Corporate Finance and Valuation
1. Company Overview
AstraZeneca is a research based pharmaceutical company, and a product of the merger between the British pharmaceutical company, Zeneca PLC and the Swedish pharmaceutical company, Astra AB. The company is listed on the London Stock Exchange and is a part of the FTSE 100 index. Currently, DavidBrennan serves as the CEO of the company. AstraZeneca’s headquarters are situated in London, United Kingdom and is currently operating in 100 countries and is increasing its presence in emerging markets. Moreover, the AstraZeneca PLC has 65 000 employees. During 2008 the company generated revenues of $31.6 billion.
Additionally, the company is focusing on six major therapy areas, these arecancer, cardiovascular, gastrointestinal, infection, neuroscience and respiratory & inflammation. Furthermore, at the moment the company is experience many opportunities in their clinical trial, the company has more medicines in Phase 2, Phase 3 and post clinical trials development stage than they company has in previous years. Additionally, the company has also recently started to invest in thebiotech sector under the name MedImmune.
Source: Bloomberg Terminal
2. Industry Analysis
The nature of research based pharmaceutical companies is that they are investing heavily in R&D of new medicines. In general, the investment in research and development in large research-based pharmaceutical companies is approximately between 15-18% of revenues. Furthermore, due to the fact that themedicines produced by the pharmaceutical companies are necessity goods, rather than luxury goods. The pharmaceutical industry is not as effected as other industries are on economic recession, nor economic boom.
The worth of the industry in 2008 was US$689 billion, which is a 5% increase from 2007. The biggest markets for the industry is the USA and Europe and the US accounted for 42% of thetotal market. Furthermore, during the recent years the industry has experienced low, but stable earnings growth, and this is mainly due to high competition from generic houses.
The business of developing new medicines is both time-consuming and costly. The cost of brining one new medicine to the market is approximately $800 million and includes the costs of the long clinical trial periods andthe cost of those medicines that never got approved in the clinical trials. When a pharmaceutical company is filing a patent for a new compound it has to go through three phases of clinical trials, which can take up to 15 years. This leaves pharmaceutical companies with only five years of market exclusivity to regain the high investment of $800 million.
2.2 Challenges and Opportunities forthe Industry
- New regulation from the FDA and EMEA requiring full disclosure on clinical trials and the process of these trials become more regulated. This has forced many companies to call back some of their top selling medicines. Secondly, the regulation has left the pharmaceutical companies with longer clinical trial periods.
- European legislation, focusing on mainly on thebenefits of the consumer rather than regarding pharmaceutical companies for new innovation. This has created high pressures on medicines and pharmaceutical companies are no longer as profitable as they once were.
- The majority of the pharmaceutical companies are currently experiencing weakening product pipelines with patent expirations. 5
- Growing competition from generic houses and paralleltrade.5
- The pharmaceutical industry has realized that there is a great opportunity to expand into emerging markets, such as China, India and Eastern European countries. The pharmaceutical market could be divided into a grown market and emerging market, whereas the emerging markets has a population of 5638 million and the grown 893 million. 3
- The ageing population and the...