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AstraZeneca

AstraZeneca (UK)

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AstraZeneca is one of the world's leading pharmaceutical manufacturers, and the second-largest British company in that sector after GlaxoSmithKline. It has no exposure to over-the-counter healthcare, but manages a sizeable portfolio of prescription products, including eight $1bn-plus blockbusters in 2018. It is especially strong in oncology, respiratory and cardiovascular products. In 2007, the group agreed to acquire US biotechnology developer MedImmune. However AstraZeneca's drugs pipeline has been weakened considerably since the early 2000s by a series of patent expiries and the failure of several planned products. It also came under intense scrutiny from US regulators over unauthorised marketing of key drug Seroquel, and has suffered the expiry of patents on several top-selling drugs including Nexium from 2015. Key product Crestor began facing generic competition in the US from 2016. In 2014, AstraZeneca successfully fought off a takeover proposal from rival Pfizer but it remains a potential target, though for the time being it is pressing ahead with a series of acquisitions of its own. These have gradually strengthened its product pipeline; however, benefits from this only just began to be felt during 2018.

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Competitors

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Brands & Activities

AstraZeneca is focused firmly on prescription drugs. Unlike some competitors it has no exposure to the OTC sector, and derives only minimal revenue from non-prescription products or services. Despite the recent success of lead products Crestor and Nexium, AstraZeneca has had difficulty countering an unlucky run of patent expiries, regulatory conflicts and clinical test disappointments. The group's late stage drug pipeline was until recently still worryingly weak. More promising compounds finally began to come to market during 2017.

AstraZeneca is active worldwide with sales in over 100 countries, manufacturing in 20 and research centres in seven. It is a world leader in cardiovascular and gastrointestinal medicines, and cancer treatments, and is also active in asthma, hypertension, migraine and schizophrenia. In its home markets of Sweden and the UK, it is the #1 and #2 drug company respectively. It is periodically identified as a potential takeover target for the UK's #1 pharma group GSK.

Significant new launches in 2017 were Imfinzi for advanced bladder cancer, Calquence for certain forms of lymphoma, Qtern as a supplementary treatment for diabetes, COPD treatment Bevespi and the biologic respiratory medicine Fasenra. Lynparza is an important new cancer treatment co-marketed by MSD outside North America.

The group's portfolio of blockbuster products reduced to four in 2013 and remained at that level for the next three years. For several years the most significant of these was gastrointestinal drug Nexium, the so-called "purple pill". First launched in Sweden in 2000, it is now available in around 100 markets and is the company's biggest-ever drug by total cumulative revenues. However US sales were dented first by the launch of generic copies of competitor drugs after 2013, and by direct copies of Nexium itself from 2015. As a result sales have been drifting lower since peaking at $5.2bn in 2008. However, at the same time, some markets have only just begun to benefit from the drug. For example, Nexium launched in Japan for the first time in 2011 in partnership with local company Daiichi Sankyo. In 2012, AstraZeneca sold US OTC rights for Nexium to Pfizer for an upfront payment of $250m plus royalties. Sales of that product commenced in 2014, prompted the beginning of a significant decline in US sales. That was partly offset by growth in other markets, keeping Nexium among the billion-plus blockbusters.

In the wake of that decline, Nexium was overtaken by two other group products. Cholesterol fighter Crestor was originally developed as a rival to Pfizer's Lipitor. Launched in 2003 in the US, early sales were promising, but its growth came under threat in 2004 after a report was published in medical journal The Lancet, claiming that Crestor was potentially more harmful to some patients' health than rival products. AstraZeneca mounted a strong defence of the drug, and sales continued to rise, peaking at $6.6bn in 2011. However performance has dipped since then, partly because of generic competition launched against other drugs in the sector, notably Lipitor. As a result of the knock-on effect from these, sales have been falling by single percentage digits since 2013, and then more sharply in 2016 following patent expiry. Sales for 2016 slumped by 32% year on year, followed by a further 30% fall in 2017. AstraZeneca retails global rights except Japan where local distributor Shionogi has rights to the drug. Its main competitors are Pfizer's Lipitor (and its associated Caduet), Merck's Vytorin and Zocor, Abbott's Simcor and Kowa Pharmaceuticals' Livalo (co-marketed by Lilly).

The group is an important player in the asthma segment with products including Pulmicort and Symbicort. The latter was only launched in the US for the first time in 2007, although it was already widely available elsewhere. As a result, sales of Symbicort have risen strongly since then, but peaked in 2013. Astellas has separate rights for Japan. Pulmicort, now off-patent, has remained more or less stable, with sales still for now in excess of $1bn. In 2016, the group sold ex-US rights to a third related product, Rhinocort, to Johnson & Johnson for $330m.

In 2017, the group's blockbuster portfolio expanded to accommodate two further products. One is the diabetes drug Forxiga, launched in 2012, and approved in 2014 for US marketing under the name Farxiga. Sales have more than quadrupled in three years to $1.07bn. A treatment for acute coronary syndromes, Brilinta or Brilique, was launched in Europe in 2011, and enjoyed spectacular growth between 2013 and 2016. However disappointing trial results that year prompted the company to rein in future expectations for that drug. It nevertheless broke into blockbuster territory in 2017 at $1.08bn.

AstraZeneca sought to strengthen its portfolio of respiratory drugs in 2013 with the acquisition for up to $1.1bn of US-based Pearl Therapeutics, which is developing several new products in that segment. In 2014, it acquired another collection of respiratory drugs from Spanish manufacturer Almirall for $2.1bn, followed by the portfolios of both Actavis (including Tudorza/Eklira) and Takeda (which includes Daliresp/Daxas). The group launched Duaklir in the EMEA region with some success the same year.

Another key blockbuster is Seroquel, a treatment for schizophrenia and bipolar disorder. Seroquel was regarded as one of the major pharmaceutical products of the second half of the 2000s. Sales rose sharply in the 2000s, peaking at a combined total of over $6bn in 2011, pending the end of its US patent in March 2012. An attempt to delay generic competition until the end of the year was dismissed by US courts, causing sales of the original drug - now known as Seroquel IR - to plummet from over $4bn to just $345m for 2013. AstraZeneca offset some of that damage by launching an improved extended-release formula under the name Seroquel XR. However, this too passed its peak in 2013, slipping below $1bn in 2016 to $735m, and then more than halving in 2017 to $332m. AstraZeneca also suffered a long investigation by US regulators over allegations that it had promoted Seroquel as a treatment for psychiatric illnesses for which it had not been FDA-approved. Eventually, the group was forced to pay a $520m fine, and submit a "corporate integrity" statement prohibiting any further such activity.

The group has enjoyed a good run from the flu vaccine Synagis, sales of which topped $1bn between in 2012 and 2013, before slipping back slightly in 2016 and 2017. This is one of several products developed by US-based biotechnology developer MedImmune, acquired by AstraZeneca in 2007 for $15.2bn. It specialises in drugs and vaccines made from genetically engineered versions of human proteins. It enjoyed a spike in sales in 2009 as a result of demand for H1N1 swine flu vaccines. The company was founded under the name Molecular Vaccines in the late 1980s, changing its name to MedImmune to 1990. A key advantage to the new breed of biotech firms is that their products are very hard for generic manufacturers to copy, making them an attractive add-on for pharmaceutical companies facing the threat of patent expiry on their existing chemical products. MedImmune was merged with AstraZeneca's existing biologic development subsidiary in the UK, Cambridge Antibody Technology, itself acquired in two installments between 2004 and 2006. In 2015, the group paid $2.7bn to acquire US company ZS Pharma, which is developing a treatment for blood disorders.

For several years, the biggest challenge facing AstraZeneca has been the expiry of patents on key products. For example, its lead prescription product in 2001 was ulcer treatment Prilosec, then the world's largest-selling gastrointestinal product with sales of $5.7bn. Revenues from this product declined sharply after its US patent expired in 2002, although the product continues to perform reasonably well in other global markets under the name Losec. Worldwide sales for Prilosec/Losec in 2017 were just $271m. The group sold US rights for a non-prescription formulation of Prilosec to Procter & Gamble, for whom it has been a significant success.

Hypertension drug Toprol XL/Seloken lost its US patent protection during 2007, with the result that sales fell sharply between 2006 and 2008 before recovering slightly in 2009. That improvement followed the introduction of an authorised third-party generic copy from which AstraZeneca derives financial benefits. Despite the patent loss, sales remain respectable at $695m in 2017. Another recent victim of patent expiry is hypertension treatment Atacand, jointly developed and marketed with Takeda of Japan, which markets the same drug as Biopress. Sales had fallen to $300m by 2017.

The group's oncology portfolio was until recently led by Arimidex, which was boosted in the latter half of the 2000s by evidence of strong benefits in early treatment of breast cancer. However sales have slumped following expiry of its US patent in 2010, from over $2bn in 2009 to just $217m in 2017. Other drugs in the group's oncology portfolio include Zoladex for prostate, breast and other forms of cancer and gynaecological disorders (which lost blockbuster status in 2013, but still sold $735m in 2017) and Casodex for prostate cancer ($215m). Development of another cancer medicine, Zactima, was cancelled in 2009. The group launched lung cancer treatment Iressa in the US in 2003, but was forced to withdraw the product two years later following publication of European studies which suggested that the drug was ineffective at prolonging survival rates among patients. In 2008, however, following further testing, there was evidence that Iressa could help to combat early stage breast cancer, and AstraZeneca successfully reapplied for European approval for the drug under these indications. Sales for 2017 were $528m. Other oncology products include Faslodex ($941m in 2015) and new launches Lynparza (for ovarian cancer) - a partnership with Merck & Co's international MSD division - and Tagrisso (for lung cancer). The latter enjoyed a surge to sales of $423m for its first full year in 2016, and then more than doubled in 2017 to $955m. Also that year, the group acquired a 55% stake in Dutch group Acerta Pharma and its new oncology pipeline for around $4bn.

The group also manufactures a number of anaesthetic products including general anesthetics Diprivan and various local anesthetics including Xylocaine. In 2016, AstraZeneca sold Pfizer international rights to its portfolio of antibiotics including Zinforo, Zavicefta and Merrem for $1.5bn.

AstraZeneca also has a large collection of research and development alliances with other companies, both large and small, with whom it works to develop new drugs. One such partnership was struck in 2007 with Bristol Myers-Squibb to develop diabetes treatments Onglyza (sales of $611m in 2017) and Komboglyze. The group's leading diabetes treatment is Bydureon/Byetta (combined sales of $750m in 2017). AstraZeneca also agreed to pay BMS $3.4bn to incorporate products into the alliance from its partner's newly acquired Amylin subsidiary. At the end of 2013, AstraZeneca agreed a deal to buy out BMS's share in the joint venture for up to $4.1bn and take full control of the business. Also in 2012 AstraZeneca struck up a partnership with Amgen to develop anti-inflammation drugs. Other new brands include cholesterol medicine Certriad (co-marketed with Abbott) and Vimovo, a treatment for arthritic pain. The group generates significant additional income from what it calls "externalisation revenue", mainly royalties or fees from co-marketing partnerships. The biggest contribution in 2017 came from oncology drug Lynparza, a partnership . AstraZeneca's share of income was over $1.2bn.

Financials

Revenues peaked in 2011 at $33.6bn, though that year's increase was generated purely by currency fluctuation; at constant rates, comparable revenues declined by 2%. Since then, there has been steady decline, mainly as a result of patent expiries, but with an added impact from currency fluctuation. For 2015, revenues slipped to $24.71bn, down 7% on the year before on a reported basis (but up 1% at constant exchange rates). However net profit more than doubled to $2.83bn. There was another decline in 2016 to $23.0bn. At constant rates, the fall would have been even steeper. Net income rose sharply to $3.41bn.

Topline slipped to a new multi-year low in 2017 of $22.47bn. Product sales were $20.15bn and AstraZeneca generated another $2.31bn from what it calls "externalisation revenue", mainly royalties or fees from co-marketing partnerships. The group has been aggressively developing its presence in developing markets, which now almost match the US for sales. Each contributes around 31% of product revenues. Other key markets are China (almost $3bn), Japan ($2.2bn), France ($701m), Germany ($541m) and the UK ($489m). Net profit slipped back to $2.87bn as declining revenues were impacted by rising costs.

AstraZeneca finally returned to real growth during 2018 for the first time since 2010, with an increase in the second half. However that wasn't enough to prevent a further slip in the full year figure to $22.09bn. Product sales rose 4% to $21.05bn, but externalisation revenues was down year-on-year. Net profit too declined, despite a much lower tax charge, to $2.05bn as a result of continuing cost increases.

Background

The group was formed in 1999 from the merger of Astra AB and Zeneca Group PLC. Astra was originally founded in 1913 in Sweden. At the time it was one of the few companies in Europe outside Germany or Switzerland involved in the pharmaceutical industry. Initially, it manufactured generic products, but established its own drug development department in 1931. Later on that decade, the company established operations in other Scandinavian markets, and in 1947 opened an office in the US. Its first breakthrough product was introduced in 1949, the local anaesthetic Xylocaine. Other anaesthetic products followed, and later Astra moved into other areas, with the launch of beta blocker Seloken in 1977. Respiratory products Rhinocort and Pulmicort were introduced in the 1980s and towards the end of that decade, Astra's US division formed a joint venture with Merck & Co to develop and launch Prilosec. Following strong growth over the following years, Prilosec had become the world's best-selling pharmaceutical by 1996, and two years later the Astra USA and Astra-Merck joint venture merged to form a single company, subsequently launching another successful product, Zestril.

But that partnership was superseded in 1999 by an even larger merger between Astra worldwide with British company Zeneca. The latter had been created six years earlier as a spin-off from British chemicals giant ICI. First created in 1926 to rival global giants such as IG Farben and Du Pont, ICI quickly become involved in a wide variety of pharmaceutical sectors. It made its first inroads into the US market in 1967, later acquiring Atlas Chemical Industries and Stuart Pharmaceuticals. In 1993, the pharmaceuticals, agricultural chemicals and specialty chemicals divisions of ICI were spun off to create Zeneca Group, and the merger with Astra consolidated both companies' operations not just in the US but worldwide. Shortly afterwards, the merged company's agrochemicals division was spun off and merged with that of Novartis to form Syngenta. Merck's interests in Astra USA as well as in Prilosec and other products were transferred into a long-term licensing agreement, which is due to be redeemed between 2008 and 2010.

In 2003 the group paid more than $350m to settle federal fraud charges in the US after the company acknowledged that, during the 1990s, sales representatives from Zeneca had played a part in encouraging doctors to bill Medicare and other government health programs for samples of prostate-cancer drug Zoladex which the company had supplied for free. In 2010, the group agreed to pay a further $520m to settle allegations that it had illegally marketed the anti-psychotic drug Seroquel for uses not approved by the FDA. In 2011, it agreed to pay a fine of $1.1bn to settle two long-running tax investigations in the US.

Last full revision 27th April 2018

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