AstraZeneca to Justify its Current Price in the Long Term

Constantin Wells (University of St. Gallen), Ory Ratoviz (Cal Poly SLO - Orfalea College of Business), Spyros Maris (University of Glasgow), Luca Poschl (University of St. Gallen), Alvaro Bernal (King's College London)



Company Profile:


AstraZeneca PLC is a Swedish-British multinational pharmaceutical and biopharmaceutical company founded on April 6, 1999, through the merger of Sweden-based AstraAB and UK-based Zeneca PLC. Its global headquarters are based in Cambridge, United Kingdom. AstraZeneca (AZN) is a holding company, which engages in research, development, and manufacturing of pharmaceutical products. The company has been working extensively in therapy areas such as oncology, cardiovascular, renal, metabolism, and respiratory. Approximately, 80% of the firm’s shareholders are individuals.


  • The company falls under the sector of Healthcare Technology and under the Pharmaceutical Industry.

  • The company’s market capitalization is approximately USD 136.3 B.

  • As of 2019, the total number of employees employed by the company were approximately 70.6 K.

  • The company has manufacturing facilities in 19 different companies, 9 operating research and development sites and sales across 100+ countries worldwide.

  • Some of the most sold products of the company include Losec (marketed as Prilosec in the USA) and Seloken, - a leading cardiovascular beta-blocker.


Over the past three years AZN has completed over 150 strategically important business development transactions and the following are some of the groundbreaking transactions:


Daiichi Sankyo: AZN entered an alliance with Daichii Sankyo to develop and commercialize Enhertu for multiple cancer types. In markets where Daiichi Sankyo is selling this product, AZN is entitled to receive a royalty and this income is recognized as Collaboration revenue.


Innate Pharma: In 2018, AZN entered into a further multi-element transaction with Innate Pharma. Under this agreement, AZN decided to pay USD 50 million to collaborate on, and acquire an option to license IPH5201. Also, AZN licensed the EU and US rights to Lumoxiti to Innate Pharma for USD 50 million upfront alongside future milestone payments of up to USD 25 million.



Company Snapshot:


Important people, Management/Board of Directors




Pascal Soriot -Executive Director and Chief Executive Officer (MoB since Oct. 2012)

Previous Positions: COO Roche pharmaceuticals division

Education: École Nationale Vétérinaire d’Alfort (doctor of veterinary medicine); HEC Paris (MBA)




Marc Dunoyer - Executive Director and Chief Financial Officer (MoB since Nov. 2013)

Previous Positions: Global Head of Rare Diseases GSK

Education: Paris University (Bachelor of Law); HEC Paris (MBA)





Leif Johansson - Non-Executive Chairman of the Board (Chairman since June 2012)

Previous Positions: CEO AB Volvo, CEO AB Electrolux

Education: Chalmers University of Technology, Gothenburg (MSc in engineering)


Key Suppliers


The pharmaceutical industry is known for its strong reliance on APIs (Active Pharmaceutical Ingredients) and chemical suppliers. Supplier monitoring and management is even more critical for AstraZeneca than for some of its competitors. According to a report published by the European Parliament more than 50% of drugs to treat cancer and disorders of the nervous system account for more than half of those in short supply. Whilst the manufacturing procedure of cancer treatment relevant APIs is affected by tremendous manufacturing problems, industry quotas, legal parallel trades; AZN is a leading example for partnering up with European key suppliers to get away from the industry-standardized dependence on Asian suppliers.



AZN’s key suppliers are:


  • Swedish Orphan Biovitrum AB (Producer of therapeutic products to cure rare diseases)

  • FibroGen Inc (Therapeutics producer)

  • Gerresheimer AG (Producer of glass and plastic packaging)

  • Charles River Lab (Provider of laboratory services and R&D)

  • AptarGroup Inc (Industry-leading dispense systems producer)

  • Ionis Pharmaceuticals Inc (Producer of RNA-targeted therapeutics)

  • Pieris Pharmaceuticals Inc (Producer of immuno-oncology multi-specifics)



Competitive Landscape (Industry/Peer Overview)


Industry Overview


The worldwide pharmaceutical market is currently worth 1,204.8 billion USD. The Pharmaceutical sector is made up of three components: Research firms; the generic drug industry; and the biotech industry. The industry plays a significant role in developing medications and vaccines to reduce the incidence of diseases, to treat diseases, and enhance the quality of life of people.


The industry mostly contributes by engaging in technological advancements through innovative research to meet the healthcare demands of populations. Given huge capital at stake and the pace of technological disruption, the pharma industry is quick to adapt. Leading drug companies are re-investing up to 20.8% of drug sales into new drug development.


However, the pharma industry is known for high barriers to entry, especially in the U.S. but around the world as well. Regulatory organizations heavily regulate this market and regularly influence which drugs enter the market. Bringing new drugs to market costs an average of USD 2.8 billion and over 15 years, which creates an unfavorable environment for start-ups. Further, the global pharmaceutical contract development and manufacturing market is expected to expand at a compound annual growth rate (CAGR) of up to 7.1% in the next 5 years.

  • The S&P 500 Healthcare Index has returned a 1-yr annualised value of 17.45%

  • Some strong performers in the UK, as of 23/10/2020 (YTD) include AstraZeneca “AZN” (9.08%), Moderna “MRNA” (314.64%) and Hikma “HIK” (26.94%)

In the last few years, major pharmaceutical companies have been involved in sizable transactions, taking advantage of synergies to increase their market share and put more products in the market. Most notable examples include Bristol-Myers’ “BMY” USD 87.6 Bn acquisition of Celgene and AbbVie’s “ABBV” USD 83.8 Bn acquisition of Allergan in 2019. The large volume of the recent M&A deal underlines the dynamic nature of the sector. The trend of M&A activity is expected to continue and is an opportunity for AstraZeneca which has been involved in considerable deals and will be elaborated later on in the “Opportunities” section.


Main Competitors


AstraZeneca, being the 7th largest pharmaceutical company by revenue in the world, faces tough competition. Even though the market has many players, many of them operate along the entire supply chain from initial research to the production and manufacture of prescription drugs, which is counterintuitive at first due to their quantity. The sector's rapid growth is expected to continue, reaching a size of USD 1.5 trillion by 2023.


While AstraZeneca does not reach the heights of USD 300bn+ market cap giants like Johnson & Johnson “JNJ” or UnitedHealth Group “UNH” yet, it is not entirely fair to compare them to each other, as their approaches differ. Spending more than 20% of revenue on research and development (R&D), which is one of the key metrics in pharma, reaffirms the science-led and innovation-driven approach of AstraZeneca, which ranks them in the middle of their competitors in the sector. The large downside of this strategy however is the low net profit margin with roughly 8%, compared to rivals such as Amgen “AMGN” or Biogen “BIIB”, achieving more than 30% respectively.




The obvious outlier, in this case, is Gilead Sciences “GILD”, which spends nearly 40% on R&D, posing a rising threat to AstraZeneca once profitability is obtained, as Gilead operates in all of AstraZeneca’s focal sectors.


Oncology, which aims to produce cancer or hormonal therapy drugs, is a market expected to be worth more than USD 200bn in 2023, according to marketresearchreports. It was responsible for 37% of AstraZeneca’s sales in 2019 ranking them 8th in the industry, recording less than a quarter of market-dominating Roche’s revenue. Roche’s dominance through is expected to be challenged as a result of the 2019 acquisition of currently 2nd-placed Celgene by Bristol-Myers Squibb. As a result of fierce competition, AstraZeneca may face troubles to expand its current market share of 7%. The firm's growth potential mainly relies upon the Asia-Pacific region, with its predicted CAGR of 10% until 2025, potentially strengthening its focal region.


Cardiovascular, Renal, and Metabolism (CVRM), accounting for 29% of AstraZeneca’s 2019 revenue, is a market currently worth nearly USD 195bn, led by Sanofi, Bayer and Bristol-Myers Squibb, achieving more than twice as much revenue as AstraZeneca. AstraZeneca’s China expansion is currently the carthorse of its future growth expectations, aiming to provide 200 tertiary and secondary hospitals there with multi-year cardiovascular clinical programs, with the hope of expanding its market share of 3.6%.


Respiratory, which is a fragmented market, given that no big player really focuses on it apart from GlaxoSmithKline “GSK”, accounts for 23% of AstraZeneca’s total revenue, mainly achieved by Symbicort’s USD 2.5bn in sales. This leaves AstraZeneca sitting in 2nd place far behind GSK and above Roche “RHHBY” in product sales, holding 7.7% of the market. The industry however may face changes in the near future, given that it is likely to see new combinations and devices in the form of branded or generic products, which tests the efficiency of AstraZeneca’s high R&D spending in order to help patients suffering from asthma among other diseases.


The remaining 11% of AstraZeneca’s revenue are scattered amongst other markets, underlining its clear focus on three segments.



Industry Trends


What are the key trends within the sector and how do they affect the competitiveness of the target relative to the overall competition?


Several trends are reshaping the ever-changing pharmaceutical industry and may cause challenges for pharma companies in the future.


Drug-pricing concerns will exacerbate


There are fears about drug overcharging for generic drugs which is influencing international markets including Germany and Japan to establish tighter price controls on newly produced medicine. Pricing strategies depend on the company: big pharma players like Novo Nordisk and Eli Lilly are committed to voluntary price restraints while companies like Novartis and Roche favor value-based pricing. The need to be transparent with pricing is increasing given the trend of price overcharging.


This is especially the case given increased public scrutiny on the price and accessibility of pharmaceuticals worldwide; the potential of such concerns possibly amounting to the dismantling of long-standing pricing models such as Roche’s and other drug developers. The most cost-conscious companies will be those who increasingly outsource the production process of their products (excluding sales and research & development) to partners, thereby producing more alliances between packaging, transportation and contract manufacturing providers.


The conflicts surrounding prices charged for pharmaceuticals has most recently been demonstrated through biopharmaceutical companies such as Moderna. They predicted to hold the price of their coronavirus vaccine doses approximately USD 37 per dose. This is compared to the average priced vaccine likely to be charged by companies such as Johnson & Johnson and AstraZeneca pricing at USD 10 and USD 3- 4 a dose respectively.


Figure 1: Increasing Prescription Drug Costs (PGPF)

The Use of Artificial Intelligence


The adoption of artificial intelligence by the pharma industry is on the rise in all phases of drug discovery and development from assisting in target identification, predicting new drug properties and identifying risks. Combined with its use in clinical trials, more pharmaceutical start-ups are using AI to work on small molecule drug discovery programs which big pharma companies can take advantage of through partnerships, enhancing the industry’s innovation potential.


A key example is Atomwise, a company who is using its algorithm to perform drug research in developing a treatment for Ebola infections. The algorithm successfully predicted two drugs which could reduce the rate of infectivity; a process simplified and improved through the use of AI.


Technological innovation is also increasingly significant in the drug supply chain aspects of the industry in order to facilitate high tech distribution. AI can not only reduce the drug designing time, saving cost and time, but also reduce the length of the production cycle in order for drugs to reach patients faster. The use of robotics is further being integrated to shorten the production cycle. Robotics are usually in the form of exoskeletons and assist with manual labor and packaging lines to simplify the manufacturing process.


The landscape of disruption in pharmaceutical manufacturing is likely to draw more attention to the sector, resulting in an expected CAGR of more than 40% until 2025, valuing the healthcare artificial intelligence market at USD 31.3 billion.

Healthcare budgets are facing increasing pressure to the rising incidence of chronic disease