AstraZeneca

Business Case Analysis

Sergio Garcia, Himanshi Nandu, Adriana Padhina, Janelle Thompson Busi 599 Graduate Business Essentials Michael Cole, Edward OConnor December 6, 2012

Table of Contents
AstraZeneca Business Case ................................................................................................................................ 1
Executive Summary .................................................................................................................................................... 1

Background .............................................................................................................................................................. 2
History ............................................................................................................................................................................ 2 Environmental Factors .............................................................................................................................................. 2 Business Model............................................................................................................................................................. 3 Quantification of Market Size and Share ............................................................................................................... 6 Operational Effectiveness ......................................................................................................................................... 7 Management Effectiveness ....................................................................................................................................... 9 Competitive Comparison (Direct and Indirect) ............................................................................................... 16

Marketing & Sales Strategy ............................................................................................................................. 17

Key Market Segments Target Market(s)......................................................................................................... 17 Positioning.................................................................................................................................................................. 17 Brand Strategy........................................................................................................................................................... 18 Marketing Mix Strategies........................................................................................................................................ 18 Innovation Profile and Strategy ........................................................................................................................... 19 Sales & Service Strategy.......................................................................................................................................... 20

Financial Analysis ............................................................................................................................................... 21

Profitability, Liquidity, & Leverage Ratios ........................................................................................................ 22 EBITDA, Income Statement, ROE................................................................... Error! Bookmark not defined. Current Assets/Current Liabilities ............................................................... Error! Bookmark not defined. Sources of Capital ................................................................................................. Error! Bookmark not defined. Trends and Industry Comparisons ..................................................................Error! Bookmark not defined. Analysis of Financial Statements in Terms of Supporting the Case .......Error! Bookmark not defined.

SWOT Analysis ..................................................................................................................................................... 26

Summary ..................................................................................................................................................................... 26 Strengths ..................................................................................................................................................................... 27 Sales growth of Crestor, Seroquel XR and Symbicort. ................................................................................. 27 Advancements in Biologics and Vaccines ......................................................................................................... 28 Cost control efforts increasing operational efficiency. ................................................................................ 28 Maintains strong global presence ........................................................................................................................ 29 Weaknesses ................................................................................................................................................................ 30 Expiring patents .......................................................................................................................................................... 30 Regulatory requirements......................................................................................................................................... 30 R & D productivity ...................................................................................................................................................... 31 Pricing Pressure .......................................................................................................................................................... 31 Opportunities............................................................................................................................................................. 32
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Advances in science and technology ................................................................................................................... 32 Further expansion in emerging markets ........................................................................................................... 32 Amgen collaboration for inflammation drugs ................................................................................................. 33 Acquisition of Ardea, which is a U.S. biotechnology company ................................................................. 33 Threats......................................................................................................................................................................... 34 Generic Competition .................................................................................................................................................. 34 Illegal trade in products ........................................................................................................................................... 34 Patent litigation in respect of IP rights .............................................................................................................. 34 Economic, regulatory and political pressure ................................................................................................... 35 SWOT Conclusion ..................................................................................................................................................... 35

Competitive Picture .....................................................................................Error! Bookmark not defined.

Observation Explanation ....................................................................................Error! Bookmark not defined. Recommendations................................................................................................Error! Bookmark not defined. Financial Model .....................................................................................................Error! Bookmark not defined. Market Share Growth ......................................................................................... Error! Bookmark not defined. Revenue Growth ................................................................................................... Error! Bookmark not defined. Expense Projections ............................................................................................ Error! Bookmark not defined. Counter Argument ................................................................................................Error! Bookmark not defined.

Conclusion ............................................................................................................................................................. 35 Appendix..25

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AstraZeneca
Executive 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. AstraZenecas 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 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.

Background
History
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.

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
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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 AstraZenecas 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 peoples health around the world. They also 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 medicines 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: 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 tomorrows 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.

Fig. 1 Business Model AstraZeneca Annual Report 2011

Operational efficiency
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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 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
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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. 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 Brennans review in the 2011 annual report outlined the goals and methods for streamlining the companys 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
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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 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 AstraZenecas 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 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 AstraZenecas employees are to continued development of their performance culture across the organization. Strengthening their focus on setting high quality objectives aligned with the companys 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 employees performance against these. AstraZeneca mangers have a responsibility of working with their employees to develop individual and team performance targets; they ensure that employees 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 encourage the behaviors needed to deliver our business strategy. The company has also implemented a global approach, supported by the
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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. AstraZenecas inclusive culture has employees diverse talents as a critical aspect to attracting and retaining the best employees to take the business forward. 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
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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 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
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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 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 AstraZenecas goals they believe in open lines of communication. This is critical in helping employees to engage with senior leaders so they understand their roles and work well with the companys 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,

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AstraZenecas 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 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
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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. 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 AstraZenecas success. AstraZenecas stated that they are committed to continuously promote health and wellbeing for all of their employees. Listed below are some of the companys 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.

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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 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. 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.
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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 multifaceted 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.

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
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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.

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 Zenecas largest product launched; they are targeting clients and healthcare specialists within each specialty.

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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.

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
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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 threeyear period and will bring together scientists from both the pharmaceutical industry and 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

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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 dont 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 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

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

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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. Johnson & Johnson 9,672 65,030 0.15 $113,644 8.51% 57,080

Net Income Sales Profit Margin Net Income/Sales Total assets Return on assets (ROA) (Net Income/Total assets) Total equity Return on equity (ROE) (Net Income/Total equity)
Table 1: Profitability

AstraZeneca 9,470 33,591 0.28 52,830 17.93% 23,472

Pfizer $10,009 $67,425 0.15 $188,002 5.32% 82,621

40.35%

12.11%

16.94%

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.
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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 23506 15752 1.49 Pfizer 57728 28,069 2.06 Johnson & Johnson 54,316 22,811 2.38

Current Assets/ Current liabilities Current ratio

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 doesnt 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 Johnson & Johnson $113,644 57,080 56,564

Total assets Total equity Total Liabilities Total debt ratio (Total assets-Total equity)/Total assets Total debt is total liabilities Debt-equity Ratio (Total debt/Total equity) EBIT (operating profit) Depreciation EBITDA
Table 3: Leverage Ratio-long term

AstraZeneca 52,830 23,472 29,358

Pfizer 188,002 82,621 105,381

0.56 29,358 1.25 12,795 2,550 15,345

0.56 105,381 1.28 12,762 9,026 21,788

0.50 56,564 0.99 12,361 3,158 15,519

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 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. 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 shouldnt be too much of a concern. It is something to keep an eye on. Asset Turnover

SALES TOTAL ASSETS Total Assets Turnover Sales/total assets

Table 4: Assets turnover

AstraZeneca 33591 52830 0.64

Pfizer 67425 188002 0.36

Johnson & Johnson 65030 113644 0.57

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: Johnson & Johnson 9,672 2,775.30

Net income after taxes No of common stock share outstanding

AstraZeneca 9,470 1,367

Pfizer 10,009 7,870

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Basic Earnings per share Net income after taxes/No of common stock share outstanding Price per share (Dec 30 2011) Price-Earnings (P/E) Ratio Price per share/ Basic Earnings per share
Table 5: P/E ratio

6.93 43.56 6.29

1.27 20.83 16.38

3.49 63.24 18.15

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 its 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. Johnson & Johnson 16.94% 20.57

AstraZeneca Return on equity (ROE) (Net Income/Total equity) Book value per share Market-to-book ratio Market value per share/Book value per share
Table 6: market-to-book value ratios

Pfizer 12.11% 10.50

40.35% 17.17

2.54

1.98

3.07

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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.

SWOT Analysis
Summary
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 UKs 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

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Sales growth of Crestor, Seroquel XR and Symbicort. Advancements in Biologics and Vaccines through acquisition of MedImmune Cost control efforts increasing operational efficiency. Maintains a strong global presence Opportunities 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

Expiring Patents Regulatory requirements R & D productivity Pricing Pressure

Threats 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 AstraZenecas 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

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companies on the Dow Jones Total Stock Market Index, AstraZeneca ranked in the top 7%. (Annual Report, 2011) 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 AstraZenecas 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 capabilities and improve productivity. As outlined in a press release on February 2, 2012 projected annual benefits

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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. AstraZenecas 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 AstraZenecas

chairman Louis Schweltzer, the world 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 AstraZenecas current and future products, an increase in chronic diseases in all classes of the world and more advances in science and technology for
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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 AstraZenecas 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) 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)

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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 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)

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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 worlds 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, manufacturing and distribution of biologics including supplying MAbs and influenza vaccines worldwide. According to MedImmunes website, biologics are

developed from human or animal proteins which support the bodys 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

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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 five inflammatory disease treatments in Amgens portfolio (para. 1). This collaboration as described on

AstraZenecas 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 Ardeas 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.

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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. markets majority contender is generics, holding 80% of the market. Generic medicine is also predicted to be the single largest driver of value growth up to 2015, as stated in AstraZenecas 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

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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 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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