David's New Book

Thursday, July 30, 2015

AZ's New Business Unit

Buried in a press release (you have to download the press release from this link)  dedicated to AZ’s progress on multiple fronts is the most astounding piece of news to come out of big pharma in the last 50 years!  AZ will take what is left of its infectious diseases franchise (after the Entasis spin-out) and create a separate business unit with its own profit and loss sheet within AZ.  This is very much the way many large pharma companies handle their vaccine units. What this means in practical terms is that the infectious diseases unit (now entirely clinical development and marketing) can divest, spend money, license and purchase assets as long as they can live within their budget as defined by sales of their products.  Those products right now are Merrem, Zinforo and soon to be ceftazidime-avibactam (including royalties from North American sales by Actavis).  This is a pretty good package with a great deal of upside. (What is bizarre is that this income could have also supported the research that was just spun out as Entasis.  What was that all about)? 

GSK has a structure that is similar in that their centers of excellence in drug discovery are self-contained units designed to take products through phase II clinical development.  These units have all of the support functions within them to allow this to happen such that the units are not dependent on the mother ship for these functions. But – they are not separate business units.  For certain support activities (those that might be expensive) and to progress beyond phase II, the corporate powers that be must approve and even take over. I have criticized this in the past as being only a half-measure (see my book).

I am totally excited by AZ’s plan since it is something I have pushed since my days at Wyeth. This is something I have discussed in this blog and in my book.  It goes well beyond the GSK structure and is a win-win approach.  It allows the company to keep its focus on other areas that appear to be of higher priority for them (for reasons that continue to escape me).  At the same time, the infectious disease development group has the freedom to expand and contract as their own strategic needs dictate.  As long as the mother ship leaves the infectious disease hands on the control stick, this should allow us all to have a more clear path to the antibiotics we need while allowing AZ to focus on its other businesses.

The issue for the AZ Infection business unit will be how it will derive its support functions.  In particular, marketing will be an issue.  They will probably have to, at least at first, rent AZ’s current sales force.  On the other hand, as a totally separate business unit, they should have the freedom to pick and choose contractors for various critical activities such as manufacturing, formulation development, toxicology, and even, eventually, sales.   My experience from the biotech side is that these are frequently done as well and more cheaply by outside contractors as opposed to the stodgy and conservative groups within big pharma.

Sometimes, something really good can come out of a terrible situation. I hope for all of our sakes that this is an example of such an outcome.  After all of their contortions trying to rid themselves of their excellent infectious disease research and development group, AZ may have finally landed on the right solution.