A history of AstraZeneca
AstraZeneca is a company with a turbulent history but, for now, a promising future. We take a look at the company’s story, from its creation as a merger of two equals, to its recent major restructuring and its drives in cutting-edge oncology and COVID-19.
In 1998, Europe’s corporate landscape was riding a “merger wave” – intensive competitive pressure meant that opportunities arose for companies to merge with their competitors in order to rationalise both businesses. “Picking the next merger candidate is hard enough, doing so before everyone else jumps on board, then picking the right time to sell makes for a dangerous investment game,” said one BBC News article from December 1998. But although it was dubbed a “dangerous game”, some companies came out on top…
On 6th April 1999, two companies with similar science-based cultures and a shared vision of the pharmaceutical industry came together to form what’s now considered as one of the top ten pharma companies in the world: AstraZeneca.
The fusion between Swedish pharmaceutical company, Astra AB, and UK-based Zeneca Group plc, was one of the largest-ever European mergers at the time.
Since the mid-1890s, Swedish pharmacists had been discussing the issue of domestic industrial production of pharmaceuticals in Sweden, as opposed to manual preparations by pharmacists. German and Swiss pharma companies dominated the Swedish market at this time and it wasn’t until 1913 that the discussions were turned into a pharmaceutical company, Astra AB. It was under the long-serving CEO, Borje Gabrielsson, who led the company between 1927 and 1957, that Astra AB established its status as a leading Swedish pharmaceutical company.
Astra introduced two important product families onto the Swedish market in 1948: penicillin and anaesthetics, initially in the form of Xylocaine. The profits from these products funded the development of new drugs, such as gastroesophageal treatment Losec and cardiovascular treatment Aptin.
In the 1980s, Astra was a pioneer in the selective serotonin reuptake inhibitor (SSRI) area. However, it withdrew its neuropharmacological drug, Zelmid, which was an SSRI, due to concerns over side effects only a year after it was introduced in 1982. Later, Eli Lilly & Co introduced the bestselling SSRI drug, Prozac, which made Astra realise that if it had continued with its SSRI drug development it would probably have beaten Lilly to this lucrative market.
In 1990, the US Food and Drug Administration (FDA) requested Astra to change Losec’s brand name to Prilosec, to avoid confusion with Sanofi-Aventis’ diuretic, Lasix (furosemide). However, this new name has since caused confusion between Prilosec and Prozac.
The 90s also brought an increased perception that the pharmaceutical industry needed more international partnerships, and an increasing pressure on pharma companies as development costs of new drugs rose. Responding to these pressures, Astra began to look for partners.
Zeneca Group plc
British multinational pharma company Zeneca was formed by a demerger of the pharmaceuticals and agrochemicals businesses of Imperial Chemical Industries in 1993. The name Zeneca was invented by a branding consultancy who had been instructed by its chief executive, Sir David Barnes, to find a name which was memorable, had no associations with other companies, nor was offensive in any language.
Zeneca acquired 50% of Salick Health Care, an operator of cancer care centres in the United States, in December 1994. The transaction valued Salick at $440 million. In March 1997, Zeneca exercised its right to acquire the other 50% of Salick, which it did not already own.
Following this acquisition, it came as no surprise that Zeneca’s largest therapeutic area was oncology, in which its key products included casodex, nolvadex and zoladex.
In 1998, Zeneca decided to sell its Zeneca Specialities division, which included activities in biocides, industrial colours, lifescience modules, performance and intermediate chemicals. It was this decision that fuelled many rumours that Zeneca was preparing to merge with another company. These rumours turned out to be true when the Astra and Zeneca merger was announced in December of the same year.
Astra AB + Zeneca Group plc = AstraZeneca
When the fusion was announced in 1998, it was called a “merger of equals to create a global leader in pharmaceuticals”. On completion of the merger, Astra Shareholders held a 46.5% share, while Zeneca Shareholders held 53.5%.
AstraZeneca’s corporate headquarters were chosen to be in London, United Kingdom, while its R&D headquarters were to be in Sweden, with major centres of excellence in the UK and USA.
“AstraZeneca combines the best of two innovative companies with successful track records of organic growth,” Percy Barnevik, nominated chairman of AstraZeneca, said in an official press release in 1998. “AstraZeneca will have a strong base for considerable expansion, especially in research and development and geographical presence. I am convinced that we will see considerable growth in the years ahead.”
The merger of Astra and Zeneca aimed to improve the combined companies’ ability to deliver long term growth. AstraZeneca also wanted to endure shareholder value through global power and reach in sales and marketing, greater financial strategic flexibility and the creation of a stronger R&D platform for innovation-led growth.
Following AstraZeneca’s creation, the pharma company began to focus on five main areas of research – cardiovascular, gastrointestinal, respiratory, oncology and local and general anaesthesia. These are still high on the list of AZ’s core focus today.
In August 2000, Nexium (esomeprazole) for the treatment of acid-related diseases, such as gastrooesophageal reflux disease (GERD), was first launched in Sweden. Between 2001 and 2005, Nexium netted AstraZeneca approximately $14.4 billion.
AZ began many research partnerships with various pharmaceutical and technology companies between 2000 and 2005, including British-based companies Astex Therapeutics, Argenta Discovery Ltd and Vernalis, the United States’ Array BioPharma and Targacept Ltd and Danish 7TM Pharma.
AstraZeneca’s first acquisition following its creation was of KuDOS Pharmaceuticals, a UK biotech company, for £120 million in 2005. The same year, AZ also entered into its third collaboration agreement with Astex Therapeutics, this time to develop small-molecule protein kinase B (PKB) to further contribute in the fight against cancer.
In 2007, AstraZeneca’s pipeline was the subject of much speculation, as the company began to face increasing pressure from generics as many of its key drugs began to reach patent expiry.
In June 2007, AstraZeneca completed the acquisition of vaccine maker MedImmune, buying its drug-development pipeline for $15.2 billion. However many analysts felt the company had paid far too much for the US-based company, especially as it had few late-stage drugs with major commercial potential.
Having already acquired UK-based Cambridge Antibody Technology in 2006, AstraZeneca merged these two companies to create a dedicated global biologics organisation known as MedImmune.
Bestseller Nexium had become available in approximately 100 markets over the past seven years since launch. Over 85,000 patients in 62 countries were evaluated in clinical trials of Nexium and close to 746 million patient treatments were administered by the end of 2007. Since 2006, AstraZeneca found itself in various disputes over generic versions of Nexium, which has patents due to expire in 2015.
In April 2008, AstraZeneca also reached an agreement with Ranbaxy, an Indian generic drugmaker, allowing it to produce a generic version of Nexium starting in May 2014.
AZ’s next acquisition was of British biotech Arrow Therapeutics in 2007 for $150 million. Arrow Therapeutics focused exclusively on novel antiviral drug discovery and development, including several different approaches towards Hepatitis C and Respiratory Syncytial Virus (RSV). It was around this point that AZ decided to re-focus its disease area research with infection and anti-bacterials as one of its key therapy areas.
Blockbusters go off patent
AstraZeneca was one of the top ten pharmaceutical companies in the world in 2012, but faced a string of patent expiries in its blockbuster drugs.
Its oncology treatment Arimidex lost exclusivity in the US in 2009, accounting for a sales decrease of 86%, as published in the 2010 annual report. The EU patents expired in 2010 and 2011, causing further profit loss.
In 2010, the largest portion (28%) of AstraZeneca’s revenue came from its cardiovascular drugs, including Crestor (rosuvastatin calcium), plendil (felodipine) and tenormin (atenolol), which also faced patent expiry.
The second-biggest segment, at 20% of revenue in 2010, was neuroscience. This sector was dominated by Seroquel IR, Seroquel XR and anaesthetics. Seroquel IR’s patent expired in 2012, while Seroquel XR’s expired in 2017.
It was a rough situation for a company to be in, and AstraZeneca would have to fight hard to keep its position as a global pharmaceutical leader.
In some positive news from the period, though, AstraZeneca, along with nine other biopharmaceutical companies, formed a non-profit organisation to accelerate the development of new medicines. TransCelerate BioPharma is the largest initiative of its kind and has end goals of improving the quality of clinical trials and bringing new medicines to patients faster.
A comeback story?
As patent expiries piled up, the company gained a new chief executive in October 2012 when Pascal Soriot took the reins.
Soriot quickly set about remodelling AZ in an effort to prevent things worsening: cutting further jobs, focusing on fewer strategic therapy areas, making mid-sized acquisitions, and forging more external partnerships.
Under the plans, AstraZeneca’s small molecule and biologics R&D activities were concentrated in three strategic centres.
Firstly, the company invested approximately $500 million to establish a new facility in Cambridge, which became AZ’s new global corporate headquarters. While Gaithersburg was already home to MedImmune’s headquarters, it also became home to AZ’s US Global Medicines Development department. And the third centre continued to be AZ’s site in Mölndal, Sweden.
These plans meant that over 2,500 roles were relocated and around 1,600 jobs were cut, whilst the company’s Alderley Park facility in Cheshire, England was closed.
“The changes we are proposing represent an exciting and important opportunity to put science at the heart of everything we do because our long-term success depends on improving R&D productivity and achieving scientific leadership,” Soriot said at the time.
The company also implemented a ‘5R’ framework to help it make sure that every drug it investigates has a much higher chance of success – right target, right tissue, right patient, right safety and right commercial.
‘Right patient’, for example, is about finding the patient population that is most likely to respond to a particular drug therapy early on, while ‘right commercial’ is about asking why anybody would want to reimburse or pay for a medicine based on what the standard of care is going to be by the time it is launched.
Meanwhile, the search for the ‘right target’ led the company to collaborate with Cancer Research UK and launch the Functional Genomics Centre, a centre of excellence for genetic screening, cancer modelling and big data processing aimed at accelerating the discovery of new cancer medicines, including those based on CRISPR technology.
This new approach to R&D seems to have paid off – between 2005 and 2010 AstraZeneca‘s success rates for taking drugs from candidate nomination to phase III completion were at 4%, below an already-low industry standard of 5%, but since then they have risen dramatically to 19% in 2012-2016.
Pfizer makes its move
Nevertheless, in 2014 the company was still in a rough place, and things were about to get even more tumultuous. Early on in the year, news broke that US firm Pfizer had made an offer of around $100 billion to acquire AstraZeneca – but it seemed that AZ’s leadership had little interest in the idea.
The deal was instantly controversial in both Europe and the US. The merger would have created the biggest pharmaceutical company in the world – and would have given Pfizer a way to avoid paying costly US taxes on foreign earnings (a stance that president Barack Obama criticised heavily).
Indeed, critics feared this redomiciling was the main aim of the merger, and that Pfizer wouldn’t sustain investment in UK R&D in the long term.
Unusually, the UK parliament ended up getting involved, perhaps underlining the importance of AZ to the country’s life sciences sector, with both AZ and Pfizer asked to argue for the future of the company in parliamentary hearings. Pfizer seemed unable to allay the concerns of prime minister David Cameron and business secretary Vince Cable.
After numerous “friendly bids” and just as many rejections, Pfizer eventually made a final offer of £69.3 billion ($118 billion) – which was also turned down by AZ, with the company saying it was “inadequate”.
Leif Johansson, AZ’s chairman, did not mince his words, saying: “Pfizer’s approach throughout its pursuit of AstraZeneca appears to have been fundamentally driven by the corporate financial benefits to its shareholders of cost savings and tax minimisation.
“From our first meeting in January to our latest discussion yesterday, and in the numerous phone calls in between, Pfizer has failed to make a compelling strategic, business or value case. The Board is firm in its conviction as to the appropriate terms to recommend to shareholders.”
To ease investor concerns, Soriot pledged that the company could perform a stellar turnaround in its performance as a standalone company, promising investors that the firm could double its revenues to £26.7 billion ($45 billion) within the next decade – an ambitious goal, given that at the time the results of the firm’s restructure and new approach to R&D were unknown.
Plugging gaps with M&A
In hindsight, analysts have seen the rejection of Pfizer’s offer as a wise decision for AstraZeneca – and in the years since the company has been on the up and up, showing that it perhaps didn’t need to be the biggest pharma company in the world to continue to thrive.
After rejecting Pfizer, AstraZeneca continued with its own M&A ambitions, and in the following years the company saw a flurry of licensing, partnership and acquisition deals – including buying up both Takeda and Almirall’s respiratory franchises in deals worth up to $575 million and $2 billion respectively, and acquiring ZS Pharma for $2.7 billion. These deals helped shore up its portfolio as patent expiries continued to bite.
Meanwhile, the company also spun out a new standalone biotech, Viela Bio, to develop six early-stage inflammation and autoimmunity programmes.
The company’s ambitions seemed to grow further in 2017 when reports suggested that AZ had tried to buy Japanese company Daiichi Sankyo. Daiichi apparently declined the offer.
Then, in early 2020, more rumours spread that AZ was looking to acquire Gilead, known for its high-profile COVID-19 and hepatitis C drugs – which in lieu of a Pfizer/AZ merger would, somewhat ironically, be the biggest pharma merger of all time.
COVID-19 and beyond
In early 2020 the world ground to a halt when the COVID-19 pandemic forced governments to implement shutdowns to curb the spread of this dangerous and highly contagious respiratory virus.
With no countries able to completely eliminate the virus, it quickly became clear that the only viable way to both keep people safe and prevent widespread economic disruption was to produce a vaccine against the SARS-COV-2 coronavirus that causes the disease.
This resulted in AstraZeneca becoming possibly the most talked-about pharma company in the world when its own vaccine emerged as the frontrunning candidate.
The AZD1222 vaccine was invented by the University of Oxford and its spin-out company Vaccitech, then later licensed by AZ.
It is based on an adenoviral vector based on a weakened version of the adenovirus that causes a common cold-line illness in chimpanzees, containing the genetic material of the SARS-CoV-2 spike protein.
At the time of writing the vaccine has yet to see approval, but it has reached phase 3 trials at unprecedented speed, and most signs so far have been positive.
There have been concerns that rushing a vaccine to approval could be dangerous, especially as pressure mounts from countries crippled by COVID – but AstraZeneca has signed a pledge with other pharma companies, including Moderna and old rivals Pfizer, to “stand with the science” and not be swayed by political manoeuvring.
The effect a successful vaccine might have on AZ’s business is yet unclear – there have already been rumblings of controversy around the idea that pharma companies will make profits from tackling COVID-19, but with countries across the world already having pre-ordered millions of doses, it’s hard to believe that AstraZeneca wouldn’t see huge benefits from being the first to market with a jab.
Even if the vaccine fails, though, it’s clear that AstraZeneca is still a company with an optimistic outlook for the future.
Results showing that the company’s sales are growing once again after a decade of decline suggest that shareholders did the right thing by sticking with Soriot, who says he sees no reason why the company won’t continue to grow in the coming years.
The success is mainly off the back of its new lung cancer drug Tagrisso but the company’s investment in MedImmune in 2007 has also started to bear fruit.
AZ has now retired the name MedImmune after its former president Bahija Jallal quit at the beginning of 2020 after six years in charge, but drugs developed under her leadership such as cancer drug Imfinzi are also starting to get approved and contribute to the revenues.
For now Soriot is insisting he will stay put, but whether he will stay around and see if AstraZeneca can hit a sales target of more than $40 billion in 2023 is another matter.
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