Zeneca Group PLC

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Zeneca Group PLC

15 Stanhope Gate
London W1Y 6LN
England
011 (0171) 304 5000
Fax: 011 (0171) 304 5151
Web site: http://www.zeneca.com

Public Company
Incorporated: 1992
Employees: 31,000
Sales: £5.4 billion (1996)
Stock Exchanges: London
SICs: 2879 Pesticides & Agricultural Chemicals, Not Elsewhere Classified; 8731 Commercial Physical & Biological Research; 2834 Pharmaceutical Preparations

Zeneca Group PLC is one of the largest and most successful pharmaceutical companies in the world. Actually, the company is divided into three primary business operations, including: Zeneca Pharmaceuticals, which develops medicines for cancer, musculoskeletal, central nervous system, metabolism and endocrinology, infection and respiratory ailments; Zeneca Agro-chemicals, which researches and develops crop protection products; and Zeneca Specialties, which develops and manufactures a wide range of products such as resins, biocides, and leather coatings. During 1996, the company developed such innovative products as Casodex, an advanced prostate cancer treatment; Zoladex LA, the first long-acting, slow release prostate cancer treatment; Arimidex, a major advance in breast cancer treatment; Accolate, an innovative oral anti-asthma treatment; Zomig, a quick-acting antimigraine therapy; and Amistar, a new fungicide that can be used on a wide variety of crops. One of the company’s most successful subsidiaries is Salick Health Care, Inc., located in the United States. Salick Health Care is gaining a reputation for itself as the leading multisite provider of cancer diagnostic and treatment services. The year 1996 was the best to date for the company, with revenues reaching £5.4 billion, profits passing the £1 billion mark for the first time, and exports exceeding £2 billion, making Zeneca one of the United Kingdom’s largest exporters.

Historical Background

Zeneca Group PLC is the result of what has come to be called a “demerger” from Imperial Chemical Industries (ICI), one of the United Kingdom’s oldest and most renowned chemical corporations. ICI was formed in 1926 when four of the leading firms in the chemical industry in Britain banded together for the purpose of providing a counterweight to the growth and power of IG Farben in Germany and DuPont in the United States. Both before World War I and after, IG Farben dominated the chemical market in continental Europe, as DuPont did in North America. ICI soon became one of the select group of world leaders in the chemical industry, but the markets of the British Empire where ICI dominated did not compare with those controlled by IG Farben in Europe and DuPont in North and South America.

World War II changed the balance of power, spheres of influence, and market share among these three companies. After the defeat of Germany by the Allied Forces, IG Farben was broken up into three separate and distinct companies, including Bayer, Hoechst, and BASF. Since most of the manufacturing infrastructure within Germany had been destroyed during the war, these companies were faced with the task of rebuilding their business. In contrast, ICI and DuPont were larger and more profitable when the war ended. As a result, management at the two firms agreed to stay within their prewar geographical spheres of influence, yet engage in cross-licensing agreements when appropriate.

The Ryan Anti-Trust Judgement during the 1950s brought the partnership between ICI and DuPont to an end and, when combined with the loss of markets due to the rise of independence movements across the British Empire, convinced management at the company to convert itself to a more international operation by moving into markets within Continental Europe. By the end of the 1960s, ICI was firmly established on the Continent and growing rapidly. The company’s product line remained much the same as always, with an emphasis on heavy chemicals. Pharmaceutical production was organized into a separate operating division during the late 1950s, but remained small in relation to ICI’s primary area of business.

During the 1970s and 1980s, ICI dramatically expanded its product line through a series of strategic acquisitions. An astonishing 208 acquisitions were made by the company during the late 1980s. Three of the most important of these acquisitions included Beatrice, located in the United States, and intended to provide the company with access to the advanced materials market; Glidden, which transformed ICI overnight into the world’s leading paint manufacturer; and Stauffer, one of the fastest growing companies in the agrochemical industry. By the end of the 1980s, ICI’s pharmaceutical division was the company’s most profitable business. Yet, with so many different product lines and operations in widely diverse geographical regions, and as the chemical industry matured and others such as Pharmaceuticals and agrochemicals grew rapidly, ICI was ill prepared to meet the challenges of managing the complexities of its own businesses.

The prospects of a fully mature chemicals market, which meant intense competition, lower growth, and overcapacity in many regions throughout the world, convinced management at ICI that a comprehensive restructuring of the company was necessary. This realization was brought to a head when Hanson PLC acquired a small amount of stock in ICI, thus fueling speculation that executives at Hanson were preparing for a hostile takeover. The result was a series of meetings and consultations with Warburgs, ICI’s merchant bank advisors, that established a strategy to separate the company into two new groupings, New ICI and ICI Bioscience, which was named Zeneca.

The Formation of Zeneca in 1993

During its 65-year history, ICI had developed into an extremely complex and fully integrated organization with more than 120,000 employees working in 130 countries around the globe. Perhaps most startling was the fact that ICI listed more than 500 legal entities within its organizational framework. Reorganizing such a large and complex firm, including the division of its businesses and geographical regions, was a daunting task. Of course, the most important aspect of the demerger was to identify what operations would be retained by ICI and what operations would form the core businesses of Zeneca. Management decided to continue operating ICI as a chemical company in traditional markets, while the demerger gave Zeneca all of ICI’s former pharmaceutical, agrochemical, and specialty products.

When Zeneca was formed, it took approximately 30,000 employees from ICI. The separation and division of manufacturing plants, research and development facilities, administrative offices, employees and pensioners, and pension funds required detailed planning, implementation, and management. The necessary legislative and taxation clearances, as well as the division of information technology, took nearly a full year to finalize. At the same time, it was necessary that all of the businesses of ICI and Zeneca function without any interruption, operate normally, and continue to grow.

Naysayers doubted that such a feat could be accomplished within a short period of time. Yet, right on schedule, Zeneca Ltd. was established as a 100 percent wholly owned subsidiary of ICI on January 1, 1993. By June of the same year, however, Zeneca existed as a totally separate company from ICI. Zeneca’s market capitalization was actually more than that of ICI and placed the newly established company in the top 25 firms listed with the highest capitalization in the United Kingdom. A new headquarters was set up for Zeneca at 15 Stanhope Gate, having been custom-designed to meet the specific needs of the new organization. By the end of fiscal 1993, the first full year of Zeneca’s operation, sales had increased approximately 12 percent to an impressive total amount of £4.44 billion, and the company’s profit margin increased by an astounding 42 percent to £647 million. The only problem the company had, according to some newspaper columnists and London wits, was that the name Zeneca seemed more appropriate for describing either a new laxative or a Japanese camera.

As a result of the demerger, it was expected that ICI would lose some of its influence and its share of some international markets and that Zeneca might experience a difficult time retaining the markets bequeathed to it by ICI during the period of transition. In fact, however, no such problems arose for either of the two companies. In the Fortune 500 list of the most influential and largest international chemical companies, ICI fell from fifth to sixth place. Zeneca’s pharmaceutical operation immediately catapulted it into the ranks of the top 20 pharmaceutical companies worldwide. Neither company lost any stature from the perspective of its customers.

By 1995, Zeneca was operating at full capacity. The company’s group sales, comprised of pharmaceutical, agrochemical, and specialty products, amounted to £4.8 billion, and operating profit increased to £894 million. The company was ranked number two in worldwide sales of anticancer drugs, and it ranked as one of the top six agrochemical firms around the globe. Zeneca had expanded to include facilities in more than 25 countries and sales of its products in more than 100 nations.

Company Perspectives:

Zeneca’s purpose is to be continuously successful, by providing specialised products and services which improve human health, nutrition and quality of life around the world. In achieving this, we will maintain the following values: customer focus, innovation, employee development, ethical standards, social responsibility and wealth creation.

Zeneca Pharmaceuticals provided the largest amount of the company’s sales with more than £2 billion in 1995. One of the world’s leading ethical pharmaceutical firms, its research and development efforts focused on providing treatment for a wide variety of cancers and disorders of the respiratory, cardiovascular, and central nervous systems. Casodex, an oral prostate cancer drug, Arimidex, for use by breast cancer patients, as well as Zoladex, were some of the most successful treatments developed by the company during this time. Two of the most promising drug therapies to come out of Zeneca in 1995 included Tomudex, the first cell-killing agent for advanced stages of colorectal cancer developed in nearly 30 years, and Accolate, an anti-asthma tablet developed to prevent asthma attacks. To expand its presence overseas, Zeneca also purchased a 50 percent share in Salick Health Care, Inc., one of the leading providers of comprehensive cancer and chronic disease care in the United States.

Herbicide products made up approximately two-thirds of Zeneca Agrochemicals’ £1.6 billion in sales for 1995. Innovative herbicides such as Touchdown, Falcon, and Surpass, the latter specifically developed for use in maize, were extremely successful in the marketplace. The company’s leading herbicide, Gramoxone, has been adopted by farmers the world over who advocate conservative tillage farming methods that focus on removing weeds without tilling the soil, consequently lessening soil disturbance and reducing erosion. Zeneca Plant Sciences (ZPS), part of the company’s agrochemical operation, concentrates on developing vegetables, fruits, and fiber crops with enhanced characteristics. In 1995, ZPS developed fruits that stay firmer longer, thus reducing wastage for farmers since more of the crop is ripened at one time. In addition, ZPS began working closely with Mippon Paper, a Japanese firm, and Shell Forestry, an American subsidiary of Shell Oil, to develop trees with modified lignin, which results in the tree pulp needing less chemical treatment and thereby producing a higher quality of paper.

In 1995, Zeneca Specialties was making a host of products used by people around the world in the midst of their everyday lives. Zeneca Specialties made and sold high performance pigments that put the color in plastics and paints for cars; developed smudge-resistant ink jet dyes used in the printing of magazines and in color photocopying equipment; supplied products to control contamination caused by unwanted bacteria such as the fungi and algae in swimming pools; manufactured a host of leather finishes, including those that liven up the color and sheen of handbags and leather coats; designed water-based resins that were ingredients to adhesives, paints, and inks used around the world; and even developed a low-fat alternative to meat that had no cholesterol and was high in fiber.

From 1995 onward, Zeneca has focused on a unique approach to the treatment of cancer. The company was one of the first pharmaceutical firms in the world that approached cancer not as a disease ultimately to be cured, but as a chronic disease with which patients could learn to live. Zeneca’s approach was parallel to the drug cocktails that have revolutionized the treatment of AIDS, prolonging the patient’s survival and regarding his condition as chronic rather than completely eliminating the virus from the body. The main goal of cancer drug development at Zeneca is to stabilize the patient instead of cure him. Thus future cancer treatment, according to the scientists at Zeneca, will initially involve potent chemotherapy or surgery to remove the original tumor, followed by years of treatment with drugs to keep the cancer from spreading. This strategy rejected the conventional approach used by rival pharmaceutical firms such as Bristol Myers Squibb, Co., which primarily relied on chemotherapy treatment that killed cancer cells but also killed healthy cells that, in turn, led to severe side effects and the death of the patient. Zeneca was so successful in its approach and in developing breast cancer and prostate cancer drugs that the direction of cancer research changed within the pharmaceutical industry as a whole, and many companies began to follow Zeneca’s lead in cancer research.

By the end of fiscal 1996, Zeneca reported sales of £5.4 billion and a profit of more than £1 billion for the first time in its history. Pharmaceuticals provided 45 percent of the company’s total sales, while Agrochemicals provided 34 percent, Specialties 19 percent, and Salick two percent. The company was an undisputed market leader in the development and production of cardiovascular, central nervous system, and cancer therapies. Zeneca Agrochemicals significantly increased its share of the worldwide agrochemicals market, while Zeneca Specialties, although not as successful as the pharmaceutical and agrochemicals groups, performed well in its own markets.