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Innovation Spotlight: Growth Predictability in China? – Astra Zeneca

by: Dan Spaeth, Senior Managing Partner, IP Advisory practice

Techson IP’s advisory practice performs patent portfolio audits and strategy alignment health checks for clients across multiple industries.

General analysis of global biopharma leader Astra Zeneca (AZ) provides a good starting point and case study for how we use business and IP data and our deep industry experience to help clients uncover gaps and risks in their product, technology and patent portfolios.

We typically start with relevant business context - example highlights:

AZ has a broad R&D and product platform in three main areas:

1.     Oncology, 2. Cardiovascular, Renal and Metabolism, and, 3. Respiratory

In 2018, after execution of a comprehensive 5-year growth plan, AZ trumpeted its return to product sales growth. With its current PE ratio over 50 (TTM) and first half 2019 total sales up 17% over 2018, AZ appears to be hitting on all cylinders of its global business growth strategy. China, with 1.4 billion people and an estimated growing pharma market of $140B, has become a solid growth plank in the strategy, generating $3.8B in sales (approx. 17% of total sales) in 2018. In 2019, China sales increased 35% for the first half and 44% for Q2. Bloomberg reports that AZ expects 60% of its China sales in 5 years to come from new drugs.

Focusing here on China as one key risk and opportunity area, we also looked at innovation and IP. Highlights:

 AZ is number 30 on the global list of 1,000 top innovators with an R&D spend of $5.9B in 2018 (26% of its approx. annual sales). The company also has an impressive drug development pipeline with well over 100 Compounds in various phases and over 30 products on the patent expiry schedule. Patent expiries expose the company to revenue risk from generics and keep the pressure on the R&D new drug process. The company’s patent strategy over the last 10 years has focused significantly less on internally developed patents and much more on acquired patents and deals. AZ has an impressive list of patents across 20 countries with the US and EP in the lead.

AZ Patents by Jurisdiction.png

Despite the major focus on R&D, deals, IP and the product pipeline, off-patent drugs make up an estimated 60-70% of AZ’s current China business. Furthermore, as disclosed by AZ, “a winner takes all tendering system has also been rolled out this year, starting with 31 drugs and 11 cities accounting for a quarter of China’s pharmaceutical sales.” It is expected that the tendering system will eventually roll out to all key cities. As we can see here, the best technical strategies can often run into sudden regulatory or other environmental challenges.

In summary our research, among other things, uncovered some key questions:

1.     Can AZ sustain aggressive China sales growth in a hyper-competitive off-patent drug market where the Chinese government encourages low price bidding in an emerging winner take all system?

2.     Can the company make up any future Chinese sales losses in other areas of its geographic and product portfolios?

3.     Will AZ receive the necessary approvals in China to roll-out future new drugs in a timely and economically feasible manner?

4.     What promising drug IP is available for sale and fits the company’s portfolio and business strategy?

5.     Can the existing new drug and research pipelines generate needed growth and support the current stock market valuation premium?

Contact us to learn more about how we can partner with you and if needed your external IP counsel to help validate your growth strategy and identify key risks and opportunities.