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Have you heard of a little thing called Covid-19? Big pharma too, and the race to develop a vaccine is in. It is high-stakes geopolitical chess and all the countries and companies involved are keen to win, including the Anglo-Swedish pharmaceutical company AstraZeneca.
When the Jenner Institute in Oxford partnered with AstraZeneca on its vaccine candidate, ChAdOx1 nCoV-19, analysts scratched their heads. AstraZeneca is not a leader in vaccines, unlike its main competitor in the UK, GlaxoSmithKline. It is relatively small and has a tumultuous history. But if you look, the signs are there that AstraZeneca is building a plan to prosper as a 21st century pharmaceutical company.
Flatlining – Early 2010s
About a decade ago, AstraZeneca (AZN) was in deep trouble.
The company spent what analysts considered too much money to buy the vaccine maker MedImmune in 2007; faced the so-called “patent cliff” for many of its key drugs; and several of the high-profile treatments he was developing failed during or just before late-stage clinical trials. Between 2007 and 2012, AstraZeneca cut more than 20,000 jobs, banned non-essential travel for employees, and closed an R&D site in the UK. In the fall of 2012, its market valuation stood at 36.6 billion pounds ($ 47.7 billion), just over half of the 70.9 billion pounds of its British rival GlaxoSmithKline.
Investors rebelled and the first boss to roll was CEO David Brennan, who resigned hours before a shareholders meeting in April 2012. Six months later, AstraZeneca hired Frenchman Pascal Soriot, a former Roche, to replace him. That turned out to be a consistent move.
In 2013, the American pharmaceutical giant Pfizer, smelling blood, approached AstraZeneca for a £ 58bn acquisition. AstraZeneca said no, but Pfizer kept trying. The rumor was that Pfizer wanted to avoid US taxes on its overseas earnings, and the Astra purchase would allow the company to do so while benefiting from the UK’s comparatively low corporate tax rate.
This set off alarms in the UK, where politicians threatened to block the merger. Soriot stoked the fire and asked MPs in a memorable hearing before the House of Commons: “What will we say to the person whose father died of lung cancer because one of our drugs was delayed because … our two companies were involved in saving taxes? “
Soriot believed he could turn AstraZeneca around if investors gave him some time. He even staked his personal credibility on it, promising to hit $ 45 billion in annual sales by 2023. In May 2014, his board rejected Pfizer’s final £ 69 billion offer. At £ 55 a share, it was roughly 18% more than Astra’s share price at the time the takeover bid was announced.
This marked a new chapter for AstraZeneca.
2015-2020: Riding High
In the mid to late 2010s, AstraZeneca still lagged behind its competitors. In 2017, the market was spooked by rumors that Soriot was jumping ship from Israeli drugmaker Teva, and a few months later a promising (and expensive) candidate for lung cancer failed late-stage trials. Since then, Soriot has called 2017 “the crucial year” (link in French) for Astra.
Following an internal review, the company decided to focus on three key areas: respiratory, cancer and cardiovascular medicine. In 2019, Soriot announced a major reorganization of AstraZeneca’s R&D and business units to focus on biopharmaceuticals and oncology, prompting a series of high-profile exits from the company. But some smart investments, plus reorganization and a turn to China began to pay off. In March of that year, Astrazeneca announced a major agreement with the Japanese firm Daiichi Sankyo, in which it will pay up to $ 6.9 billion to license a promising new cancer drug.
Then Covid-19 happened. On April 30, 2020, the University of Oxford announced that it would partner with AstraZeneca to develop and distribute the Oxford coronavirus candidate vaccine. While Astra has a small portfolio of vaccines, Emma-Lou Montgomery, an investment analyst at Fidelity International, wasn’t the only one to call it “an interesting option.” Rival company GlaxoSmithKline, he writes, “the world’s largest vaccine maker by sales, probably would have been the most obvious partner.”
The first results showed a low immune response and adverse effects in adults. But the project came to a halt in September when a participant developed an inflammation of the spinal cord. Trials in the UK, Brazil and South Africa resumed fairly quickly, but the US Food and Drug Administration suspended AstraZeneca’s US trial for six weeks pending an investigation. He gave him the green light to restart late last month, discovering that the illness was not related to the vaccine.
Success would undoubtedly boost investor confidence and AstraZeneca’s profile, even though it has pledged not to profit from the vaccine “during the course of the pandemic” (take it with a grain of salt). After all, who wouldn’t want to invest in the company that saved the world?
All in china
AstraZeneca opened its first office in China in 1993 and has since become one of the most active foreign pharmaceutical firms in the country, with three offices and two manufacturing plants employing more than 20,000 people. It has brought 40 products to market in China and invested $ 1 billion there.
China is a difficult market for foreign companies to compete for, and that has been especially true in the healthcare sector. But recently, the government has made it easier for multinationals to sell their innovative molecules there, albeit at a discount. Last year, China’s national health body gave one of AstraZeneca’s drugs the green light for reimbursement, but Bloomberg reported that it was only after the company agreed to cut the price by 61% (not a bad deal). when compared to China’s potential market of 1.4 billion people). .)
That’s why AstraZeneca is betting big, relative to its size, on China and its healthcare industry. In 2018 it partnered with Chinese tech giants Alibaba and Tencent to target counterfeit drugs and develop “smart health” services. The company also seeks to invest in local healthcare companies by partnering with China International Capital Corporation to launch a $ 1 billion fund. It recently promised to build a new artificial intelligence research facility in Shanghai. And you’re even dipping your toes in herbal supplements.
AstraZeneca now generates as much profit from China as it does from Europe, and there will be more soon, according to Soriot, who is very optimistic about the country, for good reason. China is the El Dorado of Pharma; it has a massively aging population and an emerging middle class demanding the best drugs money can buy. The company’s high-performance drugs include the cancer drugs Tagrisso, Lynparza and Imfinzi; Onglyza diabetes treatment; and Pulmicort asthma inhaler.
But if it were that easy to find gold in China, everyone would. Foreign companies still remember when the Chinese authorities fined GlaxoSmithKline nearly $ 500 million in 2014 for bribing doctors and officials and laundering money through travel agencies. Since then, many companies have downsized their operations in China. As David Zweig, a professor emeritus at the Hong Kong University of Science and Technology, put it at the time, “everyone else pays bribes. Glaxo has just been captured. “
AstraZeneca has already gotten into trouble due to its activities in China. In 2016, it paid the US a $ 5.5 million fine for allegedly violating the Foreign Corrupt Practices Act (pdf), notably by bribing officials and canceling bribes with murky accounting. (Nor is that the only friction of AstraZeneca with the American authorities).
But Soriot does not seem concerned by these setbacks or by the trade war between Washington and Beijing. In an interview with French media Les Echos (link in French), he said that “the positive aspect of the trade war with the United States is that China is opening up to the world.” And, by extension, AstraZeneca.
