Biotech Values

[DewDiligence]

AZN Expands Presence in Russia

[AZN’s own PR is at http://www.astrazeneca.com/Media/Press-releases/Article/20110616astrazeneca-extends-its-investment-in-russia .]

http://online.wsj.com/article/SB10001424052702304186404576389194143222306.html

›JUNE 16, 2011, 12:33 P.M. ET
By STEN STOVALL

LONDON—U.K.-based AstraZeneca PLC said Thursday it plans to build a state-of-the-art research and development center in Russia, a move that will bolster its position in that potentially huge market and allow it to bypass tougher regulations on imported medicines.

The planned investment will be the latest in Russia by a global drug maker, and will bring AstraZeneca's overall investment commitment in Russia to $1.2 billion over the next five years.

"This is one of the key markets for us globally that we've decided to invest in. We're not doing this everywhere," Chief Executive David Brennan said in an interview.

Russia is seeking to draw foreign investment in local pharmaceutical plants to reduce dependence on imported medicines, and has warned global pharmaceutical companies they will face restrictions if they fail to establish manufacturing facilities and transfer technology to the country.

"The Russian government has been pretty clear that they would like more direct investment from the pharma industry specifically. I was here [in Russia] a couple of years ago and had that conversation with a couple of ministers and ultimately we came back with a plan on how to do it," Mr. Brennan said.

As a result, AstraZeneca plans to build a research and development center in St. Petersburg, Russia's second largest city, to take advantage of local scientific talent and focus on developing biological information, data analysis methods, software and systems to better predict the safety and efficacy of potential new medicines.

Earlier this year, AstraZeneca began building a new $150 million manufacturing facility in the country's central Kaluga region to supply Russia with locally manufactured medicines.

Mr. Brennan said the Russian government hadn't yet had the chance to respond to AstraZeneca's latest investment decision.

"The Russia government's reaction to our investment in the manufacturing facility was extremely positive. This will be in addition to that and I think it demonstrates our continued commitment to investing here in Russia. This is yet another step, and I imagine there will be others," he said.

AstraZeneca has around 1,000 employees across 68 cities in Russia and sells about 40 of its drug products there.

Russia currently relies on imports for around 80% of its medicine needs but the government has leverage over foreign suppliers through state-subsidized drug purchases for the poor.

"We have gone through the process of prioritizing markets, looking at five years of business investment opportunities from a capital expenditure perspective," Mr. Brennan said.

"We've put a manufacturing facility on the ground, increased investment in R&D, we've increased the size of our marketing and sales organization to be as competitive as we can be, we're looking at different ways of operating here—this is an enormous market geographically so we're looking carefully at how we reach out to the more remote areas of the country. So what you see here is the unfolding of our strategy for Russia."

The move reflects the growing importance of emerging markets for the U.K. drug maker. Mr. Brennan said he wants revenue generated in such markets to grow from around 20% of AstraZeneca's total sales to between 25% and 35% by the end of 2014.

He said the R&D site will employ local people as well as scientists who are flown in to help launch it.

"That's what we did when we started the research facility that we put in Shanghai: we put some of our own people, Chinese people, in there from other R&D places from other parts of the world, and we also hired locals."

"My guess is that we'll do the same sort of thing here. We'll probably bring in a few people from the R&D organization of AstraZeneca that can help them navigate through the process and also attract people locally who we think fit the bill."‹