Table of Contents
Introduction:
AstraZeneca Pharmaceuticals is a biotechnology firm based in Cambridge, United Kingdom. Founded in 1999 through a merger between two separate firms, Astra AB and Zeneca Group, AstraZeneca has since acquired many other biotech and pharmaceutical companies, quickly becoming one of the most powerful pharmaceutical companies in the country .
As well as selling pharmaceuticals — producing over forty different specialized medicines — AstraZeneca is at the forefront in many different areas of disease and cancer research. They are able to gain a deeper knowledge about the disease by directly working with those in the targeting patient groups. The act of interacting with patient groups and donating to health charities ensures that AstraZeneca can remain focused and well informed about the diseases that they are targeting.
Market:
AstraZeneca operates mainly within the pharmaceutical market. In the UK, 98% of prescription medicine is accounted for by the National Health Service (NHS) . Due to this, the NHS has become the company’s largest client, working closely to produce and supply the nation with medicine and services. The UK pharmaceutical market is currently valued at £14.9bn, employing 49,326 people within 443 separate businesses . With an annual revenue of £1.64bn in 2017, AstraZeneca has the highest share of the market with 11%, 7.85% higher than their closest competitor, Glaxo Operations UK Ltd. However, Glaxo’s market value of £7.5bn made it the leading biotechnology and pharmaceutical company in 2015, ahead of AstraZeneca by almost £2bn (fig 1) .
fig 1: Comparison of top United Kingdom pharmaceutical and biotechnology companies in 2015. With a market value of £7.5bn, GlaxoSmithKline was the leading firm, followed by AstraZeneca with a value of £5.8bn. After Shire (£3.1bn), the market value of pharmaceutical companies drops off significantly. The market value is based on the value and quantity of a company's stocks, meaning the company that posts the greatest revenue doesn't necessarily have the greatest market value.
Recently, the market as a whole has incurred loses, down 1.5% since 2013. This is largely due to a loss of “patent protection” — a way of ensuring that inventions and ideas that are patented cannot be used by other companies. In the last couple of years, the United Kingdom has denied patents for inventions that involve the scientific method and ‘essentially biological' processes, a ruling that reduced the performance of the industry, as companies became more reluctant to create their own inventions, due to a lack of protection. As well as this, the UK pharmaceutical industry is in constant competition with cheaper, imported medicine, spending £416m this year alone, nearly a 300% increase from the £140m spent in 2001(fig2) . While it is expected that there would be some imports of pharmaceutical goods, UK companies still feel the pressure to compete at a high level and lower price, affecting the production of the market as a whole, as well as at a company level, affecting specific firms such as AstraZeneca.
fig 2: Line graph showing the obvious increase in imports of pharmaceutical goods into the United Kingdom. These foreign companies are able to be imported at a reduced cost, hurting the UK industry.
While it is true that the NHS buys and distributes most of the pharmaceuticals in the UK, AstraZeneca also operates in the global market, selling to a number of different companies and organizations around the world. While looking at their global sales from 2013-2017, it is possible to notice a downward trend in production — especially in their two major markets, similar to the UK market as a whole (fig 3) .
fig 3: Though not in all of its regions, AstraZeneca's revenue is on a clear downward trend, most clearly peaking in 2014 in the United States. While their emerging markets region has seen minimal growth, the company as a whole is experiencing a loss in revenue, a shift across the entire United Kingdom’s pharmaceutical market.
Analysis:
The analysis of AstraZeneca using PESTLE, SWOT, and Porter’s Five Forces is as follows:
PESTLE:
Political: The UK’s lack of patent protection laws for biological inventions reduces the production of new drugs and medicines. As well as this, Brexit risks major damage to the UK pharmaceutical industry due to many new considerations including potential tariffs, EU medicine approval procedures, border delays, and the general relationship between the UK and the EU . This could result in further market-wide losses once Brexit is finalized.
Ethical: For pharmaceutical firms, ethical issues often revolve around animal testing. Recently, AstraZeneca has reduced the number of animals it tests on by over 250,000 since its peak in 2010 (fig 4) . It is the lowest it’s been for over ten years.
fig 4: animal usage in pharmaceutical testing by AstraZeneca from 2006 to 2017. Animal testing is generally the biggest ethical issue for pharmaceutical companies and is usually the most contested.
Legal: AstraZeneca has run into some legal issues due to their medicine. In 2013, a study was released linking their Type 2 Diabetes medicine to heart failure and pancreatic cancer . Additionally, they were ordered to pay $520m by the United States Department of Justice in 2015, claiming AstraZeneca paid off doctors to declare authorship of “unapproved use” documents written within the company regarding a type of medicine .
Economic: Much like the rest of the industry, AstraZeneca has seen a significant drop in operating profit in recent years. Since two considerable drops of $4bn from both 2011-2012 and 2012-2013, in line with the 2011 “Black Monday” market crashes, they have managed to stabilize their operating profit at around $4bn (fig5) .
fig 5: In line with the global "Black Monday" market crash, AstraZeneca's operating profits took a major hit from 2011-2013, before stabilizing to the levels we see today.
Social: With the rise of obesity concerns and an aging population, IBISWorld predicts that the pharmaceutical market will see some growth in the coming years (fig6) . With AstraZeneca’s close affiliation with the NHS and similar world health organizations, they should also expect to benefit from this. The population is also more informed than ever, meaning pharmaceutical companies such as AstraZeneca have to operate in such a way that adapts to the ever-demanding concerns of the people. This may mean more transparency or a change in business plan. Regardless of how they chose to attack it, the modern pharmaceutical company must be cognizant of the customer.
fig 6: A Milliman "per member per month” (PMPM) study on the costs by age of medical and pharmacy spending. As we can see, there is an upward curve associated with age. As the population ages — expected 16% people 65 and older in 2050 — the cost of medical spending also increases, benefitting the pharmaceutical industry as a whole.
Technological: There have been many technological advances that have helped the pharmaceutical industry. The prevalence of smartphones, apps, and websites have allowed companies to get much closer to the people they are helping. Social media sites such as Twitter and Facebook allow for instant communication and feedback. A 2010 study revealed that 80% of internet users have looked online for information about a number of different health concerns, with 66% looking for a specific medical problem or disease (fig7) . While not necessarily a new invention, the internet has increased awareness and allowed the average person to gain more information about medical issues they may have, benefitting the industry as a whole.
fig 7: Breakdown of internet searches regarding medical concerns, based on a 2010 survey. This demonstrates the effect that the internet has on the medical industry as a whole.
SWOT:
INTERNAL
STRENGTHS
– Large Market Share
– Global Company
– Works closely with NHS, providing constant supply and demand
– Work with governments and policymakers to ensure medicine is used to the greatest extent it can
WEAKNESSES
– 2017 Profit down almost 50% from 2016.
– Haven’t recovered profit levels to that prior to 2011-2013 crashes.
– UK Market relatively small, deals mostly with the NHS, could leave issues for the company if healthcare is privatized.
EXTERNAL
OPPORTUNITIES
– The rise of obesity and other health related issues
– Wider reach due to social media and
technology
THREATS
– Brexit may cause profit loss
– Brexit may weaken pound value
– More informed consumers might be harder to sell to
As a company, AstraZeneca is well balanced, they have a number of strengths — they have a large market share in the UK market as well as a global presence. They also work closely with both the NHS and the Government and policymakers to ensure that they are able to produce medicine that is used to the best of its ability. It does however, come with some weaknesses. Due to how close it works with the NHS, privatization of the healthcare market could damage AstraZeneca's profits. Additionally, while it is still making a profit, AstraZeneca has been unable to make the same level since 2010, and it continues to lose the levels of profit. Externally, the rise of obesity and other health issues may help the company in the long run, as well as the internet and technological advancements that allow the everyday person to be closer to the company. On the other hand, Brexit may cause damage to the company, both through weakening the pound and relations with Europe and through new tariffs and requirements for medicine.
PORTER’S FIVE FORCES
SUPPLIER POWER – Dealings mostly with the NHS and similar organizations means that the supplier doesn’t have that much power — privatization of the health care system may help this issue
BUYER POWER – NHS and other health organizations generally buy in bulk — results in constant demand for the product
– Pressure on companies to keep the cost of medicine affordable
THREAT OF NEW ENTRANTS – Expensive entry cost — high cost for research and development
– Government regulation of new companies
THREAT OF SUBSTITUTES – Generic branded medicine provides a cheap alternative to many of the “name-brand” pharmaceutical companies. Although the NHS controls most of the medicine market, this is a consideration for big pharmaceutical firms.
COMPETITIVE RIVALRY – Many different firms, lack of patent protection leads to higher competition
– Larger firms often buy and acquire smaller, less powerful firms.
Generally, the UK pharmaceutical industry is a tough one to get into. Due to the cost-intensive research and development part of drug production, it is difficult for new companies to get the funding to begin. Furthermore, it is common to see larger mergers between companies, bigger firms often buying out smaller, newer companies. Once in the industry, firms are met without much selling power and selling to high buying power. This makes the industry very competitive and not very viable for new companies.
Finance:
This section aims to focus on the financial side of AstraZeneca, based mostly on the FAME database, drawing comparisons to previous years within the company, and other similar companies within the industry. In 2017, AstraZeneca’s profit before taxation was £1.6bn, making it the second most profitable company in the industry, after GlaxoSmithKline PLC's profit before taxation of £3.52bn (fig 8).
fig 8: Pie chart shows the disparity of the success within the industry when comparing the profit before taxation of the top 5 companies. The vast majority of the profit is shared between GlaxoSmithKline and AstraZeneca, with the remaining three companies making a comparatively inconsequential amount of profit.
However, this £1.6bn was seen as a considerable loss of about 42% from the previous year’s £2.87bn profit before taxation, a record high from the last five years, after a considerable drop off in profit in the years between 2011 and 2013, from the "Black Monday" as mentioned before. As well as most of the industries — and the world's — major companies, AstraZeneca took major losses, now unable to get to the pre-black Monday levels of profit. When compared to other companies in the same industry, we can see that it has not rebounded to the same level as GlaxoSmithKline. Figure 9 , which shows the percent change in profit for four major companies between the years 2010 and 2017, reveals some similar traits between the companies. We can see that the two biggest companies, AstraZeneca and GlaxoSmithKline saw a similar dip in performance in 2014 and a similar peak in 2015. We also see the dip in profit for three of the four companies between the years 2011 and 2013. It is also important to note that currently, Glaxo appears to be the only company on an upward trend, the other three seem to be on a negative trend. This negative trend is also apparent when looking specifically at AstraZeneca’s turnover, though less so (fig10) .
fig 9: Percent change in profit compared to the previous year. This shows us how each company is doing relative to their last year and allows us to follow potential trends within the industry as a whole. We see similar pits and peaks when comparing the two largest and more comparable companies, in AstraZeneca and GlaxoSmithKline.
fig 10: Looking at AstraZeneca's annual turnover from 2009-2017 reveals that the company is on a slight downward trend, though appears to have stabilized since 2013
Conclusions and Recommendations:
AstraZeneca’s global markets, close working with the NHS, health organizations, and policymakers have quickly made them one of the more successful pharmaceutical companies in the UK. This being said, however, look at the recent financial records and AstraZeneca doesn’t look like one of the biggest companies.
Compare their profit from the last couple of years from any year before 2011, and you see a company in decline, with up to 50% less profit. While there may be a couple of reasons behind this: "Black Monday", loss of patent protection — we don't see the same effects when comparing other top UK pharmaceutical companies. While we do see a similar negative curve around 2011-2013, mainly of these companies have been able to rebound to even higher levels, while AstraZeneca is unable to even get back to the same level.
Moving forward, there are steps that must occur in order for the company to succeed to the levels they used to. While expanding to the global market is a good step, they must consider expanding their clients past the NHS within the UK. Although they do business with other health organizations, the NHS is able to standardize prices and may contribute heavily to the stall of profit for AstraZeneca. Additionally, they must be wary of Brexit and all the issues it may bring for the Industry. In order to attempt to get around this, they may be able to increase production within Europe, so that leaving EU would affect them less.
All of this being said, AstraZeneca is still the company with the second biggest market share and profit before taxation. While they should be aware of their current loss in profit, as well as other factors such as Brexit, it is not as pressing a matter as it may seem. They will continue to succeed in the UK, and around the world.