Astrazeneca

1.0 PHARMACEUTICAL INDUSTRY - BUSINESS RISKS

'In 2002 the global pharmaceutical industry generated over 400 billion dollars in revenue and invested roughly 16% of that amount, or 40 billion dollars, into research and development for new drugs'

(Taken from http://individual.utoronto.ca/adamlewinberg/Access/Box4.htm - Overview of the pharmaceutical industry)

The industry's business, developing human therapeutics, means risk management must be front and centre of operations across the board, from assessing the benefits and risks of a product for the patient to the risks associated with the development and marketing of a drug.

'Companies have to pay attention to FDA guidance's recognising that the guidance's are addressing different areas of risk'

(Quote by Frances Nolan - Report by Elisabeth Pena - Business Risk - 2004)

Business risks are evident in every industry in the world. Companies are continually working and evolving their strategies to overcome obstacles put in their way in order for maximum efficiency and performance.

To explain the risks to AstraZeneca I will use the PESTLE analysis tool.

This analysis is an acronym for Political, Economic, Social, Technological, Legal and Environmental.

I will begin briefly though with the financial risks for AstraZeneca in the pharmaceutical industry. There are two main financial risks Credit Risk and Liquidity Risk.

Credit Risk is:

'The risk that a counterparty will not meet an obligation when due, and will never be able to meet that obligation for full value. The bankruptcy of a counterparty is often associated with such difficulties, but there may be other causes as well'

(Definition taken from http://riskinstitute.ch/141810.htm - Types of Financial Risk)

Next I will define for you Liquidity Risk:

'This is the risk that clearing, or settlement, payments will not be made when due, even though one or more counterparties do have sufficient assets and net worth ultimately to make them'

(Definition taken from http://riskinstitute.ch/141810.htm - Types of Financial Risk)

We will begin with the 'Political' Risks that AstraZenenca are exposed to in the Pharmaceutical Industry. The Government has to balance the need to promote the competitiveness of this industry with the need to address health concerns and to promote the effectiveness of the health service.

Companies within this industry must meet the regulations laid down by the government. A good example of this can be seen in the following extract taken from the House of Commons report on the Influence of the Pharmaceutical Industry 2004/2005:

'Authorisation to conduct early stage trials in animals has to be obtained from the Animals Procedures Committee of the Home Office and it is more difficult to obtain permission to conduct animal experimentation in the UK than in any other comparator country'

Problems such as those detailed above may hinder innovation for the company and also stop potential benefit to the patients.

In the case of AstraZeneca they are a global company with financial results listed on the London, New York and Stockholm stock exchanges. These business ties mean that the company must meet the regulations not just for the US or UK but for all the countries they are involved within.

Lets now focus on the 'economic' risks. It is growing more and more likely that the industry may shift towards a single market system and it is important we focus upon this as an economic risk.

There are problems associated with using a single market in the pharmaceutical industry.

'The conflict between the need to complete the single market in pharmaceuticals and the desire for EU member states to retain control of healthcare expenditure, including pharmaceutical prices, has been acknowledged by all parties'.

(Taken from ABPI publication on parallel trade and economic risk in pharmaceutical industry)

http://www.abpi.org.uk/publications/briefings/parallel.pdf

In the short term, the impact of parallel trade can be measured in terms of lost sales revenue for companies operating in the UK and US.

UK patented medicines are vulnerable to parallel trade and it now costs the industry around Ј750 million a year. .

'In the US companies have been forced to issue discounts on their products to clinics and hospitals'

(Taken from AstraZeneca 2004, Page 156)

The above example is in relation to the US but the UK and Japanese governments are also strict over the pricing of products.

The following extract is also taken from the same report by AstraZeneca in 2004:

'Governments such as the UK and Japan have also put methods in place to limit the prices of pharmaceutical products'

I will now move onto social risks. This is an area, which is not large but needs to be covered due to the beliefs and world concerns involved in this area.

In the pharmaceutical industry companies are often portrayed in a bad light due to the nature of experiments and investigations performed. The way the public and media perceive their activities socially has a huge outcome on the company and the industry as a whole.

I will now move onto the Technological Risks. The focus of this analysis will primarily be upon the research and development process used by pharmaceutical companies and the risks in such a venture.

'Research and development is the heart of the pharmaceutical industry. It invests 30 per cent of its sales in research, and a quarter of the entire research expenditure by the UK manufacturing sector is funded or carried out by the pharmaceutical sector'

(Taken from http://www.abpi.org.uk/statistics/section.asp?sect=3 -