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ASTRAZENECA SHARES TUMBLE DESPITE POSTING STRONG SALES FOR CANCER DRUG

AstraZeneca (file photo) - Copyright Alastair Grant/Copyright 2020 The AP. All
rights reserved
Copyright Alastair Grant/Copyright 2020 The AP. All rights reserved
By Angela Barnes
Published on 08/02/2024 - 12:08 GMT+1 •Updated 12:19
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Shares in AstraZeneca were down nearly 4% on the London Stock Exchange on
Thursday morning after reporting its latest financial results.

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The Anglo-Swedish biopharmaceutical company reported $45.8bn (around €41.7bn) in
revenue for the financial year 2023 and highlighted strong sales for its cancer
drug. 

It also posted gross profit of more than $37.5bn (around €34bn), up from $32bn
(around €29bn) in 2022.



The results were driven by oncology drugs, which made up more than a third of
sales reported.


WHY ASTRAZENECA STOCK IS DOWN

However, the news failed to cheer investors with the company's stock down 3.76%,
at the time of writing. 

“Many investors view AstraZeneca as invincible given its success in recent
years, yet its latest results showed that even the mighty can disappoint," Russ
Mould, investment director at AJ Bell, said.

“The drugs giant missed fourth quarter earnings expectations due to more money
being spent on research and development and a greater contribution from
lower-margin sales in emerging markets. However, the business remains optimistic
about the prospects for its cancer and rare disease drugs.

“Pharmaceutical companies typically prosper from having a mixture of blockbuster
products, treatments with limited or no competition, and a healthy pipeline of
new drugs. AstraZeneca is under constant pressure to keep driving growth and
that means success in the laboratory as well as products already on the market.
AstraZeneca’s pipeline looks busy, but success is never guaranteed,” Mould
added.




OBESITY DRUG DEVELOPMENT PLAN

AstraZeneca's latest earnings come as the group enters the race to develop an
obesity drug.

As previously reported by Euronews Business, AstraZeneca announced a
multi-billion dollar deal last year to produce the new drug with Chinese
biopharmaceutical company Eccogene.

The deal provides that AstraZeneca will pay $1.825bn to Eccogene “in future
clinical, regulatory, and commercial milestones”.

Related
 * AstraZeneca announces new anti-obesity drug deal and positive profit


DEMAND FALLS FOR COVID-19 VACCINE

The company became a household name during the Covid-19 pandemic when it
produced one of the first vaccines to be approved on the market. However, demand
for its vaccine has declined as cases have eased.



"We expect another year of strong growth in 2024, driven by continued adoption
of our medicines across geographies. Our differentiated and growing portfolio of
approved medicines, global reach and rich R&D pipeline give us confidence that
we will continue to deliver industry-leading growth,” Pascal Soriot, Chief
Executive Officer, AstraZeneca, said in a statement following the financial
update.


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LOCKDOWN MAY HAVE SET PRODUCTIVITY BACK 40 YEARS, SAYS OECD

File photo - Copyright Lefteris Pitarakis/AP
Copyright Lefteris Pitarakis/AP
By Indrabati Lahiri
Published on 08/02/2024 - 7:00 GMT+1•Updated 9:09
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The impact of lockdowns on children's education during the Covid-19 pandemic may
have set back the chances of increasing global economic growth by up to 40
years, according to the Organisation for Economic Cooperation and Development
(OECD).

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The bleak prediction was put forward by the OECD in its February 2024 interim
economic outlook: "Strengthening the Foundations for Growth." 

The interim report looks at the global economic outlook and inflation forecasts
for 2024, as well as ongoing geopolitical risks such as trade disruptions from
the Red Sea conflict. 




LOCKDOWN IMPACT ON CHILDREN'S EDUCATION COULD SLOW GROWTH

There was an unprecedented drop in mathematics and reading test scores amongst
15-year olds between 2018 and 2022, the years spanning the pandemic, the report
revealed, citing the OECD's 2023 global Performance for International Student
Assessment (PISA) report. 

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The reduction in scores could potentially have spillover negative effects on
global productivity, knowledge diffusion and innovation for between 30 and 40
years, the OECD estimated, as a result of lower scores affecting secondary
school grades and, eventually, college and employment opportunities down the
line.

These scores could mainly be attributed to several schools and learning courses
implementing online learning during the pandemic lockdowns, the report said, as
children from more economically disadvantaged situations did not gain the
benefit from online learning as other pupils did, because of a lack of
resources.

Such disadvantages ranged from lack of internet access or computers, study
space, and even teacher and peer support, among others. With lockdowns lasting
for years in some countries, a number of students also saw an impact on their
mental health, also translating to their academic life.

According to British Conservative MP Duncan Smith, as reported by This Is Money:
"A lot of us knew what was going to happen. For children to be shut out of
school was a disaster."




EDUCATIONAL REFORMS ARE THE WAY TO GO

The test scores have, however, also highlighted some key flaws in several
educational systems that were in existence long before the pandemic, and clearly
show the need for changes.

These include a higher standard for teachers' qualifications, as well as a
better quality of teaching. There needs to be more support for disadvantaged
schools and children in the form of better and more effective resources, the
report said.

Furthermore, for older and returning students, as well as existing ones, more
choices in lifelong learning, skills-based courses and vocational training is
needed, which should ideally be tailored to current market requirements.


INFLATION TO REDUCE MORE IN THE NEXT COUPLE OF YEARS

According to the OECD, the majority of G20 countries should see inflation back
close to or within target by the end of next year. For 2024, G20 countries'
headline inflation is expected to be around 6.6%, with core inflation averaging
about 2.5%. 



Headline inflation for G20 economies in 2025 is forecast to be about 3.8%, with
core inflation down to 2.1%.

Central banks and economic institutes, however, are likely to continue taking a
cautiously optimistic and data-driven approach, with the Bank of England
choosing to keep interest rates stable at 5.25% at its February meeting. This is
in order to be absolutely sure that inflation drivers are under control before
taking any key monetary loosening steps.

The report highlights: "Monetary policy needs to remain prudent to ensure that
underlying inflationary pressures are durably contained. Scope exists to start
lowering nominal policy rates provided inflation continues to ease, with policy
rate reductions beginning in the United States and the euro area by the second
and third quarters of 2024 respectively, but the policy stance should remain
restrictive for some time to come."

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RED SEA DISRUPTIONS EXPECTED TO INFLAME SHIPPING DELAYS AND RAISE COSTS

The OECD estimates that, in 2022, approximately 15% of global maritime trade
volumes travelled through the Red Sea. With the Houthi attacks in the Red Sea
still showing few signs of abating, shipping costs for a number of companies
have risen rapidly.

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This is mostly due to the several companies such as Hapag Lloyd, Maersk and
Mediterranean Shipping Company (MSC) announcing they would be pausing transits
through the Red Sea due to the increasing danger of attacks on commercial ships.

Other companies have had to go around the African continent, via the Cape of
Good Hope and have seen their travel lengths spike by 30% to 50%. This has
mainly impacted trade routes and schedules from Asia to Europe.

This has led to concerns arising about shipping capacity worldwide. Several
companies had already placed more orders for container ships following the
pandemic so it is hoped that will now help fill the supply gap and eventually
decrease costs.

Shipping costs can have a powerful impact on global inflation, with several
European retailers such as Tesco, Primark, Next and Marks and Spencer warning
that the Red Sea situation could lead to price rises for several products, as
well as others being unavailable or in short supply.

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As such, the OECD estimates that, if shipping costs continue to grow, annual
import price inflation could potentially see a hike of about 5%. This in turn
could see consumer price inflation inching up by about 0.4% in around one year.


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EUROVIEWS. BOEING’S TRAGEDY: THE FALL OF AN AMERICAN ICON

A Boeing 737 Max jet prepares to land at Boeing Field following a test flight in
Seattle, September 2020 - Copyright AP Photo/Euronews
Copyright AP Photo/Euronews
By Yves Doz, Keeley Wilson
Published on 07/02/2024 - 16:06 GMT+1
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The opinions expressed in this article are those of the author and do not
represent in any way the editorial position of Euronews.

The combination of a misaligned merger, a lack of in-house skills and experience
to run a global network, and other major factors compromised the future of the
once-great company, Yves Doz and Keeley Wilson write.

ADVERTISEMENT

The recent Alaska Airlines incident is just the latest in a string of sometimes
tragic mishaps by the aircraft manufacturer – where did it all go wrong?

On 5 January, an Alaska Airlines Boeing 737 MAX 9 lost a fuselage cabin panel at
4,900 metres and was forced to conduct an emergency landing, fortunately without
any major injuries to passengers and crew.



Still under investigation, it seems that the panel in question (provided by a
Boeing partner, Spirit AeroSystems) had not been properly bolted to the
fuselage, a major manufacturing defect and quality-control oversight. 

Loose parts were soon found on other 737 MAX 9 planes. The result was the
grounding of all 171 Boeing MAX 9 jets by US regulators and a more than 10% drop
in the company’s share price.

To compound Boeing’s woes, the US Secretary of State Antony Blinken’s 737 was
grounded in Davos following mechanical failure. And just a few days ago, Boeing
was again in the limelight when a 747 had to perform an emergency landing in
Miami with an engine on fire.

These are just the latest in a string of unfortunate and sometimes fatal
incidents, including two deadly crashes involving Boeing's 737 MAX planes, which
have all served to undermine public confidence in the company.

Other new Boeing airplanes such as the 787 long-haul Dreamliner faced
development hold-ups, delayed regulatory approval and suffered serious teething
troubles (such as its batteries catching fire). 



Even the famous Boeing 777 suffered temporary groundings due to safety concerns,
and the development of the latest version is running four years behind schedule.

This once-great company has been stumbling from crisis to crisis. But how did it
get to this point? 

Our research on global innovation and the failings of corporate governance
suggests that the combination of two major strategy shifts in the early 2000s
compromised the future of the company.


A MISALIGNED MERGER

First, in 1997, Boeing acquired McDonnell Douglas. While the firm had a great
aerospace tradition in building airliners, starting with the iconic DC3,
McDonnell Douglas found it increasingly difficult to compete with first Boeing
and then Airbus.



By the time the Soviet Union collapsed, the company’s military business had
fallen on hard times, and it had to be very sensitive to costs.

Lacking the resources to embark on new product development, merging with Boeing
was McDonnell Douglas’ way to exit the industry.

> As we have observed first-hand in other mergers — for instance, Solvay and
> Rhodia in Europe or, much earlier, Glaxo and Wellcome — the tougher, leaner
> managers of the weaker company elbowed out the more gentlemanly leaders of the
> bigger company.

MD80s and MD90s produced at the Douglas Products Division of the Boeing Co. in
Long Beach, CA, October 1997 John Hayes/AP

However, while the firm’s name was retired, the McDonnell Douglas’ management
team did not leave quietly. 

In fact, as we have observed first-hand in other mergers — for instance, Solvay
and Rhodia in Europe or, much earlier, Glaxo and Wellcome — the tougher, leaner
managers of the weaker company elbowed out the more gentlemanly leaders of the
bigger company.

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The result was that Boeing’s idealistic engineers ended up being run by
McDonnell Douglas hard-bitten veterans. 

These were accountants, financial controllers and other managers obsessed with
cost savings and used to running things on a shoestring budget. They were also
very sensitive to shareholder wealth.


A NEW OPERATING MODEL

Concerned with limiting risks and development costs, they recruited risk-bearing
partners to invest in new aircraft programmes and to co-develop and co-produce
new plane models. 

Partners would share in development costs and work, and then produce
subassemblies of the plane. These ranged from non-critical components, such as
the cabin furnishings, to much larger and more critical elements — for example,
the fins, wings, and even whole fuselages.

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This wasn’t necessarily an entirely new approach for Boeing. Determined to never
again take the kind of “bet-the-company” risk that had characterised the
development of the B747 “jumbo jet” in the 1960s, the firm had already
successfully pioneered this practice with a consortium of Japanese aerospace
companies for both the 767 and 777.

A Southwest Airlines Boeing 737 flies over a Southwest Chicago neighborhood as
it lands at Midway Airport, January 2006 AP Photo/Charles Rex Arbogast

After the acquisition of McDonnell Douglas, Boeing wanted to minimise its own
costs and investments. 

To do so, it simply brought in new risk-sharing partners — in Japan, the US,
Italy, South Korea and other countries whose aerospace industries were not
already closely linked with their rival Airbus. 

It meant Boeing was able to minimise its own investment and focus on overall
system integration and final assembly, subcontracting the building of plane
structures to its partners.

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A LACK OF IN-HOUSE SKILLS AND EXPERIENCE TO RUN A GLOBAL NETWORK

For decades the civilian airliner market has been very cyclical. Fluctuations in
demand create peaks and troughs in engineering and production needs. 

Increasingly over time, the new, highly cost-conscious Boeing resorted to
layoffs when that demand slackened. Many highly experienced workers and
engineers were made redundant only for the company to find that they were no
longer available for re-hire when demand picked up.

While growing reliance on partners and subcontractors made up for the shortfall
of skilled personnel, hands-on experience and competence in the actual design
and building of aircraft were lost. 

This meant that Boeing’s high-level system integration capabilities were hard to
maintain without a more detailed understanding of how to design and build plane
structures. 

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The systems required to control the full design of new aeroplane configurations
are extremely complex. Most Boeing engineers at the time only understood a small
part of those systems and had to rely on local “experts”, who had become scarce.

> Driven by cost-reduction priorities, Boeing also moved some of its own design
> and development activities to lower-cost locations, such as Moscow. However,
> Russian expertise in designing and building airliners lagged behind the US.

Then-PM Vladimir Putin and Boeing Commercial Airplanes CEO Scott Carson, left,
seen prior to ribbon-cutting ceremony to inaugurate Boeing's joint venture in
Moscow, July 2009 AP Photo/Sergey Ponomarev

Driven by cost-reduction priorities, Boeing also moved some of its own design
and development activities to lower-cost locations, such as Moscow. However,
Russian expertise in designing and building airliners lagged behind the US. 

Additionally, some talented personnel had left Russia, and the new overseas
design centres were no substitute for the company’s home base near Seattle.

With the 787, the shift to composite materials for major parts of the plane
structure further compounded the potential for difficulties to arise. 

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Related
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   warns
 * Aerospace giant Boeing plans to cut about 2,000 jobs

Because of this lack of experience, the ageing of these materials was not well
known and assembling major plane sections using these materials — more easily
susceptible to wear and tear than traditional metals — proved difficult. 

Boeing’s partners were struggling with the design and manufacturing ability of
their own contributions, needing emergency help from Boeing that led to major
delays in the development of the 787. Boeing’s remaining engineering skills were
simply stretched too thin.


'THIS NEEDS A BABEL FISH'

Put simply, Boeing underestimated what it took to scale up and run a global
supply chain partner network, delivering the hundreds of thousands of parts and
subassemblies each plane needed. Working with foreign partners and design
centres presented unique and unexpected challenges.

Take the example of language. Even when everybody spoke basic English, the use
of culture- or country-bound metaphors created problems. 

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> Top Boeing managers would say 'this needs to be a Fisher-Price'. While all US
> engineers understood the reference [...] this was meaningless to engineers
> from some other countries.

A worker assembles a Boeing's 737 MAX airplane wing at the company's production
facility in Renton, WA, February 2017 Elaine Thompson/AP

For example, top Boeing managers would say “this needs to be a Fisher-Price”. 

While all US engineers understood the reference to a well-regarded brand of
plastic toys that could be easily snapped together, this was meaningless to
engineers from some other countries. 

Time zone differences, e-mail system heterogeneity, multiple versions of design
tools and filing systems all further got in the way of smooth operations.

Our research suggests that one can successfully engage in global innovation
projects only by starting small. That means just a few partners and a few
locations, under the leadership and discipline of experienced global managers.
Boeing simply tried to do too much, too fast.

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FLAWS IN THE MAX

And then came the 737 MAX disasters in Indonesia and Ethiopia. While the reasons
for the accidents have been covered in detail elsewhere, the underlying cause
was due to shortcuts in the redesign of the planes to accommodate a larger, more
efficient engine.

Shortcuts were taken due to financial constraints, time pressures and the
competitive threat of Airbus, whose A320 planes could easily accommodate the new
engine.

Flaws in the reliability of the new control software were then overlooked —
though they were known to a few engineers and voiced internally by Boeing pilots
who had tested the new software on simulators as early as 2016. 

It meant the plane was put into service with no additional training for pilots
(another cost-saving measure).

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The Federal Aviation Administration (FAA) enquiry into the crashes showed that
Boeing staff had not been sufficiently candid in their interactions with either
FAA inspectors certifying the planes, or with their customers about the risks
the new software introduced and the need for extra pilot training. 

An Alaska Airlines Boeing 737 Max 9 aircraft awaits inspection outside the
airline's hangar at Seattle-Tacoma International Airport, January 2024 AP
Photo/Lindsey Wasson

The 737 MAX fleet was grounded for two years following the crashes, and its
production was reduced and then stopped. The trusting relationship with the FAA
and many customers was broken.

The former McDonnell Douglas culture now permeating Boeing led to cutting
corners in product design, development and commercialisation.

Related
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   search results
 * Lawmakers fault FAA, Boeing for deadly 737 Max crashes

Boeing had embarked on a fundamental transformation of its business model from
being a US aircraft designer and manufacturer towards becoming an orchestrator
of a growing number of partners and subcontractors worldwide. 

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Without understanding it, the company’s leaders were perhaps taking greater
risks than in developing the 747 decades earlier.


THE LACK OF ATTENTION TO SAFETY: A GOVERNANCE PROBLEM

In 2022, Boeing paid a fine of over $200 million (€185.5m) in a suit brought by
shareholders against its board for failing in its fiduciary duty to monitor
quality. 

The shareholders argued that safety was not an item for discussion of the board
and that there was no mechanism to alert directors to safety issues.

Less than a year after Aviation Week, the leading aerospace trade magazine,
named him “Person of the Year 2018”, Boeing’s CEO David Muilenburg was fired by
the board. He was mainly accused of not having taken safety seriously enough.

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> Up until 2019, Boeing’s board had been rich in retired government officials
> but short in aerospace expertise. Financial engineering took priority over
> aerospace engineering.

Boeing President and CEO Dennis Muilenburg appears before a Senate Committee on
Commerce, Science, and Transportation hearing on Capitol Hill in Washington DC,
October 2019 AP Photo/Andrew Harnik

An enquiry revealed Boeing had no board member in charge of safety, contrary to
the standard practice of all airlines and most other aerospace companies. There
was a personnel council for safety, but this body was not connected to the CEO
or the board. 

Up until 2019, Boeing’s board had been rich in retired government officials but
short in aerospace expertise. Financial engineering took priority over aerospace
engineering.

Related
 * European aviation regulator says Boeing 737 Max safe to fly
 * Boeing fires CEO Dennis Muilenburg in boardroom shake-up 'to restore
   confidence'

The new CEO Dave Calhoun, who was appointed at the start of 2020, recognised
these deficiencies and renewed half the board. 

Still, it takes time for transformational changes in company culture to trickle
down from the board into a company’s operations. The newest directors on
Boeing’s board are likely only hitting their stride about now.

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TOO MUCH, TOO FAST

In retrospect, Boeing undertook several fundamental changes, seemingly unaware
of how ambitious and difficult they were. 

It moved from having just a few select partners around the world — mostly in
Japan, where manufacturing excellence is a norm— to building a much larger
network of global partners that lacked collaborative experience. This alone was
a major transformation.

With its growing reliance on partners, Boeing focused on system integration and
final assembly, losing some of the depth of its industrial competencies. 

Shifting to composite materials made this transformation even more difficult, as
did the cost-saving culture it imposed on itself amid growing competition from
rival Airbus.

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Poor governance, full order books (thanks to strong growth in air travel) and an
ill-composed, uninformed board prevented the various dangers Boeing courted with
from being perceived and assessed realistically.

But perhaps the biggest challenge the company faces is trying to overcome the
quality control issues that have arisen from the complex and dispersed nature of
its supply system. Only time will tell if Boeing can rescue itself from the
challenges it has created.

Yves Doz is a professor of strategic management, and Keeley Wilson is a senior
researcher at the Institut Européen d'Administration des Affaires (INSEAD).

At Euronews, we believe all views matter. Contact us at view@euronews.com to
send pitches or submissions and be part of the conversation.

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