astrazeneca case study analysis

AstraZenecaBusiness Case Analysis

Sergio Garcia, Himanshi Nandu, Adriana Padhina, Janelle Thompson

Busi 599 Graduate Business EssentialsMichael Cole, Edward O’ConnorDecember 6, 2012

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Table of Contents

AstraZeneca Business Case............................................................1Executive Summary.............................................................................1

Background...................................................................................1History...............................................................................................1Environmental Factors.........................................................................2Business Model...................................................................................2Quantification of Market Size and Share...............................................5Operational Effectiveness....................................................................6Management Effectiveness..................................................................7Competitive Comparison (Direct and Indirect).......................................7

Marketing & Sales Strategy...........................................................7Key Market Segments – Target Market(s).............................................8Positioning..........................................................................................8Brand Strategy....................................................................................8Marketing Mix Strategies.....................................................................9Innovation Profile and Strategy..........................................................10Sales & Service Strategy....................................................................10

Financial Analysis........................................................................11Profitability, Liquidity, & Leverage Ratios...........................................12

EBITDA, Income Statement, ROE.......................................................................12Current Assets/Current Liabilities......................................................................12Sources of Capital..............................................................................................12

Trends and Industry Comparisons......................................................13Analysis of Financial Statements in Terms of Supporting the Case.......13

SWOT Analysis............................................................................13Summary..........................................................................................13Strengths..........................................................................................14

Sales growth of Crestor, Seroquel XR and Symbicort........................................14Advancements in Biologics and Vaccines..........................................................15Cost control efforts increasing operational efficiency........................................16Maintains strong global presence......................................................................17

Weaknesses......................................................................................17Expiring patents................................................................................................17Regulatory requirements...................................................................................18R & D productivity.............................................................................................18Pricing Pressure.................................................................................................18

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Opportunities....................................................................................19Advances in science and technology.................................................................19Further expansion in emerging markets............................................................20Amgen collaboration for inflammation drugs.....................................................20Acquisition of Ardea, which is a U.S. biotechnology company...........................21

Threats.............................................................................................21Generic Competition..........................................................................................21Illegal trade in products.....................................................................................22Patent litigation in respect of IP rights...............................................................22Economic, regulatory and political pressure......................................................22

SWOT Conclusion...............................................................................23

Competitive Picture.....................................................................23Observation Explanation....................................................................23Recommendations.............................................................................23Financial Model.................................................................................23

Market Share Growth.........................................................................................23Revenue Growth................................................................................................23Expense Projections...........................................................................................23

Counter Argument.............................................................................23

Conclusion..................................................................................24

Appendix………………………………………………………………………………………..25

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AstraZenecaExecutive Summary

Our case is based on the pharmaceutical company Astra

Zeneca. AstraZeneca is active worldwide and

employs over 65,000 people in over 100

countries and is the second largest

pharmaceutical company in the United

Kingdom. AstraZeneca’s medicines cover several

fields including cardiovascular, gastrointestinal, infection, neuroscience,

oncology and respiratory. In this case study, we will demonstrate that in

reality Astra Zeneca is a stable company and heading towards the right path

but it is market value undervalued in aspects of Marketing/ Finance in

comparison to its competitors. We shall investigate the true insight of why

this company has been undervalued in these areas. We will demonstrate

their strengths and weaknesses and their insight of their plan for the

future. AZN has faced obstacles such as product development life

cycle. Drug development is a highly competitive activity and every day

saved in getting a new branded drug to market can be measured in millions

of dollars. Patents for pharmaceuticals last between 20 and 25 years,

depending on the country or region, but it takes between eight and 12 years

to bring a new drug to market. The shorter the product development time

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and clinical trial, the longer a company has to establish brand leadership and

generate revenue before a competitor can bring generic products to market.

We will dissect the financial statements within this domain and views how

their current leaders, such as managers help keep their sales up to

par. Management will be looked at in a more in depth view such as how

they help bring the company to their vision and standards. AZN has been

establishing programs as well in foreign countries that has helped market

their products within those regions. This concludes us, AZN has all the

essential tools to rise in being within the top 5 pharmaceutical companies

globally if they mend their weaknesses and we have incorporated

suggestions of how this can be done.

BackgroundHistory

This major Pharmaceutical Company was originally two separate

entities, which were Astra AB and Zeneca. Astra AB was founded in 1913 by

a group of doctors in Sweden. The second company was Zeneca, which was

founded on 1993 in Britain. In 1999, both companies merged and became

the company that we now know as AstraZeneca plc. The merger between

both companies was to provide long-term growth and bigger shareholder

value through Global power and reach in sales / marketing, stronger R &D

platform, and a greater financial strategy.

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Environmental Factors

Pharmaceutical markets continue to grow as the population increases.

As humans continue to want to prolong their lives, the pharmaceutical

industry continues to thrive. The pharmaceutical industry continues to have

a wide demographic for their markets, where different diseases and chronic

illnesses continue to trouble people and provides a market for those who

wish to medicate them. Although this demographic seems unflawed,

increased pricing pressures, pressure for industry returns on declining R&D

productivity, coupled with rising healthcare costs, pose major threats to the

industry. Regulatory constraints have increased from political pressure to

and will continue to soar. The culture of the industry is one of a competitive

nature and forcing companies to diversify by acquiring generic businesses or

consumer portfolios. R&D productivity improvement remains a top priority

among the industry as well as global expansion, industry consolidation via

mergers and acquisitions, and the pursuit of operational efficiency.

Business Model

Business Model- Strategy and Performance

AstraZeneca’s business model is driven by their strategy and is based

on using the best innovative science & technology to invent or acquire,

produce and distribute innovative, patent-protected medicines that make a

meaningful difference to people’s health around the world. They also

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commercialize medicines that do not have patent protection where we can

obtain prices that reflect the quality and value of our brand. To pursue their

strategy, they invest in those projects and products where they believe

medical innovation or brand equity will enable us to make acceptable levels

of return for their shareholders.

The Life cycle of a medicine, the process they use to develop new

drugs. It starts with the identification of an unmet medical need and market

opportunity and the search for a potential medicine, and moves through

clinical trials and drug development, regulatory submission, a medicine’s

launch and management of its life-cycle.

An inherent element of their business model is the creation and

protection of our underlying IP (Intellectual Property) assets. As the diagram

below shows, the development of a new medicine requires a significant

investment of resources over a period of 10 or more years before product

launch, with no guarantee of success. For this to be a viable investment, the

resulting new medicine must be safeguarded from being copied with a

reasonable amount of certainty for a reasonable period of time. This allows

time to generate the revenue they need to reinvest in new pharmaceutical

innovation. In addition to establishing and defending their IP assets and, as

illustrated in the diagram, they can also influence the return they make on

their investment by improving their:

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R&D productivity: “We are focused on delivering innovative and valued

medicines”

Their R&D organization continues to evolve to meet the challenges

facing our industry by investing in high quality science and harnessing the

innovation of their people. They are continuously improving their

understanding of mechanisms and targets that will become the Foundation

for developing and delivering tomorrow’s new medicines. These efforts are

undertaken with the highest ethical standards, as they are committed to

delivering innovative medicines responsibly. They continue to prioritize their

resources and focus discovery activities on those diseases within our existing

therapy areas where they believe there is the greatest potential to meet

patient need through the application of novel science. This continual process

of prioritization is designed to ensure that the projects they have in their

pipeline constitute the programs, which they believe are most likely to

deliver technical and commercial success.

Sales and marketing effectiveness:

Their global sales and marketing organization is active in over 100 countries

and, at the end of 2011 comprised approximately 32,300 employees. As well

as building on their leading positions in the US and Other Established

Markets, they continue to increase their strength in Emerging Markets

including China, Brazil, Mexico and Russia.

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Fig. 1 Business Model – AstraZeneca Annual Report 2011

Operational efficiency

A key goal for their planning process is to ensure that they sustain the cycle

of successful innovation and, as a result, continue to refresh their portfolio of

patented products and so generate value for shareholders.

They seek to maximize the efficiency of our supply chain through a culture of

continuous improvement built on the commitment and engagement of their

employees and a commitment to minimize the impact on the environment.

They focus on what adds value to their customers and patients, as well as

waste elimination. This program has delivered significant benefits in recent

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years, including reduced manufacturing lead times and lower average stock

levels, both of which improve their ability to respond to customer needs and

reduce inventory cost. All improvements are designed to ensure they

maintain product quality, safety and customer service.

Quantification of Market Size and Share

The pharmaceutical industry remains highly competitive. Most of

AstraZeneca competitors are other large research-based pharmaceutical

companies such as Pfizer Inc., Johnson & Johnson, Amgen Inc., and

Genentech, Inc. All of these pharmaceutical companies develop and sell

innovative, patent-protected prescription medicines and vaccines, as well as

smaller biotechnology and vaccine companies, and companies that produce

generic medicines. While all the companies are confronting similar

challenges, strategically these challenges are being met in different ways.

The definition of fragmented market is when a company uses different

suppliers and component manufacturers in the production of a good.

Fragmentation is the results that lead to different companies producing

component parts and then the complete finished good assembled elsewhere.

AstraZeneca would not be able to secure their success if they did not have a

good relationship with those whom they do business with. Global External

Interactions Policy was launched in April 2011, which provides a single,

common, principle based approach to all our interactions worldwide with

public officials, healthcare professionals and community organizations.

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Global orientation

AstraZeneca future success required them to develop global strategies to

commercialize our products effectively. These global strategies needed to be

tailored in both mature and emerging markets. As part of that drive, we

announced our decision to invest $200 million in a manufacturing facility in

China and our agreement to acquire a Chinese company that will give us

access to a portfolio of medicines used to treat infections. In Russia, we

invested $150 million in a manufacturing plant and announced plans to

establish a new predictive science center. We are also committed to playing

our part in the global challenge of providing sustainable access to healthcare

for all those who need it. Our strategy recognizes the complexities

surrounding the issue, which range from the affordability of medicines to the

availability of healthcare systems and the resources to make them effective.

Operational Effectiveness

Former CEO David Brennan’s review in the 2011 annual report outlined

the goals and methods for streamlining the company’s operational efficiency

noting several steps such as a new production plant in China, which “uses

Lean production principles from the outset”, reductions in workforce across

the organization, and R&D site consolidation. In the annual report it goes on

to discuss that the “Lean production business improvement tools” have been

implemented to the entire supply chain and throughout the organization

including employees, products and equipment, and has resulted in quality

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improvement, “lead times and overall equipment effectiveness”. Lean is

used by organizations to reduce waste while increasing customer value as

stated on the Lean.org website. The plant in China has expanded the

accessibility to AstraZeneca’s products for urban and rural communities to

accommodate the rising local demand as explained in the 2011 annual

report. Global supply chain experts are being utilized to provide cross-

functional support through the organization and there was an October launch

of the Supply Chain Academy, which provides online internal training to

solidify and escalate the improvements throughout the supply chain. There

is also a leadership program to contribute to the goal of an efficient supply

chain. The identification of failed processes are being sought out to create

methods to counteract these vulnerabilities. 1400 positions within the R&D

department have been reduced and there are also other reductions in supply

& manufacturing, support functions, and the sales and marketing workforce

as well as the closure of several facilities this year and more in the coming

year. AstraZeneca has also sold Astra Tech, which specializes in “dental and

healthcare (urological and surgical) products”, for 1.8 billion in cash allowing

them to retain focus on their core therapy areas of cancer, cardiovascular,

gastrointestinal, infection, neuroscience and respiratory and inflammation.

Management Effectiveness

AstraZeneca wants their employees to feel positive and enthusiastic

about what they are doing for the company. They set a clear sense of

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purpose, which creates confidence in their employees to meet the challenges

of the pharmaceutical industry. Management provides their employees with

effective leadership, clear target, good communication, as well as excellent

learning and development opportunities. Within a performance culture they

create healthy, safe and energizing workplaces. AstraZeneca values diversity

and the success of employees that depend on personal merit and

performance.

Setting the performance targets

Key priorities of AstraZeneca’s employees are to continued

development of their performance culture across the organization.

Strengthening their focus on setting high quality objectives aligned with the

company’s business strategy. Performance at all levels of the organization

delivers value to the company. The AstraZeneca Board is responsible for

setting high-level strategic objectives and monitoring employee’s

performance against these. AstraZeneca mangers have a responsibility of

working with their employees to develop individual and team performance

targets; they ensure that employee’s understand how they contribute to

overall business objectives.

Developing global talent and capabilities

AstraZeneca provides a range of learning and development (L&D), they

want to encourage and support their employees in achieving their full

potential. These programs are designed to build the capabilities and

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encourage the behaviors needed to deliver our business strategy. The

company has also implemented a global approach, supported by the creation

of our global talent and development organization, to ensure that high

standards of L&D practice are applied across the organization.

Diversity and inclusion

Although promoting diversity is not a new commitment for

AstraZeneca, nut to make sure that there is diversity it is represented in

leadership, workforce and companies thinking. Diverse cultures,

backgrounds, skills and experience of our global workforce bring great

creative strength and energy to the company and have a critical role to play

in achieving strategic objectives. The goal of a 25% increase in sales the

year of 2014 coming from emerging markets, including China, Brazil, Russia

and India. While working alongside the companies already established

markets AstraZeneca continues to grow the business in these emerging

countries to increase diverse range of stakeholders worldwide.

AstraZeneca perspectives of their stakeholders are central to how they

do business and understanding the different medicine needs that society

values. It is important that diversity of the communities that AstraZeneca

serves is reflected in their workforce and their leadership teams, locally and

globally. AstraZeneca’s inclusive culture has employee’s diverse talents as a

critical aspect to attracting and retaining the best employees to take the

business forward.

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Shaping our priorities

AstraZeneca is a company that operates in over 100 different countries

so to define their global framework around the world can be challenge.

Established in 2010 and chaired by our CEO AstraZeneca has a global

steering group of senior leaders. This group has supported a more actively

inclusive culture, with the focus on driving change in key areas identified;

leadership and management capability, transparency in talent management

and career progression, and the challenges of work-life balance. Leadership

and management capability led by a VP from the global marketing and sales

organization and is focused on building awareness of the business value of

diversity, and the impact of leadership behavior on creating an inclusive

culture. The group works to integrate diversity and inclusion at levels within

leadership and management culture. Leadership and management

development programmers support and empower people in understanding

and leading the way in driving our diversity ambitions. Transparency in

talent management and career progression led by our Head of Clinical

Development focuses on retaining and attracting the best talent. This group

creates environments where ability is recognized, rewarded and encouraged

to grow and where processes are transparent and behaviors irreproachable.

This program works with diversity at lower levels; it identifies talented

individuals earlier in their careers. This help the employees better their

development, build more diverse talent pipeline and enhance capabilities in

strategic geographies. This gets tracked by senior leaders to provide the

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company with diverse talent pools. In 2012 AstraZeneca created a mentoring

program which brought together junior employees and senior leader. This

opens an accelerated developing plan for junior talent, showing positive

leadership behaviors and encouraging an inclusive open culture. The third

work group is led by our President, AstraZeneca US and CEO North America

focuses on helping to create a climate, culture and working environment

where employees feel supported in managing the demands of work and

personal life. In 2010 global employee survey showed that work and life

balance as an area that needed improvement. This survey gave the senior

leaders a good insight into the issues expressed by an employee

perspective. With this in mine in 2011 AstraZeneca developed a new set of

global work/life balance principles. This was expressed to all employees by

the CEO to reinforce this throughout the company. These principles allowed

business leaders now to use global principles to develop solutions locally, in

line with local laws, practice, custom and culture.

Global Principles to support work-life balance

AstraZeneca does not expect employees to work excessive hours on a

regular basis.

We encourage ongoing dialogue and review of work expectations,

including scope and timelines with an emphasis on prioritizing and letting

go of lower value work.

We believe good health and wellbeing are fundamental to the ongoing

success of AstraZeneca and therefore encourage managers and

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employees to work together to create flexible solutions, to meet business

goals while not interfering with time for family and friends, community

activities, exercise or sleep.

We encourage the use of technology to create solutions that are viable

alternatives to face-to-face meetings that require travel.

Engagement and dialogue

In achieving AstraZeneca’s goals they believe in open lines of

communication. This is critical in helping employee’s to engage with senior

leaders so they understand their roles and work well with the company’s

business strategy. AstraZeneca has a variety of communications styles:

local leaders and managers hold regular meeting with their teams, as well as

Internet, videoconference and yammer (social media tool). In addition,

AstraZeneca’s code of conduct outlines the procedures for employees to

raise integrity concerns, including a confidential helpline.

Global employee survey

AstraZeneca also focuses on their annual global employee survey

called (FOCUS). This survey allows the company to track employee opinions

and measure levels of engagement, the effectiveness of our communications

and other areas critical to our business performance. Alongside of an

external specialist these surveys are conducted anonymously. The results

are analyzed and communicated back to the employees. The uses of these

surveys are to provide valuable insights for business leaders and managers

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about what we are doing well and where improvements need to be made.

These insights inform our strategic planning across the business AstraZeneca

stated that:

91% of our people participated in our 2011 survey – the highest

participation to date, reflecting continued confidence in this feedback

mechanism.

After the 1% point reduction in 2010, we were pleased to see a 1%

increase in the employee engagement score in 2011. Scores also

increased in two other areas targeted for improvement following the 2010

survey: leadership and work-life balance, both up by 2%.

While some of these results are encouraging, the survey for 2011

showed that there is a further improvement in engagement and leadership

categories. The surveys also stated that the company needs to maintain the

momentum it has built across the business in the area of work-life balance

and communication. With this issue being highlighted in the survey

AstraZeneca during the year 2011 made their senior executive team (SET) a

total of over 120 people to make personal appearances at company sites

across the four continents in an effort to create better communication.

Feedback after the meetings showed that people welcomed the opportunity

to interact with SET members and understand better the role everyone can

play in driving future success.

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Safety, health and wellbeing

AstraZeneca believes that a safety, healthy and energizing working

energizing working environment benefits employees as much as it benefits

the business. If the employees are happy and enjoy their work as well as

their work environment it contributes to AstraZeneca’s success.

AstraZeneca’s stated that they are committed to continuously promote

health and wellbeing for all of their employees. Listed below are some of the

company’s core considerations to continue this within the company:

Ensure that safety, health and wellbeing considerations are integrated

across all our activities.

Identify risks and ensure that these are understood and managed

responsibly.

Help employees to understand their personal health risks and empower

them to manage these.

Set clear targets focused on continuous improvement.

AstraZeneca global Safety, Health and Environment (SHE) Policy

describes what expectations are wanted for thr employees and it also has

global standards and procedures which detail the minimum requirements in

key risk areas.

In January 2011, AstraZeneca started a new SHE strategy and a

complementary Health and Wellbeing strategy for the targets in the

upcoming years 2011-2015. These SHE strategies worked with the business

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objectives and were made to make sure there is a steady improvement in

supporting safe, efficient and sustainable operations across the company as

AstraZeneca re-shape and grow our business.

Our safety, health and wellbeing targets for 2011-2015 are:

Fatalities: zero tolerance

Accidents and illnesses: 25% reduction in combined accident and illness

rate

Driver safety: 40% reduction in collision rate

Health & wellbeing: 80% of sites offer our 6 essential health programmers

or services

Managing change

AstraZeneca continues to evolve in the global workforce. Their

strategic focus is on business growth in the emerging markets, as they have

already noticed that the work force in these areas have grown substantially.

Although this increase in the company it has also been accompanied by a

reduction of employees to improve efficiency and effectiveness. These

reductions have come about through restructuring in R&D, supply and

manufacturing, support functions and our sales and marketing workforce in

established markets. Since 2006 AstraZeneca has reduce the number of

employees by some 9,600 from 66,800 to 57,200. This decrease includes a

reduction of 2,600 positions in 2010 and a further 5,000 in 2011, which

resulted from AstraZeneca business change plans, announced in 2010.

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During 2011, the most significant business change was the implementation

of the R&D strategy announced in 2010, which also involved a number of site

changes. Approximately 1,400 roles, almost all R&D employees worldwide

were impacted in some way by this change in order to control further job

losses, over 750 employees were redeployed in the correct areas. In

addition, there were reductions in the number of roles in several areas of our

sales and marketing organization in 2011, which were incremental to the

ongoing restructuring programmer announced in 2010. In the US alone there

was a reduction was reduced by approximately 1,150 leadership positions

and sales representative roles. AstraZeneca is committed to ensuring that

core values, robust people policies, consultation infrastructure and prior

experience are integrated into our multi-faceted business transformation.

AstraZeneca includes trade unions and employee representative groups are

involved throughout the restructuring process. AstraZeneca investment

significantly in outplacement support and with this high levels of success

were achieved in finding employees opportunities outside the US in 2011.

AstraZeneca makes sure that there is a level of global consistency in

managing employee relations but at the same time allowing enough

flexibility to support the local markets. Building good relations with their

workforces, taking into account local laws and circumstances are many of

AstraZeneca core values.

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Competitive Comparison (Direct and Indirect)

Pfizer continues to have a strong sales and marketing infrastructure,

which has allowed them to revive their credentials with the recent success of

Lyrica, Sutent and Chantix. Although they have seen brighter days they still

suffer from low growth potential therapy area markets and limited

penetration into the biologics market. Johnson & Johnson continues to

dominate branding and have numerous successful subsidiaries that allow

them to maintain expertise in various therapy areas where their product

diversification has positive revenue growth projections. Generic

competition continues to affect the sales of small molecule products, where

generics is rampant, and will continue to affect it with the creation of new

products.

Marketing & Sales Strategy

Key Market Segments – Target Market(s)

Astra Zeneca Plc. has few target markets due to the business that they

are in. These Target Markets are Health Care professionals and those who

pay for healthcare. They utilize face-to-face is their traditional marketing

method. They have adopted new methods to market their product and they

have utilized this method in the North America and Europe markets.

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Positioning

Astra Zeneca is responsible for development of healthcare medicine in

six different areas such as Oncology, Respiratory, Gastroenterology, and

etc. An example would be Nexium, which is Astra Zeneca’s largest product

launched; they are targeting clients and healthcare specialists within each

specialty.

Brand Strategy

There specific strategy is biopharmaceutical, integrated, innovation-

driven and focused. In the biopharmaceutical aspect of the strategy that

they will develop biological and chemical medicines, meaning both large and

small molecular medicines. It is also focused driven, meaning that they will

be very selective in the areas within the pharmaceutical areas in which they

will compete. They will target product categories in which they can promote

innovation and their brand equality shall be able to bring acceptable levels in

return from their investments. They strongly believe in order to obtain the

full potential from the market; they will work on their chain of discovery

(research) and development while establishing partnerships and outsourcing

to establish efficiency. Their Technology base will provide innovations for

new products to be delivered to the market that ultimately will benefit

patients. Astra Zeneca strongly feels that they are able to meet the needs of

the established global markets and the emerging markets efficiently and

effectively.

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Marketing Mix Strategies

They segment their products according to needs and resources in the

target markets. An example would be the medication Crestor, which is

currently being marketed in the U.S. The reason being why Crestor is being

marketed more in the U.S. than in other areas is due to the obesity rate and

levels of cholesterol in the U.S. is in all time high. Also they market Oncology

medications and by doing so they alter the packaging of the product so the

patient remembers to adhere to take the medication. They also package the

medication a bit more discrete so the client (patient) will not feel a negative

connotation towards their condition. Astra Zeneca reaches out and

establishes programs to help individuals with low resources in order to obtain

the appropriate treatment at a reasonable price. They have entered the

generic realm of pharmaceuticals meaning that price will have to be in a

more reasonable price for consumers.

Innovation Profile and Strategy

In the aspect of innovation, they (Astra Zeneca) are dedicated to the

discovery, development, manufacturing and commercialization of

medicine. Through many partnerships and various agreements with large

institutions they are providing large innovations for the pharmaceutical

industry. An example is the collaboration between University of Manchester,

GSK and AstraZeneca, which will allow each partner over a three-year period

and will bring together scientists from both the pharmaceutical industry and

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academia. In the US, Astra Zeneca utilizes social media to recruit patients

for clinical trials in order to establish if the drug therapy is safe and effective

to its initial purpose. They have also helped partner up with governments

such as Germany to establish programs that will help screen certain diseases

such as cardiac diseases; the public and private sectors of health care funds

funded this. In Brazil they helped establish a program called “Well Being”,

which allows for individuals to obtain discounts and incentives for those

individuals who adhere to the treatment regimens. The physician registers

these patients and conducts thorough examinations and sends the

information to Astra Zeneca and then the company shall send the patient a

discount coupon for the specific medication pertaining to their diagnosis. By

doing so, this helps establish their mission, which is to benefit for society in

obtaining medical treatment at a more obtainable rate for those in need.

“A recent survey showed that up to 50% of patients don’t take their

medicines as they should - even cancer therapies. This fact triggered our

Global Packaging team to take a close look at how the packs that our

medicines come in could help to encourage patients to take the medicines as

prescribed. Improving adherence by just a few percent could significantly

improve treatment outcomes for the patient (and the associated sales would

also be good for our business). We are pursuing the opportunity to use pack

design to influence adherence through a range of ‘customized’ initiatives. In

Canada, for example, a version of our breast cancer therapy, Arimidex, has

been launched in packaging that resembles a cosmetics case to make the

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pack more discrete and less intimidating for patients to use. In Spain, the

packaging for our pediatric asthma inhalers now features an image of a kite –

associated with fresh air and physical activity – to help children feel more

positive about taking their medicine. These are the first in a range of

packaging innovations that we are planning to help patients along their

medication path and we will be publishing more about these on this website

shortly.”

Sales & Service Strategy

Concentration on commercial success contributes to prosperous sales

for any organization. AstraZeneca includes customer insights into their R&D

strategy early on in the life cycle of their medicines and they maintain a

centralized commercial organization that cultivates global product strategies,

which are implemented by local leaders in individual markets to ensure

concentration on customers’ needs and preferences. To keep up with the

changing markets and needs of payers, customers and healthcare

professionals AstraZeneca has consolidated its efforts into 3 regions, which

are the Americas, EMEA and Asia-Pacific where the regional sales and

marketing organization is run from 3 main sites that are in Wilmington,

Delaware U.S., London, UK, and Shanghai China, that are able to deliver

market specific content while allocating resources in a cost effective manner

allowing the identification of markets of major significance. AstraZeneca’s

values are always included in all sales and marketing activity for responsible

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commercial success and brand sustainability. In 2011 focus remained on the

key products Crestor, Seroquel XR and Symbicort whom all earned double

digit sales growth, and emerging markets including China, Brazil, Mexico and

Russia which earned $5.8 billion, which is 17% of the total revenue. New

product launches in 37 markets garnered $274 million in revenue. The

creation of new sales models that include wholly owned local marketing in

most countries and distributor or local representative offices in others with

the focus on primary care and specialist doctors using the traditional face-to-

face marketing method. Sales and marketing training programs are

available to increase the effectiveness of the sales force by “embedding core

commercial skills and strengthening sales managers’ coaching and planning

skills while also reflecting local market needs and conditions”, as outlined in

the annual report.

Financial Analysis

Profitability, Liquidity, & Leverage Ratios

Profitability

Ratios that show profit margins represent the firm's ability to translate sales dollars into profits at

various stages of measurement.

AstraZeneca PfizerJohnson &

Johnson

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Net Income 9,470 $10,009 9,672Sales 33,591 $67,425 65,030Profit MarginNet Income/Sales 0.28 0.15 0.15Total assets 52,830 $188,002 $113,644Return on assets (ROA)(Net Income/Total assets) 17.93% 5.32% 8.51%Total equity 23,472 82,621 57,080Return on equity (ROE)(Net Income/Total equity) 40.35% 12.11% 16.94%

Table 1: Profitability

Profit margin ratio ( Net Income / Sales ) is 0.28 of AstraZeneca is more than Pfizer and

Johnson & Johnson means they it has better control over its costs compared to its

competitors.

ROA (Net Income / Total Assets) of AstraZeneca is 17.93 which is higher than Pfizer

and JNJ. This is good because it means the company is earning more money on less

investment when compared to others.

ROE (Net Income / Total Equity) of AZN is 40.35 which is higher than Pfizer and JNJ.

This is good because it indicates how well management is employing the investors'

capital invested in the company.

Thus overall all the profitable ratios for AZN are better than JNJ and Pfizer.

Liquidity

Liquidity has to do with a firm's assets and liabilities. In particular, liquidity looks at whether or

not a firm can pay its current debt with its current assets.

AstraZeneca Pfizer Johnson & JohnsonCurrent Assets/ 23506 57728 54,316Current liabilities 15752 28,069 22,811Current ratio 1.49 2.06 2.38

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Table 2: Liquidity Ratio-short term

Current assets over current liability of AstraZeneca show that they have liquidity to pay its

current debt with its current assets. So they have sufficient liquidity to pay any immediate short

term liability (because the ratios > 1). Their competitors have more liquidity than AZN but

having a very high liquidity doesn’t necessary mean that they are efficiently utilizing cash and

capital. AZN is maintaining a good balance between the short term liquidity and efficiently

utilizing their capital which is seen in their Profitability.

Leverage Ratios


JohnsonTotal assets 52,830 188,002 $113,644Total equity 23,472 82,621 57,080Total Liabilities 29,358 105,381 56,564Total debt ratio(Total assets-Total equity)/Total assets 0.56 0.56 0.50Total debt is total liabilities 29,358 105,381 56,564Debt-equity Ratio(Total debt/Total equity) 1.25 1.28 0.99EBIT (operating profit) 12,795 12,762 12,361Depreciation 2,550 9,026 3,158EBITDA 15,345 21,788 15,519

Table 3: Leverage Ratio-long term

Debt Ratio: A debt ratio of greater than 1 indicates that a company has more debt than

assets; meanwhile, a debt ratio of less than 1 indicates that a company has more assets

than debt. Used in conjunction with other measures of financial health, the debt ratio can

help investors determine a company's level of risk.

AZN debt ratio is less than 1 this indicates they are able to pay debt over assets. And risk

level of the AZN is low. AZN is able to balance with their competitors.

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Debt – Equity Ratio: AstraZeneca does have a higher Debt-Equity ratio when compared

to its competitor. This could be a point of concern. But looking at it efficient utilization of

capital and ROE it shouldn’t be too much of a concern. It is something to keep an eye on.

Asset Turnover

AstraZeneca Pfizer Johnson & Johnson

SALES 33591 67425 65030TOTAL ASSETS 52830 188002 113644Total Assets TurnoverSales/total assets 0.64 0.36 0.57

Table 4: Assets turnover

Asset turnover measures a firm's efficiency at using its assets in generating sales or revenue - the

higher the number the better. AZN has better Asset Turnover (0.64) than Pfizer and JNJ. This

means that AZN efficiency at using its assets in generating sales or revenue is better than

competitors.

P/E Ratio:


JohnsonNet income after taxes 9,470 10,009 9,672No of common stock share outstanding 1,367 7,870 2,775.30

Basic Earnings per shareNet income after taxes/No of common stock share outstanding 6.93 1.27 3.49

Price per share (Dec 30 2011) 43.56 20.83 63.24Price-Earnings (P/E) RatioPrice per share/ Basic Earnings per share 6.29 16.38 18.15

Table 5: P/E ratio

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AZN has low P/E ratio than other competitors. That means investors value JNJ and Pfizer more

than AZN. Hence we feel that AZN is undervalued. Reasons why we value more is because it’s

operational efficiency, its new drug in the pipelines & Acquisition of Medimmune their new

vaccinations. Also one of the reasons that AZN is undervalued can be seen by looking at P/B

ratios.

Market-to-book value ratio

Best of all, P/B provides a valuable reality check for investors seeking growth at a reasonable

price. Large discrepancies between P/B and ROE, a key growth indicator, can sometimes send

up a red flag on companies. Overvalued growth stocks frequently show a combination of low

ROE and high P/B ratios. If a company's ROE is growing, its P/B ratio should be doing the same.

AstraZeneca Pfizer

Johnson & Johnson

Return on equity (ROE)(Net Income/Total equity) 40.35% 12.11% 16.94%

Book value per share 17.17 10.50 20.57Market-to-book ratioMarket value per share/Book value per share 2.54 1.98 3.07

Table 6: market-to-book value ratios

If you see in the above table you see JNJ ROE, which is low 16.94% less than AZN and the JNJ

has higher P/B ratio. This shows that the JNJ is overvalued growth stock as compared to AZN.

So we conclude that AZN is undervalued stock.

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SWOT AnalysisSummary

AstraZeneca has risen to becoming one of the top pharmaceutical

companies of this generation after a successful merger on April 6, 1999 of

Astra AB of Sweden and Zeneca Group PLC of the UK. AstraZeneca is the

UK’s second largest pharmaceutical company spanning 6 areas of healthcare

including cardiovascular, gastrointestinal, infection, neuroscience, oncology

and respiratory, with over 30 medications on the market, and operations in

the Americas, Europe and Asia. (“AstraZeneca PLC SWOT Analysis,” 2012)

The financial performance for 2011 as described by the Chairman, Louis

Schweltzer, included an increase in operating profit of 10% at $12,795

million (2010: $11,494 million), strong sales growth for Crestor, Seroquel XR

and Symbicort, and a decline in revenue of 2% in the U.S. as well as an 11%

decrease in Western Europe due to government pricing interventions and

generic competition. (Schweltzer, 2012)

Strengths Weaknesses

Sales growth of Crestor, Seroquel XR and Symbicort.

Advancements in Biologics and Vaccines through acquisition of MedImmune

Cost control efforts increasing operational efficiency.

Expiring Patents

Regulatory requirements

R & D productivity

Pricing Pressure

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Maintains a strong global presence

Opportunities Threats

Advances in science and technology

Further expansion in emerging markets

Amgen collaboration for inflammation drugs

Acquisition of Ardea which is a U.S. biotechnology company

Generic Competition

Illegal trade in products

Patent litigation in respect of IP

rights

Economic, regulatory and political pressure

Strengths

Sales growth of Crestor, Seroquel XR and Symbicort.

In 2011 some of AstraZeneca’s top performing medications showed promise

with an increase in sales. Crestor, Seroquel XR and Symbicort had gains in

sales value of 13%, 27% and 11% respectively. (“Annual Report,” 2011)

These increases have been consistent since the 2009 fiscal year and show no

signs of a reversal. In the Dow Jones Sustainability World and European

indexes, which evaluates the sustainability performance of the largest 2500

companies on the Dow Jones Total Stock Market Index, AstraZeneca ranked

in the top 7%. (“Annual Report,” 2011)

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Advancements in Biologics and Vaccines

After purchasing MedImmune, a U.S. biotech firm, in April 2007, AstraZeneca

entered the market of vaccines for the first time. Former CEO David Brennan

stated,

“This acquisition represents a transformational step to deliver our

biologics strategy sooner than anticipated… It creates a leading fully

integrated biologics and vaccines business with critical mass and

enhances AstraZeneca's R&D science base through which we will

deliver a stronger product pipeline". (Gibson, 2007).

As of March 2012 the FDA approved the first four-strain influenza

vaccine, FluMist Quadrivalent. This vaccine covers two strains of type A and

B influenza providing a larger protection for consumers and increasing the

potential for a larger portion of the market due to its increase in strain

coverage and inclusion of eligible individuals from 2-49 years of age over

competitors. The vaccine garnered its first significant contract outside of the

U.S. as of July 2012 when it was announced that Britain would administer

FluMist to all children aged 2 – 17 for free. Treatments for cancers of the

blood and solid tumors are apart of AstraZeneca’s biologics pipeline.

(“AstraZeneca PLC SWOT Analysis,” 2012)

Cost control efforts increasing operational efficiency.

As of February 2012, AstraZeneca has implemented new restructuring

initiatives to improve operational efficiency, research and development

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capabilities and improve productivity. As outlined in a press release on

February 2, 2012 projected annual benefits are estimated at 1.6 billion by

2012 and will reduce the headcount by 7,300 positions. There are now 3

global market regions, reduced from 5, and the smaller countries have been

clustered to enhance utilization of resources and reduce the cost base while

increasing shared services. Digital technology, call centers for sales and

medical advice is being utilized to provide advanced and high quality

services at a lower unit cost for healthcare professionals. AstraZeneca’s

R&D has also undergone restructuring with most of it focused on the

neuroscience therapy area where internal expertise is combined with

external science and the creation of a virtual neuroscience Innovative

Medicines unit (iMed) that consists of a team of 40 to 50 AstraZeneca

scientists and will partner with external sources. Although there is

restructuring in R&D AstraZeneca continues to invest in the areas they have

succeeded in which include cardiovascular, gastrointestinal, infection,

oncology, neuroscience and respiratory & inflammation. The supply chain

has seen change in the outsourcing of the production of active

pharmaceutical ingredients as well as some other manufacturing to increase

efficiency.

Maintains strong global presence

AstraZeneca operates in over 100 countries, employing 57, 200 people

worldwide. It is the second largest pharmaceutical company in the U.K.

According to the AstraZeneca’s chairman Louis Schweltzer, “the world

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pharmaceutical market grew by 4.5% in 2011 and the fundamentals of the

industry remain strong.” With this increase in the world market he went on

to discuss the attributes of the pharmaceutical market which includes an

increase in population and age, passing the 7 billion mark in 2011, an

increase in patient numbers in new markets unaware of AstraZeneca’s

current and future products, an increase in chronic diseases in all classes of

the world and more advances in science and technology for emergence of

new medicines. (“Annual Report,” 2011) These variables contribute to a

growing market that AstraZeneca can take advantage of in the coming

years.

Weaknesses

Expiring patents

As of 2012, 8 patents have expired on AstraZeneca’s key marketed products,

totaling 3,487 million in U.S. revenue. (“Annual Report,” 2011) That loss

coupled with the future loss of other key product patents can be a

devastating blow to any pharmaceutical company. The strong sales of

Crestor, Seroquel XR and Symbicort also face expiration in 2016, 2017 and

2018 respectively, with sales totaling 5,675 million. Other patent challenges

include validity and/or effective scope of the patent. (“Annual Report,”

2011)

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Regulatory requirements

Regulation of the pharmaceutical industry remains high to ensure safety,

effectiveness and responsible promotion of medicines being sold.

Regulations on the industry continue to increase and are diverse throughout

each country. (“Annual Report,” 2011) As technology has expanded so has

the demand for access to data, specifically clinical data, as well as the

implementation of policies absent of guidelines defining personal, private

and proprietary information that would provide a safeguard of data from

public disclosure. (“Annual Report,” 2011) Pressure from health technology

assessors and payers also continue to mount pressure in relation to safety

and effectiveness. (“Annual Report,” 2011)

R & D productivity

Globally, investment in R&D in the pharmaceutical industry has reached over

$130 billion in 2011, which was an increase of 93%. Although there was a

dramatic increase in investing, new drug launches per year did not increase,

and in fact stayed the same in the U.S. averaging 25 per year. Regulations

also increase length of development times and increase development costs.

(“Annual Report,” 2011)

Pricing Pressure

Dynamic pricing and reimbursement environments in markets are affected

by the cost containment in healthcare that includes pharmaceutical spending

containment. (“Annual Report,” 2011) The pressure of pricing has increased

over the years such as in Europe Italy has mandatory discounts, in Germany

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there are freezes on permitted pharmaceutical prices, in China there are cuts

to maximum permitted retail drug prices and in Canada and the U.K. risk

sharing agreements are increasing. Germany is the largest pharmaceutical

market in Europe and recent reforms in healthcare has affected how patent

protected drugs are accessed and there is no longer a free market for pricing

and reimbursement. (“Annual Report,” 2011) Biennial cuts in Japan and

South Korea are expected to remain constant. (“Annual Report,” 2011)

Hospital tariffs also pose a threat to sales by providing incentives for

hospitals to select generic substitutes that have lower costs. (“Annual

Report,” 2011)

Opportunities

Advances in science and technology

New technology and its application to previous advances in disease

understanding will improve delivery and availability of new medicines for

many existing and unmet medical needs. Biologics is an important factor for

the success of new products and the advances in science and technology will

lead to new opportunities for using small molecules in new medicines.

(“Annual Report,” 2011) 45% of sales are forecasted to come from biologics

from the world’s top 100 pharmaceutical products, which is an increase of

12% from the previous year. (“Annual Report,” 2011) With 4 principal

biologics manufacturing facilities within the U.S., U.K, and Netherlands

AstraZeneca has scalable capabilities of process development,

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manufacturing and distribution of biologics including supplying MAbs and

influenza vaccines worldwide. According to MedImmune’s website, biologics

are developed from human or animal proteins which support the body’s

immune system in the treating, prevention or curing of an illness. Most

notable examples of them are vaccines and insulin and new developments in

debilitating diseases and other therapy areas has expanded over the last few

decades.

Further expansion in emerging markets

Estimated sales for 2015 in countries show an overall growth increase of

over 40% worldwide, with North America having 1.5% growth. (“Annual

Report,” 2011) As discussed previously the world pharmaceutical market

had an increase of 4.5% in 2011 and emerging markets average revenue

growth was 12%. Middle-income countries have seen an escalation in

chronic disease and are starting to emerge in low-income countries as well.

Population ageing and poor health habits also increase the likelihood of

chronic diseases. (“Annual Report,” 2011) Industry estimates predict rises

in healthcare spending in emerging markets of China, Russia, Brazil, and

India of 49% from 5.3 trillion in 2010 to 7.9 trillion in 2020 and by 2030

emerging markets will account for 60% of global GDP. (“AstraZeneca PLC

SWOT Analysis,” 2012)

Amgen collaboration for inflammation drugs

As reported in the Wall Street Journal by Ben Fox Rubin (2012), AstraZeneca

has inked a deal in April of this year to “jointly develop and commercialize

36

five inflammatory disease treatments in Amgen’s portfolio” (para. 1). This

collaboration as described on AstraZeneca’s website is “a new phase in

biopharmaceutical business development…”, which is sure to lead to new

medicines ranging across a number of disease areas and helpful to

AstraZeneca due to shared costs for development and commercialization

responsibilities.

Acquisition of Ardea, which is a U.S. biotechnology company

Andrew Jack and Jennifer Thompson of the Financial Times (2012) reported

on the acquisition of Ardea for 1.3 billion that specializes “in developing

Lesinurad a compound that acts as a selective inhibitor to help regulate high

levels of uric acid in the bloodstream” (para. 4), which is Ardea’s most

advanced clinical-stage product. This particular medicines targets gout and

is estimated that 14.7 million cases in 2009 and forecasted to rise to 16.6

million in 2019, over a 10% increase.

Threats

Generic Competition

Generic competition remains one of the largest threats to any organization in

the pharmaceutical industry. The approval and launch of medicines can

span anywhere from 13 to over 20 years and cost companies in the millions

before it even hits the market. Generic medicines offer lower costs, which

are extremely attractive to consumers and health professionals and payers.

The U.S. market’s majority contender is generics, holding 80% of the market.

37

Generic medicine is also predicted “to be the single largest driver of value

growth up to 2015”, as stated in AstraZeneca’s 2011 annual report. When

patents expire generic availability rises and generic manufacturers

investments are lower in R&D and market development.

Illegal trade in products

Counterfeiting of medicines costs go far beyond economic alone. Public

health and loss in confidence for the brand due to a lack of certainty of

integrity of the supply chain outweigh any economic losses. The reputation

of the company is at stake when others unlawfully deceive consumers with

fraudulent products that may have adverse affects. In certain instances a

recall may be implemented because of a fraudulent product exhausting

valuable resources and creating unnecessary expenses.

Patent litigation in respect of IP rights

The challenges of patents or assertion of litigation against infringers can

result in expensive legal costs and unsuccessful judgments, injunctions, or

even liabilities for damages or royalties. Protecting patents include time and

capital that waste well needed resources for an organization.

Economic, regulatory and political pressure

Pressures to reduce production costs are continuing to be a burden as

regulations and political pressures rise. After the Affordable Care Act was

passed increasing rebates and discounts for Medicare and Medicaid patients.

Other health system delivery reforms will also take affect over the course of

38

the implementation of the law during 2010-2014. The number of patients

will expand as more Americans become eligible for insurance coverage. By

2014 businesses will be able to send employee coverage into the health

insurance exchanges and have an adverse affect on the pharmaceutical

industry explained in the annual report as exchanges not offering “a

prescription drug benefit that is as robust as benefits historically provided by

large employers.”

SWOT Conclusion

Use it to inform how they got here and what to do going forward

Recommendations

Conclusion

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Appendix

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