneca’s long-established capabilities in respiratory disease, one of our core therapy areas.”
Price: $443 million, including Contingent Value Rights
Announced: May 2013
What they said: “[Lead compound] Epanova offers real potential both as a distinctive monotherapy for the treatment of hypertriglyceridemia and in combination with Crestor for patients at high risk of adverse cardiovascular events. This is an exciting acquisition that clearly complements our existing portfolio in cardiovascular and metabolic disease, one of our core therapy areas.”
Price: Not disclosed
Announced: April 2013
What they said: “Cardiovascular disease is projected to remain the single leading cause of death worldwide over the next decade and beyond. Through novel approaches like LCAT, we hope to shift the treatment paradigms in this area to help prevent and treat these conditions.”
London W2 6BD
United Kingdom
Tel: (44) 00 7604 8000
Fax: (44) 020 7604 8151
www.astrazeneca.com
Headcount | 51,700 | |
Year Established | 1999 | |
Pharma Revenues | $27,973 | -17% |
Total Revenues | $27,973 | -17% |
Net Income | $6,405 | -32% |
R&D Budget | $5,243 | -5% |
Top Selling Drugs
Drug | Indication | $ | (+/- %) |
Crestor | cholesterol | $6,253 | -6% |
Nexium | peptic ulcer, acid reflux | $3,944 | -11% |
Symbicort | asthma | $3,194 | 1% |
Seroquel XR | anti-psychotic | $1,509 | 1% |
Seroquel IR | anti-psychotic | $1,294 | -70% |
Zoladex | oncology | $1,093 | -7% |
Synagis | RSV | $1,038 | 6% |
Atacand | hypertension | $1,009 | -30% |
Seloken/Toprol | hypertension | $918 | -7% |
Pulmicort | asthma | $866 | -3% |
Losec/Prilosec | peptic ulcer, acid reflux | $710 | -25% |
Iressa
|
oncology | $611 | 10% |
Arimidex | oncology | $543 | -28% |
AstraZeneca is the last of our top six companies to post a sales drop in 2012, and it was a doozy. A wave of expirations and other price pressures led to a $5.6 billion shortfall, with little to offset it. Only Pfizer posted a larger total sales drop, and only Bristol-Myers Squibb (coming in at #11) fell by such a large percentage. The loss of patent protection for Seroquel IR was the main culprit, lopping $3.0 billion off of 2012’s results, and another $627 million from 1Q13.
Even AZ’s top performer, Crestor, showed weakness, as the statin faced pressure from generic Lipitor. Its 6% drop last year accelerated in 1Q13, with sales falling 12% to $1.3 billion. The drug lost a patent battle in Australia in March 2013, where it brought in approximately $350 million in 2012 sales, but AZ successfully defended Crestor’s patents in the U.S. in December 2012, leading to a settlement with several generic companies and opening the door for an off-brand Crestor several months prior to its July 2016 pediatric exclusivity extension. Nexium will go next, likely cratering its $4.0 billion in revenues.
There’s little growth from AZ’s newer products, certainly not enough to hold back the next wave of patent expirations. This situation cost chief executive officer David Brennan his job in April 2012, and the company now has to hope that the new top dog, Pascal Soriot, can turn things around.
Mr. Soriot previously served as chief operating officer of Roche’s pharma division and chief executive at Genentech, so he has some idea of what a productive pharma company looks like. His first move after joining the company in August was to conserve the company’s cash by suspending $2.2 billion in share repurchases.
In March 2013, Mr. Soriot offered his strategy for AZ’s future. In his words, the company’s strategic priorities are
- Driving our on-market growth platforms to return to growth as we move through a period of patent expiries and revenue declines;
- Progressing the Phase II pipeline, that has the potential to double Phase III asset volume by 2016, and deliver on the promise of our biologics portfolio;
- Launching a steady flow of specialty care products, balancing the company’s historic strength in primary care;
- Rebuilding the R&D engine through innovation and distinctive science supported by co-location of our teams and better access to globally recognized science clusters;
- Dramatically simplifying the business, improving productivity and building a culture that supports long-term success;
- Leveraging business development and acquisitions to deliver upside to the company’s base plan and to strengthen the pipeline further.
None of these moves look like they’ll cover the short-term devastation that AZ faces. Even doubling Phase III assets by 2016 doesn’t offer much growth before the end of the decade. As is, if everything breaks right, Mr. Soriot contends the company can exceed revenues of $21.5 billion in 2018. (In a sign that not everything is going to break right, AZ took a $140 million writeoff in June 2013 when it gave up in Phase III on a co-developed compound, Rigel’s fostamatinib, an oral RA treatment.)
So a best-case scenario means that 2018 AZ will be almost 25% smaller than the 2012 version. You can bet that AZ isn’t planning to support the current infrastructure with (at least) 25% lower revenues, so Mr. Soriot has to slash costs while still getting something out of R&D.
Last year’s writeup included a pre-Soriot restructuring announcement intended to “create a simply and more innovative R&D organization with a lower and more flexible cost base.” This year’s overlapping attempt at “dramatically simplifying the business [and] improving productivity” will involve firing 5,050 employees by 2016, at a cost of $2.3 billion and savings of $800 million each year.
As part of the reorg, AZ announced plans to build R&D centers close to bio-clusters, in order to take advantage of talent and partnership opportunities. The company will focus on Cambridge, UK, Gaithersburg, MD and Möldnal, Sweden. For Cambridge, AZ will spend around $500 million on a new site to house its HQ and consolidate its small molecule and biologics R&D.
AZ has also restructured its executive team to reflect its R&D priorities. Research head Martin Mackay was ousted in January 2013, after barely two years on the job, and AZ now has three senior R&D positions covering discovery and early-stage development for small molecules and for biologics, and late-stage development.
Can AZ survive long enough to accomplish its goals? The company still has high hopes for anti-platelet drug Brilinta. Once projected as a Plavix-buster, Brilinta posted revenues of $51 million in 1Q13, with a 29% increase in prescriptions from 4Q12. Early analyst estimates of $1 to $2 billion (or greater!) by 2015 have been revised to $1.3 billion or so by 2018. AZ has a diagnostic that identifies a subset of patients who may stand to benefit from the drug, but will that be enough to get Brilinta to break out against Lilly’s Effient and generic Plavix?
In addition to Brilinta, AZ hopes for growth from its diabetes partnership with Bristol-Myers Squibb. Their co-developed Onglyza treatment brought in $90 million (+27%) for AZ in 1Q13, but reimbursement issues have hampered prescriptions this year. They received EU approval for Forxiga, an SGLT2 inhibitor for type 2 diabetes, in November 2012, but it’s in the early stages of rollout, with negligible sales. The FDA issued a complete response letter for Forxiga’s U.S. application early last year; no word on how that’s advancing.
In August 2012, BMS and AZ closed their deal to co-buy Amylin, giving each a share of Byetta and Bydureon revenues ($69 million in 1Q13). It’s early days for that partnership, but the $3.2 price tag for half of Amylin (along with a $135 million option to “certain additional governance rights over key strategic and financial decisions regarding Amylin’s portfolio”), means AZ needs to see significant results.
It’ll get darker for AstraZeneca in the next few years; we hope the board, the shareholders and every other relevant party has the patience to see Mr. Soriot’s strategy through.
Lowe Down
So here’s another company trying the Totally New Research Site gambit, this one in the original Cambridge (UK, that is). At least the construction crews in the New World’s Cambridge can dig away without fear of disturbing hordes of Roman silver, although the recent identification of Richard III’s gravesite does at least take him out of the equation. I recommend caution. Given the way things have been going for AstraZeneca the last few years, I wouldn’t rule out someone digging through the roof Beelzebub’s living room. Admittedly, Cambridge is not its traditional location, but you never know.
But whatever magic this location (or any location) can work won’t be apparent for another several years. In the meantime, AZ is dealing with an absolutely hair-curling string of costly clinical failures and patent expirations, with little prospect of near-term relief. The company is making a lot of deals, up and down its whole development timeline, in the hopes that these will do what it hasn’t been able to do for itself. There have been layoffs, initiatives, re-organizations, and consolidations, and there will surely be more. By the time the new site gets opened, what sort of AZ is going to be moving into it?
—Derek Lowe
Acquisition News
Target: Pearl Therapeutics
Price: $560 million, plus $590 million in milestones
Announced: June 2013
What they said: “Pearl’s novel formulation technology, together with its development products and specialist expertise, are a great complement to AstraZeneca’s long-established capabilities in respiratory disease, one of our core therapy areas.”
—Pascal Soriot, chief executive officer, AZ
Target: Omthera TherapeuticsPrice: $443 million, including Contingent Value Rights
Announced: May 2013
What they said: “[Lead compound] Epanova offers real potential both as a distinctive monotherapy for the treatment of hypertriglyceridemia and in combination with Crestor for patients at high risk of adverse cardiovascular events. This is an exciting acquisition that clearly complements our existing portfolio in cardiovascular and metabolic disease, one of our core therapy areas.”
—Pascal Soriot
Target: AlphaCorePrice: Not disclosed
Announced: April 2013
What they said: “Cardiovascular disease is projected to remain the single leading cause of death worldwide over the next decade and beyond. Through novel approaches like LCAT, we hope to shift the treatment paradigms in this area to help prevent and treat these conditions.”
—Dr. Bahija Jallal, executive vice president, MedImmune unit of AZ