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Astra's Star Keeps On Rising (Int'l Edition)


International -- Intl' Business: SWEDEN

ASTRA'S STAR KEEPS ON RISING (int'l edition)

For years, scientists at tiny CytoTherapeutics Inc. in Providence, R.I., had been pursuing a chronic pain remedy straight out of a sci-fi thriller: Take cells from a cow's adrenal gland that release natural analgesics, encapsulate them in porous plastic, and embed them at the base of a patient's spine. The researchers knew it would take years of testing and lots of cash to launch such a revolutionary therapy. They needed a partner with deep pockets--and guts.

Enter Astra of Sweden. Sure, with just $3.8 billion in sales, Astra is no Goliath in the drug business. But some well-placed research and marketing bets have made it a world leader in painkillers, and one of the fastest-growing drugmakers. To continue to prosper, president and CEO Hakan Mogren is strengthening Astra's marketing and its commitment to cutting-edge research. In his latest move, he has agreed to invest as much as $80 million to develop the CytoTherapeutics painkiller.

Other small drug companies are watching Mogren's moves, because the pitfalls in his path apply to most of them. Astra's growth mostly comes from two products: its anti-ulcer blockbuster Losec and an asthma drug called Pulmicort (table). For both, Astra faces competition from larger rivals such as SmithKline Beecham PLC and Glaxo. "It's not clear what will drive the sales forward when Losec runs out of steam," cautions Lehman Brothers Inc. analyst Ian Smith.

But Mogren isn't easily intimidated. Appointed CEO in 1988, the 50-year-old biochemist overhauled Astra. He narrowed the company's research to a few promising drugs and is focusing his sales effort in the two biggest drug markets--the U.S. and Japan. Last year Astra spent more than $1 billion to build up its marketing network. In the U.S., where Merck had long distributed Astra drugs, Mogren engineered a joint venture that puts them on equal footing. "Astra can really champion new product ideas," says Wayne P. Yetter, CEO of the new venture, Astra Merck Inc.

It was savvy research and development that catapulted Astra into the major leagues. And Mogren wants to broaden that base. In March, he agreed to pay $320 million for most of British drugmaker Fisons PLC's R&D operations in Britain and America. The deal will bring R&D spending to $626 million in 1995, 15% more than 1994, and give Astra a total of 4,000 researchers.

Nothing showcases Astra's slick research management better than its breakthrough therapy, Losec. It came out of Astra's discovery of a stomach enzyme that controls acid, and Astra rushed the work to market. In 1988, Losec became the first drug to attack the mechanism of stomach acid production. Now, it's challenging Glaxo's Zantac as the world's top-selling drug. "Astra's products have been too good too often for it to be luck," says Armin M. Kessler, chief operating officer of Hoffmann-La Roche in Basel, Switzerland.

Critics say Astra will be hard put to duplicate Losec's success. Its R&D spending, at 12% of sales--slightly below the industry average--isn't keeping pace with revenue growth. Unfazed, Mogren says Astra's asthma and ulcer drugs "are only in the beginning of their potential." New blockbusters may be five years from market. Meantime, Mogren is counting on his muscular new U.S. presence to sustain high sales growth, which averaged 27% a year in 1988-93.

BREATHING ROOM. Astra executives are particularly bullish about the U.S. and Japanese asthma markets. While many European patients have already switched over to inhaled powders that deliver medication straight to trouble spots in the lungs, such inhaled steroids--including Astra's Pulmicort--account for just 17% of the U.S. market, and even less in Japan. Salomon Brothers analyst Peter Laing in London thinks the U.S. market for such therapies could increase sevenfold, to $1.7 billion, by 2000.

As for Losec, it's swiping share from older ulcer remedies such as Zantac and SmithKline's Tagamet. Last month, the Food & Drug Administration allowed Astra to remove a warning on the label linking high doses to cancer in rats. An advisory committee also recommended broader use for long-term maintenance.

Despite fierce competition, Astra has some breathing space. Patents on its key drugs will carry it through 2001. And its dominance in painkillers will help when it comes time to launch next-generation drugs from CytoTherapeutics, says UBS Securities Inc. analyst Mark Ostro in New York. Will the new drugs work? Astra didn't come this far by banking on R&D losers.By Julia Flynn in London with Joseph Weber in Philadelphia


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