A tough road
For AstraZeneca, 2013 performance continues to be mired by patent expirations, but leaders see hope on the horizon with an expanded pipeline.
By Christiane Truelove firstname.lastname@example.org
AstraZeneca continues to struggle, but CEO Pascal Soriot believes that the changes that have come under his tenure point the way to a better, sustainable future for the company. Soriot, who was hired in August 2012, four months after CEO David Brennan abruptly stepped down, has been in charge for just 12 months as this article was being written.
In his presentation for the first half of 2013, Soriot says AstraZeneca continues to focus on three therapeutic areas: cardiovascular and metabolic disease, oncology, and respiratory/inflammation and autoimmune diseases.
“We are prioritizing and accelerating our pipeline, both in our internally sourced projects, but also with business development,” Soriot says. “And we are driving to transform our innovation culture and model.”
In his first 90 days on the job, Soriot says he has been focused on three objectives: meeting as many people in the company as possible, especially in commercial and R&D, “and really get a good look under the hood”; engage with shareholders and other stakeholders; and complete the update of the company’s strategy. During his first three months at AstraZeneca, Soriot says he went to 15 sites in nine countries, hosted 18 town hall meetings with more than 8,500 employees, and held focus groups, roundtable discussions, and one-on-one meetings with senior leaders.
“It has only reinforced what I believed from afar when I joined AstraZeneca,” he says. “We have a highly passionate and committed workforce that really believes that we can make a difference in people’s lives by bringing important medicines to the market. We have a lot to build upon here at AstraZeneca. We have a strong commercial organization, with a strong and balanced presence in both primary care and specialist care led franchises, in the developed markets of the world, and the increasingly important emerging markets.”
Soriot says the company has had “a very constructive dialogue” with shareholders about the challenges at AstraZeneca, and consistent themes have emerged from these talks. “Shareholders appreciate our disciplined approach to capital allocation,” he says. “They give us high marks for excellent execution in reshaping our cost base to improve long-term competitiveness. They have reinforced the importance of the dividend to our investor proposition. And we re-affirm our commitment to our progressive dividend policy today. But we also know that they are looking for catalysts that will signal a return to sustainable growth. We understand that capital appreciation is also part of the total return equation.”
And when it comes to the company’s strategy and focus, AstraZeneca will remain a “focused, innovation-driven, global biopharmaceutical company.”
“We have no plans to diversify away from our core competencies into areas like generics, consumer healthcare or others,” Soriot says.
In key growth platforms, AstraZeneca is focused on making the blood thinner Brilinta a best seller; driving its diabetes franchise; and continuing to tap into the long-term opportunity in emerging markets. The company will also do a deeper dive into the pipeline and the technology platforms that underpin it.
Soriot says the company has focused on “continuous improvement efforts to reshape the productivity and return on our investment in innovation.”
AstraZeneca has been reinvesting cash in organic R&D and in business development, with the goal of providing attractive returns to shareholders.
Company and product performance
In 2012, AstraZeneca generated sales of $27.93 billion, compared with $33.59 billion in 2011, an actual difference of 17 percent and 15 percent in constant exchange rates. Executives attributed the difference to the loss of exclusivity on several brands and the disposals of Astra Tech and Aptium as the key drivers of the revenue decline.
Net income for 2012 was $6.33 billion, compared with $10 billion in 2011. Basic earnings per share were $4.99 in 2012 compared with $7.33 the previous year. The decline reflects the $1.08 per share benefit in 2011 from the sale of Astra Tech and higher restructuring costs in 2012.
“Our performance in 2012 reflects a period of significant patent expiry and tough market conditions globally,” Soriot states. “Despite the challenges we face, I am excited about AstraZeneca’s fundamental strengths which will be key in returning the company to growth and achieving scientific leadership while maintaining our reputation for strong financial discipline. It is my firm belief that we have the brands, science, pipeline and people to create distinctive, long-term value for patients and shareholders.”
Revenue for full-year 2012 was down 15 percent at constant exchange rates and declined 17 percent on an actual basis as a result of the negative impact of exchange-rate movements. More than 13 percentage points of the decline (approximately $4.5 billion) was related to loss of exclusivity on several brands in the portfolio, with the largest impact from Seroquel IR. The disposals of Astra Tech and Aptium accounted for about 1.7 percentage points of the year-on-year change. U.S. revenue decreased 21 percent to $10.65 billion in common exchange rates and revenue in the Rest of World was down 11 percent versus the 2011 result to $17.32 billion. Western Europe revenue declined 19 percent to $6.49 billion, driven by the impact of generics of Seroquel IR, Nexium, Atacand, and Merrem. In Japan, Canada, and established rest of world markets, sales were $5.08 billion, 14 percent less than in 2011. Emerging markets were the bright spot for AstraZeneca, with sales growing 4 percent to $5.75 billion. Sales in China totaled $1.51 billion, 17 percent more than 2011 at constant exchange rates.
In the first half of 2013, the company’s financial performance was still being affected by generic exposure, although executives stated that the impact of generics was lessening.
“We have made real progress in the second quarter against our strategic priorities despite the anticipated impact on revenue of the loss of exclusivity for some brands,” Soriot says. “We continue to invest in distinctive science, our pipeline projects, products and key markets and our five key growth platforms delivered a double-digit increase in revenue contribution. Despite the fostamatinib disappointment, the late-stage pipeline in our core therapy areas is growing, and has been further strengthened with the acquisitions of Omthera Pharmaceuticals and Pearl Therapeutics and the recently announced collaboration with FibroGen. In announcing the Cambridge Biomedical Campus as the location of our new UK strategic center, we also reaffirmed our commitment to invest in research and development productivity.”
Revenue in first-half 2013 was $12.62 billion, compared with $14.01 billion in first-half 2012, a difference of 10 percent, or 8 percent at constant exchange rates. Core net profit was $3.26 billion, compared with $4.38 billion in the same period of 2012, a difference of 26 percent or 23 percent in constant exchange rates. Loss of exclusivity on several key brands accounted for nearly $1.5 billion in revenue decline at constant exchange rates compared with same-time last year. U.S. revenue was down 11 percent to $4.7 billion in first-half 2013; revenue in the Rest of World fell 7 percent.
Core earnings per share were $2.61, down 24 percent, or 21 percent at constant exchange rates, compared with the first half of last year, with the larger decline compared with core operating profit largely due to the tax settlement that benefited the second quarter of 2012. This unfavorable comparison arising from the tax rate was partially offset by the benefit of a lower number of shares outstanding and lower net finance expense in the first half of 2013 compared with last year.
Executives say AstraZeneca is making good progress in implementing the fourth phase of restructuring announced in the first quarter of 2013. Restructuring charges of $308 million were taken in the second quarter. As of June 2013, the year-to-date total was $851 million out of an estimated $1.3 billion expected to be charged in 2013. This phase of restructuring is expected to deliver benefits of $800 million per year by the end of 2016, half of which should be realized by the end of 2014.
AstraZeneca’s best-selling product in 2012 was the cholesterol-lowering drug Crestor. The drug had sales of $6.25 billion, 4 percent less than 2011 at constant exchange rates. Excluding the loss of exclusivity in Canada, sales actually would have increased 2 percent. In the first half of 2013, worldwide sales were $2.8 billion, 8 percent less than in 2012 at common exchange rates. Sales of Crestor fell in the United States, Europe, and the established rest of the world markets with the exception of emerging markets, where sales grew 18 percent by common exchange rates to $338 million.
The second best-selling drug in 2012 was the gastrointestinal product Nexium, which generated $3.94 billion, 11 percent less than in 2011 due to generic erosion. In the first half of 2013, Nexium global sales were $1.96 billion, 5 percent more than in the same period of 2012. Although sales were about the same in the United States at $1.08 billion, they fell 27 percent in Europe to $182 million. Sales in the established rest of the world markets grew 42 percent to $287 million and 23 percent in emerging markets to $416 million.
No. 3 in 2012 sales was the pulmonary drug Symbicort. That product generated $3.19 billion, compared to $3.15 billion in 2011. In the first half of 2013, Symbicort sales were $1.67 billion, 11 percent more in common exchange rates. U.S. Symbicort sales grew 24 percent in common exchange rates to $576 million. Sales in Europe grew 3 percent to $758 million, and in the established rest of world markets, 9 percent to $184 million. In emerging markets, sales grew 14 percent to $150 million.
Fourth in 2012 sales was the antipsychotic Seroquel XR, with sales of $1.51 billion, about 4 percent more than in 2011 at common exchange rates. For the first half of 2013, Seroquel XR sales were $661 million, 12 percent less than in first-half 2012. Sales in the United States were $355 million, 10 percent less than in the same period last year. Europe sales slipped 20 percent in common exchange rates to $208 million for that period. Established rest of world sales were about the same at $46 million, and emerging markets sales grew 4 percent to $52 million.
The company’s fifth best-selling product in 2012 was the other formulation of Seroquel, Seroquel IR, at $1.29 billion, 70 percent less than in 2011 because of generic erosion. In the first half of 2013, sales of Seroquel IR were $226 million, 77 percent less than the first half of 2012 in common exchange rates. U.S. sales fell 99 percent to $4 million, 67 percent in Europe to $56 million, and 16 percent in the established rest of world to $80 million. Sales in emerging markets grew 4 percent to $86 million.
The company’s sixth best-selling drug was the prostate and breast cancer drug Zoladex, which recorded 2012 sales of $1.09 billion, 5 percent less than in 2011 at common exchange rates. During the first half of 2013, worldwide sales of Zoladex were $503 million, about 1 percent less than the first half of 2012. U.S. Zoladex sales in that period were $12 million. Europe sales were $131 million, 6 percent less than first-half 2012. Established rest of world sales were $186 million, a 4 percent drop. Sales in emerging markets were $174 million, 5 percent more than the same period in 2012.
The seventh largest seller for AstraZeneca in 2012 was the respiratory syncytial disease drug Synagis, which generated $1.04 billion, 6 percent more than in 2011 in common exchange rates. First-half 2013 sales of the drug were $415 million, 5 percent less than in first-half 2012. Sales climbed 3 percent in the United States to $311 million, and fell 24 percent in Europe to $104 million.
The drug that was AstraZeneca’s eighth top seller in 2012 was the hypertension and heart failure medicine Atacand, at $1.01 billion, 27 percent less than in 2011 in common exchange rates. Global sales in the first half of 2013 were $334 million, 42 percent less than in the same period last year. U.S. sales were $51 million, 33 percent less than in first-half 2012, and Europe sales were $117 million, 62 percent less.
Established rest of world sales were $44 million, 42 percent less than during the same period last year. Sales in emerging markets amounted to $122 million.
The ninth best-selling drug for the company was the hypertension and heart failure drug Toprol-XL/Seloken, which recorded sales of $918 million, 4 percent less than in 2011 in common exchange rates. First-half 2013 sales were $407 million, 6 percent less than in first-half 2012. U.S. sales of $87 million were 40 percent less than in the same period last year, and Europe sales reached $66 million, 2 percent more than in first-half 2012. Sales in the established rest of world markets totaled $13 million, 13 percent less than in the same period last year. Sales in emerging markets climbed 17 percent to $241 million.
AstraZeneca’s 10th best-selling drug in 2012 was the asthma and COPD product Pulmicort, which generated $866 million, about 1 percent less than in 2011 in common exchange rates. First-half 2013 sales were $446 million, 4 percent more than the same period last year. U.S sales were $118 million, 2 percent more than in first-half 2012. Sales in Europe dipped 10 percent to $94 million, and sales in established rest of world markets were $54 million. Sales in emerging markets were $180 million, 15 percent more than in first-half 2012.
The gastrointestinal drug Prilosec/Losec was the company’s 11th best-selling drug in 2012 with sales of $710 million, 24 percent less than in 2011 based on common exchange rates. In the first half of 2013, sales amounted to $246 million, a drop of 30 percent compared with first-half 2012.
The 12th best-selling drug in 2012 was the cancer medicine Faslodex, which generated $654 million, 24 percent more than in 2011 in common exchange rates. In the first half of 2013, Faslodex sales were $330 million, 9 percent more in common exchange rates than the same period in 2012.
The 13th best-selling drug in 2012 for the company was another cancer drug, Iressa, with recorded sales of $611 million, 12 percent more in common exchange rates. In the first half of 2013, sales were $324 million, 13 percent more than first-half 2012.
The breast cancer drug Arimidex was the 14th best-selling product for AstraZeneca in 2012. Arimidex sales, which have been affected by generic competition, were $543 million, 26 percent less than in 2011 in common exchange rates. In the first half of 2013, sales were $175 million, 36 percent less than in the same period of 2012.
The prostate cancer drug Casodex was AstraZeneca’s 15th best-selling drug in 2012, generating $454 million, 16 percent less than in 2011 in common exchange rates.
The 16th best-selling drug in 2012 was the antibiotic Merrem/Meronem, which recorded $396 million, 29 percent less than 2011 in common exchange rates. Sales in first-half 2013 were $149 million, 24 percent less than for the same period last year.
The company’s 18th best-selling product in 2012 was the anesthetic Diprivan with sales of $291 million, 2 percent more than in 2011 in constant exchange rates.
The hypertension drug Plendil was the 19th best-selling drug, recording sales of $252 million, 2 percent less than in 2011. First-half 2013 sales of Plendil were $130 million, 4 percent less than in first-half 2012.
Most of the sales were in emerging markets, $114 million, with 2 percent growth.
The No. 20 product for AstraZeneca in 2012 was the cardiac drug Tenormin, which generated $229 million, 13 percent less than in 2011 at constant exchange rates. In first-half 2013, Tenormin sales were $100 million, 9 percent less than the first half of 2012.
AstraZeneca is focusing on newly launched drugs to generate some future growth. The blood thinner Brilinta was launched in 2011. During 2012, the platelet aggregation inhibitor generated sales of $89 million compared with $21 million in 2011.
In the first half of 2013, Brilinta/Brilique sales were $116 million compared with $27 million in the first half of 2012. U.S. sales were $31 million, Europe sales reached $68 million, sales in established rest of world markets totaled $6 million, and sales in emerging markets sales amounted to $11 million. There have been 88 approvals of Brilinta to date, and the drug is under review in a further 18 countries.
AstraZeneca is targeting its diabetes franchise – comprising Bydureon, Byetta, and Onglyza – as a growth area. In 2012, Byetta sales were $74 million and Bydureon sales totaled $37 million. Sales of Onglyza, the company’s 16th best-selling product in 2012, were $323 million, 53 percent more than in 2011.
In the first half of 2013, Onglyza sales were $192 million, 27 percent more than in the same period of 2012. Bydureon first-half 2013 sales were $59 million and Byetta reached $95 million.
Symbicort, Faslodex, Onglyza, Iressa, Brilinta/Brilique, and Seroquel XR combined to generate $600 million for the company in 2012.
Joining the diabetes franchise in first-half 2013 was Forxiga, with $4 million in sales.
Pipeline and acquisitions
According to Soriot, by the end of the first half of 2013, AstraZeneca had eight new molecular entity projects in Phase III or registration. These include moxetumomab pasudotox, which is in Phase III trials, Epananova for high triglycerides; and the LABA/LAMA combination for COPD. Five other NMEs await regulatory approval.
In May, AstraZeneca announced that MedImmune, the company’s global biologics research and development arm, enrolled the first patient in the Phase III clinical trial for moxetumomab pasudotox. The trial is sponsored by the Cancer Therapy Evaluation Program (CTEP), a program within the Division of Cancer Treatment and Diagnosis at the US National Cancer Institute. The study will evaluate the drug as a potential treatment in adult patients with hairy cell leukemia who have not responded to or relapsed after standard therapy.
There were also five additions to the clinical-development pipeline from discovery research, six projects successfully progressed to their next phase of development, and 10 projects were discontinued.
AstraZeneca also has been working to expand its capabilities through acquisitions. In June 2013, the company announced that it entered into a definitive agreement to acquire Pearl
Therapeutics, a privately held company based in Redwood City, Calif., focused on the development of inhaled small-molecule therapeutics for respiratory disease. The acquisition was completed in June. That acquisition gives AstraZeneca access to a potential new treatment for chronic obstructive pulmonary disease (COPD), currently in late-stage development, and inhaler and formulation technology that provides a platform for future combination products.
Pearl’s lead product is PT003, a fixed-dose combination of the long-acting beta-2-agonist (LABA) formoterol fumarate and the long-acting muscarinic antagonist (LAMA) glycopyrrolate. LABA/LAMA combinations are expected to become an important new class of treatment for COPD. A global Phase III program has been initiated and will test the improvement in lung function in individuals with moderate-to-severe COPD in response to PT003. The new drug candidate is delivered by inhalation via a pressurized metered-dose inhaler using Pearl’s novel co-suspension formulation technology. This technology platform will allow
AstraZeneca to explore combinations of existing and novel technologies, including a triple fixed-dose combination (LABA/LAMA and inhaled corticosteroid) that could be accelerated into Phase II clinical development.
Under the terms of the agreement, AstraZeneca acquired 100 percent of Pearl’s shares for initial consideration of $569 million. In addition, deferred consideration of up to $450 million becomes payable if specified development and regulatory milestones in respect of any triple combination therapies and selected future products that AstraZeneca develops using Pearl’s technology platform are achieved. Sales-related payments of up to an additional $140 million are payable if pre-agreed cumulative sales thresholds are exceeded.
Also in May, AstraZeneca entered into a definitive agreement to acquire Omthera Pharmaceuticals. The specialty pharmaceutical company based in Princeton, N.J., has focused on the development and commercialization of new therapies for abnormal levels of lipids in the blood, referred to as dyslipidemia. The acquisition was completed in July.
The acquisition strengthens AstraZeneca’s late-stage cardiovascular disease pipeline with the addition of Epanova, a novel omega-3 free fatty acid composition for which Omthera submitted a new drug application to FDA on July 9, 2013. The NDA seeks approval for the treatment of patients with very high triglycerides.
Upon completion of the acquisition, AstraZeneca acquired all of the outstanding shares of common stock of Omthera for $12.70 per share, or approximately $323 million. In addition to the cash payment, each Omthera shareholder will receive one Contingent Value Right (CVR) of up to $4.70 for each share of common stock that they own – equating to $120 million in total – if specified milestones related to Epanova are achieved, or if a milestone related to global net sales is achieved.
In September, FDA accepted AstraZeneca’s new drug application for Epanova. The submission includes data from Phase III clinical trials that investigated the safety and efficacy profile of the fish oil-based drug. Positive results showed that Epanova was effective in lowering very high triglycerides and in reducing non-HDL cholesterol in combination with a statin for patients with very high triglycerides.
The NDA submission for Epanova was filed in July 2013 by Omthera Pharmaceuticals, which is now a wholly owned subsidiary of AstraZeneca. The Prescription Drug User Fee Act goal date for FDA is May 5, 2014.
AstraZeneca has been revamping its R&D organization. A year ago, Briggs Morrison became executive VP of Global Medicines Development. A medical oncologist by training, he held a similar position at Pfizer and various roles in development at Merck. “We’ve set clear and focused priorities to achieve scientific leadership: progress the pipeline and rebuild the Phase III portfolio; enhance R&D productivity; strengthen our capabilities in translational science and personalized medicine; and foster a culture of high quality, innovative science.”
Morrison says the Phase I and Phase II pipeline is shaping up and the company’s investment in large molecules is taking effect. “We’ve built good momentum in our portfolio and it’s important that we now pull these assets through to the patient,” he says, adding that the pipeline has a “good balance” of small and large molecules, with the latter making up about 45 percent.
During 2012, across the portfolio, 39 projects progressed to their next phase. Twelve molecules entered first human testing, and 19 projects were discontinued.
Another late-stage project came in with a collaboration with FibroGen for FG-4592 for the treatment of anemia associated with chronic kidney disease and end-stage renal disease.
Morrison says the biggest news in for the company, at least in the way of long-term implications, is the decision to locate the new UK-based global R&D and headquarters center on the Cambridge Biomedical Campus. This campus is home to research, academic, and healthcare organizations, including University of Cambridge School of Clinical Medicine; Addenbrooke’s hospital; the MRC Laboratory of Molecular Biology; the Wellcome Trust-MRC Institute of Metabolic Science; and the Cancer Research UK Cambridge Institute.
In July 2012, AstraZeneca announced a two-year collaboration on three pre-clinical and clinical oncology projects with the University of Cambridge and Cancer Research UK.
As of the first half of 2013, the AstraZeneca pipeline included 81 projects, of which 66 are in the clinical phase of development and 15 are either approved, launched, or filed in at least one major market. Eight new molecular entity projects are in late-stage development, either in Phase III or under regulatory review, including two from recent acquisitions. In the first half of 2013, across the portfolio, six projects have successfully progressed to their next phase, five molecules entered first human testing, and 10 projects were withdrawn.
In July, AstraZeneca and Bristol-Myers Squibb announced that FDA has acknowledged receiving the new drug application resubmission for Forxiga for the treatment of adults with type 2 diabetes. FDA has assigned a new Prescription Drug User Fee Act goal date of Jan. 11, 2014.
In June 2013, AstraZeneca and Bristol-Myers Squibb announced top-line results of the Phase IV SAVOR-TIMI-53 clinical trial of Onglyza. In this study of adult patients with type 2 diabetes with either a history of established cardiovascular disease or multiple risk factors, Onglyza met the primary safety objective of non-inferiority, and did not meet the primary efficacy objective of superiority, for a composite endpoint of cardiovascular death, non-fatal myocardial infarction or non-fatal ischemic stroke, when added to a patient’s current standard of care (with or without other anti-diabetic therapies), as compared to placebo.
These preliminary SAVOR-TIMI-53 data are being analyzed and the study results were submitted to the European Society of Cardiology for potential presentation at the ESC Congress in September.
Product sales and financial performance
Product sales sales
Crestor $6,253 $6,622
Nexium $3,944 $4,429
Symbicort $3,194 $3,148
Seroquel XR $1,509 $1,490
Seroquel IR $1,294 $4,338
Zoladex $1,093 $1,179
Synagis $1,038 $975
Atacand $1,009 $1,450
Toprol-XL $918 $986
Pulmicort $866 $892
Prilosec $710 $946
Faslodex $654 $546
Iressa $611 $554
Arimidex $543 $756
Casodex $454 $550
Merrem $396 $583
Onglyza $323 $211
Diprivan $291 $294
Plendil $252 $256
Tenormin $229 $270
Zomig $182 $413
FluMist $181 $161
Rhinocort $177 $212
Brilinta $89 $21
Byetta $74 —
Vimovo $65 $34
Bydureon $37 —
All sales are in millions of dollars.
Revenue $27,973 $33,591
Net Income $6,327 $10,016
Diluted EPS $4.98 $7.30
R&D $5,243 $5,523
Revenue $12,617 $14,009
Net Income $1,843 $3,231
Diluted EPS $1.47 $2.53
R&D $2,534 $2,719
All figures are in millions of dollars except EPS.
Posted: October 2013