AstraZeneca's focus on improving manufacturing efficiencies, on the heels of similar moves by Merck and Pfizer, may signal that manufacturing is the next target for industry cost-cutting initiatives.

During its fourth quarter earnings call Feb. 1, AstraZeneca announced that it will eliminate 3,000 manufacturing positions over the next three years as part of a program to rationalize product assets.

"We're taking these actions now while in a position of strength with our business growing to be sure that we maintain our competitive edge in what is becoming a very challenging environment," CEO David Brennan said.

During a recent roundtable discussion with "The Pink Sheet," Prudential Equity Senior Financial Analyst Tim Anderson questioned whether pharmaceutical company's cost-cutting efforts would move beyond sales forces to more difficult targets.

Anderson's comments stem from a number of sales force cuts made by companies over the last year in the face of patent expirations. AstraZeneca is one such example, having terminated its 800-member contract sales force from PDI at the beginning of 2006, and reduced its sales forces in some western European markets.

Merck CEO Richard Clark, a former manufacturing exec, may have established manufacturing as a viable cost-cutting target with his comprehensive manufacturing rationalization program (¹ Also see "Merck Takes Cost-Cutting Therapy, But What Will The Side Effects Be?" - Pink Sheet, 5 December, 2005., p. 3). The initiative, which was initially received skeptically, has proved to be a key factor in Merck's resurgence.

The success of Merck's program may have been the impetus behind a similar manufacturing streamlining program announced by Pfizer in January (² Also see "Pfizer’s Manufacturing Cost-Cutting May Leave Little Capacity For Growth" - Pink Sheet, 29 January, 2007., p. 3).

Brennan insisted that AstraZeneca "won't stop" with the manufacturing initiative in its efforts to improve efficiencies. "Today's announcement is another step in our ongoing program to improve productivity and efficiency," he said.

The company is also focusing on reducing research and development cycle times, striving to be "amongst the best in the industry in terms of speed through development with a target to be in the upper quartile of industry time scale," according to Development Director John Patterson.

He said AstraZeneca has demonstrated an ability to improve cycle times in pilot programs, with the majority of improvements occurring in the early stages of development.

"We reduced the lead optimization part of the process, down from 24 to six months," he reported. The company is aiming to apply these efficiencies through the entire development continuum with a goal of product delivery from selection to approval in a median of eight years.

Under the R&D efficiency program, AstraZeneca will also be exiting several disease areas "that we believe no longer offer meaningful innovation or sufficient financial return," Patterson said.

These disease areas include hypertension, inflammatory bowel disease, functional GI disorders, Parkinson's, multiple sclerosis, addiction, insomnia, and neuroprotection in stroke.

Patterson acknowledged these "include areas that have been core to our previous success, such as hypertension and positive GI." The company's product portfolio includes the blockbuster proton pump inhibitor Nexium , the blockbuster antihypertensive Atacand and the inflammatory bowel disease agent Entocort.

"Going forward, we must and will be a more flexible organization capable of entering in leading research areas in a way that we haven't done in the past," Patterson said.

The company will maintain its focus on disease areas such as Alzheimer's, atherosclerosis, bipolar disorder, depression and oncology among many others. It is looking to build its presence in diabetes, obesity, analgesia, infection, inhalation, and translational science oncology.

One reason the company is working to increase productivity is to help offset high attrition in its late stage pipeline. During 2006, AstraZeneca terminated a number of high profile programs, including the diabetes agent Galida (tesaglitazar), the anticoagulant Exanta (ximelagatran) and, most recently, NXY-059 for acute ischemic stroke (³ Also see "AstraZeneca Clinical Setbacks Add To Pipeline Woes" - Pink Sheet, 6 November, 2006., p. 16).

Brennan noted that AstraZeneca's "efforts to strengthen the pipeline" in 2006 have resulted in a "mixed picture."

The company also sought to expand its pipeline through external sourcing, completing nine "significant" transactions and 325 total collaborations in 2006. The firm has continued the strategy into 2007, entering into at least four deals thus far, including a partnership with Bristol-Myers Squibb for development and marketing of two of Bristol's type 2 diabetes candidates (⁴ Also see "Bristol/Astra Diabetes Deal Further Indicates Bristol Will Stay Independent" - Pink Sheet, 15 January, 2007., p. 16).

When asked by an analyst whether the company was happy with its recent due diligence efforts, given the large number of deals, Patterson responded in the affirmative. "The answer is obviously...we work very hard to do [due diligence] as comprehensively as possible, and I have no reason to think to date that that hasn't happened."

AstraZeneca's deal making has significantly expanded its pipeline, which now has a total of 120 projects, up from 106 in 2005. The majority of expansion took place in the preclinical phase, which now includes 40 projects.

The company's Phase I portfolio includes 23 projects and its Phase II pipeline has 18 projects. AstraZeneca currently has five compounds in Phase III trials.

AstraZeneca gained one of its Phase II compounds, the sodium-glucose cotransporter-2 inhibitor dapagliflozin, via the Bristol partnership. The Phase IIb compound could be the first agent in the SGLT2 class, and the company expects to make a decision on Phase III later this year.

Brennan noted that several of AstraZeneca's Phase II projects will come to a go/no go decision point in 2007. Consequently, "we could be looking at an expanded list of Phase III projects from our existing portfolio by the end of the year," he said.

Patterson said that in addition to dapagliflozin, there are three other compounds that could enter Phase III in 2007.

However, two of these projects are holdovers from last year and their prospects for success are unclear. AstraZeneca had anticipated that oncologics ZD 4054 for prostate cancer and CPU inhibitor AZD 9684 for thrombosis would reach Phase III go/no go decisions in 2006.

"We were hoping to make a decision on [4054] last year, [but] the data were not black and white - they were gray," Patterson said. "We're allowing the study to mature later so it will probably be one of the ones that hits a decision point later this year."

The situation with 9684 is "very similar - we have some interesting data, but we've not yet got definitive data and we're working to get that."

AstraZeneca also gained one of its Phase III compounds from the Bristol partnership, the dipeptidyl peptidase-4 inhibitor saxagliptin. Saxagliptin could be the third DPP-4 inhibitor to market, following Merck's Januvia , approved last October, and Novartis' Galvus , which is under FDA review (⁵ Also see "Novartis Touts Galvus Efficacy Vs. Januvia After Metformin Comparison Fails" - Pink Sheet, 4 December, 2006., p. 9).

Patterson said that "there are some good reasons to believe there will be some differentiation" between Saxagliptin and its competitors. Januvia "has only been out on the market a month - it's only reached adolescence," he noted. "There will be a lot of water to go under the bridge yet before we know what this class looks like and how it plays out."

Other Phase III compounds include the oncologic Zactima , slated for filing in the second half of 2008; AZD 6140 for arterial thrombosis; and oncologic Recentin (AZD 2171), which the firm believes could be a best-in-class oral VEGF inhibitor. In addition, the company plans to file the atherosclerosis therapy AGI-1067 in the fourth quarter of 2007.

The company filed for an additional indication for its blockbuster cholesterol therapy, Crestor , in atherosclerosis in mid-January.

AstraZeneca's worldwide sales for the year increased 11 percent to nearly $26.5 billion, driven by Crestor , Nexium , Seroquel , Arimidex and Symbicort . R&D expenditure increased 16 percent to $3.9 billion and spending, general and administrative costs were up five percent to $9 billion.

- Kathryn Phelps

AstraZeneca Cuts 3,000 Manufacturing Jobs, Pares Down Therapeutic Areas

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