A bright future for AstraZeneca?

It’s been a topsy-turvy few years for AstraZeneca.

Two years ago, new leader Pascal Soriot set to work to put the business back on track after a punishing series of significant patent expiries, while earlier this year a $118 billion takeover bid by Pfizer, the world’s biggest pharmaceutical group, pushed the Anglo-Swedish company onto the front pages. After several weeks of tussling, Pfizer’s bid was eventually seen off.

AstraZeneca’s business development team is responsible for weighing up proposals like Pfizer's takeover bid, as well as striking up working partnerships with innovative drug companies and biotechs. So LSIPR asked Shaun Grady, AstraZeneca’s vice president of business development operations, about the company’s progress, how important effective IP management is to its business strategy, and about AstraZeneca’s outlook for the future.

Strategic review

A change in leadership proved to be a watershed moment for AstraZeneca. In October 2012, Roche Holding’s Soriot took the helm after AstraZeneca’s last chief executive, David Brennan, exited in April, just before the company reported a 38% drop in first-quarter profits.

The slump was largely an effect of the loss of exclusivity on several of AstraZeneca’s biggest drugs, including statin Crestor (rosuvastatin calcium), heartburn drug Nexium (esomeprazole), and Seroquel (quetiapine fumarate), a treatment for depression.

Soriot had been in his new role for barely a month when AstraZeneca reported another year-on-year fall in profits—51% in the third quarter—and decided it was time for the company to undergo a series of strategic reviews covering many aspects of the business.

The resulting strategy, announced last March, has two pillars, explains Grady. “The first is establishing AstraZeneca’s scientific leadership, and the second is putting the revenues back into a growth trajectory.”

Establishing that position of scientific leadership called for a more focused approach, involving selecting key therapeutic areas to develop.

“Pascal made it very clear that you had to make some choices. You had to decide what kind of areas you wanted to play in, and play to win in, and you couldn’t do everything,” Grady says.

“Arguably we’d been trying to do too much generally, and even too much in the areas that we’d prioritised.”

AstraZeneca settled on three priority therapeutic areas: respiratory, inflammation and autoimmunity; cardiovascular and metabolic disease; and oncology, which it has a particular focus on.

The importance of IP

As Grady explains, IP is a key component in business development. The teams collaborate to decide on what opportunities are the best to take and which projects to prioritise.

“When we get into the heat of battle, when we’re actively pursuing one particular opportunity and are doing due diligence, then the IP crowd will play a key role in reporting back its findings to me, and also to senior management.”

Furthermore, when drawing up an agreement with another company, it’s important that the teams work together to prevent compromising AstraZeneca’s IP, Grady says.

“There’s always the delicacy and sensitivity about what you write down about others’ IP, because you don’t want to create a document of record that could be problematic in the future.”

The IP team’s findings can be very influential in the context of business development. “If those guys say no, that they don’t like it, or they think it’s troublesome, then it’s very rare that things will go forward, which places a huge onus on their judgement.”

IP assessment is one of the pivotal components of evaluating a business development opportunity, Grady says. The freedom to operate, the validity of the patents concerned and the best estimate of patent expiry and loss of exclusivity in major markets are all factors to consider when drawing up a proposal.

“IP is certainly one of the most important things in your business case, and everything else drives off that,” Grady says.

"We’re putting our money where our mouth is by physically moving to where the best science is in the UK, Sweden and the US."

Carrying out freedom to operate searches is extremely time-consuming and expensive, and so one of the biggest challenges the IP and business development teams face is assessing whether it’s worth investing in a company. “We’re making judgement calls all the time about whether a project is sufficiently advanced, whether we should press the button and start the IP due diligence,” says Grady.

So AstraZeneca’s IP specialists work closely with business development, which has a “good nose” for IP in the context of a business development transaction. It also has a panel of external IP advisors who understand AstraZeneca and can be employed to evaluate particular business opportunities.

An intimate approach

“Through business development, we look to enhance, augment and accelerate our own discovery, early and late development and commercialisation of activities, right through the so-called value chain,” Grady explains.

Part of AstraZeneca’s strategy is to bring in expertise from the outside if necessary, to create a “healthy balance” of in-house intelligence and external perspective.

“We’re not so arrogant that we think we’ve got a monopoly on good ideas and good science,” says Grady. “It’s ridiculous to think that AstraZeneca scientists around the world will be the only ones to have good ideas.”

It takes a combination of projects from inside AstraZeneca’s own laboratories and new technologies that it identifies outside the company, on a global scale, he explains.

“We’re as likely to do partnering or scientific collaboration with universities in China as we are to collaborate with our neighbours in Sweden, the UK or the US.”

This science-focused strategy can be thought of as a “ground up” approach, to strengthen the roots of the operation, which are its research and development, in order to reap the fruit of innovative product candidates later.

Grady has been with AstraZeneca since before Zeneca met Astra, and was at Imperial Chemical Industries before part of the business was demerged to form Zeneca in 1993. For most of his time at the company, in one of its guises or another, Grady was a lawyer in the corporate area, where he would often oversee the company’s mergers and acquisitions.

He describes how the role of business development has changed during his tenure. Just a few years ago, business development, rather than being an internal department, was a separate entity that served the company from the outside.

Business development’s role would be to find interesting ideas outside the company, and “push” those potential opportunities while negotiating with the target business. “It had to be done with a degree of advocacy,” Grady says.

Now the approach can be described as “more pull than push”, he says. “The people who carry out search and valuation of a target business are part of the company, part of the therapy area groups, so it’s more of a pull.

“These are the people who are saying ‘this is what we need for our portfolio, this is where we can accelerate in a particular area, or this is a mode of action that we’re missing from our strategy’.”

He likens the old strategy to “pushing water uphill”, trying to persuade scientific and commercial colleagues “to entertain the idea that somebody else had better science outside the company.”

Now it’s a far more personal approach. “I can remember being told ten years ago, when I started in business development, that business development is all about personal relationships, to which I nodded and said ‘yeah, sure’, but it’s true: people want to work with people they know and trust,” he says.

In recent years, AstraZeneca has been very active in seeking new partnerships, and its change in strategy has assured a higher success rate in completing them.

“When you’re really clear on what your priorities are, it’s a lot easier to say no to things, and it’s a lot easier not to be distracted and chase opportunities that have a low likelihood of success,” says Grady.

There is always the risk that a smaller company that is bought by a larger one will get lost in the machine as the larger company’s strategy changes and other programmes are prioritised—AstraZeneca’s approach aims to put a face to the company, and lays its cards on the table about what kind of machine it is before the deal is done, Grady says.

It’s important that the smaller biotechs know the big company understands the science, and holds their programmes in the same high regard, he adds.

Partnerships

As the company started feeling the revenue hits caused by its significant patent expiries, the reaction was to acquire late-stage programmes or on-market opportunities to fill in the revenue gaps, efforts that didn’t deliver for AstraZeneca.

Grady explains: “When you lose a lot of revenues you try to replace them, but it gets to a point where losses are so imminent that doing late-stage deals isn’t really going to help the business shape.”

Now, instead of plugging the gaps, and true to its science-led strategy, AstraZeneca is working to augment its existing technologies by acquiring companies within its core therapeutic areas.

One of the first deals after the arrival of Soriot was with Moderna Therapeutics, a Boston-based biotech specialising in RNA therapeutics.

Moderna’s technologies use messenger RNA to trigger the body’s own immune response and produce its own healing proteins.

“The Moderna deal fits neatly with our oncology and cardiovascular pipelines and is projected to strengthen our approach in those areas. It’s an area we weren’t present in ourselves and where it would take a lot of time and a lot of money to invest in organically,” says Grady.

AstraZeneca is now more likely to make acquisitions rather than conventional licensing agreements. Last October its biologics subsidiary MedImmune shook hands with Amplimmune, which works on cancer immunology therapies, and Spirogen, whose technology delivers cancer drugs to tumour cells by attaching toxic agents, or ‘warheads’, to cancer-targeting antibodies.

Although it bought Spirogen outright for $200 million and brought its technology in-house, AstraZeneca decided to keep the company intact, so that its workforce could continue to operate independently.

“They carry on as they were before but they’ve got access to our protein engineering capabilities, expertise and funding,” says Grady.

“You retain that sort of entrepreneurial biotech feel, but with the resources of a big pharma.”

The decision of whether to completely integrate with a company or keep it separate and independent is done on a case-by-case basis, Grady explains. One of its most significant mergers was with MedImmune, in 2007. “That was AstraZeneca’s entry into large molecules and biologics at a very significant acquisition cost,” Grady says.

“So as not to suffocate the entity we’d acquired, MedImmune was kept at arm’s length from AstraZeneca and now the integration has taken place. Subsequently it’s been very selective and very gradual.”

Outlook

AstraZeneca’s focused approach is paying off, as Soriot reported “visible momentum” across its cardiovascular, diabetes and respiratory franchises in July. Grady says that the company is ahead of where it thought it would be.

At the time of writing, it’s too soon to tell what effect AstraZeneca’s July acquisition of respiratory drug company Almirall will have on the business’s bottom line, but Soriot is confident the partnership will deliver long-term value and contribute to the company’s growth.

Pfizer’s takeover bid was unexpected, says Grady. “But it galvanised everybody to deliver on strategy,” he adds.

As of July, AstraZeneca had 14 assets in late-stage development, and has high hopes for Brilinta (ticagrelor), which is indicated for patients who have just had heart attacks to prevent the formation of blood clots.

Brilinta has been approved in 100 countries, and although it has reported disappointing total sales so far, sales of Brilinta were up 84% in the first half of 2014. AstraZeneca predicts the drug will be worth $3.5 billion a year by 2023.

As part of its new strategy, AstraZeneca is relocating its research and development centre to one of the UK’s principal academic hubs, Cambridge. It has invested $500 million constructing the new facility, and by 2016 will have its headquarters based there.

It’s all part of the effort to create “three global centres of scientific excellence” in the US, Sweden and the UK, Grady explains.

“The relocation of the R&D facility is almost a physical manifestation of this proximity to science,” he says, which brings the company closer to the smaller biotech companies, the University of Cambridge, Addenbrooke’s Hospital and the Medical Research Council.

“We’re putting our money where our mouth is by physically moving to where the best science is in the UK, Sweden and the US,” he says.

Being in Cambridge’s academic hub makes business development, ie building personal relationships, far easier, Grady continues. “It really is striking how close you are to people’s influence, and how natural those relationships with people working on exciting things become if you’re sitting there on a day-to-day basis.”