Astrazeneca Plc Business Information, Profile, and History

Company Perspectives:

AstraZeneca is one of the world's leading pharmaceutical companies. Backed by a strong research base and extensive manufacturing and commercial skills, we provide innovative, effective medicines that make a real difference for patients in important areas of healthcare. We aim to be the first with new ideas and innovative in all areas of our activity to create value for our customers, shareholders, employees, and the communities in which we work.

History of Astra Zeneca Plc

AstraZeneca PLC is one of the world's leading pharmaceutical companies. Its corporate headquarters are in London, its research and development headquarters are in Södertälje, Sweden, and it has manufacturing facilities in 19 different countries. The company operates nine research and development sites and has sales in over 100 countries worldwide. AstraZeneca focuses its drug business on seven medical areas: anesthesia and pain control, cardiovascular, central nervous system, gastrointestinal (in which it is the world leader), infection, oncology, and respiratory. Its product range includes Losec--marketed in the United States as Prilosec--the world's top selling prescription drug, and Seloken, the world's leading cardioselective beta-blocker. The company is the result of the 1999 merger of two European pharmaceuticals companies: Astra AB of Sweden, which made pharmaceutical products and medical devices, and Zeneca PLC of the United Kingdom, a bioscience company that focused on pharmaceuticals, agricultural and specialty chemicals, and disease-specific healthcare services. One year after its merger, the company achieved sales of US$15.8 billion, with an operating profit of US$4 billion.

Astra: Early Development

Astra AB was formed in Sweden in 1913 by the initiative of more than 400 doctors and apothecaries who joined together to establish the company and to become its first shareholders. Two products--Digitotal, a heart medication, and Glukofos, a nutritional supplement--emerged from Astra's facilities in 1914, and the company began to prosper. When the apothecary Hjalmar Andersson Tesch joined Astra in 1915 as the company's new president he brought with him a number of his own pharmaceuticals; Astra's product line now comprised a variety of medicines and chemical compounds. Government wartime restrictions on imports created a demand for Astra's products, and the company bought new factory buildings to meet that demand. By the end of World War I, Astra was reporting handsome profits.

Astra: Interwar Difficulties

The years following the war proved less successful. In an attempt to create a company of international stature, the Swedish chemical company AB Svensk Färgämnesindustri acquired Astra's entire capital stock. The directors of Svensk incorrectly assumed that the shortage of raw materials during the war would persist in the postwar years. But, prices for raw materials dropped as war shortages disappeared. The company faced imminent bankruptcy, as its manufacturing costs grew larger than the prices its products could command in the marketplace.

A solution seemed possible when Sweden's first socialist government announced plans to create a nationalized pharmaceutical monopoly and authorized the state liquor monopoly to purchase Svensk Färgämnesindustri. However, within months, the socialist government fell, and its successor was staunchly opposed to the new monopoly. From 1921 until 1925, the government sought a private buyer who would release the state from its responsibilities. A purchaser was finally found in the form of a private consortium, and Astra became an independent company once again.

The company's new hierarchy, which included board members Erik Kistner and Richard Julin and company President Bafirje Gabrielsson, reorganized many of Astra's operations. The most important of these changes allowed for the formation of the company's own distribution network. In just a few years, the company was again profitable. With the establishment of research and development facilities in the 1930s, Astra began to create more innovative products such as Hepaforte, a treatment for pernicious anemia and Nitropent, a medication for angina pectoris.

Astra's growth during the years prior to World War II resulted not only from its development of new products but also from its aggressive expansion and acquisition strategy. By 1940, company subsidiaries were operating in Finland, Latvia, Stockholm, and Hässleholm.

Restricted imports and shortages of raw materials during World War II placed Astra's products at a premium, and once again profits increased. The company constructed a new modern central laboratory and established a subsidiary to supervise the management of, and distribution to, Astra's numerous branch offices. The company established new subsidiaries in Denmark, Argentina, and the United States.

Astra: Development of Xylocaine Spurs Post-World War II Growth

In the postwar years, a number of successful pharmaceuticals emerged from Astra's laboratories such as Ferrigen, an iron preparation, and Sulfadital, a sulfa medication. The most important of all Astra's products developed during this period was Xylocaine, a local anesthetic developed in 1943. Xylocaine remained one of Astra's most popular products for years: by 1984, local anesthetics constituted 24 percent of Astra's total group sales and Xylocaine alone contributed SKr696 million.

The worldwide production of Xylocaine began in earnest during the 1950s, along with a significant increase in research and development spending. The company produced a number of successful new products throughout the 1950s, including Secergan (an anti-ulcer medication), Ascoxal (a treatment for oral infections), Jectofer (an injectable iron preparation), and Citanest (another local anesthetic). Throughout the 1960s, Astra continued to expand both at home and abroad. The company acquired a manufacturer of nutritional products and a distributor of medical supplies. It created and built new operations in Western Europe, South and Central America, and Australia. It joined with England's Beecham Research Laboratories in an attempt to develop synthetic penicillins.

By the 1970s, Astra formed separate divisions for its diverse activities: a pharmaceutical division for its array of drugs, a chemical products division produced agricultural products, nutritional products, cleansers, and recreational items, and a division was responsible for medical equipment and rust prevention products. By the end of the decade, however, Astra announced that it would concentrate solely on the production of pharmaceuticals, and the company sold all of its other holdings.

Astra: Re-Emphasis on Pharmaceuticals in 1980s

With a renewed commitment to the manufacture of pharmaceuticals, Astra's unique and highly efficient research units emerged as the company's strongest assets. By 1984, Astra's three most important products--Seloken (a heart disease medication), Xylocaine, and Bricanyl (a bronchodilator)--grew to generate over half the company's revenues; specifically, Seloken would become Astra's best-selling drug as well as one of the best-selling medications in the world.

The development of several new drugs to treat viral infections, gastrointestinal agents, and the central nervous system helped propel Astra's pre-tax earnings over the one billion kroner mark in 1985. Sales of the asthma drug Pulmicort helped propel total revenues to over SKr6.2 billion in 1988, by which time pre-tax earnings had risen to SKr1.5 billion.

Though Astra's financial performance was beginning to attract the attention of investors around the world, a core group of stockholders remained dissatisfied. Sweden's well-to-do Wallenberg family, which owned a ten percent stake in Astra, launched a search for a replacement for CEO and President Ulf Widengren. In 1988, they hired an unlikely candidate: 44-year-old chocolatier Hanakan Mogren. Mogren turned the company's former marketing program on its head, rescinding licenses and instead beefing up Astra's own distribution and sales organization. He established subsidiaries where there had previously been licensees and added nearly 1,000 sales representatives worldwide by the end of 1990. Mogren chose a tough market for his first outing, launching the anti-ulcer drug Losec in competition with Glaxo Pharmaceuticals's best-selling Zantac. Fortunately, Astra enjoyed a close relationship with longtime U.S. distributor Merck, which became an important ally in the competition, playing an especially vital role in convincing the U.S. Food and Drug Administration to approve Losec as a first-tier ulcer treatment. Astra formed a 50/50 joint venture with Merck, Astra Merck, Inc., which marketed the drug under the name Priosec in the United States. In his first two years at the helm, Mogren boosted sales by nearly 50 percent, from SKr6.3 billion to SKr9.4 billion, and increased pretax earnings by SKr1 billion.

Astra: Transformation Under Mogren in Early 1990s

The new leader intensified his transformation of Astra in the early 1990s, propelling the company into the ranks of the pharmaceutical industry's fastest growth vehicles. Mogren more than doubled the sales force from about 3,000 in 1990 to nearly 7,000 by mid-decade and boosted the company's roster of subsidiaries to 40 nations worldwide. These assertive moves succeeded in increasing the company's sales and income at a truly astonishing rate. Total sales quadrupled, from SKr9.4 billion in 1990 to nearly SKr39 billion in 1996, while pre-tax net mushroomed fivefold, from SKr2.5 billion to over SKr13 billion. Losec became the world's top-selling drug in 1996, with an estimated 200 million prescriptions and US$3.5 billion revenues.

Mogren's reign was not without its problems, however. In 1995, the company suffered from an embarrassing scandal when Lars Bildman, head of Astra's North American operations was fired and faced criminal charges for defrauding the company of over US$1 million. Additionally, Bildman's alleged sexual harassment of female employees resulted in several lawsuits. The company settled the suits, but its reputation suffered. Analysts also began to worry about Astra's fate in face of the fact that Losec's patents were due to begin expiring in 1999 and expressed concern over the vagueness of the company's strategy to handle the patent losses. Some criticized Astra's venture with Merck, saying that Astra Merck, Inc. missed important sales opportunities because of an inexperience sales staff. Most troubling to analysts was the paucity of Astra's drug "pipeline"--since drugs can take years to test and find approval, their development must begin years before their launch. Astra's criticizers felt that the company had far too few promising new drugs in development. Beginning in 1997, the company's shares began to underperform compared to the rest of the industry. Rumors of a merger or acquisition in Astra's future began to circulate, and, in fact, the company had held extensive merger talks with British pharmaceuticals company Zeneca PLC in 1996. Those talks foundered because Zeneca felt that Astra's relationship with Merck was a barrier. In 1998, however, Astra and Merck dissolved their venture, and in December of that year, Astra and Zeneca announced that they would merge into a new company called AstraZeneca PLC. In freeing itself from its obligations to Merck, Astra made a deal wherein it would pay Merck between US$675 million and US$1 billion upon completion of the merger, US$950 million the following year, and continue to pay royalties to Merck for products sold in the United States at least through 2008.

Zeneca: Roots in ICI

Zeneca Group PLC was the result of a demerger from Imperial Chemical Industries (ICI). Formed in 1926, ICI was one of the United Kingdom's oldest and most renowned chemical corporations. By the end of the 1980s, ICI's pharmaceutical division was the company's most profitable business. Yet, with many different product lines and operations in widely diverse geographical regions, and as the chemical industry matured and others such as pharmaceuticals and agrochemicals grew rapidly, ICI was ill prepared to meet the challenges of managing the complexities of its own businesses.

The prospects of a fully mature chemicals market, which meant intense competition, lower growth, and overcapacity in many regions throughout the world, convinced management at ICI that a comprehensive restructuring of the company was necessary. This realization was brought to a head when Hanson PLC acquired a small amount of stock in ICI, thus fueling speculation that executives at Hanson were preparing for a hostile takeover. The result was a series of meetings and consultations with Warburgs, ICI's merchant bank advisors, that established a strategy to separate the company into two new groupings, New ICI and ICI Bioscience, which was named Zeneca.

During its 65-year history, ICI had developed into an extremely complex and fully integrated organization with more than 120,000 employees working in 130 countries around the globe. Management decided to continue operating ICI as a chemical company in traditional markets, while the demerger gave Zeneca all of ICI's former pharmaceutical, agrochemical, and specialty products. When Zeneca was formed, it took approximately 30,000 employees from ICI.

Zeneca: Independence

Zeneca Ltd. was established as a 100 percent wholly owned subsidiary of ICI on January 1, 1993. By June of the same year, however, Zeneca existed as a totally separate company from ICI. Zeneca's market capitalization was actually more than that of ICI and placed the newly established company in the top 25 firms listed with the highest capitalization in the United Kingdom. A new headquarters was set up for Zeneca at 15 Stanhope Gate, having been custom-designed to meet the specific needs of the new organization. By the end of fiscal 1993, the first full year of Zeneca's operation, sales had increased approximately 12 percent to an impressive total amount of £4.44 billion, and the company's profit margin increased by an astounding 42 percent to £647 million. Zeneca's pharmaceutical operation immediately catapulted it into the ranks of the top 20 pharmaceutical companies worldwide.

By 1995, Zeneca was operating at full capacity. The company's group sales, comprised of pharmaceutical, agrochemical, and specialty products, amounted to £4.8 billion, and operating profit increased to £894 million. The company was ranked number two in worldwide sales of anticancer drugs, and it ranked as one of the top six agro-chemical firms around the globe. Zeneca had expanded to include facilities in more than 25 countries and sales of its products in more than 100 nations.

Zeneca Pharmaceuticals provided the largest amount of the company's sales with more than £2 billion in 1995. Its research and development efforts focused on providing treatment for a wide variety of cancers and disorders of the respiratory, cardiovascular, and central nervous systems. Casodex, an oral prostate cancer drug, Arimidex, for use by breast cancer patients, as well as Zoladex, Tomudex, the first cell-killing agent for advanced stages of colorectal cancer developed in nearly 30 years, and Accolate, an anti-asthma tablet developed to prevent asthma attacks. To expand its presence overseas, Zeneca also purchased a 50 percent share in Salick Health Care, Inc., one of the leading providers of comprehensive cancer and chronic disease care in the United States.

Herbicide products made up approximately two-thirds of Zeneca Agrochemicals' £1.6 billion in sales for 1995. Innovative herbicides such as Touchdown, Falcon, and Surpass, the latter specifically developed for use in maize, were extremely successful in the marketplace. The company's leading herbicide, Gramoxone, was adopted by farmers the world over. Zeneca Plant Sciences (ZPS), part of the company's agrochemical operation, concentrates on developing vegetables, fruits, and fiber crops with enhanced characteristics. In 1995, ZPS began working closely with Mippon Paper, a Japanese firm, and Shell Forestry, an American subsidiary of Shell Oil, to develop trees with modified lignin, which results in the tree pulp needing less chemical treatment and thereby producing a higher quality of paper.

Zeneca Specialties made and sold high performance pigments that put the color in plastics and paints for cars; developed smudge-resistant ink jet dyes used in the printing of magazines and in color photocopying equipment; supplied products to control contamination caused by unwanted bacteria such as the fungi and algae in swimming pools; manufactured a host of leather finishes, including those that liven up the color and sheen of handbags and leather coats; designed water-based resins that were ingredients to adhesives, paints, and inks used around the world; and even developed a low-fat alternative to meat that had no cholesterol and was high in fiber.

Beginning in 1995, Zeneca focused on a unique approach to the treatment of cancer. The company was one of the first pharmaceutical firms in the world that approached cancer not as a disease ultimately to be cured, but as a chronic disease with which patients could learn to live. Zeneca was so successful in its approach and in developing breast cancer and prostate cancer drugs that the direction of cancer research changed within the pharmaceutical industry as a whole, and many companies began to follow Zeneca's lead in cancer research.

Zeneca: Rumors of a Takeover

Almost from the moment Zeneca demerged from ICI, rumors that it was ripe for acquisition began to circulate. The company was certainly an attractive prospect for interested buyers: between its spinoff and 1996, the company doubled its pretax profits, and its stock value more than tripled. In 1997, the company was the second largest seller of cancer drugs. Additionally, the overall trend in the pharmaceuticals industry at that time was for small-to-medium-sized companies such as Zeneca to be taken over by industry giants. Further, 1997 saw the beginnings of a downturn for the company: patents on its most successful drugs Zestril (a heart medication) and Nolvadex (a cancer drug) were due to expire at the beginning of the 21st century, and some analysts were concerned that Zeneca did not have enough drugs in late-stage trials to compensate for the loss. Other analysts felt that Zeneca hadn't made alliances with biotechnology companies fast enough.

Still, the company was determined to maintain its independence. Sir David Barnes, Zeneca's CEO held a hard line, saying that any competitor had to be willing to pay a substantial premium for control of Zeneca. "I object to the idea that 'everyone's merging, and therefore you have to,'" he said in 1998, "In most mergers, one of the parties has embedded difficulties, and merging is really not the cure. It must be something that is in addition to growth and never a substitute for it. It isn't a valid long-term strategy." Nevertheless, the company was ruling out no possibilities, and it conducted talks with several suitors. Zeneca rejected merger talks with Astra AB in 1996 because of that company's close relationship with Merck, and 1998 negotiations with Glaxo Wellcome and SmithKlime Beecham were scuttled when the two larger companies balked at Zeneca's premium. Finally, in December of 1998, the company announced its impending merger with Astra, who had recently disentangled itself from its obligations to Merck.

AstraZeneca: A Marriage of Equals

Investors greeted the news of the merger warmly: the day after the union was announced, Astra's share price increased 13 percent, and Zeneca's rose 7.5 percent. The new company, AstraZeneca PLC, would be the number three pharmaceuticals firm in the industry. The US$37 billion merger was completed on April 6, 1999, 80 days after its announcement, and the new company's stock was listed on the London, Stockholm, and New York stock exchanges. AstraZeneca was headed by Tom McKillop (formerly the CEO of Zeneca) as Chief Executive, and Percy Barnevik (of Astra) as Chairman. In many ways, the two companies seemed a perfect match for one another. They were of comparable size to each other (valued at over US$30 billion each), so they entered the merger on equal footing. "This merger is genuinely equal because we are bringing together two companies that have huge respect for each other," McKillop said in June of 1999, "It is not one company taking over the other.we are creating a new company." One of the first steps AstraZeneca took as a "new company" was to streamline its operations and focus solely on its pharmaceuticals business by spinning off the agricultural and chemical holdings Zeneca had brought to the merger. The company merged its agrochemical business with that of Novartis (another drug company) in 2000.

The new company faced challenges. While the combined drug portfolios created a stronger pipeline than the companies had held independently, AstraZeneca still faced patent loss on some of its major drugs, Losec in particular, which accounted for nearly 40 percent of the company's total sales. Once Losec's patent expired in 2001, other companies would be able to produce it generically at a significantly lowered price. AstraZeneca immediately put in place a strategy to offset the losses by defending secondary patents on the drug while simultaneously bringing replacement products to the market, namely Nexium, which was launched on March 19, 2001. In the early years of the decade, the strategy looked successful: within 17 weeks of its release, Nexium was ranked third in the market for new prescriptions in the class in the United States, and the company was optimistic about the release of Crestor, a cholesterol-lowering drug slated for release in the second half of 2002. "I believe AstraZeneca is well positioned for continued growth," said Tom McKillop in 2001, "We have the strategy, products, people, and skills to make a real difference in the world of healthcare."

Principal Subsidiaries:Astra Tech; Salick Health Care; Marlow Foods.

Chronology

• Key Dates:
• 1913: Astra AB formed in Sweden.
• 1926: Imperial Chemical Industries (ICI, parent company of Zeneca PLC) founded in the UK.
• 1943: Astra develops Xylocane, which becomes the world's largest-selling local anesthetic.
• 1988: Hanakan Mogren appointed CEO of Astra AB.
• 1993: Zeneca PLC demerged from ICI.
• 1996: Astra's Losec becomes world's best-selling prescription drug.
• 1999: Astra AB and Zeneca PLC merge to form AztraZeneca PLC.