The ‘no pain, no gain’ mantra seems to be finally putting the $25 billion AstraZeneca on the road to recovery, as it continues to prune sites and sell off once prized R&D assets to finance the promising leads entering phase II/III trials. Bracing for further revenue erosion due to patent expiries, UK’s largest pharma company is betting on emerging markets like India before revenue from new products kick in. Sanjay Murdeshwar, Country President and Managing Director, AstraZeneca Pharma India believes getting the science right is as important as expanding accessibility to patients. Will the company recover lost ground? By Viveka Roychowdhury
The last few years have been a painful transformation of AstraZeneca as it right-sized its R&D, chose its focus areas and fought off an aggressive takeover bid. As it sells off research leads in non-core areas to shore up its balance sheet and finance a dozen-odd new molecular entities (NMEs) either at registration or entering Phase III, the most expensive stage of trials, the Anglo-Swedish company is still not out of the red.
In an overview of this year’s first half yearly global revenues announced on July 30, the company revised its prior FY2015 total revenue guidance from mid-single digit to low single-digit per cent. This is a small victory but will this sustain? The slight improvement in topline growth came due to externalisation deals worth more than half of the total revenue of $12.4 billion, which was up one per cent. Caprelsa (vandetanib), a rare disease therapy was the latest molecule which was divested to Genzyme/ Sanofi in late July, which netted AstraZeneca $300 million; $165 million as an upfront payment for the global rights to sell and develop the molecule, and up to $135 million as milestone payments after further development and sales.
Like most pharma MNCs, AstraZeneca’s revenues fell hard off a steep patent cliff, and the company took longer than most to arrest the slide. Its antipsychotic medication Seroquel went of patent in 2012, while 2014 saw two big revenue earners, Nexium, its blockbuster acid-reflux medication and Symbicort, for COPD and asthma, fall off the cliff. 2016 will see another hit, with Crestor, a cholesterol lowering medication due to lose its patent.
Short term pain …
Plummeting revenues led to a realignment in the company’s priorities, a change of course credited to Pascal Soriot, who joined in October 2012 as CEO, after stints at Roche and Genentech. With a new tagline of ‘What science can do’, the company went back to the drawing board and changed their way of looking at science. Clearly, R&D had to show what it could do in the market, else it faced an existential crisis. The AstraZeneca management decided to focus on a few core areas (down from a total 13 areas of research/ business): Oncology, Respiratory, Inflammation and Autoimmunity (RIA) and Cardiovascular Metabolic Diseases. AstraZeneca’s peers have also gone through the same process of looking for ways to improve R&D productivity. Increasing demand by payers and regulators for greater evidence of comparative effectiveness of medicines also increases development times and costs. In terms of geographies, Japan and emerging market (EM) regions were also given a thrust. (See box: AstraZeneca’s plans for its six key growth platforms)
Over the last two years, R&D was consolidated to three locations: Cambridge, UK; Gaithersburg, US; and Mölndal, Sweden. All three locations are in close proximity to globally recognised bioscience clusters with strategic global R&D centres, allowing for closer interaction with scientists both within and outside AstraZeneca. Two autonomous biotech units, MedImmune and Innovative Medicines and Early Development (IMED) were created as well as a clinical development group called Global Medicines Development (GMD).
In mid 2013, the company chose Sanjay Murdeshwar to head their EM strategy in India as country president and managing director, AstraZeneca Pharma India Limited (AZPIL). Murdeshwar, who was then based out of the US, and had spent 17 years at Bayer, with stints at the headquarters in Germany, as well as Philippines and Singapore, was also looking to head back home to attend to family commitments. The AZPIL opportunity attracted him because the company was going through a transformation, to evolve to the next level and he felt the company’s new CEO had taken some “very interesting decisions as to what and where the company wanted to be perceived as a pharmaceutical company,” recounts Murdeshwar.
The company has had a long innings in India, starting out as Astra India in 1979, headquartered in Bangalore, predating the 1999 merger between the Swedish Astra and British Zeneca.
Rebuilding a blueprint
Very clearly, AstraZeneca realised that unlike a number of companies, including some pharma MNCs which had a branded generics play, what worked for them was science. “Science is at the core of what we do and therefore we resumed investing back into research substantially,” says Murdeshwar. He admits that AstraZeneca may have had a relatively “dry pipeline” for a reasonable period of time. Given the lack of promising drug candidates, the company decided to stay away from generics. He explains this risky stance saying,“If you put science and patients at the core of what you do, then a company takes very different decisions.”
The management’s decision to prune its portfolio had a lot ramifications in terms of the follow on decisions. For instance, since diabetes was identified as one of the growth platforms, AstraZeneca became a lot more ‘proactive’ in the diabetes space, buying out BristolMyersSquibb stakes in their joint business.
Similarly, the second area of focus was respiratory diseases, in which the company started acquiring assets to make up for revenue loss due to Symbicort going off patent. For instance, in July 2014, the company paid $875 million up front, and along with milestones up to $2.2 billion, for the rights to Almirall’s respiratory business and inhalation device subsidiary. In another bid to retain its strong presence in this therapeutic category, the company paid $600 million for Actavis’ respiratory drugs portfolio this March.
AstraZeneca’s vulnerability due to falling sales attracted an aggressive takeover bid from Pfizer, spanning November 2013 to May 2014. Pfizer’s bid faced flak from shareholders and UK politicians who worried that the merger would result in job losses and cuts in research spends. Though one major factor driving Pfizer’s interest was to turn Pfizer into a UK-based company and reap tax inversion benefits as well as cost savings due to merged operations, the long drawn out battle was also proof that AstraZeneca’s choice of focus areas and strategies to excel in these areas were steps in the right direction.
Cardiovascular and metabolic diseases was another focus area as well as oncology. Thanks to some of the very good choices made in Phase I and Phase II by the company’s R&D leaders, the company today has very clear candidates in its oncology pipeline. Overall, AstraZeneca today has 16-17 candidates in its Phase III pipeline, which as Murdeshwar points out, “Two years ago, we didn’t believe this would happen. It is very unusual,” and a complete sea change after the pipeline transformation.
… for long term gain
He underlines the importance of science in this turnaround with an example. AstraZeneca had a very good ovarian cancer molecule in Phase 1. But when they started testing the molecule, they realised that the peak potential (patient population which would benefit from the candidate) was only $500-600 million. For most global pharma companies this would be too small a peak sale point but the AstraZeneca CEO decided to go ahead, with the rationale that it did not matter how big that product was, in terms of revenues. What mattered was that it was really going to fundamentally change some patients’ lives. The molecule Lynparza is for BRCA-mutated advanced ovarian cancer, which went on to become a huge talking point, thanks to Angelina Jolie, who was also detected with the same mutation. Murdeshwar cites another similar example: AZD9291 (EGFR), for lung cancer, again with a genetic marker to it.
This seems to be a milestone in the way the company started to evaluate its R&D leads; marking a shift from a single-minded focus on revenue potential to the idea that R&D programmes should be seen in a longer timeframe, as investments in a certain way of doing science. As treatment, especially for cancer, becomes more personalised, targeted patient pools will reduce but today, many pharma companies are actively looking at serving the needs of these smaller patient groups. The extra science and technology which goes into these treatment regimens actually acts like an entry barrier reducing competition. The company intends to increase their emphasis on novel science, such a personalised healthcare, expecting half their launches to be with a companion diagnostic by 2020.
But research is a cash guzzling business, where will the revenue growth come from to fund these programmes? Murdeshwar is pragmatic when he says, “Of course we would like to grow. We have growth platforms of emerging markets, and Japan, which are our two big platforms because other countries would see some patent erosion. But you’d also like to have scientific leadership. Once you put science as the technological differentiation for our company, then our choices are clear.”
Today, two years after the pipeline transformation, the management’s efforts to build a sustainable, durable and more profitable company seem to be bearing fruit. The next phase of their strategy, will most probably see their transformed R&D organisation accelerate revenue growth and sustainability. The company will continue to build on their EM strategy. The move to diversify their portfolio will see an increasing focus on biologics (already 50 per cent of the pipeline) and devices, as well as a balance of primary and speciality care increasing the profitability of the business.
AstraZeneca has tasted success in its efforts to monetise their science-led strategy, through collaboration, out-licensing and divestment deals. For example, the company has an alliance with Eli Lilly to co-develop and commercialise their BACE inhibitor, AZD3293, in Alzheimer’s disease. The second major deal is the co-commercialisation agreement with Daiichi Sankyo in the US for Movantik, which launched in March for opioid induced constipation;, The deal earned the company $200 million in upfront externalisation revenue included in Q1 2015 total revenue.
A third strategic collaboration is the one with Celgene to develop their immuno-oncology portfolio in blood cancers.
The India play
With EM regions identified as one of the six growth drivers, Murdeshwar is tasked with expanding the company’s access to as many patients as possible. Referring to the vision highlighted on AstraZeneca’s Open Innovation website, ‘to deliver 10 new molecules over the next seven years, and to touch the lives of 200 million patients every year by 2025,’ he points out, “We are measuring our success both by the number of patients as well as the number of molecules we bring out. We believe that by doing so, all our stakeholders, from patients, the physician community as well as shareholders, would obviously gain. This core idea has driven the India strategy as well, with AZPIL aligning itself as much as possible to the global pipeline.”
As he points out, India has huge unmet medical needs in the company’s disease focus areas. There are 65 million diabetic patients in India and unfortunately growing by the day. In the respiratory area, India has 45 million patients in the asthma-COPD space. Its the same reality of unmet medical needs in the CVD space while in the area of cancer, the company has its work cut out in terms of creating diagnostic markers, creating the infrastructure etc in preparation for future marketing authorisation for AZ’s oncology portfolio.
The global shift in priorities will also ‘change the DNA of AZPIL as well and this is what we are currently going through,’ he says. Currently, AstraZeneca in India is involved in clinical trials with five molecules in therapeutic areas such as oncology, diabetes, respiratory, and infection. In addition to that, at present, clinical trials in the areas of CKD associated anemia, cardiovascular risk reduction, and oncology are under preparatory stage.
Less than a year after he joined AZPIL, the following January, the India operations got a rude wake up call, when it was announced that the R&D centre in Bangalore would be shut down.
Since AstraZeneca had decided to withdraw from the infectious diseases space, its anti-infectives R&D centre at Waltham was hived off into a separate biotech company. As AZPIL’s Bangalore R&D centre, Avishkar, focused on anti-infectives with a tropical disease slant, the company had to shut this down as well.
A statement from AZPIL on the closure of the site explains that although they no longer engage in ‘in-house’ research activities in India, AstraZeneca continues to make their compound library available through ‘open innovation’ partnerships and also provide expertise that can help advance medical research programmes. Over the years, Avishkar had become a nucleus of Bangalore’s life science eco-system and the statement commits to ‘developing distinctive science, including research into Neglected Tropical Diseases (NTDs), worldwide and in India. … To help local science to build on this legacy we have taken steps to ensure that our early-stage NTD portfolio will continue to progress by supporting the establishment of a new, ‘not for profit’ organisation in Bangalore called ‘FINDER’ – The Foundation for Neglected Diseases Research. We have also committed to a substantial contribution of scientific equipment from the site to the National Centre for Biological Sciences (NCBS). The equipment will become part of a core NCBS facility open to the entire R&D community in Bangalore.’
If India, as part of the EM block, is identified as a growth driver, wasn’t it counterproductive to shut down research into infectious diseases like TB, etc, where India and other developing/tropical nations, have huge patient populations with unmet medical needs? Murdeshwar clarifies that though the Bangalore R&D centre was shut down, the company retained one of the leads in the TB programme. It continues research in the infectious disease area at Boston, so infection remains an area of focus, but its going to be opportunistic.”
Explaining this strategy, he says that besides the three main areas (cardio-metabolics, cancer, and respiratory), the company may not invest too much in the other two areas (infection/vaccines and neurosciences) but if there are very interesting molecules which can be built on, they are opening to partnering in this area. In the second area termed ‘emerging market diseases’, like typhoid etc, Murdeshwar says that the company is willing to create open research platforms and patent pools with a lot of their R&D work done so far, so that other interested R&D centres or players can take the lead on what interests them and move it ahead if they find it economically viable and they have the technology. The TB molecule from the shut down Bangalore facility is now part of this open source initiative.
Making India count
But Murdeshwar has an uphill task as he strategises to climb the rankings in India’s hyper competitive and fragmented pharma market. He admits, “We are at a cusp. The last two years have been about clarifying what are our growth platforms in India as well as what are not.”
The company is now set to fire on at least two fronts, with two pivotal deals signed in June. It tied up with Dr Reddy’s Laboratories for a distribution agreement for saxagliptin and its fixed dose combination with metformin, in Type II diabetes and with Sun Pharma for Brilinta/ ticagrelor.
In the June MAT AIOCD Pharma Trac rankings, AZPIL is ranked at 36, but he can take satisfaction that it grew fastest (35.4 per cent) amongst the 31-40 ranked corporates, which made it the fastest growing pharma MNC in June as well. The company made its entry into the Rs 500-crore club and one of its key brands, Brilinta, in the CVD space, notched one of the fastest growth rates in the Top 300 brands.
Besides Brilinta in the CVD space, the respiratory therapeutic area is also going to be another important growth area, with Symbicort. According to him, the company can do much better with this product as we did not spend time defining the science, technology and need of such a product to Indian patients. The company took a price cut of 40-50 per cent on this product. “That’s the three things we’re going to look at: cutting-edge science, accessible to as many patients as possible and therefore how do we make that happen,” he summarises.
With two deals in place, is AZPIL scouting for more such distributorships with Indian companies in other areas of the product basket, to make it a volumes games? Logically the next deal should be in the respiratory range, but Murdeshwar laughs off such speculation saying, “At the end of the day, what is important is our strategy to make innovative products as accessible to as many physicians and patients as possible and if we need help to achieve this goal, we will look at partnerships but if we decide we don’t need help, we’ll do it alone.”
Besides fighting for market share, the company has also had its fair share of legal problems like the recent compulsory licensing bid by Lee Pharma. On another front, the parent company has made two unsuccessful attempts to delist the Indian entity; in 2004 and 2010. An offer for sale (OFS) in 2013 was stalled when a SEBI investigation found that a single group of investors, through six entities, subscribed to 94.02 per cent of the shares offered by AZPIL through the OFS. In an order dated June 24, 2014, SEBI ‘suspected concerted/coordinated action of AZP AB and Elliott group’ (a foreign institutional investor) in order to facilitate the delisting of AZPIL. In order to protect the interests of retail investors, SEBI directed the stock exchanges to monitor the delisting process closely. The company did not give an update on the delisting process as the matter is still subjudice.
The long-term picture
EM markets growth was 18 per cent in Q12015 and growth normalised in Q2 (+9 per cent) in line with long-term view. The respiratory grew at +30 per cent, driven by Pulmicort and Symbicort, Brilinta (+80 per cent), diabetes (+88 per cent), driven by Forxiga and Onglyza and Oncology (+18 per cent) Though the company does not break out country wise revenue figures, he emphasises that EM revenues have been growing quite substantially, with China obviously as the big growth driver. India is very clearly an important growth platform player in this geography but much depends on how the company can address and access as many patients as possible.
Thus India seems to be a volumes play, but with the expanding the span of price control, is it tougher for pharma MNCs, when compared to other EM countries? Murdeswar doesn’t think so, saying, “I don’t believe so, at least not for us. All our patented innovative products available in the India market are around 70 per cent discounted to their prices in developed markets. So we are bringing it at a price point where we will hopefully create as much accessibility as possible. At the end of the day, it will come down to the science. Globally too we are restructuring ourselves around getting our science right.”
This philosophy drives other decisions. For instance, of the 1200 people in AZPIL, 40-45 are in the medical division. Globally too, of the 57000 employees globally, 1200 are in science-related functions.
According to Murdeshwar, they presently have one of the biggest medical teams in India, all 40-45 MBBS-qualified doctors out in the field, involved in medical education. Clearly, with the choice between hiring more MRs or more staff in the medical department, the company has made its choice. And this is driven by its product range. For instance, he reasons that the level of discussions on BRCA mutated ovarian cancer would have to be more scientific than a sales pitch.
So also in the diabetes space, Forxiga, which was launched this May, is an SGLT2, a very new and different class of molecules, which is slightly counter-intuitive to current practice. As he explains, conventionally, the presence of sugar in urine is considered a sign of diabetes and treatment strategies focused on bringing the sugar levels back to acceptable levels with medication, lifestyle changes etc. But with SGLT2s, the mode of action is that (excess) sugar should pass out through the urine. So the type of interactions the company’s medical education staff will have with clinicians would be beyond current text book knowledge, more cutting-edge latest research.
AstraZeneca’s plans for its six key growth platforms
- Brilinta – To deliver Brilinta’s potential as a cardiovascular medicine, with plans for market leadership in the US and worldwide, and further clinical studies
- Diabetes – To maximise the potential of their broad innovative non-insulin anti-diabetic portfolio to transform patient care in diabetes
- Respiratory – To maximise the opportunity of their ‘end-to end’ strengths in medicines, pipelines and devices to transform patient outcomes in asthma, COPD and IPF
- Emerging Markets – Refocusing efforts on innovative medicines; accelerating investment in EM capabilities, with a focus on China and 15 top markets; broadening reach through multi-channel marketing; and transforming capabilities to support new products, for eg. market access and patient affordability
- Japan – Building on the company’s oncology franchise and working to maximise success with launches across the diabetes portfolio and with Symbicort, Nexium and Crestor
- Oncology – Became the sixth growth platform in January 2015; several potential submissions in 2015 to 2016; expected to contribute largest proportion of pipeline-driven revenue growth and potential to grow to quarter of sales by 2023
This needs a different level of preparation. For instance, the diabetes educators are based at and certified from Bangalore’s St John’s Hospital, so that they interact with patients and clinicians, in order to get the technical knowledge to have such a conversation. Summing up, he says, “If this is going to be the differentiator, then this is a good differentiator.”
Differentiation in the clinician community will be tough, as competition is high in these areas and the disadvantage of narrowing focus is that the risk is higher. Murdeshwar says, “We look at this as an opportunity to study how these molecules work in Indian patients with Indian diets and lifestyles.”
According to him, for instance, Forxiga works on very clear areas of fat adiposity, i.e. the fat around the waist, which is a big problem in Indian and Asian patients. So the molecule is seemingly tailored made for the Indian/ Asian genetic makeup/pool. “We still have a long way to go before we understand how this molecule will address the characteristics of an Indian diabetic metabolism. This will be our differentiator and we will keep building on this. Which is why we need more staff on the medical and clinical side. That is how the future will be and how we need to be ready. We certainly are on the way to get there, but I must confess it is a long way,” he admits.
With Crestor due to go off patent in 2016 patent loss will continue to eat into AstraZeneca’s global revenues quite substantially. Is the company on track to replace the revenue loss from these patent losses? He concedes that there will be one to two years of sluggish growth in the years when the blockbusters go off patent, but is confident that revenues will pick up as the new molecules hit the market.
His lodestone is the publicly announced ambition to improve the lives of 200 million patients globally and be a $50 billion company in 2025. On the revenues front, the company is currently about half way there, at $25-26 billion. “In India, we need to touch the lives of 8-10 million patients in the next 4-5 years. From a patient, an unmet need perspective as well as a science perspective, we have very good science and the legs to develop these significantly in India and give physicians a choice,” he signs off.