AZN AstraZeneca PLC

By Denise Roland 

CAMBRIDGE, England -- AstraZeneca PLC executive Kumar Srinivasan has an unusual job description: He is in charge of rejected drugs.

Safe and effective drugs are sometimes shelved because they don't work in a disease area that is of interest to the company in question. Mr. Srinivasan's nine-person team, dubbed the Emerging Innovations Unit, is in charge of around 20 drugs that AstraZeneca has shelved, as well as about 45 molecules that never made it into human testing.

Drugs developed with one disease in mind can have potential in seemingly unrelated areas. Among the unit's projects is a collaboration with scientists at Yale University School of Medicine to investigate whether a drug that didn't make the cut as a cancer medicine inside AstraZeneca could instead work in Alzheimer's disease.

AstraZeneca is aiming to build credibility with academic scientists as part of a broader move to drastically improve its research-and-development output, which until just a few years ago was among the industry's worst. It hopes that making its unwanted molecules readily available to university researchers will give it an edge over its rivals, most of which are reluctant to dedicate resources to rejected drugs.

No other large companies are handing out their unwanted drugs with the same enthusiasm as AstraZeneca -- but some are warming up to the idea. In 2015, Novartis AG licensed three shelved drugs to a U.K. startup called Mereo BioPharma Group PLC that is now developing them in disease areas that don't fit with the Swiss company's own priorities. As part of the deal, Novartis took an equity stake in Mereo and will receive royalties from the eventual sales of any of the drugs.

AstraZeneca's approach is part of a strategic shift its bosses orchestrated about five years ago in the face of a drug pipeline ill-equipped to offset the decline in revenue as its top-selling drugs lost patent protection.

Mene Pangalos, head of innovative medicines, shifted to rewarding scientists based on how many of their drug candidates succeeded in later-stage testing, rather than the sheer volume of candidates they produced. He also looked for ways the company could support outside scientists, believing that would help AstraZeneca's long-term research productivity.

Chief Executive Pascal Soriot accelerated Dr. Pangalos's work when he arrived in 2012. He slashed the number of research jobs and uprooted the company's historic research operations in Cheshire, England, to the university town of Cambridge.

Like many other pharmaceutical companies, Astra is also looking for new ideas from academic scientists to bolster its pipeline in the long run. Dr. Pangalos hopes that sharing shelved molecules with university scientists through the Emerging Innovations Unit will put AstraZeneca at a competitive advantage to its peers when those same scientists are looking for a company to share a new breakthrough with.

Dr. Pangalos said Astra's research output has risen dramatically thanks to the new strategy, which has also involved plowing more investment into R&D and acquiring small biotechs to help fill the pipeline. AstraZeneca's $5.6 billion core R&D budget in 2016 was 33% higher than the $4.2 billion it spent in 2010.

Between 2005 and 2010, just 2% of candidates that AstraZeneca entered into human testing became successful drugs, Dr. Pangalos said. In the subsequent five years, that figure jumped to around 15%.

AstraZeneca's late-stage pipeline has grown as well. Currently, it is running more than 20 advanced clinical trials on 12 novel drugs, compared with just nine such trials at the end of 2010.

For investors, the proof of AstraZeneca's turnaround will come later this year, when it announces the results of a closely watched clinical trial in previously untreated lung-cancer patients. If successful, the so-called cancer immunotherapy approach could generate as much as $3.5 billion in annual revenue for AstraZeneca, according to UBS analyst forecasts.

Dr. Srinivasan said AstraZeneca spends tens of millions of dollars a year on his unit, an investment he called "significant, but not substantial."

The Emerging Innovations Unit, based in both Cambridge, England, and Boston, has also become a small source of revenue for AstraZeneca.

About a year ago, it licensed a shelved anti-inflammatory drug to a Boston-based biotech founded by former AstraZeneca employee Michael Davidson. That company, Corvidia Therapeutics, will test the drug in cardiovascular disease. Two members of the Emerging Innovations Unit followed Dr. Davidson to Corvidia. Astra took a 19% stake in the company and is entitled to future milestone payments and royalties.

Around the same time, the unit sold the rights for a discontinued schizophrenia drug candidate to Ann Arbor, Mich.-based biotech Millendo Therapeutics Inc. That drug was shelved in 2008 because of some hormonal side effects, which later research suggested could be useful in treating polycystic ovary syndrome, an endocrine disorder.

AstraZeneca, Corvidia and Millendo haven't disclosed the financial details of those deals, but Dr. Pangalos said the proceeds from the transactions meant the unit was roughly cost-neutral for the company.

Write to Denise Roland at Denise.Roland@wsj.com

(END) Dow Jones Newswires

March 13, 2017 07:14 ET (11:14 GMT)

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