Item 11
ANNUAL FINANCIAL
REPORT
AstraZeneca PLC
(the Company) announced today the publication of its Annual Report and Form 20-F
Information 2009 (Annual Report); Notice of Annual General Meeting 2010 and
Shareholders' Circular, together with a covering letter from the Chairman and
‘AstraZeneca 2009 in brief’.
Copies of the
documents have been filed with the UK Listing Authority in accordance with LR
9.6.1R and will be available for viewing at the UKLA document viewing facility
at 25 The North Colonnade, Canary Wharf, London E14 5HS. The documents will be
despatched to shareholders shortly. The documents are also available on the
Company’s website at astrazeneca.com/annualreport2009,
astrazeneca.com/noticeofmeeting2010 and
astrazeneca.com/shareholderletter2009.
The meeting place
for the Annual General Meeting (AGM) will be the Renaissance Chancery Court
Hotel, 252 High Holborn, London WC1V 7EN and the AGM will commence at 2.30 pm
(BST) on 29 April 2010.
Pursuant to DTR
6.1.2R, two draft copies of the proposed amendments to the Company's Articles of
Association pending approval at the 2010 AGM, have also been submitted to the UK
Listing Authority. In addition, a full set of articles highlighting the
amendments is available for inspection until the close of the AGM at the
Company's registered office at 15 Stanhope Gate, London W1K 1LN during business
hours.
EXPLANATORY
NOTE AND WARNING
Solely for the
purposes of complying with DTR 6.3.5R and the requirements it imposes on issuers
as to how to make public annual financial reports, we set out
below:
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in Appendix
A, a management report;
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in Appendix
B, the principal risks and uncertainties facing the
Company;
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in Appendix
C, the Directors’ responsibility statement made in respect of the
Financial Statements and Directors’ Report contained in the Annual Report;
and
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in Appendix
D, a statement regarding related party
transactions.
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The appendices have
been extracted from the Annual Report in unedited full text. This information
should be read in conjunction with the Company’s fourth quarter and full year
results 2009 announcement, issued on 28 January 2010, which contained a
condensed set of financial statements and which can be found at
astrazeneca.com/investors/financial-results/2009. Together, these constitute the
material required by DTR 6.3.5R to be communicated to the media in unedited full
text through a Regulatory Information Service.
Page numbers and
section cross-references in the appendices refer to pages and sections in the
Annual Report. Defined terms used in the appendices refer to terms as defined in
the Annual Report.
This material is
not a substitute for reading the full Annual Report.
A
C N Kemp
Company
Secretary
15
March 2010
APPENDIX
A
Chairman’s
statement
Despite the
difficult world economic conditions, 2009 was a successful year for AstraZeneca.
Our strong performance and considerable achievement in making a real difference
to patient health around the world meant that our shareholders were also able to
benefit.
Group sales
increased by 7% in 2009 to a total of $32,804 million. Reported operating profit
was $11,543 million, up 24%. Reported earnings per share for the full year were
$5.19 (2008: $4.20). The Board has recommended a second interim dividend of
$1.71, a 14% increase over the second interim dividend awarded in 2008. This
brings the dividend for the full year to $2.30 (141.4 pence, SEK 16.84), an
increase of 12% from 2008. In 2009, cash distributions to shareholders through
dividends totalled $2,977 million.
Meeting patient
need lies at the heart of what we do. In 2009, immediate need was met when our
people and technology enabled us to develop and be the first to market an H1N1
influenza (swine flu) vaccine in the US. Equally, when generic producers proved
unable to supply the market for Toprol-XL, we successfully
rebuilt our supply chain to fill the void.
2009 was also a
year in which AstraZeneca science was at the forefront of the industry, ensuring
that we are able to meet patient need in the longer term. Two of the biggest
landmark clinical trials to report in recent years, the Crestor JUPITER and the Brilinta PLATO trials,
engaged academic and clinical communities across the globe. We have made
regulatory submissions based on the results of these trials.
Our strategic focus
is on innovation-driven medicines that are valued by patients and payers alike.
We continue to invest in new medicines and we work to protect our investments by
rigorously defending our patent rights and thereby optimising our intellectual
property. To this end, AstraZeneca will vigorously defend the challenge to the
Crestor US substance
patent brought by a number of generic drug manufacturers when the case goes to
trial in February 2010.
Worldwide,
pharmaceutical industry revenue growth, while positive, is slowing. This is due
to pressure on healthcare costs, exacerbated by the current economic downturn,
as well as increased competition from generic medicines. We believe pressures on
costs are likely to continue, especially in the US.
Nevertheless, the
demand for healthcare that will drive the industry’s future growth remains
strong, especially from economic and demographic growth in Emerging Markets and
the growing number of patients there who can afford our medicines. In response
to these developments we have continued to drive change in the business. We are
reshaping our presence in Established Markets to ensure we remain competitive
and investing in Emerging Markets around the world so that we can benefit from
their growth.
We
used our assessment of the future for the pharmaceutical sector as the basis for
the annual strategy review with David Brennan and his executive team. We
confirmed our commitment to being an integrated, global and innovation-driven
prescription-based biopharmaceutical business. While there has already been much
change in the business, the review also highlighted the need to redouble our
efforts if we are to stay at the forefront of the sector. Our plans for the
business are outlined in more detail in David’s Review and the Strategy and
Performance section.
In
recognition of the Group’s strong balance sheet, sustainable significant cash
flow and the Board’s confidence in the strategic direction and long-term
prospects for the business, we have adopted a progressive dividend policy,
intending to maintain or grow the dividend each year. In order to ensure that
long-term management incentives and shareholder interests remain aligned, we are
tabling proposals for a new share-based long-term incentive plan for shareholder
approval. This has been developed as part of an overall review of executive
remuneration. Further information about this plan and the review can be found in
the Directors’ Remuneration Report from page 101 and in the Notice of
AGM.
During 2009, Håkan
Mogren retired from the Board, having been a Director of the Company since its
formation in 1999. Before then, he had served as Chief Executive Officer and a
Director of Astra AB for more than 10 years. He brought a wealth of experience
and sound judgement to the work of the Board which we valued highly. As
announced last year, John Patterson also retired in 2009. On behalf of their
fellow Directors, I would like to reiterate my thanks to both of them for their
service to the Company.
Once again, the
Board would like to place on record its appreciation of the leadership shown by
David Brennan and his team. On behalf of the Board I would also like to thank
AstraZeneca employees around the world for their contribution to what has been a
very successful year. Their contribution, which has been the foundation of our
past success, is also needed more than ever as we address the challenges to
come. I am confident that AstraZeneca has the skills and capabilities to
continue that success by harnessing both its own efforts and the efforts of
those with whom we work.
Louis
Schweitzer
Chairman
CEO’s
review
2009 was a year of
considerable achievement in which I believe we laid firm foundations for the
future success of the business. Underpinning all this is excellent execution of
our plans, improved organisational flexibility and a committed
workforce.
Operational
highlights of the year include four significant regulatory filings for new
medicines and two product launches. We agreed four late-stage project
collaborations and have 89 projects in clinical development. In addition, sales
of Toprol-XL and H1N1
influenza (swine flu) vaccine in the US accounted for three percentage points of
the global revenue growth at CER, while growth in Emerging Markets was up 12%,
accounting for 13% of total revenue. 2009 was also the year in which we reached
an agreement in principle with the US Attorney’s Office to settle claims
relating to Seroquel
sales and marketing practices and to make a payment of $524 million (including
interest).
If
we are to bring benefits to patients and create value for shareholders, we need
a constant flow of new and innovative medicines. Of the four regulatory filings
made in 2009, Brilinta
is a treatment for acute coronary syndromes, Certriad is for the treatment
of lipid abnormalities and Vimovo is for arthritic pain.
The fourth submission was for a fixed-dose combination of Onglyza™ and metformin
for treating diabetes. 2009 saw Onglyza™ launched in the US and in the EU for
the treatment of Type 2 diabetes. Iressa, our anti-cancer
medicine, was launched in the EU. Of course, in the process of developing new
medicines, we experience setbacks as well as successes. The decision we made
during the year to withdraw the regulatory submissions we had made for our
anti-cancer medicine, Zactima, came as a disappointment.
As
projects leave the development pipeline, we replenish it with new projects that
will yield regulatory submissions in future years. We now have 11 projects in
Phase III development.
Twenty-nine
projects entered the pipeline during the year and 53 projects were progressed to
their next phase of development. We seek to provide each of these projects with
a business case underpinned by a clear scientific rationale and sound financial
case.
In
strengthening our pipeline we look beyond our own laboratories to access the
best science and external sources of innovation. As a result, a significant
number of our projects come from our programme of collaboration. These include
two of our regulatory filings: Certriad was submitted with
Abbott and Vimovo was
submitted by our partner Pozen Inc. In addition, Onglyza™ was the first product
of our diabetes collaboration with BMS.
Other
collaborations agreed in 2009 included the in-licence from Forest of
ceftaroline, a ‘next generation’ anti-infective. We enhanced the value of this
programme in December with an agreement to acquire Novexel, a private infection
research company. We also agreed in-licensing deals with Nektar and
Targacept.
A
further focus in 2009 was the continued reshaping of the business to give us the
organisational flexibility we need to take advantage of opportunities.
Initiatives include outsourcing some of our R&D activities, other business
processes and support services, such as HR. To meet evolving customer needs we
are adapting our methods of sales and marketing and altering our supply
chains.
Our drive to
improve efficiency and effectiveness across AstraZeneca has resulted in further
reductions in our workforce. The executive team and I remain committed to
ensuring that we manage these changes in the right way. This means that, in
meeting the needs of the business, we deal responsibly and sympathetically with
affected individuals and the communities in which they live.
We
continue to integrate responsible business considerations into everyday
decision-making across all our activities, reinforcing personal accountability
for compliance with our Code of Conduct through training and monitoring of
business practices. We were pleased to have our efforts recognised externally
with improved scores in the 2009 Dow Jones Index. Looking ahead, we have
identified areas for improvement and will take action to strengthen further our
governance and management processes, building on our progress to date and
driving continuous improvement throughout the business.
2009 also saw some
changes to the executive team. Jan Lundberg, Executive Vice-President, Discovery
Research left AstraZeneca in November. We thank him for his significant
contribution to the business. Christer Köhler has taken over the role on an
interim basis. Bruno Angelici, Executive Vice-President, International Sales and
Marketing Organisation, will be leaving AstraZeneca later in 2010. He has made
an enormous contribution and we thank him for his sound judgement and strong
leadership.
Finally, the
achievements of the year would not have been possible without the dedication and
hard work of all our employees, to whom I offer my thanks. For many of our
employees 2009 was a year of change. The pace of change is not going to let up
in 2010. Indeed, it is going to accelerate. I am confident that our staff will
respond with the commitment they have shown in the past.
The Strategy and
Performance section from page 14 outlines our plans and priorities for 2010 and
beyond, which we need to implement to ensure we prosper in the years ahead. In
doing so, we will improve the health of patients around the world and thereby
create value for our shareholders.
David R
Brennan
Chief Executive
Officer
Financial
Review
Our
global financial performance and position
In
2009, revenue increased by 7% in constant currency terms; 3 percentage points of
this growth was accounted for by some unanticipated upsides from the performance
of Toprol-XL and sales of H1N1 influenza (swine flu) vaccine in the
US.
Our Emerging
Markets businesses grew strongly, with revenues up 12% in constant currency
terms. Core operating margin increased by 5.1 percentage points in constant
currency terms, on increased revenue, improved efficiencies throughout the
organisation, and some disposal gains within other income.
Cash generation was
strong in 2009; cash from operating activities increased by $3 billion. This
enabled us to invest in capital and intangible assets to drive future growth and
productivity and fund a 12% increase in the full year dividend. Net debt was
reduced by $7.7 billion in 2009, well ahead of plan, and we entered 2010 with
net funds of $0.5 billion.
Since 2007, our
restructuring programme has delivered $1.6 billion in annual savings by the end
of 2009, which will grow to $2.4 billion by the end of 2010. The restructuring
costs to deliver these benefits have totalled $2.5 billion since inception. The
next phase of restructuring is planned to deliver a further $1.9 billion in
annual benefits by the end of 2014, with a further $2.0 billion in restructuring
costs anticipated between 2010 and 2013.
Looking forward,
our plans to manage the business, as the revenue base transitions through this
period of market exclusivity losses and new product launches, should generate
strong cash flow to provide for the needs of the business and shareholder
returns.
Simon
Lowth
Chief Financial
Officer
The purpose of this
Financial Review is to provide a balanced and comprehensive analysis of the
financial performance of the business during 2009, the financial position as at
the end of the year and the main business factors and trends which could affect
the future financial performance of the business.
All growth rates in
this Financial Review are expressed at CER unless noted otherwise.
Measuring
performance
The following
measures are referred to when reporting on our performance both in absolute
terms but more often in comparison to earlier years in this Financial
Review:
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Reported
performance. Reported performance takes into account all the factors
(including those which we cannot influence, principally currency exchange
rates) that have affected the results of our business as reflected in our
Group Financial Statements prepared in accordance with IFRS as adopted by
the EU and as issued by the IASB.
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Core
financial measures. These are non-GAAP measures because unlike Reported
performance they cannot be derived directly from the information in the
Group’s Financial Statements. These measures are adjusted to exclude
certain significant items, such as charges and provisions related to our
global restructuring and synergy programmes, amortisation and impairment
of the significant intangibles relating to the acquisition of MedImmune in
2007, the amortisation and impairment of the significant intangibles
relating to our current and future exit arrangements with Merck in the US
and other specified items. See the Reconciliation of Reported results to
Core results table on page 40 for a reconciliation of Reported to Core
performance.
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Constant
exchange rate (CER) growth rates. These are also non-GAAP measures. These
measures remove the effects of currency movements (by retranslating the
current year’s performance at previous year’s exchange rates and adjusting
for other exchange effects, including hedging). A reconciliation of the
Reported results adjusted for the impact of currency movements is provided
in the Operating profit (2009 and 2008) table on page
39.
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Gross margin
and operating profit margin percentages. These measures set out the
progression of key performance margins and demonstrate the overall quality
of the business.
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Prescription
volumes and trends for key products. These measures can represent the real
business growth and the progress of individual products better and more
immediately than invoiced sales.
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Net
Funds/Debt. This represents our interest bearing loans and borrowings,
less cash and cash equivalents, current investments and derivative
financial instruments.
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CER measures allow
us to focus on the changes in sales and expenses driven by volume, prices and
cost levels relative to the prior period. Sales and cost growth expressed in CER
allows management to understand the true local movement in sales and costs, in
order to compare recent trends and relative return on investment. CER growth
rates can be used to analyse sales in a number of ways but, most often, we
consider CER growth by products and groups of products, and by countries and
regions. CER sales growth can be further analysed into the impact of sales
volumes and selling price. Similarly, CER cost growth helps us to focus on the
real local change in costs so that we can manage the cost base
effectively.
We
believe that disclosing Core financial and growth measures in addition to our
Reported financial information enhances investors’ ability to evaluate and
analyse the underlying financial performance of our ongoing business and the
related key business drivers. The adjustments made to our Reported financial
information in order to show Core financial measures illustrate clearly and on a
year-on-year or period-by-period basis the impact upon our performance caused by
factors such as changes in sales and expenses driven by volume, prices and cost
levels relative to such prior years or periods.
Further, as shown
in the Reconciliation of Reported results to Core results table on page 40, our
reconciliation of Reported financial information to Core financial measures
includes a breakdown of the items for which our Reported financial information
is adjusted and a further breakdown of those items by specific line item as such
items are reflected in our Reported income statement, to illustrate the
significant items that are excluded from Core financial measures and their
impact on our Reported financial information, both as a whole and in respect of
specific line items.
Management presents
these results externally to meet investors’ requirements for transparency and
clarity. Core financial measures are also used internally in the management of
our business performance, in our budgeting process and when determining
compensation.
Core financial
measures are non-GAAP, adjusted measures. All items for which Core financial
measures are adjusted are included in our Reported financial information because
they represent actual costs of our business in the periods presented. As a
result, Core financial measures merely allow investors to differentiate among
different kinds of costs and they should not be used in isolation. You should
also refer to our Reported financial information in the Operating profit (2009
and 2008) table on page 39, our reconciliation of Core financial measures to
Reported financial information in the Reconciliation of Reported results to Core
results table on page 40, and to the Results of operations – summary analysis of
year to 31 December 2008 section from page 42 for our discussion of
comparative
Reported growth measures that reflect all of the factors that affect our
business. Our determination of non-GAAP measures, together with our presentation
of them within this financial information, may differ from similarly titled
non-GAAP measures of other companies.
The SET retains
strategic management of the costs excluded from Reported financial information
in arriving at Core financial measures, tracking their impact on Reported
operating profit and EPS, with operational management being delegated on a
case-by-case basis to ensure clear accountability and consistency for each cost
category.
Business
background and major events affecting 2009
The business
background is covered in the Business Environment section, Geographical Review
and Therapy Area Review and describes in detail the developments in both our
products and geographical regions.
Sales of our
products are directly influenced by medical need and are generally paid for by
health insurance schemes or national healthcare budgets. Our operating results
can be affected by a number of factors other than the delivery of operating
plans and normal competition which are:
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The adverse
impact on pharmaceutical prices as a result of the regulatory environment.
For instance, although there is no direct governmental control on prices
in the US, action from individual state programmes and health insurance
bodies is leading to downward pressures on realised prices. In other parts
of the world, there are a variety of price and volume control mechanisms
and retrospective rebates based on sales levels that are imposed by
governments.
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The risk of
generic competition following loss of patent protection or patent expiry
or an ‘at risk’ launch by a competitor, with the potential adverse effects
on sales volumes and prices, for example, the launch of generic
competition to both Ethyol and Pulmicort Respules in
2008.
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The timings
of new product launches, which can be influenced by national regulators
and the risk that such new products do not succeed as anticipated,
together with the rate of sales growth and costs following new product
launches.
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Currency
fluctuations. Our functional and reporting currency is the US dollar but
we have substantial exposures to other currencies, in particular the euro,
Japanese yen, pound sterling and Swedish
krona.
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Macro factors
such as greater demand from an ageing population and increasing
requirements of servicing Emerging
Markets.
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Over the longer
term, the success of our R&D is crucial, and we devote substantial resources
to this area. The benefits of this investment emerge over the long term and
there is considerable inherent uncertainty as to whether and when it will
generate future products.
The most
significant features of our financial results in 2009 are:
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Reported
sales of $32,804 million, representing CER sales growth of 7% (Reported:
4%).
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Strong
performance in Emerging Markets with CER sales growth of 12% (Reported:
2%).
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Excluded from
Core results were specific legal provisions totalling $636 million (which
impacted Reported results in the year). $524 million of this has been made
in respect of the US Attorney’s Office investigation into sales and
marketing practices involving Seroquel and $112
million relates to average wholesale price litigation. These charges are
excluded from Core performance
results.
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Operating
profit increased by 24% at CER (Reported: 26%). Core operating profit
increased by 23% at CER (Reported: 24%). A reconciliation between these
measures is included in the Reconciliation of Reported results to Core
results table on page 40.
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EPS of $5.19
represented an increase of 22% at CER (Reported: 24%). Core EPS of $6.32
represented an increase of 23% at CER (Reported:
24%).
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Net cash
inflow from operating activities increased to $11,739 million (2008:
$8,742 million).
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Dividends
increased to $2,977 million (2008: $2,739
million).
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Net funds at
31 December were $535 million, an improvement of $7,709 million on net
debt of $7,174 million in the previous
year.
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Total
restructuring and synergy costs associated with the global programme to
reshape the cost base of the business, were $659 million in 2009 (2008:
$881 million). This brings the total restructuring and synergy costs
charged to date to $2,506 million.
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Results
of operations – summary analysis of year to 31 December 2009
The Sales by
Therapy Area (2009 and 2008) table on page 39 shows our sales analysed by
Therapy Area. The Operating profit (2009 and 2008) table on page 39 shows
operating profit for 2009 compared to 2008. The Reconciliation of Reported
results to Core results table on page 40 shows a reconciliation of Reported
results to Core results for 2009 and 2008. More details on our sales performance
by Therapy Area are given in the Therapy Area Review from page 55 in the
Performance 2009 sections.
Sales increased by
4% on a Reported basis and by 7% on a CER basis. Revenue benefited from strong
growth of the Toprol-XL
franchise in the US, as a result of the withdrawal from the market of two other
generic metoprolol succinate products and from US government orders for the H1N1
influenza (swine flu) vaccine; adjusting for these factors, global revenue
increased by 4%. AstraZeneca expects this impact to reduce as generic
competitors re-enter the market. Revenue in Emerging Markets increased by 12% at
CER.
Core gross margin
of 83% for the full year was 2.4% higher than last year at CER (Reported: up
3.3%). Lower payments to Merck and continued efficiency gains and mix factors
were partially offset by higher royalty payments resulting from higher volumes
of sales of relevant products.
Core R&D
expenditure was $4,334 million for the full year, 3% lower than last year at CER
(Reported: down 15%), as increased investment in biologics was more than offset
by the continued productivity initiatives and lower costs associated with
late-stage development projects that have progressed to
pre-registration.
Core SG&A costs
of $9,890 million for the full year were 5% higher than last year at CER
(Reported: up 4%). Stronger than expected revenue performance provided the
opportunity to drive future growth through accelerated marketing investment for
Emerging Markets and currently marketed brands, and to support launch planning
for the new products awaiting registration. SG&A expense growth also
included increased legal expenses and impairment of intangible assets related to
information systems, which were only partially offset by operational
efficiencies.
Core other income
of $926 million was $192 million higher than 2008, chiefly as a result of the
disposal of the co-promotion rights of Abraxane™ and Nordic OTC portfolio
disposals in the first half of the year.
Impairment charges
relating to intangible fixed assets totalled $415 million during the year.
Charges totalling $272 million, being the charges arising from impairments in
respect of assets relating to our HPV cervical cancer vaccine income stream and
other assets capitalised as part of the MedImmune acquisition have been excluded
from Core results.
During the year,
developments in several legal matters resulted in provisions totalling $636
million. Full details of these matters are included in Note 25 to the Financial
Statements from page 166.
Restructuring and
synergy costs totalling $659 million, incurred as the Group continues its
previously announced efficiency programmes and amortisation totalling $511
million relating to assets capitalised as part of the MedImmune acquisition and
the Merck partial retirement, which impacted Reported operating profit, were
also excluded from Core performance.
Core operating
profit was $13,621 million, an increase of 23% at CER (Reported: 26%). Core
operating margin increased by 5.1% to 41.5% of revenue, as a result of sales
growth, efficiencies across the cost base, lower R&D spend and the disposals
within other income.
Net finance expense
was $736 million for the year, versus $463 million in 2008. The principal
factors contributing to this increase were the continued reversal of the fair
value gain, reduced interest received due to lower interest rates and a higher
net interest expense on pension obligations, partially offset by reduced
interest payable on lower net debt balances.
Net finance expense
included a net fair value loss of $145 million for the year (2008: $130 million
gain) as credit spreads have reduced since the previous year end. The net fair
value gain of $130 million recorded in the prior year, mainly related to two
long-term bonds. These bonds are swapped to floating interest rates and
accounted for using the fair value option under IFRS. Under this accounting
treatment both the bonds and the related interest rate swaps are measured at
fair value, with changes in fair value reported in the income statement. The
fair value of each instrument reflects changes in market interest rates, which
broadly offset, but the fair value of these bonds also reflects changes in
credit spreads. The 2008 gain has now reversed fully in 2009 and, as credit
spreads continued to reduce in the final quarter of 2009, further losses have
been recorded.
The effective tax
rate for the year is 30.2%. Excluding the impact of the $636 million legal
provisions, the effective tax rate would be 28.8% (2008: 29.4%). A description
of our tax exposures is set out in Note 25 to the Financial Statements from page
166.
Core EPS were
$6.32, an increase of 23% at CER on 2008, as the increase in Core operating
profit was partially offset by increased net finance expense. Reported EPS
increased 24% to $5.19.
Total comprehensive
income for the year increased by $3,266 million from 2008. This was principally
due to an increase in profit for the period of $1,414 million, beneficial
exchange rate impacts on consolidation of $1,365 million and reduced actuarial
losses of $663 million compared to 2008.
Geographical
analysis
We
discuss the geographical performances in the Geographic Review from page
50.
Sales
by Therapy Area (2009 and 2008)
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2009
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2008
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2009 compared to
2008
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Growth due
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CER
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to exchange
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CER
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Reported
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Reported
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growth
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effects
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Reported
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growth
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growth
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$m |
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$m |
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$m |
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$m |
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%
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%
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Cardiovascular
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8,376 |
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1,737 |
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(324 |
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6,963 |
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25 |
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20 |
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Gastrointestinal
|
|
|
6,011 |
|
|
|
(157 |
) |
|
|
(176 |
) |
|
|
6,344 |
|
|
|
(2 |
) |
|
|
(5 |
) |
|
Infection and
other
|
|
|
2,631 |
|
|
|
257 |
|
|
|
(77 |
) |
|
|
2,451 |
|
|
|
10 |
|
|
|
7 |
|
|
Neuroscience
|
|
|
6,237 |
|
|
|
566 |
|
|
|
(166 |
) |
|
|
5,837 |
|
|
|
10 |
|
|
|
7 |
|
|
Oncology
|
|
|
4,518 |
|
|
|
(330 |
) |
|
|
(106 |
) |
|
|
4,954 |
|
|
|
(7 |
) |
|
|
(9 |
) |
|
Respiratory &
Inflammation
|
|
|
4,132 |
|
|
|
234 |
|
|
|
(230 |
) |
|
|
4,128 |
|
|
|
6 |
|
|
|
– |
|
|
Other
businesses
|
|
|
899 |
|
|
|
10 |
|
|
|
(35 |
) |
|
|
924 |
|
|
|
1 |
|
|
|
(3 |
) |
|
Total
|
|
|
32,804 |
|
|
|
2,317 |
|
|
|
(1,114 |
) |
|
|
31,601 |
|
|
|
7 |
|
|
|
4 |
|
Operating
profit (2009 and 2008)
|
|
|
2009
|
|
|
2008
|
|
|
Percentage of
sales
|
|
|
2009 compared to
2008
|
|
|
|
|
|
|
|
|
|
|
Growth due
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CER
|
|
|
to exchange
|
|
|
|
|
|
Reported
|
|
|
Reported
|
|
|
CER
|
|
|
Reported
|
|
|
|
|
Reported
|
|
|
growth
|
|
|
effects
|
|
|
Reported
|
|
|
2009
|
|
|
2008
|
|
|
growth
|
|
|
growth
|
|
|
|
|
$m |
|
|
$m |
|
|
$m |
|
|
$m |
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
Sales
|
|
32,804 |
|
|
2,317 |
|
|
(1,114 |
) |
|
31,601 |
|
|
|
|
|
|
|
|
7 |
|
|
4 |
|
|
Cost of
sales
|
|
(5,775 |
) |
|
540 |
|
|
283 |
|
|
(6,598 |
) |
|
(17.6 |
) |
|
(20.9 |
) |
|
(8 |
) |
|
(12 |
) |
|
Gross
profit
|
|
27,029 |
|
|
2,857 |
|
|
(831 |
) |
|
25,003 |
|
|
82.4 |
|
|
79.1 |
|
|
11 |
|
|
8 |
|
|
Distribution
costs
|
|
(298 |
) |
|
(37 |
) |
|
30 |
|
|
(291 |
) |
|
(0.9 |
) |
|
(0.9 |
) |
|
13 |
|
|
3 |
|
|
Research and development
|
|
(4,409 |
) |
|
298 |
|
|
472 |
|
|
(5,179 |
) |
|
(13.5 |
) |
|
(16.4 |
) |
|
(6 |
) |
|
(15 |
) |
|
Selling, general and
administrative costs
|
|
(11,332 |
) |
|
(945 |
) |
|
526 |
|
|
(10,913 |
) |
|
(34.5 |
) |
|
(34.6 |
) |
|
9 |
|
|
4 |
|
|
Other operating income and
expense
|
|
553 |
|
|
33 |
|
|
(4 |
) |
|
524 |
|
|
1.7 |
|
|
1.7 |
|
|
6 |
|
|
6 |
|
|
Operating
profit
|
|
11,543 |
|
|
2,206 |
|
|
193 |
|
|
9,144 |
|
|
35.2 |
|
|
28.9 |
|
|
24 |
|
|
26 |
|
|
Net finance
expense
|
|
(736 |
) |
|
|
|
|
|
|
|
(463 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before
tax
|
|
10,807 |
|
|
|
|
|
|
|
|
8,681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxation
|
|
(3,263 |
) |
|
|
|
|
|
|
|
(2,551 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the
period
|
|
7,544 |
|
|
|
|
|
|
|
|
6,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
($)
|
|
5.19 |
|
|
|
|
|
|
|
|
4.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Growth rates on line items below
operating profit, where meaningful, are given elsewhere in this Annual
Report.
Financial
position, including cash flow and liquidity – 2009
All data in this
section is on a Reported basis (unless noted otherwise).
Net assets
increased by $4,761 million to $20,821 million. The increase due to Group profit
of $7,521 million was offset by dividends of $3,026 million. Exchange rate
movements arising on consolidation and actuarial losses also reduced net assets
during the year.
Property,
plant and equipment
Property, plant and
equipment increased by $264 million to $7,307 million primarily due
to additions of $967 million and exchange rate movements of $391 million
offset by depreciation and impairments of $943 million.
Goodwill
and intangible assets
Goodwill and
intangible assets have increased by $82 million to $22,115 million.
Goodwill
principally arose on the acquisition of MedImmune and on the restructuring of
our US joint venture with Merck in 1998. No goodwill has been capitalised
in 2009.
Intangible assets
have reduced by $97 million to $12,226 million. Additions totalled $1,003
million, amortisation was $729 million and impairments totalled
$415 million. Exchange rate impacts increased intangible assets by $178
million.
Additions in 2009
included $300 million in respect of milestone payments made under
our
collaboration
agreement with BMS, $200 million in respect of our agreement with Targacept, and
$126 million in respect of our agreement with Nektar.
During 2009,
impairments totalled $415 million. $150 million was impaired as a result of
a reassessment of the licensing income generated by the HPV cervical cancer
vaccine. Impairments of other assets acquired with MedImmune totalled $122
million. Impairments related to our acquisition of MedImmune and therefore
excluded from our Core results totalled $272 million. In addition, $93
million was written off products in development.
Additions to
intangible assets in 2008 included a payment made to Merck under pre-existing
arrangements under which Merck’s interests in our products in the US will be
terminated (subject to the exercise of options beginning in 2010). As a result
of the payment, AstraZeneca no longer has to pay contingent payments on these
products. This payment includes $1,656 million in respect of payments on account
for rights that will crystallise if we exercise future options. If AstraZeneca
does not exercise these options certain rights will remain with Merck resulting
in a write-off for any rights not acquired. Further details of this
matter are included in Note 25 to the Financial Statements from page
166.
Inventories
Inventories have
increased by $114 million to $1,750 million principally due to exchange
rate impacts.
Receivables,
payables and provisions
Trade and other
receivables increased by $448 million to $7,709 million. Exchange
rate movements increased receivables by $220 million. The underlying
increase of $228 million was driven by increased sales in the final quarter
and an increase in insurance recoverables.
As
of 31 December, legal defence costs of approximately $656 million
(2008: $512 million) have been incurred in connection with Seroquel-related product
liability claims. The first $39 million is not covered by insurance. At 31
December, AstraZeneca has recorded an insurance receivable of $521 million
(2008: $426 million) representing the maximum insurance receivable that
AstraZeneca can recognise under applicable accounting principles at
this time. This may increase over time as AstraZeneca believes that it
is more likely than not that the vast majority of costs incurred to date in
excess of $39 million will ultimately be recovered through this insurance,
although there can be no assurance of additional coverage under
the policies, or that the insurance receivable which we have recognised,
will be realisable in full.
Trade and other
payables increased by $1,604 million primarily due to increases in US managed
market accruals, accruals in respect of intangibles investments made in the
fourth quarter and other accruals. Trade and other payables include $2,618
million in respect of accruals relating to rebates
and chargebacks in our US market. These are explained and reconciled fully
in the Rebates, chargebacks and returns in the US section from page
45, along with cash discounts and customer returns.
During the year
AstraZeneca made a provision of $636 million in respect of various federal and
state investigations and civil litigation matters relating to drug
marketing and pricing practices. $524 million of this provision has been made in
respect of the US Attorney’s Office investigation into sales and marketing
practices involving Seroquel with the remainder
relating to average wholesale price litigation. Further details on these matters
are included in Note 25 to the Financial Statements from page
166.
Tax
payable and receivable
Net income tax
payable has increased by $885 million to $2,853 million principally due to
tax audit provisions, cash tax timing differences and exchange rate movements.
Tax receivable
largely comprises
tax owing to AstraZeneca from certain governments expected to be received
on settlements of transfer pricing audits and disputes (see Note 25 to
the Financial Statements from page 166).
Retirement
benefit obligations
Net retirement
benefit obligations increased by $622 million principally as a result of
actuarial losses of $569 million and adverse exchange rate effects of $215
million. Approximately 97% of the Group’s obligations are concentrated in three
countries. The following table shows the US dollar effect of a 1% change in
the discount rate on the retirement benefit obligations in those
countries.
|
|
-1%
|
+1%
|
|
UK ($m)
|
1,129
|
(973)
|
|
US ($m)
|
256
|
(225)
|
|
Sweden ($m)
|
229
|
(192)
|
|
Total ($m)
|
1,614
|
(1,390)
|
Reconciliation
of Reported results to Core results
|
|
|
|
|
Restructuring
and
|
|
|
Merck &
MedImmune
|
|
|
Intangible
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
synergy
costs
|
|
|
amortisation
|
|
|
impairments
|
|
|
Legal
provisions
|
|
|
2009 Core
|
|
|
2009
|
|
$m |
|
|
|
$m |
|
|
|
$m |
|
|
|
$m |
|
|
|
$m |
|
|
|
$m |
|
|
Gross
margin
|
|
27,029 |
|
|
|
188 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
27,217 |
|
|
Distribution
costs
|
|
(298 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(298 |
) |
|
Research and
development
|
|
(4,409 |
) |
|
|
68 |
|
|
|
– |
|
|
|
7 |
|
|
|
– |
|
|
|
(4,334 |
) |
|
Selling, general and
administrative costs
|
|
(11,332 |
) |
|
|
403 |
|
|
|
403 |
|
|
|
– |
|
|
|
636 |
|
|
|
(9,890 |
) |
|
Other operating income and
expense
|
|
553 |
|
|
|
– |
|
|
|
108 |
|
|
|
265 |
|
|
|
– |
|
|
|
926 |
|
|
Operating
profit
|
|
11,543 |
|
|
|
659 |
|
|
|
511 |
|
|
|
272 |
|
|
|
636 |
|
|
|
13,621 |
|
|
Net
interest
|
|
(736 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(736 |
) |
|
Profit before
tax
|
|
10,807 |
|
|
|
659 |
|
|
|
511 |
|
|
|
272 |
|
|
|
636 |
|
|
|
12,885 |
|
|
Taxation
|
|
(3,263 |
) |
|
|
(199 |
) |
|
|
(125 |
) |
|
|
(82 |
) |
|
|
(34 |
) |
|
|
(3,703 |
) |
|
Profit for the
period
|
|
7,544 |
|
|
|
460 |
|
|
|
386 |
|
|
|
190 |
|
|
|
602 |
|
|
|
9,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
($)
|
|
5.19 |
|
|
|
0.32 |
|
|
|
0.27 |
|
|
|
0.13 |
|
|
|
0.41 |
|
|
|
6.32 |
|
|
|
|
|
|
|
Restructuring
and
|
|
|
Merck &
MedImmune
|
|
|
Intangible
|
|
|
|
|
|
|
|
|
|
|
Reported
|
|
|
synergy
costs
|
|
|
amortisation
|
|
|
impairments
|
|
|
Legal
provisions
|
|
|
2008 Core
|
|
|
2008
|
|
|
$m |
|
|
|
$m |
|
|
|
$m |
|
|
|
$m |
|
|
|
$m |
|
|
|
$m |
|
|
Gross
margin
|
|
|
25,003 |
|
|
|
405 |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
25,408 |
|
|
Distribution
costs
|
|
|
(291 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(291 |
) |
|
Research and
development
|
|
|
(5,179 |
) |
|
|
166 |
|
|
|
– |
|
|
|
60 |
|
|
|
– |
|
|
|
(4,953 |
) |
|
Selling, general and
administrative costs
|
|
|
(10,913 |
) |
|
|
310 |
|
|
|
406 |
|
|
|
257 |
|
|
|
– |
|
|
|
(9,940 |
) |
|
Other operating income and
expense
|
|
|
524 |
|
|
|
– |
|
|
|
120 |
|
|
|
90 |
|
|
|
– |
|
|
|
734 |
|
|
Operating
profit
|
|
|
9,144 |
|
|
|
881 |
|
|
|
526 |
|
|
|
407 |
|
|
|
– |
|
|
|
10,958 |
|
|
Net
interest
|
|
|
(463 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(463 |
) |
|
Profit before
tax
|
|
|
8,681 |
|
|
|
881 |
|
|
|
526 |
|
|
|
407 |
|
|
|
– |
|
|
|
10,495 |
|
|
Taxation
|
|
|
(2,551 |
) |
|
|
(259 |
) |
|
|
(125 |
) |
|
|
(121 |
) |
|
|
– |
|
|
|
(3,056 |
) |
|
Profit for the
period
|
|
|
6,130 |
|
|
|
622 |
|
|
|
401 |
|
|
|
286 |
|
|
|
– |
|
|
|
7,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
($)
|
|
|
4.20 |
|
|
|
0.43 |
|
|
|
0.28 |
|
|
|
0.19 |
|
|
|
– |
|
|
|
5.10 |
|
|
|
|
2009
|
|
|
2008
|
|
|
2009 compared to
2008
|
|
|
|
|
|
|
|
|
|
|
Growth due
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CER
|
|
|
to exchange
|
|
|
|
|
|
CER
|
|
|
Total Core
|
|
|
|
|
Core
|
|
|
growth
|
|
|
effects
|
|
|
Core
|
|
|
growth
|
|
|
growth
|
|
|
2008 to 2009 Core
result
|
|
|
$m |
|
|
|
$m |
|
|
|
$m |
|
|
|
$m |
|
|
%
|
|
|
%
|
|
|
Gross
margin
|
|
|
27,217 |
|
|
|
2,660 |
|
|
|
(851 |
) |
|
|
25,408 |
|
|
|
10 |
|
|
|
7 |
|
|
Distribution
costs
|
|
|
(298 |
) |
|
|
(37 |
) |
|
|
30 |
|
|
|
(291 |
) |
|
|
13 |
|
|
|
3 |
|
|
Research and
development
|
|
|
(4,334 |
) |
|
|
150 |
|
|
|
469 |
|
|
|
(4,953 |
) |
|
|
(3 |
) |
|
|
(13 |
) |
|
Selling, general and administrative
costs
|
|
|
(9,890 |
) |
|
|
(452 |
) |
|
|
502 |
|
|
|
(9,940 |
) |
|
|
5 |
|
|
|
(1 |
) |
|
Other operating income and
expense
|
|
|
926 |
|
|
|
194 |
|
|
|
(2 |
) |
|
|
734 |
|
|
|
26 |
|
|
|
26 |
|
|
Operating
profit
|
|
|
13,621 |
|
|
|
2,515 |
|
|
|
148 |
|
|
|
10,958 |
|
|
|
23 |
|
|
|
24 |
|
|
Net
interest
|
|
|
(736 |
) |
|
|
|
|
|
|
|
|
|
|
(463 |
) |
|
|
|
|
|
|
|
|
|
Profit before
tax
|
|
|
12,885 |
|
|
|
|
|
|
|
|
|
|
|
10,495 |
|
|
|
|
|
|
|
|
|
|
Taxation
|
|
|
(3,703 |
) |
|
|
|
|
|
|
|
|
|
|
(3,056 |
) |
|
|
|
|
|
|
|
|
|
Profit for the
period
|
|
|
9,182 |
|
|
|
|
|
|
|
|
|
|
|
7,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
($)
|
|
|
6.32 |
|
|
|
|
|
|
|
|
|
|
|
5.10 |
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
The Group has
commitments and contingencies which are accounted for in accordance with the
accounting policies described in the Financial Statements in the Accounting
Policies section from page 128. The Group also has taxation contingencies. These
are described in the Taxation section in the Critical accounting policies
section from page 48. These matters are explained fully in Note 25 to the
Financial Statements from page 166.
Cash
flow
Cash generated from operating activities
was $11,739 million in the year, compared with $8,742 million in 2008. The
increase of $2,997 million was principally driven by an
increase in operating
profit before depreciation,
amortisation and impairment costs of $1,866 million, offset by a decrease in
non-cash items of $287
million, which includes fair value adjustments. An improvement in working
capital flows, including
short-term provisions of $1,539 million, which also contributed
significantly to this increase, arose principally from an increase in returns
and chargebacks provisions and the legal provisions made in the
year.
Net cash outflows from investing activities were $2,476
million in the year compared with $3,896 million in 2008. The
movement of $1,420 million is due primarily to the
payment of $2,630 million
to Merck in 2008 as part of the partial retirement, and the
proceeds from the
disposal of the
Abraxane™ co-promotion rights of
$269 million received in 2009, countered by an increase in the
purchase of short term investments and fixed deposits of $1,372
million.
Cash distributions to shareholders,
through dividend payments, were $2,977 million.
Gross debt (including loans, short-term
borrowings and overdrafts)
was $11,063 million as
at 31 December (2008: $11,848 million). Of this debt, $1,926 million
is due within one year (2008: $993 million), which we currently
anticipate repaying from
current cash balances and short term investments
of approximately $11.6 billion and business cash flows, without the
need to re-finance.
Net funds of $535 million have improved
by $7,709 million from net debt of $7,174 million at 31 December
2008.
We continue to believe that, although our future operating
cash flows are subject to a number of uncertainties, as specified in the
Business background and major events affecting 2009 section
from page 37, our cash and funding
resources will be sufficient to meet our forecast requirements for the foreseeable
future, including developing and launching new products, externalisation, our
ongoing capital programme,
our restructuring
programme, debt servicing and repayment, options arising under the Merck
exit arrangements and shareholder
distributions.
Net
funds/(debt)
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
$m |
|
|
|
$m |
|
|
|
$m |
|
|
Net (debt)/funds brought forward
at 1 January
|
|
|
(7,174 |
) |
|
|
(9,112 |
) |
|
|
6,537 |
|
|
Earnings before interest, tax,
depreciation, amortisation and impairment
|
|
|
13,630 |
|
|
|
11,764 |
|
|
|
9,950 |
|
|
Movement in working capital and
provisions
|
|
|
1,329 |
|
|
|
(210 |
) |
|
|
(443 |
) |
|
Tax paid
|
|
|
(2,381 |
) |
|
|
(2,209 |
) |
|
|
(2,563 |
) |
|
Interest
paid
|
|
|
(639 |
) |
|
|
(690 |
) |
|
|
(335 |
) |
|
Other non-cash
movements
|
|
|
(200 |
) |
|
|
87 |
|
|
|
901 |
|
|
Net cash available from operating
activities
|
|
|
11,739 |
|
|
|
8,742 |
|
|
|
7,510 |
|
|
Purchase of intangibles (net)
|
|
|
(355 |
) |
|
|
(2,944 |
) |
|
|
(549 |
) |
|
Other capital expenditure
(net)
|
|
|
(824 |
) |
|
|
(1,057 |
) |
|
|
(1,076 |
) |
|
Acquisitions
|
|
|
– |
|
|
|
– |
|
|
|
(14,891 |
) |
|
Investments
|
|
|
(1,179 |
) |
|
|
(4,001 |
) |
|
|
(16,516 |
) |
|
Dividends
|
|
|
(2,977 |
) |
|
|
(2,739 |
) |
|
|
(2,641 |
) |
|
Net share
issues/(re-purchases)
|
|
|
135 |
|
|
|
(451 |
) |
|
|
(3,952 |
) |
|
Distributions
|
|
|
(2,842 |
) |
|
|
(3,190 |
) |
|
|
(6,593 |
) |
|
Other
movements
|
|
|
(9 |
) |
|
|
387 |
|
|
|
(50 |
) |
|
Net funds/(debt) carried forward
at 31 December
|
|
|
535 |
|
|
|
(7,174 |
) |
|
|
(9,112 |
) |
|
Comprised
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash & short term
investments
|
|
|
11,598 |
|
|
|
4,674 |
|
|
|
6,044 |
|
|
Loans and
borrowings
|
|
|
(11,063 |
) |
|
|
(11,848 |
) |
|
|
(15,156 |
) |
Restructuring
and synergy costs
Driving increased
productivity from investments in R&D is a key to portfolio renewal and value
creation. Further to this objective, AstraZeneca will undertake additional
restructuring within the R&D function. These plans include a reduction
in the number of disease area targets within our core therapeutic areas, some
consolidation of our activities onto a smaller R&D site footprint, and
other efficiency measures, subject to consultations with work councils, trades
unions and other employee representatives and in accordance with local
employment laws.
The next phase of
restructuring which includes the completion of the previous programmes announced
in 2007, will also include some additional initiatives in supply chain and in
SG&A in addition to the R&D initiatives described above.
Capitalisation
and shareholder return
All data in this
section is on a Reported basis.
Capitalisation
The total number of
shares in issue at 31 December was 1,451 million. 3.5 million shares
were issued in consideration of share option plans and employee share plans
for a total of $135 million. Shareholders’ equity increased by a net
$4,748 million to $20,660 million at the year end. Minority interests
increased to $161 million (2008: $148 million).
Dividend
and share re-purchases
In
recognition of the Group’s strong balance sheet, sustainable significant cash
flow and the
Board’s confidence
in the strategic direction and long-term prospects for the business, the
Board has adopted a progressive dividend policy, intending to maintain or grow
the dividend each year.
In
addition the Board has announced a share re-purchase programme.
Dividend
for 2009
|
|
|
|
$ |
|
|
Pence
|
|
|
SEK
|
|
|
Payment
date
|
|
|
First interim
dividend
|
|
|
0.59 |
|
|
|
36.0 |
|
|
|
4.41 |
|
|
|
14.09.09 |
|
|
Second interim
dividend
|
|
|
1.71 |
|
|
|
105.4 |
|
|
|
12.43 |
|
|
|
15.03.10 |
|
|
Total
|
|
|
2.30 |
|
|
|
141.4 |
|
|
|
16.84 |
|
|
|
|
|
Future
prospects
AstraZeneca is a
focused, integrated, innovation-driven, global biopharmaceutical business.
AstraZeneca will be selective about those areas of the industry it
chooses to compete in, targeting those product categories where medical
innovation or brand equity continues to command a premium in the marketplace.
AstraZeneca believes the best way to capture value within this industry is
to span the full value chain of discovery, development and
commercialisation. AstraZeneca believes its technology base will continue to
deliver innovative products that patients will need and for which payers will
see value. AstraZeneca believes that its ability to meet the health needs of
patients and healthcare systems in both developed and emerging markets is
a core capability.
AstraZeneca
believes that pursuit of this strategy will continue to build a pipeline
of new medicines that will meet the needs of patients and provide
attractive returns for shareholders.
The next five years
will be challenging for the industry and for AstraZeneca, as its revenue base
transitions through a period of exclusivity losses and new product
launches. AstraZeneca believes it would be helpful for investors to
understand AstraZeneca’s high-level planning assumptions for revenue evolution,
margin structure, cash flow and business reinvestment that will guide its
management of the business over the next five years.
For the period 2010
to 2014, AstraZeneca has made certain assumptions for the industry environment.
AstraZeneca assumes that the global pharmaceutical industry can grow
at least in line with real GDP over the planning horizon. Downward pressure
on revenue from government interventions in the marketplace, including certain
proposals associated with efforts to enact US healthcare reform, remain a
continuing feature of the challenging market environment. However, for the
planning period, AstraZeneca assumes no further ‘step-change’ in the evolution
of these pressures. As for assumptions specific to the Group, AstraZeneca
assumes that there will be no material mergers, acquisitions or disposals.
In addition, our plans assume no premature loss of exclusivity for key
AstraZeneca products. It is also assumed that exchange rates for our principal
currencies will not differ materially from the average rates that prevailed
during January 2010.
It
is expected that a significant portion of current base revenue will be affected
by the loss of market exclusivity on a number of products. Revenue in 2010, for
example, will be affected by the expected loss of market exclusivity for Arimidex and for Pulmicort Respules in the US.
AstraZeneca aims to grow market share for key franchises that retain
exclusivity, and plans to sustain double-digit growth rates in its Emerging
Markets business, supported by the selective addition of branded generics
to the portfolio.
APPENDIX
B
Principal
risks and uncertainties
The pharmaceutical
sector is inherently risky and a variety of risks and uncertainties may affect
our business. Here we summarise, under the headings Product pipeline risks;
Commercialisation and business execution risks; Supply chain and delivery risks;
Legal, regulatory and compliance risks; and Economic and financial risks, the
principal risks and uncertainties which we currently consider to be material to
our business in that they may have a significant effect on our financial
condition, results of operations and/or reputation. These risks are not listed
in any assumed order of priority. Other risks, unknown or not currently
considered material, could have a similar effect. We believe that the
forward-looking statements about AstraZeneca in this Annual Report, identified
by words such as ‘anticipates’, ‘believes’, ‘expects’ and ‘intends’, are based
on reasonable assumptions. However, forward-looking statements involve inherent
risks and uncertainties such as those summarised below because they relate to
events and depend upon circumstances that will occur in the future, and may be
influenced by factors beyond our control and/or may have actual outcomes
materially different from our expectations.
Product
pipeline risks
Failure
to meet development targets
The development of
any pharmaceutical product candidate is a complex, risky and time-intensive
process involving significant financial, R&D and other resources, which may
fail at any stage of the process due to a number of factors,
including:
|
-
|
Failure to
obtain the required regulatory or marketing approvals for the product
candidate or the facilities in which it is
manufactured.
|
|
-
|
Unfavourable
data from key studies.
|
|
-
|
Adverse
reactions to the product candidate or indications of other safety
concerns.
|
|
-
|
Failure of
R&D to develop new product
candidates.
|
|
-
|
Failure to
demonstrate adequately cost-effective benefits to
regulators.
|
|
-
|
The emergence
of competing products.
|
A
succession of negative drug project results and a failure to reduce development
timelines effectively could adversely affect the reputation of our R&D
capabilities. Furthermore, the failure of R&D to yield new products that
achieve commercial success is likely to have a material adverse effect on our
financial condition and results of operations.
Production and
release schedules for biologics may be more significantly impacted by regulatory
processes than other products due to more complex and stringent regulation on
biologics development, marketing and manufacturing. In addition, various
legislative and regulatory authorities are considering whether an abbreviated
approval process is appropriate for biosimilars or follow-on biologics (similar
versions of existing biologics). While it is uncertain when, or if, any such
process may be adopted or how it would relate to intellectual property rights in
connection with pipeline biologics, any such process could have a material
adverse effect on the future commercial prospects for patented
biologics.
Difficulties
of obtaining and maintaining regulatory approvals for new products
We
are subject to strict controls on the manufacture, labelling, distribution and
marketing of our pharmaceutical products. The requirements to obtain regulatory
approval based on a product’s safety, efficacy and quality before it can be
marketed for a specified therapeutic indication or indications in a particular
country, and to maintain and to comply with licences and other regulations
relating to its manufacture, are particularly important. The
submission
of
an application to regulatory authorities (which are different, with different
requirements, in each region or country) may or may not lead to approval to
market the product. Regulators can refuse to grant approval or may require
additional data before approval is given, even though the medicine may already
be launched in other parts of the world. The countries that constitute key
markets for our pharmaceutical products include the US, the countries of the EU
and Japan. The approval of a product is required by the relevant regulatory
authority in each country, although a single pan-EU marketing authorisation
approval can be obtained through a centralised procedure.
In
recent years, companies sponsoring new drug applications and regulatory
authorities have been under increased public pressure to apply more conservative
benefit/risk criteria before a pharmaceutical product is approved. In addition,
third party interpretation of publicly available data on our marketed products
has the potential to influence the approval status or labelling of a currently
approved and marketed product. Further, predicting when a product will be
approved for marketing remains challenging. For example, a review of the FDA
performance data indicates that for NDAs approved in 2008, the average review
time (ie the time from submission to approval) increased from 2007, in part due
to the FDA failing to meet the review time targets for NDAs specified under the
Prescription Drug User Fee Act IV and the final 2009 data, once available, is
expected to continue this trend. Delays in regulatory reviews could impact the
timing of a new product launch. For example, the approval of motavizumab and the
additional indications for Symbicort and Seroquel XR have been delayed
by Complete Response Letters which requested further information in relation to
the biologics licence application for motavizumab and the sNDAs for Symbicort and Seroquel XR.
Failure
to obtain patent protection
Our policy is to
protect our investment in R&D by applying for appropriate intellectual
property protection in respect of our inventions and innovations; this is a key
business priority. Our ability to obtain patents and other proprietary rights in
relation to our products is, therefore, an important element of our ability to
create long-term value for the business.
Many of the
countries in which we operate are still developing their patent laws for
pharmaceuticals and there is more uncertainty regarding the patent protection
available now and in the foreseeable future in these countries than in countries
with well developed intellectual property regimes. In addition, certain
countries may seek to limit protection for existing patents – see the Patent
litigation and early loss of intellectual property rights section on page 82.
Limitations on the availability of patent protection in certain countries in
which we operate could have a material adverse effect on the pricing and sales
of our products and, consequently, could materially adversely affect our
revenues from them. More information about protecting our intellectual property
is contained in the Intellectual property section on page 31.
Delay
to new product launches
Our continued
success depends on the development and successful launch of innovative new
drugs. The anticipated launch dates of major new products have a significant
impact on a number of areas of our business, including investment in large
clinical studies, the manufacture of pre-launch stocks of the products,
investment in marketing materials ahead of a product launch, sales force
training and the timing of anticipated future revenue streams from commercial
sales of new products. These launch dates are primarily driven by the
development programmes that we run and the demands of the regulatory authorities
in the approvals process, as well as pricing negotiation in some countries.
Delays to anticipated launch dates can result from a number of factors including
adverse findings in pre-clinical or clinical studies, regulatory demands,
competitor activity and technology transfer. Significant delays to anticipated
launch dates of new products could have a material adverse effect on our
financial condition and results of operations. For example, for the launch of
products that
are seasonal in
nature, delays for regulatory approval or manufacturing difficulties can have
the effect of delaying launch to the next season which, in turn, may
significantly reduce the return on costs incurred in preparing for the launch
for that season. In addition, a delay in the launch may give rise to increased
costs if, for example, marketing and sales efforts need to be rescheduled or
protracted for longer than expected.
Strategic
alliances formed as part of our externalisation strategy may be
unsuccessful
We
seek technology licensing arrangements and strategic collaborations to expand
our product portfolio and geographical presence as part of our business
strategy. Examples of such recent strategic arrangements and collaborations
include:
|
-
|
In
conjunction with our agreement to acquire Novexel (subject to expiry or
termination of the applicable waiting period under the US
Hart-Scott-Rodino Antitrust Improvements Act), an agreement with Forest to
co-develop and co-commercialise ceftazidime and ceftaroline, next
generation anti-infectives
|
|
-
|
Worldwide
licensing agreement with Nektar granting AstraZeneca rights to a
late-stage product for the treatment of opioid-induced constipation
together with rights to an early programme to deliver products for the
treatment of pain without constipation side
effects
|
|
-
|
Collaboration
with Merck to investigate a novel combination anti-cancer
regimen
|
|
-
|
Collaboration
with Targacept for the global development and commercialisation of
Targacept’s late-stage compound
TC-5214
|
|
-
|
Agreement
with Cancer Research Technology Limited and The Institute of Cancer
Research (UK) to discover and develop potential new anti-cancer
drugs.
|
Such licensing
arrangements and strategic collaborations are key to enable us to grow and
strengthen the business. If we fail to complete these types of collaborative
projects in a timely manner, on a cost-effective basis, or at all, we may not
realise the expected benefits of any such collaborative projects. The success of
such current and future arrangements is largely dependent on the technology and
other intellectual property we acquire and the resources, efforts and skills of
our partners. There is a risk that these collaborative projects may be
unsuccessful. Disputes and difficulties in such relationships may arise, often
due to conflicting priorities or conflicts of interest of the parties, which may
erode or eliminate the benefits of these alliances if, for example, the
agreements are terminated; insufficient financial or other resources are made
available to the alliances; intellectual property is negatively impacted;
obligations are not performed as expected; controls and commercial limitations
are imposed over the marketing and promotion of the collaboration products; or
challenges in achieving commercial success of the product are encountered during
the development process. Also, under many of our strategic alliances, we make
milestone payments well in advance of the commercialisation of the products,
with no assurance that we will recoup these payments. If these types of
transactions are unsuccessful, this may have a material adverse effect on our
financial condition and results of operations.
Furthermore, we
experience strong competition from other pharmaceutical companies in respect of
licensing arrangements and strategic collaborations, which means that we may be
unsuccessful in establishing some of our intended collaborative projects. If we
are unsuccessful in establishing such collaborative projects in the future, this
may have a material adverse effect on our financial condition and results of
operations.
Commercialisation
and business execution risks
Challenges
to achieving commercial success of new products
The successful
launch of a new pharmaceutical product involves substantial investment in sales
and marketing activities, launch stocks and other items. The commercial success
of our new medicines is of particular importance to us in order to replace sales
lost as and when patent protection ceases. If a new product does not succeed as
anticipated or its rate
of
sales growth is slower than anticipated, there is a risk that the costs incurred
in launching it could have a material adverse effect on our financial condition
and results of operations. We may ultimately be unable to achieve commercial
success for any number of reasons, including:
|
-
|
Inability to
manufacture sufficient quantities of the product candidate for development
or commercialisation activities in a timely and cost-efficient
manner
|
|
-
|
Excessive
costs of, or difficulty in,
manufacturing
|
|
-
|
Erosion of
patent term and other intellectual property rights, and infringement of
those rights and the intellectual property rights owned by third
parties
|
|
-
|
Failure to
show value or a differentiated profile for our
products.
|
As
a result, we cannot be certain that compounds currently under development will
achieve success.
In
addition, the methods of distributing and marketing biologics could have a
material impact on the revenue we are able to generate from the sales of
products such as Synagis
and FluMist. The
commercialisation of biologics is often more complex than for traditional
pharmaceutical products. This is primarily due to differences in the mode of
administration, the technical aspects of the product, and the rapidly changing
distribution and reimbursement environments.
Performance
of new products
Although we carry
out numerous and extensive clinical studies on all our products before they are
launched, for a new product it can be difficult, for a period following its
launch, to establish from available data a complete assessment of its eventual
efficacy and/or safety in broader clinical use on the market. Due to the
relatively short time that a product has been tested and the relatively small
number of patients who have taken the product in clinical studies, the available
data may be immature. Simple extrapolation of the data may not be accurate and
could lead to a misleading interpretation of the likely future commercial
performance of a new product.
Product
counterfeiting
Counterfeit
medicines may contain harmful substances, the wrong dose of the active
pharmaceutical ingredient (API) or no API at all. Counterfeit medicines are a
danger to patients in all parts of the world. The International Medical Products
Anti-Counterfeiting Taskforce (IMPACT) of WHO estimates that up to 30% of
medicines in emerging economies are counterfeit, a percentage which is exceeded
in parts of Latin America, Asia and Africa. By contrast, in established
economies with effective regulatory systems, counterfeit medicines represent
less than 1% of the market by market value. Public loss of confidence in the
integrity of pharmaceutical products as a result of counterfeiting could
materially adversely affect our reputation and financial performance. In
addition, undue or misplaced concern about the issue might induce some patients
to stop taking their medicines, with consequential risks to their
health.
Developing
our business in emerging markets
The development of
our business in emerging markets may be a critical factor in determining our
future ability to sustain or increase the level of our global product revenues.
Challenges that arise in relation to the development of the business in emerging
markets include more volatile economic conditions, competition from companies
that are already present in the market, the need to identify correctly and to
leverage appropriate opportunities for sales and marketing, poor protection of
intellectual property, inadequate protection against crime (including
counterfeiting, corruption and fraud), inadvertent breaches of local
law/regulation, not being able to recruit sufficient personnel with appropriate
skills and experience, and interventions by national governments or regulators
to restrict access to a market and/or to
introduce adverse
price controls. The failure to exploit potential opportunities appropriately in
emerging markets may have a material adverse effect on our financial condition
and results of operations.
Expiry
of intellectual property rights
Pharmaceutical
products, diagnostic and medical devices are normally only protected from
competition from copying during the period of protection under patent rights or
related intellectual property rights such as Regulatory Data Protection.
Following expiry of such rights, the product is generally open to competition
from generic copies. Products under patent protection or within the period of
Regulatory Data Protection generally generate significantly higher revenues than
those not protected by such rights. See the Intellectual property section on
page 31 for a table of certain patent expiry dates for our key marketed
products.
Patent
litigation and early loss of intellectual property rights
Any of the
intellectual property rights protecting our products may be subjected to
intellectual property litigation by third parties and/or be affected by validity
challenges in patent offices. In either case, however, we expect that the
greater number of challenges will be directed to our more valuable products.
Despite our efforts to establish and defend robust patent protection for our
products, we may not succeed in such challenges to our patents. If we are not
successful in maintaining exclusive rights to market one or more of our major
products, particularly in the US where we have our highest revenue and margins,
our revenue and margins could be materially adversely affected.
In
particular, generic drug manufacturers are seeking to market generic versions of
many of our more important products prior to the expiry of our patents and
Regulatory Exclusivity periods. For example, we are currently facing challenges
from multiple generic manufacturers to certain of our patents for Nexium and Crestor, two of our
best-selling products in the US, our largest market. If such challenges succeed
and generic products are launched, or launched ‘at risk’ on the expectation that
challenges to our intellectual property will be successful, this may have a
material adverse effect on our financial condition and results of operations. In
2009, US sales for Nexium and Crestor were $2,835 million
and $2,100 million, respectively. The more significant patent litigation
relating to our products is described in Note 25 to the Financial Statements
from page 166.
In
addition to patent challenges by generic drug manufacturers seeking to market
generic copies of our products, other third parties owning patents, including
research-based pharmaceutical companies, may assert their intellectual property
rights against our products or activities or processes related to our products.
Consequently, there are risks that we may be found to infringe the patents of
others, and managing such infringement disputes can be costly. We may be liable
for damages or royalties or, alternatively, we may need to obtain costly
licences or stop manufacturing, using or selling our products. These risks may
be greater in respect of biologics and vaccines where intellectual property
protection is sometimes not so clear. In the event of such risks arising we may
be able to mitigate them through, for example, acquiring licences or making
modifications to cease the infringement and permit commercialisation of our
products but there is no certainty that any such action will be possible and any
such action may entail significant costs. Details of significant claims that
AstraZeneca is infringing third party intellectual property rights can be found
in Note 25 to the Financial Statements from page 166.
In
addition to the challenges to our patented products from manufacturers of
generic or other patented pharmaceutical products, there is a risk that some
countries, particularly some of those in the developing world, may seek to
impose limitations on the availability of patent protection for pharmaceutical
products, or on the extent to which such protection may be obtained and/or
enforced, within their jurisdictions. As a result, generic manufacturers
in
these countries may
be increasingly and more easily able to introduce competing products to the
market earlier than they would have been able to had more robust patent
protection been available.
Combined with
patent protection and Regulatory Exclusivities, products protected by a valid
trade mark usually generate higher revenues than those without a trade mark. We
believe that we have robust trade mark protection for our products but cannot be
certain that we would be able to defend any challenge successfully.
Expiry
or earlier loss of patents covering competing products
The expiry or
earlier loss of patents covering others’ innovator products may lead to the
availability of generic products in the same product class as our currently
patented products earlier than anticipated. Such events could have a material
adverse effect on our financial condition and results of operations. For
example, the loss/expiry of patent rights covering major products in the US,
such as Lipitor™ or Advair Diskus™ before 2012 may adversely affect the growth
of our still-patented products in the same product class (ie Crestor and Symbicort) in
that market.
Competition,
price controls and price reductions
All our products
compete directly with other products marketed either by major research-based
pharmaceutical companies or by generic pharmaceutical manufacturers. These
competitors may invest greater resources in the marketing of their products than
we do depending on the relative priority of these competitor products within
their company’s portfolio. Generic versions of products are often sold at lower
prices than branded products because they do not have to recoup the significant
cost of R&D investment. Also, generic pharmaceutical companies do not
generally invest the same amounts in education services for healthcare
professionals as research-based pharmaceutical companies, so the sales of their
generic products do not need to cover these costs. Industry consolidation has
resulted in a small number of very large companies, some of which have acquired
generic businesses. This trend, if it continues, could materially adversely
affect our competitive position, whilst consolidation among our customers may
increase price pressures. All our patented products, including Nexium, Crestor, Seroquel and Symbicort, are subject to
price pressure from competition from generic products in the same product
class.
In
most of our key markets there is continued economic, regulatory and political
pressure to limit or reduce the cost of pharmaceutical products. A summary of
the principal aspects of price regulation and how price pressures are affecting
our business in our most important markets is set out in the Geographical Review
from page 50.
In
the US realised prices are being depressed through the use of a range of
cost-control tools, such as restricted lists, or formularies, employing generic
first strategies, and requiring physicians to obtain prior approval for the use
of a branded medicine. These mechanisms put pressure on manufacturers to reduce
prices and to limit access to branded products. Many of these mechanisms shift a
greater proportion of the cost of medicines onto the individual via
out-of-pocket payments at the pharmacy counter. The patient out-of-pocket spend
is generally in the form of a co-payment or in some cases a co-insurance, which
is designed, amongst other reasons, to encourage patients to use generic
medicines. Many of these management tools are also employed by institutional
customers in response to the current cost-containment environment and these
increasingly restrictive reimbursement policies could have a material adverse
effect on our financial condition and results of operations.
In
the US, new legislation is possible that may allow the commercial importation of
drugs into the US from selected countries. The adoption of such legislation
could result in an increase
in
the volume of cross-border product movements which could have a material adverse
effect on our financial condition and results of operations.
The US House of
Representatives and Senate have passed their respective healthcare reform bills.
However, Republican Scott Brown’s upset Senate race win, in Massachusetts, has
dramatically altered the course of health reform negotiations by ending the
Democrats’ filibuster-proof 60 vote majority in the US Senate. Democratic
leaders insist they plan to press ahead with health reform, while continuing to
debate the best way to proceed.
Certain aspects of
comprehensive health reform would cause a significant change in the US
pharmaceutical market, for example through mandating higher rebates and
discounts on branded drugs for certain Medicare and Medicaid patients, increased
financial obligations through other federal payer programmes and an
industry-wide excise tax. These and other changes, such as whether further
cost-containment measures would need to be incorporated in the final bill to
finance the reform of the US healthcare system, could have a material adverse
effect on our results of operations and financial condition.
In
the EU, efforts by the European Commission to reduce inconsistencies and to
improve standards and best practice in the disparate national regulatory systems
have met with little immediate success. The industry is, therefore, exposed to
greater application of reference pricing mechanisms and ad hoc national
cost-containment measures on prices. This can lead to marked price differentials
between countries and the consequent cross-border movement of products. The
importation of pharmaceutical products from countries where prices are low due
to government price controls or other market dynamics, to countries where prices
for those products are higher, may increase.
We
expect that pressures on pricing will continue and may increase. Due to these
pressures, there can be no certainty that we will be able to charge prices for a
product that, in a particular country or in the aggregate, enable us to earn an
adequate return on our investment in that product.
Any
expected gains from productivity initiatives are uncertain
We
are implementing various productivity initiatives and restructuring programmes,
with the aim of enhancing the long-term efficiency of the business. However, the
anticipated cost savings and other benefits are based on preliminary estimates
and the actual savings may vary significantly. In particular, these cost
reduction measures are based on current conditions and do not take into account
any future changes to the pharmaceutical industry or our operations, including
new business developments, wage and price increases and other factors. If
inappropriately managed, the expected value of the initiative can be lost
through low employee morale and hence productivity, increased absence levels and
industrial action. Our failure to successfully implement these planned cost
reduction measures, either through the successful conclusion of employee
relations processes (including consultation and engagement, talent management
and recruitment and retention), or the possibility that these efforts do not
generate the level of cost savings we anticipate, could have a material adverse
effect on our results of operations and financial condition. See the People
section from page 33 for information about mitigating the risk of significant
business change.
Acquisitions
may be unsuccessful
The Group seeks to
acquire complementary businesses as part of its business strategy. The
integration of an acquired business could involve incurring significant debt and
unknown or contingent liabilities, as well as having a negative effect on our
reported results of operations from acquisition-related charges, amortisation of
expenses related to intangibles and charges for impairment of long-term assets.
These effects, individually or in combination, could cause a deterioration in
our credit rating and/or increased borrowing costs and interest expense. We
could also experience difficulties in integrating geographically
separated
organisations,
systems and facilities, and personnel with different organisational cultures.
Integration of an acquired business may also divert management resources that
would otherwise be available for the continuing development of our existing
business. The integration process may result in business disruption, the loss of
key employees, slower execution of various work processes, compliance failures
due to a change in applicable regulatory requirements and other issues such as a
failure to integrate information technology and other systems. In addition, if
liabilities are uncovered in an acquired business, the Group may suffer losses
and may not have remedies against the seller or third parties.
Failure
to manage a crisis
We
handle chemical and biological materials, operate research and manufacturing
plants and distribute products worldwide. Major disruption to our business and
damage to our reputation may be triggered by an operational incident or by
actions by our employees or third parties. In these circumstances, a plan for
addressing operational and other issues should ensure a timely response and the
ability to resume business as usual. Failure to institute proper communication
to internal and external stakeholders and to mobilise a rapid operational
response could have a material adverse effect on our financial condition and
results of operations. Further information about our business resilience plans
and processes are contained in the Managing risk section from page
79.
Failure
of information technology
We
are dependent on effective IT systems. These systems support key business
functions such as our R&D, manufacturing and sales capabilities, and are an
important means of internal and external communication. Any significant
disruption of these IT systems or failure to integrate new and existing IT
systems could have a material adverse effect on our financial condition and
results of operations.
Failure
of outsourcing
We
have outsourced a number of business critical operations to third party
providers. Failure of the outsource provider to deliver services in a timely
manner and to the required level of quality could have an adverse impact on our
ability to meet business targets and maintain a good reputation within the
industry and with stakeholders. It may also result in non-compliance with
applicable laws and regulations. Failure to adequately manage the risk
associated with outsourcing could have a material adverse effect on our
financial condition and results of operations.
Supply
chain and delivery risks
Manufacturing
biologics
Manufacturing
biologics, especially in large quantities, is often complex and may require the
use of innovative technologies to handle living micro-organisms and facilities
specifically designed and validated for this purpose, with sophisticated quality
assurance and control procedures. Slight deviations in any part of the
manufacturing process may result in lot failure, product recalls or spoilage,
for example due to contamination.
Reliance
on third parties for goods and services
Like most, if not
all, major research-based pharmaceutical companies we increasingly rely on third
parties for the timely supply of goods, such as specified raw materials,
equipment, formulated drugs and packaging, and services, all of which are key to
our operations.
However, events
beyond our control could result in the failure of supplies of goods and
services, which could have a material adverse effect on our financial condition
and results of operations. For example, suppliers of some of the key goods and
services we rely upon may cease to trade. The consequence of this may be
significant delays and/or difficulties in obtaining goods and services on
commercially acceptable terms, or even at all.
In addition, we may
have limited access to and/or supply of biological materials, such as cells,
animal products or by-products. Furthermore, government regulations in multiple
jurisdictions could result in restricted access to, use or transport of such
materials. Loss of access to sufficient sources of such materials, or tighter
restrictions on the use of such materials may interrupt or prevent our research
activities as planned and/or increase our costs. We seek to mitigate these risks
as described in the Managing sourcing risk section on page 33. We actively
manage these third party relationships to ensure continuity of supplies on time
and to our required specifications. Recently, we have established sourcing
centres in China and India to identify high quality suppliers in those regions.
Further information is contained in the Managing sourcing risk section on page
33.
Legal,
regulatory and compliance risks
Adverse
outcome of litigation and/or governmental investigations
We
may be subject to any number of legal proceedings and/or governmental
investigations. Note 25 to the Financial Statements includes information about
material legal proceedings in which we are currently involved. Such
investigations or legal proceedings, regardless of their outcome, could be
costly, divert management attention, or damage our reputation and demand for our
products.
Litigation,
particularly in the US, is inherently unpredictable, and unexpectedly high
awards of damages can result if AstraZeneca receives an adverse verdict. In many
cases, particularly in the US, the practice of the plaintiff bar is to claim
damages – compensatory, punitive and statutory – in extremely high amounts.
Accordingly, it is difficult to quantify the potential exposure to claims in
proceedings of the type referred to in Note 25 to the Financial Statements.
Unfavourable resolution of current and similar future proceedings could have a
material adverse effect on our financial condition and results of operations,
particularly where such circumstances are not covered by insurance. We may
become subject to fines, penalties and other monetary and/or non-monetary
sanctions and/or may be required to make significant provisions in our accounts
related to legal proceedings and/or governmental investigations, which would
reduce earnings.
Legal
proceedings regarding business practices
The marketing,
promotional, clinical and pricing practices of pharmaceutical manufacturers, as
well as the manner in which manufacturers interact with purchasers, prescribers,
and patients, are subject to extensive regulation and litigation. Many
companies, including AstraZeneca, have been subject to claims related to these
practices asserted by federal and state governmental authorities and private
payers and consumers. These have resulted in substantial expense and other
significant consequences to AstraZeneca. For example, see Note 25 to the
Financial Statements for a discussion of litigation and investigations regarding
US sales and marketing practices, as well as pricing litigation. It is possible
that additional such claims could be made in the future. As a general matter,
these types of claims can result in criminal liability, fines, penalties, or
other monetary or non-monetary remedies.
Substantial
product liability claims
Given the
widespread impact that prescription drugs may have on the health of large
patient populations, pharmaceutical, biopharmaceutical and medical device
companies have, historically, been subject to large product liability damages
claims, settlements and awards for injuries allegedly caused by the use of their
products. Adverse publicity relating to the safety of a product or of other
competing products may increase the risk of product liability claims.
Substantial product liability claims that result in court decisions against us
or in the settlement of proceedings could have a material adverse effect on our
financial condition and results of operations, particularly where such
circumstances are not covered by insurance. We are currently subject to
extensive product liability litigation in relation to Seroquel, and further details
about this are set out in Note 25 to the Financial Statements.
Information about
our approach to patient safety is set out in the Patient safety section from
page 20.
Failure
to adhere to applicable laws, rules and regulations
We
operate globally in complex legal and regulatory environments. Any failure to
comply with applicable laws, rules and regulations in these jurisdictions may
result in civil and/or criminal legal proceedings being filed against us, or in
us becoming subject to regulatory sanctions, which could have a material adverse
effect on the conduct of our business, our financial condition and results of
operations. Regulatory authorities have wide-ranging administrative powers to
deal with any failure to comply with continuing regulatory oversight (and this
could affect us, whether such failure is our own or that of third parties with
whom we have relationships). As these laws, rules and regulations change or as
governmental interpretation of those laws, rules and regulations evolves, prior
conduct may no longer be sufficient to ensure ongoing compliance.
For example, once a
product has been approved for marketing by regulatory authorities, it is subject
to continuing control and regulation, such as the manner of its manufacture,
distribution, marketing and safety surveillance. In addition, any amendments
that are made to the manufacturing, distribution, marketing and safety
surveillance processes of our products may require additional regulatory
approvals, which
could result in significant additional costs and/or disruption to these
processes. Such amendments may be imposed on us as a result of the continuing
inspections to which we are subject or that may be made at our discretion. It is
possible, for example, that regulatory issues concerning compliance with current
Good Manufacturing Practice (cGMP) regulations for pharmaceutical products could
arise and lead to product recalls and seizures, interruption of production
leading to product shortages, and delays in the approvals of new products
pending resolution of the cGMP issues.
Environmental/occupational
health and safety liabilities
We
have environmental and/or occupational health and safety related liabilities at
some currently or formerly owned, leased and third party sites, the most
significant of which are detailed in Note 25 to the Financial Statements. These
liabilities are carefully managed by designated technical, legal and business
personnel and there is no reason for us to believe that associated current and
expected expenditure and/or risks are likely to have a material adverse effect
on our financial condition and results of operations as a general matter, but,
to the extent that they exceed applicable provisions, they could have a material
adverse effect on our financial condition and results of operations for the
relevant period. In addition, a change in circumstances (including a change in
applicable laws or regulations) may result in such an effect.
A
significant non-compliance issue or other environmental or occupational health
or safety incident for which we were responsible could result in us being liable
to pay compensation, fines or remediation costs. In some circumstances, such
liability could have a material adverse effect on our financial condition and
results of operations. In addition, our financial provisions for any obligations
that we may have relating to environmental or occupational health and safety
liabilities may be insufficient if the assumptions underlying the provisions,
including our assumptions regarding the portion of waste at a site for which we
are responsible, prove incorrect, or if we are held responsible for additional
contamination or occupational health and safety related claims.
Economic
and financial risks
Adverse
impact of a sustained economic downturn
A
variety of significant risks may arise from a sustained global economic
downturn, including those referred to here. Additional pressure from governments
and other healthcare payers
on
medicine prices and volumes of sales in response to recessionary pressures on
budgets may cause a slowdown or a decline in growth in some markets. In
addition, the Group’s customers may cease to trade, which in turn may result in
losses from writing-off debts. Further, we are highly dependent on being able to
access a sustainable flow of liquid funds due to the high fixed costs of
operating a global research-based pharmaceuticals business and the long and
uncertain development cycles for our products. In a sustained and/or severe
economic downturn, financial institutions that hold our cash and other
short-term deposits may cease to trade and there can be no guarantee that we
will be able to access our assets without a protracted, expensive and uncertain
process, if at all. Although we have adopted conservative cash management and
treasury policies to mitigate this risk (further information on which is
contained in the Financial risk management policies section on page 44) we
cannot be certain that these will be completely effective should a number of
major financial institutions cease to trade. Additionally, if we need access to
external sources of financing to sustain and/or grow our business, such as the
debt or equity capital financial markets, this may not be available on
commercially acceptable terms, if at all, in the event of a severe and/or
sustained economic downturn. This may particularly be the case in the event of
any default by the Group on its debt obligations, which may have materially
adverse consequences on our ability to secure debt funding in the future or
generally on our financial condition. Further information on debt-funding
arrangements is contained in the Financial risk management policies section on
page 44.
Impact
of fluctuations in exchange rates
As
a global business, currency fluctuations can significantly affect our results of
operations, which are accounted for in US dollars. Approximately 49% of our
global 2009 sales were in North America with a significant proportion of that
figure being in respect of US sales, which is expected to remain our largest
single market for the foreseeable future. Sales in other countries are
predominantly in currencies other than the US dollar, including the euro,
Japanese yen, Australian dollar and Canadian dollar. We also have a growing
exposure to emerging market currencies, although the exchange rates of some of
these currencies are linked to the US dollar. Major components of our cost base
are located in the UK and Sweden, where an aggregate of approximately 30% of our
employees are based. Movements in the exchange rates used to translate foreign
currencies into US dollars may, therefore, have a material adverse effect on our
financial condition and results of operations. Additionally, some of our
subsidiaries import and export goods and services in currencies other than their
own functional currency and so the results of such subsidiaries could be
affected by currency fluctuations arising between the transaction dates and the
settlement dates for these transactions. Further information is contained in
Note 15 to the Financial Statements from page 144.
Credit
and return on substantial investments
As
part of its normal operations, the Group will hold significant cash balances.
The amount of cash held at any point reflects the level of cash flow generated
by the business and the timing of the use of that cash. The majority of excess
cash is centralised within the Group treasury function for investment and as
such is subject to counterparty risk on the principal invested. See the
Financial risk management policies section on page 44 for details of how the
Group seeks to mitigate this risk.
Limited
third party insurance coverage
Recent insurance
loss experience in the pharmaceutical industry, including product liability
exposures, has increased the cost of, and narrowed the coverage afforded by,
pharmaceutical companies’ product liability insurance. In order to contain
insurance costs in recent years, we have continued to adjust our coverage
profile, accepting a greater degree of uninsured exposure. The Group has not
held product liability insurance since February 2006. In addition, where claims
are made under insurance policies, insurers may reserve the right to deny
coverage on various grounds. If such denial of coverage is ultimately
upheld,
this could result
in material additional charges to our earnings. An example of a dispute with
insurers relating to the availability of insurance coverage and in relation to
which costs incurred by the Group may not ultimately be recovered through such
coverage is included in Note 25 to the Financial Statements in the Seroquel – product liability
section.
Taxation
The integrated
nature of our worldwide operations can produce conflicting claims from revenue
authorities as to the profits to be taxed in individual territories. The
resolution of these disputes can result in a reallocation of profits between
jurisdictions and an increase or decrease in related tax costs, and has the
potential to affect our cash flows and EPS. Claims, regardless of their merits
or their outcome, are costly, divert management attention and may adversely
affect our reputation.
The majority of the
jurisdictions in which we operate have double tax treaties with other foreign
jurisdictions, which enable us to ensure that our revenues and capital gains do
not incur a double tax charge. If any of these double tax treaties should be
withdrawn or amended, especially in a territory where a member of the Group is
involved in a taxation dispute with a tax authority in relation to cross-border
transactions, such withdrawal or amendment could have a material adverse effect
on our financial condition and results of operations, as could a negative
outcome of a tax dispute or a failure by the tax authorities to agree through
competent authority proceedings. See the Financial risk management policies
section on page 44 for further details of risk mitigation and Note 25 to the
Financial Statements for details of current tax disputes.
Pensions
A
particular risk relates to the Group’s pension obligations, the single largest
of which is the UK Pension Fund. The obligations are backed by assets invested
across the broad investment market. Sustained falls in these assets will put a
strain on funding which may result in requirements for additional cash,
restricting cash available for strategic business growth. Similarly, if the
liabilities rise, there will be a strain on funding from the business. The
likely increase in the IAS19 accounting deficit generated by any of these may
cause the ratings agencies to review our credit rating, with the potential to
affect negatively our ability to raise debt. See Note 23 to the Financial
Statements from page 156 for further details on the Group’s pension
obligations.
APPENDIX
C
This
statement relates to and is extracted from the Annual Report. It is repeated
here solely for the purpose of complying with rule 6.3.5 of the Disclosure and
Transparency Rules. It is not connected to the information presented in this
announcement or in the Company's fourth quarter and full year results 2009
announcement that was published on 28 January 2010.
Directors'
responsibility statement pursuant to DTR 4
The Directors
confirm that to the best of our knowledge:
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The Financial
Statements, prepared in accordance with the applicable set of accounting
standards, give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company and the undertakings included
in the consolidation taken as a
whole.
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The
Directors' Report includes a fair review of the development and
performance of the business and the position of the issuer and the
undertakings included in the consolidation taken as a whole, together with
a description of the principal risks and uncertainties that they
face.
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On
behalf of the Board of Directors on 28 January 2010:
David R
Brennan
Director
APPENDIX
D
Related
parties transactions
During the period 1
January 2010 to 28 January 2010, there were no transactions, loans, or proposed
transactions between the Company and any related parties which were material to
either the Company or the related party, or which were unusual in their nature
or conditions (see also Note 27 to the Financial Statements on page
185).
ADDITIONAL
INFORMATION
Trademarks
Trademarks of the
AstraZeneca group of companies appear throughout the extracted information from
the Annual Report and Form 20-F Information 2009 in italics. AstraZeneca, the
AstraZeneca logotype and the AstraZeneca symbol are all trademarks of the
AstraZeneca group of companies. Trademarks of companies other than AstraZeneca
appear with a ® or ™ sign and include: Abraxane®, a registered trademark of
Abraxis BioScience, LLC. and ONGLYZA™, a trademark of Bristol-Myers Squibb
Company.
Cautionary
statement regarding forward-looking statements
In
order, among other things, to utilise the ‘safe harbour’ provisions of the US
Private Securities Litigation Reform Act 1995, we are providing the following
cautionary statement: The text extracted from the Annual Report and Form 20-F
Information contains certain forward-looking statements with respect to the
operations, performance and financial condition of the Group. Although we
believe our expectations are based on reasonable assumptions, any
forward-looking statements, by their very nature, involve risks and
uncertainties and may be influenced by factors that could cause actual outcomes
and results to be materially different from those predicted. The forward-looking
statements reflect knowledge and information at the date of the preparation of
the Annual Report and Form 20-F Information and AstraZeneca undertakes no
obligation to update these forward-looking statements. We identify the
forward-looking statements by using the words ‘anticipates’, ‘believes’,
‘expects’, ‘intends’ and similar expressions in such statements. These
forward-looking statements are subject to numerous risks and uncertainties.
Important factors that could cause actual results to differ materially from
those contained in forward-looking statements, certain of which are beyond our
control, include, among other things: failure to meet development targets;
difficulties of obtaining and maintaining regulatory approvals for new products;
failure to obtain patent protection; delay to new product launches; strategic
alliances formed as part of our externalisation strategy may be unsuccessful;
challenges to achieving commercial success of new products; performance of new
products; product counterfeiting; developing our business in emerging markets;
expiry of intellectual property rights; patent litigation and early loss of
intellectual property rights; expiry or earlier loss of patents covering
competing products; competition, price controls and price reductions; risks
relating to productivity initiatives; risks relating to acquisitions;
failure to manage a crisis; failure of information technology; failure of
outsourcing; risks relating to the manufacture of biologics; reliance on third
parties for goods and services; adverse outcome of litigation and/or
governmental investigations; legal proceedings regarding business practices;
substantial product liability claims; failure to adhere to applicable laws,
rules and regulations; environmental/occupational health and safety liabilities;
adverse impact of a sustained economic downturn; impact of fluctuations in
exchange rates; credit and return on substantial investments; limited third
party insurance coverage; taxation and pensions.
A
C N Kemp
Company
Secretary
15
March 2010
- ENDS
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Item 12
REPURCHASE
OF SHARES IN ASTRAZENECA PLC
AstraZeneca PLC
announced that on 17 March 2010, it purchased for cancellation 600,000 ordinary
shares of AstraZeneca PLC at a price of 2899 pence per share. Upon the
cancellation of these shares, the number of shares in issue will be
1,451,942,076.
A C N
Kemp
Company
Secretary
18 March
2010
Item
13
JURY RULES IN FAVOUR OF ASTRAZENECA IN
FIRST US SEROQUEL PRODUCT LIABILITY TRIAL
AstraZeneca today
announced that a jury in a New Jersey state court in the US ruled in favour of
AstraZeneca by rejecting a Louisiana plaintiff’s claims that SEROQUEL caused his
alleged injuries.
The case, Baker v.
AstraZeneca, was the first product liability case to go to trial. The
previous nine cases prepared for trial have been dismissed by both federal and
state court judges, and approximately 2,600 additional cases have been abandoned
by the plaintiffs’ attorneys themselves.
The heart of these
cases are unproven claims that SEROQUEL causes diabetes in individual
plaintiffs. In case after case, jurors, judges and even plaintiffs’ lawyers
themselves have found that plaintiffs simply cannot show through any accepted
scientific method that AstraZeneca is responsible for their alleged
injuries.
In the cases that
have been prepared for trial to date, including the case decided by a jury in
New Jersey, the facts show that the plaintiffs either already had diabetes or
had so many pre-existing risk factors that they were already at a significantly
increased risk of diabetes before they first took SEROQUEL.
AstraZeneca has
studied SEROQUEL extensively and shared the appropriate and required data with
the US Food and Drug Administration – both before and after the agency first
approved it in 1997.
About
SEROQUEL
SEROQUEL was first
approved in the US in 1997 and is currently approved for depressive episodes in
bipolar disorder in adults; manic episodes in bipolar disorder in adults when
used alone or with lithium or divalproex; manic episodes in bipolar disorder in
children and adolescents ages 10 to 17 years; long-term treatment of bipolar
disorder in adults with lithium or divalproex; schizophrenia in adults; and
schizophrenia in adolescents ages 13-17 years.
About
AstraZeneca
AstraZeneca is a
global, innovation-driven biopharmaceutical business with a primary focus on the
discovery, development and commercialisation of prescription medicines. As
a leader in gastrointestinal, cardiovascular, neuroscience, respiratory and inflammation, oncology
and infectious disease medicines, AstraZeneca generated global revenues of US
$32.8 billion in 2009. For more information please visit: www.astrazeneca.com
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Enquiries UK:
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18
March 2010
- ENDS
-