On Soriot’s List For AstraZeneca: Building A Decision-Making Culture

AstraZeneca investors will have to wait two more months to hear details of CEO Pascal Soriot’s plans for re-energizing the struggling big pharma. But the new chief did discuss several near-term objectives for the company and what he has pinpointed as being some of the operational problems, based on discussion with hundreds of employees, during a year-end financial call Jan. 31.

AstraZeneca PLC’s reliance on consensus-building has resulted in a conservative approach to decision-making that its new CEO says has hobbled the drug maker’s R&D productivity. But investors anxious for transformational changes to emerge from CEO Pascal Soriot’s ongoing strategic review of the troubled big pharma will have to wait until March for any stock-rallying pronouncements. Soriot is planning to shed more light on plans to reenergize AstraZeneca during an investor day slated for March 21 in New York.

But during the company’s year-end sales and earnings call Jan. 31, he did reaffirm his confidence in the long-term fundamentals of the company, outline several key near-term priorities and offer his takeaways on what has contributed to the company’s lack of R&D productivity, based on discussions with hundreds of employees. The call marked the second financial performance review presided over by Soriot since he was recruited from Rocheto take over the top spot at AstraZeneca in October (Also see "Brilinta, Growing Diabetes Line-Up Spotlighted By New AstraZeneca CEO" - Pink Sheet, 25 Oct, 2012.).

One of the first priorities, he said, is identifying the pipeline assets that have the best chance of success and accelerating their development. That’s something the company has failed to do adequately in the past, he said. “Over the last few years, we have, as a company, become a little bit complicated, and in many ways out of this complication, a bit conservative,” he said. The company’s layered management structure and collaborative spirit has resulted in a consensus-driven decision-making culture “that leads to many committees and not necessarily a lot of decision-making,” he said.

“One of the things we need to do…is select the assets that can do well and commit to those and progress them,” Soriot said. “We haven’t been able to this very well in the past, and that is certainly something we will do better in the future.”

Between 2006 and 2012, the company eliminated 15,000 positions, which has reduced costs, but also left employees “a little bit disoriented,” he added.

AstraZeneca has 84 projects in the pipeline, including 11 new molecular entities in late-stage development, either in Phase III or under regulatory review. Soriot pointed to the “tremendous science” being conducted at AstraZeneca, including a portfolio comprised of small molecules and biologics, a strong foundation in immunotherapeutics, cardiovascular disease, oncology and diabetes, and antibody-engineering capabilities.

Despite those positive comments, recent drug launches like the acute coronary syndrome product Brilinta (ticagrelor)and diabetes drugs Onglyza (saxagliptin), a DPP-IV inhibitor, have disappointed, and expectations for the newest launch, the SGLT-2 Forxiga (dapagliflozin), approved in Europe in November, are tempered.

Both Onglyza and Forxiga are included in AstraZeneca’s broad diabetes partnership with Bristol-Myers Squibb Co. Last year, the companies orchestrated an innovative three-step deal in which they together acquired Amylin Pharmaceuticals Inc. for $7 billion and gained the GLP-1 agonist Byetta (exenatide) and its long-acting formulation Bydureon (Also see "Bristol And AstraZeneca Make A Splash In Diabetes With Joint Purchase Of Amylin" - In Vivo, 30 Jul, 2012.).

Soriot separately revealed the same day in an interview with The Wall Street Journal that the alliance is moving to create a single team that will be housed together. AstraZeneca confirmed that the team will move to a new location yet to be determined, but somewhere between AstraZeneca’s Wilmington, Del., headquarters in the U.S. and Bristol’s Plainsboro, N.J., offices. The new arrangement will eliminate the current mirrored organizational structure at the two firms so that one person is responsible for managing each function, eliminating duplicate roles, reducing costs and enabling faster decision-making, AstraZeneca said. The new office will include about 2,000 employees, with an emphasis on sales.

Building Brilinta

Soriot recently shook up the company’s top commercial and R&D management, eliminating the R&D president role held by Martin Mackay and global commercial VP role held by Tony Zook and creating three-team senior R&D and commercial leadership structures (Also see "AstraZeneca’s Executive Shakeup Includes Global Strategist To Be Named Later" - Pink Sheet, 15 Jan, 2013.).

Accelerating growth of Brilinta was one of the first priorities set by Soriot when he joined the company and it’s one he re-emphasized during the Jan. 31 call. Worldwide sales of Brilinta, a clot buster marketed in Europe as Brilique, were just $38 million in the fourth quarter and $89 million for the year. Brilinta, which launched in mid-2011, has failed to gain traction against the market-leading antiplatelet drug Plavix (clopidogrel), which went generic in 2012 and is available for a fraction of the cost (Also see "For Effient And Brilinta, A Formidable Competitor Grows More So" - Pink Sheet, 4 Jun, 2012.).

“It doesn’t feel like [Brilinta] is a massive growth-driver, but I believe, through hard work and clever work, we suddenly can turn this product into a true growth-driver,” Soriot said. By the second half of 2013, he predicted Brilinta would be on a “different trajectory.”

AstraZeneca has increased commercial investment behind the brand, increased the sales force effort and boosted investment in clinical programs to support the life-cycle management of the brand, he said. The company is working to increase the brand’s position on hospital protocols and hospital formularies.

Other priorities include focusing on diabetes, oncology, growth in emerging markets and growth in Japan, he said.

On M&A: A “String Of Pearls” Strategy

The other significant move Soriot made when he stepped into the CEO post was to suspend AstraZeneca’s share buyback program to give the company more financial flexibility. The policy will continue into 2013 – the company said it has no plans to buy back shares this year. The move will give AstraZeneca more financial wiggle room as it looks to build its pipeline through licensing and acquisitions, something the company will need to do well – with an eye toward creating value – if it is to win over shareholders. The decision to suspend buybacks has fueled speculation the company could be considering a large acquisition.

But Soriot hinted at more of an asset-driven business development strategy, calling for a “string of pearls” approach, the phrase first used by Bristol to describe its strategy of in-licensing or acquiring high-value assets. Still, Soriot said he won’t exclude big acquisitions. But, he said, “the likelihood of this is lower because there are not so many.”

“Many of those large acquisitions are difficult to execute, and so they have to be operationally feasible and importantly, they have to create value,” he said. The company also would consider more risk-sharing deals along the lines of its partnership with Bristol and its five-asset inflammatory disease tie-up with Amgen Inc., he added.

Despite management’s best efforts to fire up the R&D engines and execute on new launches on the commercial side, 2013 will be challenging year for the big pharma, which is bogged down by exclusivity losses. U.S. patent protection for the antipsychotic Seroquel IR (quetiapine) expired in March 2012, and patents expired in Europe on four products: Seroquel, Atacand (candesartan), Nexium (esomeprazole) and Merrem (meropenem). The company absorbed $4.5 billion in revenue losses stemming from patent expirations.

More crucial expirations are ahead, the loss of the multi-blockbusters Nexium in the U.S. in 2014 and Crestor (rosuvastatin) in 2016. AstraZeneca sold the OTC rights to Nexium to Pfizer Inc. for $250 million in 2012 (Also see "Pfizer Licenses OTC Nexium Rights From AstraZeneca" - Pink Sheet, 17 Aug, 2012.).

The company is forecasting mid-to-high single-digit percentage decline in revenues in 2013, and a significantly greater decline in earnings-per-share. Revenue in 2012 decreased 17% to $27.97 billion on a reported basis. Net profit was $6.3 billion, down 18%.