Annual Reports

  • 20-F (Mar 6, 2018)
  • 20-F (Mar 7, 2017)
  • 20-F (Mar 8, 2016)
  • 20-F (Mar 10, 2015)
  • 20-F (Mar 20, 2014)
  • 20-F (Mar 25, 2013)

 
Other

AstraZeneca 20-F 2010
Table of Contents

Exhibit 15.1

 

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Table of Contents


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Important information for readers of this Annual Report and Form 20-F Information
Cautionary statement regarding forward-looking statements
The purpose of this Annual Report and Form 20-F Information is to provide information to the members of the Company. The Company and its Directors, employees, agents and advisors do not accept or assume responsibility to any other person to whom this Annual Report and Form 20-F Information is shown or into whose hands it may come and any such responsibility or liability is expressly disclaimed. In order, among other things, to utilise the ‘safe harbour’ provisions of the US Private Securities Litigation Reform Act 1995 and the UK Companies Act 2006, we are providing the following cautionary statement: This Annual Report and Form 20-F Information contains certain forward-looking statements with respect to the operations, performance and financial condition of the Group. Forward-looking statements are statements relating to the future which are based on information available at the time such statements are made, including information relating to risks and uncertainties. Although we believe that the forward-looking statements in this Annual Report and Form 20-F Information are based on reasonable assumptions, the matters discussed in the forward-looking statements may be influenced by factors that could cause actual outcomes and results to be materially different from those expressed or implied by these statements. The forward-looking statements reflect knowledge and information available at the date of the preparation of this Annual Report and Form 20-F Information and the Company 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 such statements. 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, those factors identified in the Principal risks and uncertainties section from page 80 of this document. Nothing in this Annual Report and Form 20-F Information should be construed as a profit forecast.
Inclusion of reported performance, core financial measures and constant exchange rate growth rates
In Our year in brief section on page 2 and throughout the Directors’ Report the following measures are referred
  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.
 
>     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.
>     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 the
    previous year’s exchange rates and adjusting for other exchange effects, including hedging). A reconciliation of Reported results adjusted for the impact of currency movements is provided in the Operating profit (2009 and 2008) table on page 39.
Throughout this Annual Report and Form 20-F Information, growth rates are expressed at CER unless otherwise stated.
AstraZeneca’s determination of non-GAAP measures together with our presentation of them within our financial information may differ from similarly titled non-GAAP measures of other companies.
Statements of competitive position, growth rates and sales
In this Annual Report and Form 20-F Information, except as otherwise stated, market information regarding the position of our business or products relative to its or their competition is based upon published statistical sales data for the 12 months ended 30 September 2009 obtained from IMS Health, a leading supplier of statistical data to the pharmaceutical industry. For the US, dispensed new or total prescription data are taken from the IMS Health National Prescription Audit for the 12 months ended 31 December 2009; such data is not adjusted for Medicaid and similar state rebates. Except as otherwise stated, these market share and industry data from IMS Health have been derived by comparing our sales revenue to competitors’ and total market sales revenues for that period. Except as otherwise stated, growth rates and sales are given at CER. For the purposes of this Annual Report and Form 20-F
Information, unless otherwise stated, references to the world pharmaceutical market or similar phrases are to the 49 countries contained in the IMS Health MIDAS Quantum database, which amounted to approximately 95% (in value) of the countries audited by IMS Health.
AstraZeneca websites
Information on or accessible through our websites, including astrazeneca.com, astrazenecaclinicaltrials.com and medimmune.com, does not form part of and is not incorporated into this document.
External/third party websites
Information on or accessible through any third party or external website does not form part of and is not incorporated into this document.
Definitions
The glossary and the market definitions table from page 206 are intended to provide a useful guide to terms and AstraZeneca’s definition of markets, as well as to acronyms and abbreviations, used in this Annual Report and Form 20-F Information. They are, however, provided solely for the convenience of the reader and should therefore not be relied upon as providing a definitive view of the subject matter to which they relate.
Use of terms
In this Annual Report and Form 20-F Information, unless the context otherwise requires, ‘AstraZeneca’, ‘the Group’, ‘we’, ‘us’ and ‘our’ refer to AstraZeneca PLC and its consolidated entities and any reference to ‘this Annual Report’ is a reference to this Annual Report and Form 20-F Information.
Statements of dates
Except as otherwise stated, references to days and/or months in this Annual Report and Form 20-F Information are references to days and/or months in 2009.
Figures
Figures in parentheses in tables and in the Financial Statements are used to represent negative numbers.































































  AstraZeneca Annual Report and Form 20-F Information 2009


 

 

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Introduction

 
01   
Welcome to our
Annual Report 2009
         
        Contents
         
  02    
         
  02    
  04    
  05    
  06    
  08    
         
  10    
         
       
Performance
  12    
  14    
  18    
         
       
Reviews
  36    
  50    
  55    
  75    
  76    
  77    
 
       
Corporate Governance
  79    
  87    
  101    
         
  120

   
         
  194

   
         
  196    
  199    
  204    
  205    
  206    
  208    
AstraZeneca Annual Report and Form 20-F Information 2009 



Table of Contents

02Introduction | Our year in brief

Our year in brief
Summary financial
and operational
information for 2009

Financial highlights
         
 
 
       
Sales growth
       
7%
  3%   7%
2009
  2008   2007
(GRAPH)


AstraZeneca Annual Report and Form 20-F Information 2009 


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Operational overview
Distributions to shareholders $m
                         
    2009     2008     2007  
 
Dividends
    2,977       2,739       2,641  
 
Share re-purchases
          610       4,170  
 
     
 
   
29%
  23%
Crestor up 29% to $4,502 million
  Symbicort up 23% to $2,294 million
 
   
4
  4
Four major regulatory submissions
  In-licensing/acquisition of four
 
  late-stage projects
 
   
$1.6bn
  6%
Annualised savings of $1.6 billion
  Top 6% in the sector in the
from restructuring
  Dow Jones Indexes
Sales
>   Crestor sales were up 29% to $4,502 million; Symbicort up 23% to $2,294 million; Seroquel up 12% to $4,866 million; and Arimidex up 7% to $1,921 million. Nexium sales fell by 1% to $4,959 million and Synagis sales fell by 12% to $1,082 million
 
>   Sales of Toprol-XL and H1N1 influenza (swine flu) vaccine in the US accounted for 3 percentage points of the global revenue growth
 
>   Emerging Markets growth was 12%, accounting for 13% of total revenue
Pipeline developments include
>   Four major regulatory submissions made
 
>   Complete Response Letter submitted for fifth regulatory submission
 
>   In-licensing/acquisition of four late-stage projects
 
>   89 projects in clinical development
Restructuring programme delivered annualised savings of $1.6 billion in 2009 and expanded to deliver further savings
Positioned in the top 6% in the sector in the Dow Jones World and STOXX (European) Indexes
Up to $1 billion in Ordinary Shares will be re-purchased by the Company during 2010
Note: All growth rates are at CER.


AstraZeneca Annual Report and Form 20-F Information 2009 


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04Introduction | Chairman’s Statement

(PHOTO OF LOUIS SCHWEITZER)
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.
-s- Louis Schweitzer
Louis Schweitzer
Chairman


AstraZeneca Annual Report and Form 20-F Information 2009 


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Introduction | CEO’s Review

05

(PHOTO OF DAVID R BRENNAN)
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 Onglyzaand 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.
-s- David R Brennan
David R Brennan
Chief Executive Officer


AstraZeneca Annual Report and Form 20-F Information 2009 


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06Introduction | AstraZeneca at a glance

AstraZeneca
at a glance
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AstraZeneca is a global, innovation-driven biopharmaceutical business
Our mission is to make the most meaningful difference to the health of patients through great medicines
We do this with a range of medicines designed to improve patients’ health and quality of life around the world
We are committed to developing each activity within our business in a responsible way
Our work is supported by our values and the conduct of employees in working with each other and our stakeholders
We believe that our approach delivers lasting value for patients, society and our shareholders
62,700
62,700 employees worldwide
We are focused on the discovery, development and commercialisation of prescription medicines for six important areas of healthcare
We have a broad product range that includes many leaders in the treatment of the world’s most serious illnesses
We have 10 medicines with sales of more than $1 billion each in 2009
We use our scientific and commercial skills to develop a pipeline of innovative new products to meet medical need
     
Healthcare area   Key product
 
Cardiovascular
  Crestor (for managing cholesterol levels)
 
Gastrointestinal
  Nexium (for acid reflux)
 
Infection
  Synagis (for RSV, a form of respiratory infection in infants)
 
Neuroscience
  Seroquel (for schizophrenia, bipolar disorder and major depressive disorder)
 
Oncology
  Arimidex (for breast cancer)
 
Respiratory & Inflammation
  Symbicort (for asthma and chronic obstructive pulmonary disease)
 
$1bn
10 medicines with sales of over $1 billion each in 2009


AstraZeneca Annual Report and Form 20-F Information 2009 


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Introduction | AstraZeneca at a glance

07
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We are committed to working in a spirit of collaboration to achieve our goal of better health for patients
We recognise the value of collaborative work, and so continually seek to develop new ways of working with others who complement our existing skills, enhance our internal innovation or bring extra value to what we do
Our products rely not only on teamwork within AstraZeneca but on working with doctors, patients and other stakeholders to understand what they need and want
We also work with governments and those who pay for healthcare to ensure our products represent value for money
We work with NGOs and others to improve local healthcare in vulnerable communities around the world
60
60 major R&D collaborations in the last three years
We have a global reach but local knowledge, being active in over 100 countries, with a growing presence in emerging markets such as China, Brazil, India and Russia
In 2009 we had sales of $15,981 million in North America, $12,471 million in Other Established Markets and $4,352 million in Emerging Markets
Combining our disease area expertise with country-specific knowledge helps us to market and sell medicines that best meet local needs
Of our 62,700 employees worldwide, 47% are in Europe, 31% in the Americas and 22% in Asia, Africa and Australasia
Around 11,600 people work in our R&D organisation and we have 17 principal R&D centres in eight countries, including Sweden, the US and the UK
We have 9,500 employees at 20 manufacturing sites in 16 countries
100+
Active in over 100 countries


AstraZeneca Annual Report and Form 20-F Information 2009 


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Path to a new medicine
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10Directors’ Report
Directors’ Report

         
Performance
       
    12  
    14  
    16  
    18  
    18  
    20  
    22  
    22  
    28  
    31  
    32  
    33  
 
Reviews
       
    36  
    37  
    37  
    38  
    39  
    41  
    42  
    42  
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This Directors’ Report includes information that fulfils the requirements of a business review under the Companies Act 2006.
The Development Pipeline, Shareholder Information and Corporate Information sections from pages 196, 199 and 204, respectively, are incorporated into this Directors’ Report.
Details of the more significant risks to AstraZeneca are set out in the Principal risks and uncertainties section from page 80.
Many of our products are subject to litigation.
Detailed information about material legal proceedings can be found in Note 25 to the Financial Statements from page 166.
References to prevalence of disease have been derived from a variety of sources and are not intended to be indicative of the current market or any potential market for AstraZeneca’s pharmaceutical products since, among other things, there may be no correlation between the prevalence of a disease and the number of individuals who are treated for such a disease.
The glossary and the market definitions table from page 206 are intended to provide a useful guide to terms and AstraZeneca’s definitions of markets, as well as to acronyms and abbreviations, used in this Directors’ Report.
In this Annual Report and Form 20-F Information, unless the context otherwise requires, ‘AstraZeneca’, ‘the Group’, ‘we’, ‘us’ and ‘our’ refer to AstraZeneca PLC and its consolidated entities and any reference to ‘this Annual Report’ is a reference to this Annual Report and Form 20-F Information.
Except as otherwise stated, references to days and/or months in this Annual Report are references to days and/or months in 2009.
Figures in parentheses in tables and in the Financial Statements are used to represent negative numbers.





Members of the Senior Executive Team address
questions from an audience of employees at a Town
Hall meeting in Westborough, Massachusetts, US.
AstraZeneca Annual Report and Form 20-F Information 2009 




















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12Directors’ Report | Business Environment

Business Environment

AstraZeneca operates in a rapidly changing business environment that presents both opportunities and challenges. Although industry revenue growth is slowing due to continuing pressure on healthcare costs and pricing, as well as increased competition from generic medicines, the demand for healthcare that will drive the industry’s future growth remains strong.
Historically, the pharmaceutical industry has been less exposed than other sectors to changes in global economic conditions, but continued constraints on payers impacted the sector and its prospects in 2009. However, the current economic environment also presents opportunities for the sector, such as strategic alliances with smaller companies seeking funding and development expertise. Indeed, partnering activity across the pharmaceutical sector remained strong during 2009.
World markets
The world pharmaceutical market in 2009 was valued at $709 billion, an increase of 5% over 2008 at CER (maintaining the rate of growth for the period 2007 to 2008). As shown in the figure opposite the 2009 growth rate in North America recovered from its 2008 decline while the 2009 growth rate in Other Established Markets fell back from its 2008 level. On the other hand, Emerging Markets, in particular Emerging Asia Pacific, saw strong double-digit growth.
In 2009 the top five markets in the world remained the US, Japan, France, Germany and Italy, with the US representing 42% of global sales (2008: 42%). Further down the rankings, China moved into sixth place, displacing the UK to eighth place behind Spain.
Growth drivers
Expanding patient populations
The world population has doubled in the last 50 years from three billion to over six billion and is expected to reach nine billion by 2050. In addition, the number of people who can access the highest standards of healthcare continues to increase, particularly among the elderly, who represent a rising proportion of populations in developed nations.
Furthermore, the faster-developing economies, such as China, India and Brazil, continue to offer new opportunities for the industry to supply an expanding number of patients who can benefit from medicines. As shown by the figures, Emerging Markets now represent approximately 85% of the world population and 16% of the total pharmaceutical market. Pharmaceutical industry growth in Emerging Markets was more than triple the rate of growth in Established Markets in 2009.
Unmet medical need
In most Established Markets, ageing populations and certain lifestyle choices drive an increased incidence of chronic diseases such as cancer, cardiovascular/metabolic and respiratory diseases which require long-term management. The prevalence of chronic disease is also increasing in middle-income countries, and is now beginning to have an impact in the least developed countries. Many diseases remain under-diagnosed or sub-optimally treated and, as diagnostic techniques and treatments improve and access to medicines widens, the burden of disease is projected to continue increasing over the next 20 years. In addition, the appearance of new medical challenges such as the H1N1 influenza (swine flu) pandemic potentially adds to the burden.
Advances in science and technology
Existing medicines will continue to be vital in meeting the demand for healthcare, particularly in an increasingly genericised market. In addition, innovation resulting from advances in both the understanding of the key processes involved in the initiation and progression of disease and the application of new technologies will be critical to meeting current and future unmet medical need. As we noted last year, the use of large molecules, or biologics, is becoming an increasingly important driver of innovation. It has been predicted that within the world’s top 100 pharmaceutical products, 50% of sales will come from biologics based on forecasts for 2014. This compares with only 28% in 2008 and 11% in 2000. With advances in the technologies for the design and testing of novel compounds, new opportunities also exist for the use of innovative small molecules as new medicines.


The challenges
Pricing pressure
The growing demand for healthcare continues to increase pressure on payer budgets. Whilst payers may recognise the need to reward innovation, they have a duty to spend their limited financial resources wisely. As a result, cost-containment in healthcare, including containment of pharmaceutical spending, continues to be a focus. This is particularly the case as the current global economic downturn increases cost pressures on healthcare payers and those patients who pay directly for all, or a significant proportion, of the cost of their medicines.
The research-based pharmaceutical industry’s challenge is to manage this downward pressure on the price of its products, whilst continuing to invest in the discovery, development, manufacture and marketing of new medicines. In addition, most of our sales are generated in highly regulated markets where governments exert various levels of control on price and reimbursement.
Multiple pricing systems exist across the globe, which create a complex matrix that must be managed to optimise revenues. This may be further complicated by currency fluctuations within regions. The principal aspects of price regulation in our major markets are described further in the Geographical Review from page 50.
Payers increasingly require that the economic as well as therapeutic value of medicines be demonstrated and that this value be supported by evidence of real outcomes. Meeting these needs across a diverse range of national and local reimbursement systems requires significant additional investment of resources and funds by the industry. Personalised healthcare (PHC) offers one way of increasing the value of medicines to patients, physicians and payers. Under PHC the optimal treatment for each individual, in terms of the choice of medicine and dose, is determined by analysis of the patient’s biochemical or genetic make-up. An example of this approach is the use of a companion diagnostic test to allow use of Iressa for the treatment of lung cancer, specifically in those patients who have an activating mutation of the epidermal growth factor receptor.
R&D productivity
The research-based pharmaceutical industry continues to drive for increased productivity in R&D to ensure a strong pipeline of commercially viable medicines for launch. Companies have addressed this challenge in a variety of ways. Some have sought to increase output with limited incremental cost


AstraZeneca Annual Report and Form 20-F Information 2009 


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Directors’ Report | Business Environment

13
Performance

and others have restructured R&D functions to promote innovation and entrepreneurship. Others have acquired companies with synergistic development pipelines.
Regulatory requirements
The pharmaceutical industry is one of the most regulated of all industries. Whilst efforts to harmonise regulations globally are increasing, the number and impact of these regulations continue to grow. Since the withdrawal of Vioxx, regulators have been applying a more systematic approach to safety assessment and the management of known and emerging risks both before and after a medicine is approved. Today, regulators also require greater amounts of safety data before approval than in the past. This has led to a change in the structure of development programmes and to the need for additional resources to carry them out. For example, companies might initially seek approval for a narrower list of medical indications, or request conditional approvals that may later be expanded through additional studies as part of a medicine’s life-cycle management.
Competition
Our main competitors are other research-based pharmaceutical companies that sell innovative, patent-protected, prescription medicines. Competition also comes from collaborations between traditional pharmaceutical companies and smaller biotechnology and vaccine companies.
Generic versions of drugs that are no longer patent protected also compete in the market. Manufacturers of generic drugs price them at a significantly lower level than the innovator equivalents. This is partly because generic manufacturers do not invest the same amounts in R&D or market development as research-based pharmaceutical companies, and therefore do not need to recoup that investment. Such competition generally occurs when patents expire but can also occur where the validity of patents is being disputed or has been successfully challenged before expiry. In addition, competition can occur when a generic medicine in the same product class as an innovator product (a product which does not yet have a generic equivalent) enters the market and competes to meet the same medical need.
To date, biologics have sustained longer life-cycles than traditional pharmaceuticals and have faced less generic competition. This is because the manufacturing process for biologics is generally more complex than it is for small molecule medicines and it is significantly harder to produce an identical copy of a biologic compared to a small
molecule medicine. However, biologics are now becoming subject to competition from ‘biosimilars’ and, while the regulatory regimes for ‘biosimilars’ are less well established than those for generic small molecule medicines, regulatory authorities in Europe and the US are currently reviewing abbreviated approvals processes.
Further information about the specific risk of the early loss and expiry of patents is explained in the Intellectual property section on page 31 and more general information regarding the principal risks and uncertainties faced by AstraZeneca can be found in the Principal risks and uncertainties section from page 80.
World pharmaceutical markets
(IMAGE)
Data based on world market sales using AstraZeneca’s market definitions as set out in the market definitions table on page 206. Source: IMS Health.
Expanding patient populations
(IMAGE)
Source: International Monetary Fund, World Economic Outlook Database, October 2009
Population figures are for 2008
GDP growth is based on real GDP in US dollars for the years 2003-2008
GDP per capita is nominal GDP per capita for 2008.


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14Directors’ Report | Strategy and Performance

Strategy and
Performance
How we did in 2009
and our plans for
the future

(PHOTO OF DAVID BRENNAN)
“We face near-term challenges
but I am confident that we can
be among the best performers
in this sector.”
Each year, at the beginning of our business planning cycle, we assess the challenges and opportunities presented by the market, stress test our short and long-term planning assumptions, and critically assess our strengths and weaknesses as an organisation. We do so to assure ourselves that, whatever our past successes, the strategic path we are following is the right one for the future.
This section summarises our strategic plans for the future as well as our performance against those plans in 2009.
Our challenge
In our Business Environment section from page 12 we outline the opportunities presented by expanding patient populations in Emerging Markets, unmet medical need and advances in science, as well as the pricing pressure and other challenges facing the pharmaceutical sector. Over the last 10 years, our healthcare revenue has grown from $15 billion to almost $33 billion and our Emerging Markets business has grown from 6% of our global revenue to 13%. Our challenge as a business is to be nimble in seizing the opportunities and managing the risks in order to build our competitive advantage.
We estimate that in the next five years, more than half our current revenue is subject to
potential loss through the ordinary course of patent expiries and loss of Regulatory Exclusivity protecting our products. This loss of intellectual property is an inherent feature of our industry that occurs naturally as part of the cycle of innovation, growth and renewal. It is, however, challenging to be able to synchronise the cycles of patent expiry and portfolio renewal. The goal for our planning process is to ensure that we can continue to sustain the cycle of successful innovation and thus continue to refresh our portfolio of patented products and generate value for shareholders.
Our strategy
The executive team, with the endorsement of the Board, believes that the most value-creating strategy for AstraZeneca is to remain a focused, integrated, innovation-driven, global, prescription-based biopharmaceutical business:
>   focused in that we will continue to be selective about those areas of the industry in which we choose to compete, targeting those product categories where medical innovation or brand equity continues to enable us to make acceptable levels of returns on our investments
 
>   integrated in that we believe the best way to capture value within this industry is to span the full value chain of discovery, development and commercialisation


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Directors’ Report | Strategy and Performance

15
Performance

 
>   innovation-driven in that we believe our technology base will continue to deliver innovative products that patients will want and for which payers will pay
 
>   global in that we believe we have the ability efficiently and effectively to meet healthcare needs in both Established and Emerging Markets.
We believe that there are continued opportunities to create value for those who invest in pharmaceutical innovation and that AstraZeneca has the skills and capabilities to turn these opportunities into long-term value.
Our priorities to 2014
The initiatives we are pursuing in the coming years are in line with those we reported on last year and we do so again overleaf in this Annual Report. These show that we are already on a path of change. Our 2009 review emphasised the need for the pace of that change to accelerate.
Pipeline
While remaining committed to scientific innovation to deliver a flow of new medicines, the need to further improve the productivity of R&D is a central part of our plans. Meeting this challenge will require continued investment in new skills and capabilities. It will also require our R&D organisation to undertake more transformational change than ever before. Our plans include a reduction in the number of disease area targets within our core Therapy Areas, a continued focus on external collaboration, 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.
Our commitment to scientific innovation is coupled with our belief that successful delivery of our plans will require more external collaboration than ever before, including more extensive collaboration with industry and academic partners. External project opportunities will compete alongside in-house developments for funding from our new Portfolio Investment Board which will replace the R&D Executive Committee.
Business growth
Our enhanced programme of external collaboration includes working with payers. We are setting out to build an industry-leading capability in ‘payer partnering’ to ensure that the needs of our customers are clearly understood throughout R&D and included in our decision-making.
In terms of the commercialisation of our products, we will continue to build on our leading positions in Established Markets. Our plans for growth will also build on the investments we have already made in Emerging Markets. In addition to commercialising the current and new product offerings being developed internally, we believe we can drive further growth by selectively supplementing our Emerging Markets portfolio with branded generic products sourced externally and marketed under the AstraZeneca brand.
Business shape
We will continue to use business improvement programmes, such as Lean Sigma, to drive efficiencies across the Group. We will also move further towards a more flexible cost base which will enable us to respond rapidly as our requirements change. To do this we will make greater use of outsourcing and strategic collaborations with other organisations.
Culture and behaviour
We define success not only by what we do but also by how we do it. Acting responsibly ensures we do things in the right way and in line with the expectations of shareholders, customers, payers, regulators and other stakeholders. We will continue to embed a culture of accountability across the Group, nurturing a spirit of innovation in all functions.
Implementation
Good progress has been made in the implementation of previously announced restructuring programmes. This has involved a reduction of 12,600 positions. Annualised benefits of $1.6 billion were realised by the end of 2009, which are on track to grow to around $2.4 billion by the end of 2010.
The next phase of restructuring, which includes completion of the previous programmes, some additional initiatives in supply chain and in selling, general & administration, as well as the R&D initiatives, will result in the realisation of a further $1.9 billion in estimated annual benefits by the end of 2014. These programmes may, when fully implemented, involve up to an additional 10,400 job reductions.
Our performance in 2009
Set out in the next column is more information about how we measure and review our performance on an annual basis. For each of our strategic priority areas, the table overleaf summarises the initiatives we have been undertaking in support of them, our 2010 objectives, our KPIs and our performance against them in 2009.
 

Measuring our performance
Each business function is subject to an annual budget and target-setting process that includes developing financial and business forecasts, conducting sensitivity and risk analyses and setting relevant performance measures. Regular reviews are undertaken in each part of the business in order to monitor and assess progress against business and budget targets, and to assess key risks and mitigating actions. Longer term, 10-year forecasts are developed as part of our annual strategy review.
Quarterly internal reports provide the Board and SET with shared insight into progress against current year objectives and milestones for longer-term strategic goals. Performance is assessed using quantitative, comparative market, operational and financial measures and qualitative analysis.
In relation to our overall goal of creating enduring value for shareholders by being one of the best-performing pharmaceutical companies, we track shareholder value using the following financial performance metrics: sales growth (operating profit and margins); earnings per share growth; net operating cash flow (before debt repayment and shareholder distributions); shareholder distributions through dividends and share re-purchases; and TSR. We report our performance against those measures on pages 2 and 3 of this Annual Report, and with TSR graphs on page 114.
 


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16Directors’ Report | Strategy and Performance

Strategy, objectives and 2009 performance
         
Strategic priority   Initiatives   Objective for three years to end 2010
 
       
Strengthen the pipeline
       
 
To be one of the fastest and most productive companies in the industry through continuous improvement in our in-house R&D. Seek leading science outside AstraZeneca to broaden our research base and further strengthen our pipeline of new products
  Accessing the best potential innovative medicines to meet unmet patient need through

> small molecule and biologics R&D
> externalisation

Embedding culture of continuous improvement through

> leading-edge science
> collaborations
> business efficiency
  Deliver two new product launches on average per year from 2010

 

In order to achieve the above ensure we have 10 or more products in Phase III development or registration
 
     
 
Achieve a median composite eight-year product
development cycle
 
       
 
Grow the business
       
 
To maintain our position among the
industry leaders through a continued
focus on driving commercial excellence
  Building on leadership positions in existing markets

Expanding presence in important emerging markets
  Deliver sales growth in line with market growth to provide a return on our investment
 
 
Driving high standards of sales force effectiveness, marketing excellence and customer support
 
 
Profitably launch in-licensed and existing projects
 
       
 
  Developing our brands to maximise patient benefit and commercial potential  
 
Securing new external commercial collaborations
 
       
 
Reshape the business
       
 
To create an organisation with the flexibility and financial strength to adapt quickly and effectively within a challenging and rapidly changing business environment
  Implementing and expanding restructuring programme   Annual benefits of $2.1 billion from restructuring
   
  Operations’ asset and sourcing strategy   Maintain margins


     
 
 
Delivering continuous improvement across
R&D through
 
Improve R&D unit costs by 15%
 
 
> smarter working
> business process outsourcing
   
     
 
       
 
  G&A strategy   Achieve planned improvement in selling, general and
 
  Marketing, sales and commercial strategies   administrative (SG&A) costs
 
 
> Western Europe and Emerging Markets resource optimisation plans
   
 
  > North America – customer-driven interactions    
     
 
       
 
  Procurement strategy   Procurement savings
 
Promote a culture of responsibility and accountability
     
 
To create an organisation that is recognised not only for the skills, experience and quality of its people, but also for the integrity with which it conducts its business
  Maintain/improve levels of employee engagement   Upper quartile industry ranking for
employee engagement
   
  Strengthening leadership development frameworks   Achieve step change in leadership and management capability
   
 
  Integrating responsible business considerations into   Ensure that a culture of responsible business, including
 
  everyday business thinking and decision-making   compliance, is embedded across all our activities
 
 
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Directors’ Report | Strategy and Performance

17
Performance
         
    Measure   2009 performance summary
 
       
 
 
  Regulatory approvals   Onglyza™ approved in 36 countries; Iressa approved in the EU
H1N1 influenza vaccine approved in the US. See Therapy Area Review from page 55
 
 
  Projects entering development   29 projects entering development. See Strengthening the pipeline section on page 24
     
 
  Value-creating collaborations and business
development activities
  Major late-stage in-licensing deals signed with Targacept, Forest and Nektar
Agreed to acquire Novexel. See Working with others section from page 22
     
 
  Major regulatory submissions   Submissions made for Brilinta, Certriad, Vimovo and Onglyza™/metformin; Zactima submission withdrawn
H1N1 influenza vaccine approved in the US. See Therapy Area Review from page 55
 
 
  Development cycle times for small molecule
and biologics/vaccines
  On track to deliver 2010 targets. See Improving productivity section from page 24
 
       
 
 
 
 
  Deliver targeted sales and contribution
growth (at CER)
  Global sales +7% at CER. See 2009 Results of operations section from page 38
     
 
  Successful life-cycle projects   Additional approvals in the US for Seroquel and Seroquel XR; presented results of Crestor JUPITER trials
and regulatory submissions made in the US and the EU. See Therapy Area Review from page 55
 
 
  Successful launches   Onglyza™ launched in the US and the EU; Iressa launched in the EU
Symbicort approved in Japan and launched in January 2010. See Therapy Area Review from page 55
 
 
  Commercial collaborations   Four major co-promotion collaborations signed (Abbott, Astellas, UCB and Salix). See Working with others section
on page 22
 
 
       
 
 
  Cost savings   Annualised benefits of $1.6 billion in 2009. See Strategy and Performance section from page 14
 
 
  Gross margin   Target exceeded: core gross margin of 83%. See 2009 Results of operations section from page 38
     
 
  Operating profit margin   Core operating profit margin of 41.5%. See 2009 Results of operations section from page 38
 
 
  Unit cost metrics   Progress towards target. See Improving productivity section from page 24
 
 
 
  SG&A cost growth rates   Core SG&A growth of 5%. See 2009 Results of operations section from page 38
 
       
 
 
  Cost savings   Delivered savings of $555 million against a target of $500 million
 
 
       
 
 
  Levels of employee engagement as measured by our global employee survey (FOCUS)   86% of our employees completed the FOCUS survey, and employee engagement improved by 2 percentage points
from 2008. This is above the industry average. See Engagement and dialogue section on page 34
 
 
  Improve senior leadership clarity of direction
as measured by our FOCUS survey
  2009 score improved by 3 percentage points over 2008 to 72% favourable. This follows significant efforts to improve
the quality and effectiveness of senior leaders’ communication to the organisation. See Engagement and dialogue section on page 34
 
 
  Number of confirmed breaches of external
sales and marketing regulations or codes
  24 confirmed breaches of external sales and marketing regulations or codes. See Sales and marketing ethics section
from page 29
     
 
  Greenhouse gas emissions1   9% reduction in CO2 emissions. See Climate change section on page 76
     
 
  Waste production1, 2   8% reduction in total waste production. See Waste management section on page 76
     
 
  Rate of accidents with serious injury1   2% reduction in accidents with serious injury. See Safety, health and wellbeing section on page 35
     
 
  Rate of occupational illness1   32% increase in cases of occupational illness. See Safety, health and wellbeing section on page 35
     
 
  Ranking in Dow Jones Sustainability Indexes   Positioned in the top 6% in the sector in the Dow Jones World and STOXX (European) Indexes
 
 
  1 Data exclude MedImmune.
 
  2 We have replaced our previous ozone depleting potential (ODP) KPI with waste production, as we believe it is now a more meaningful environmental sustainability indicator for AstraZeneca. ODP data continue to be published on our website, astrazeneca.com/responsibility.
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18Directors’ Report | Resources, Skills and Capabilities

Resources, Skills
and Capabilities
How we deliver
our strategy
70
70 year track record of
pharmaceutical innovation

We believe that the following resources, skills and capabilities are key to achieving our goals for the longer-term success of our business:
>   a world-class R&D function focused on delivering a range of innovative and differentiated medicines that meet unmet medical need and for which customers are prepared to pay
 
>   a sales and marketing activity which is truly global in its approach, listens to customers and focuses on their needs
 
>   a cost-effective supply and manufacturing operation that ensures our customers receive a reliable supply of medicines when they want them.
We also need to have cost-effective and flexible support services and infrastructure to ensure we meet our customers’ needs as efficiently as possible.
To optimise our use of these resources, skills and capabilities, we need to:
>   protect our investment in R&D through a rigorous process of patent protection that optimises our intellectual property
 
 
 
 
 
 
>   have access to the best external sources of innovation to complement and build on our internal skills and capabilities.
 
Above all, we cannot achieve our goals without AstraZeneca people and the diverse skills and capabilities that a global workforce     
brings to our business. In everything we do we seek to act as a responsible business and are committed to developing in a sustainable way.
In this section we describe how we are using our resources, skills and capabilities to deliver our goals.
Our products
We focus on six Therapy Areas:
Cardiovascular, Gastrointestinal, Infection, Neuroscience, Oncology and Respiratory & Inflammation. These represent a significant proportion of the world’s burden of disease.
Our medicines
Our heritage
Backed by our 70 year track record of pharmaceutical innovation, we have a broad range of marketed medicines that continue to make a positive difference in important areas of healthcare.
Our range of medicines includes 10 products each with annual sales of over $1 billion in 2009. Our business growth in the short to medium term is expected to be driven by three factors: (1) our key products Crestor, Seroquel XR and Symbicort; (2) the successful launch of the next wave of products from our pipeline, which includes Onglyza™, Brilinta, Certriad, Vimovo, Recentin, motavizumab, dapagliflozin, zibotentan, NKTR-118, TC-5214, ceftaroline and CAZ104; and (3) from expansion in Emerging Markets, through
organic growth of products from our current portfolio and pipeline but also through selective additions of AstraZeneca branded generics. For further information about our branded generics strategy see the Sales and marketing section from page 28.
A collaborative approach
Our medicines are testament to the combined skills of AstraZeneca people, our collaborators and our commitment to working closely with physicians, patients and others to understand what they need and what they value. Such relationships have helped us develop families of medicines, generation by generation, such as our hormone-based cancer treatments, including Arimidex, which have played a part in increasing the five year survival rate for women with breast cancer from under 70% 50 years ago to around 90% today.
Our collaborations are crucial to what we do and how we do it. For example, a programme of externalisation and our own internal project work has been at the heart of our work since 2006 in developing a world-class diabetes portfolio. From a position where we had no clinical projects in diabetes, we now have a portfolio with three medicines in Phase I studies and a further one in Phase IIb studies. Dapagliflozin is undergoing Phase III studies and is one of the compounds we are developing in collaboration with BMS. In 2009, this collaboration resulted in the approval of Onglyza™ in both the US and EU for the treatment of Type 2 diabetes.


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Directors’ Report | Resources, Skills and Capabilities

19
Performance

Medicines for more patients
Even before a medicine comes to market, we develop programmes which are designed to optimise both the benefit medicines bring to patients’ lives and their commercial potential within the timeframe that patent protection is available to us. We continue to do so throughout the whole life of a medicine. In particular, we continue to look for new disease indications for which a marketed product might have efficacy.
For example, Crestor, our statin for managing cholesterol levels, has been used to treat over 19 million people since its launch in 2003. Subsequent studies showed that Crestor also slows the progress of atherosclerosis (hardening of the arteries) in patients with elevated cholesterol levels. The JUPITER study in 2008 demonstrated a significant reduction in major cardiovascular events (44% compared to placebo) in men (over 50) and women (over 60) with elevated high-sensitivity C-reactive protein but low/normal cholesterol levels. In 2009 regulatory submissions were made in the US and the EU to reflect the significant reductions in such events.
Similarly, we first introduced Seroquel as a treatment for schizophrenia. Subsequent studies have shown that it is also effective in treating both the manic and depressive dimensions of bipolar disorder. Seroquel and Seroquel XR are the only agents approved in the EU to treat all phases of bipolar disorder. In the US, in 2009, Seroquel was approved for the treatment of schizophrenia in adolescents and for the acute treatment of manic episodes associated with bipolar disorder in children and adolescents. Seroquel XR was also approved in the US as an adjunct treatment in adults with major depressive disorder (MDD). Our approach to developing generations of drugs to meet new areas of unmet medical need continues and is illustrated by the announcement of a further collaboration and licence agreement with Targacept for the global development and commercialisation of TC-5214, their late-stage investigational product for MDD.
We also continue to develop better ways in which our medicines can be used. Our Symbicort maintenance and reliever therapy (Symbicort SMART) was the first asthma treatment regime to combine both regular maintenance and as-needed reliever therapies. This allows patients to control daily symptoms and reduce the severity and number of asthma attacks using a single inhaler.
Product performance summary $m
(IMAGE)
     
94
  97
First approved in 1997,
  Symbicort is approved for
Seroquel is now approved
  use in 97 countries
in 94 countries
   


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20Directors’ Report | Resources, Skills and Capabilities

 
The safety of
patients is a
fundamental
consideration
(PHOTO OF CHRISTER KOHLER)
“Having the best science is
not enough – people with
the capabilities to turn that
knowledge into great medicines
is what brings success.”


Other developments with Symbicort exemplify our approach to optimising the benefit of our medicines for patient health both in terms of bringing benefits to additional patient groups and working with third parties. In 2009, Symbicort Turbuhaler was approved in Japan to treat adult asthma and it was launched in Japan in January 2010. In August, we signed an agreement with Astellas to co-promote Symbicort Turbuhaler in Japan. Symbicort Turbuhaler is also now approved in 96 countries for use in treating chronic obstructive pulmonary disease, including chronic bronchitis and emphysema.
In addition to small molecules we also have a strong capability in biologics. For example, Synagis is routinely used by hospitals for the prevention of serious lower respiratory tract disease caused by respiratory syncytial virus (RSV), a respiratory infection in infants, and has been administered to over one million premature babies. Synagis was the first MAb approved in the US for the prevention of an infectious disease. Since its launch in 1998 it has become the standard of care for RSV prevention.
Our biologics capability is also exemplified by our influenza vaccines, where we have developed technologies that enable innovative ways of reverse-engineering new vaccines. FluMist, the first nasal spray influenza vaccine to be approved in the US, represented the first innovation in flu vaccination in more
than 60 years. Our total product supply of approximately 10 million FluMist doses sold out in 2009. Our technology also enabled us to develop, and to be the first to market in the US, a vaccine designed to prevent H1N1 influenza (swine flu). We received approval for our H1N1 influenza vaccine in September and then contracted with the US Department of Health and Human Services for 42 million doses, which we manufactured and distributed on time and to schedule.
Further information about all our major products can be found in the Therapy Area Review from page 55. Many of our products, for example, Seroquel and Crestor, are the subject of product liability claims and patent challenges. Information about material legal proceedings can be found in Note 25 to the Financial Statements from page 166.
Investing for the future
Within each of our Therapy Areas, the individual disease areas in which we work are agreed using a regular review process that enables us to deploy our resources in the best way to meet our commercial and scientific objectives. We evaluate market opportunities against a set of criteria, including unmet medical need, competitive position and our capabilities. Our R&D Executive Committee, which will be replaced in 2010 by the Portfolio Investment Board (further details of which are set out in the R&D Executive Committee section on page 92) uses the reviews to determine
the levels of investment we will make in different disease areas.
Our approach
Patient safety
The safety of the patients who take our medicines is a fundamental consideration for us. All drugs have potential side effects and we aim to minimise the risks and maximise the benefits of each of our medicines – starting with the discovery of a potential new medicine and continuing throughout its development, launch and marketing.
After launch, we continually monitor the use of all our medicines to ensure that we become aware of any side effects not identified during the development process. This is known as pharmacovigilance and is core to our ongoing responsibility to patients. We have comprehensive and rigorous pharmacovigilance systems in place for detecting and rapidly evaluating such effects, including mechanisms for highlighting those that require immediate attention. We also work to ensure that accurate, well-informed and up-to-date information concerning the safety profile of our drugs is provided to regulators, doctors, other healthcare professionals and, where appropriate, patients. Clinical studies, although extensive, cannot replicate the complete range of patient circumstances. Rare side effects can often only be identified after a medicine has been launched and used in far greater numbers of patients and over longer periods of time.


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Directors’ Report | Resources, Skills and Capabilities

21
Performance
 

We have an experienced, in-house team of around 350 clinical patient safety professionals working around the world who are dedicated to the task of ensuring that we meet our commitment to patient safety. This number of people is lower than in 2008 because data entry of individual case reports is now managed by an external provider (as described below). At a global level, every medicine in development and on the market is allocated a Global Safety Physician and a team of patient safety scientists. In each of our markets we also have dedicated safety managers with responsibility for patient safety at a local level.
Our two Chief Medical Officers (CMOs) have overall accountability for the benefit/ risk profiles of the products we have in development and those on the market. One CMO is responsible for our small molecule products, the other for our biologics. They provide medical oversight and ensure that appropriate risk assessment processes are in place to enable informed decisions to be made about safety as quickly as possible.
In 2009, we appointed Tata Consultancy Services Sverige AB to manage the data entry process for safety reports relating to AstraZeneca products. This is designed to improve efficiency and consistency of data entry across AstraZeneca, and allow our patient safety teams to focus on case prioritisation, the medical aspects of patient safety and continuing to improve our safety science.
Our commitment to patient safety includes ensuring the security of our medicines throughout their manufacture and supply. We continuously monitor our business environment to identify any new or emerging product security risks and work to ensure that these are managed quickly and effectively. In addition to our internal processes, we use a range of measures against counterfeit medicines and continue to develop our capabilities in this area. These include introducing technologies that make it more difficult for counterfeiters to copy our products; conducting market surveillance and monitoring the supply chain to identify potential counterfeiting operations; responding rapidly to any reports of counterfeit AstraZeneca medicines; and working with regulators, healthcare professionals, distributors, law enforcement agencies and other organisations to protect patient interests. We also participate in a variety of anti-counterfeiting forums and programmes in the public and private sector, including WHO/Interpol’s International Medical Products Anti-Counterfeiting Taskforce and
the Pharmaceutical Security Institute. Further information on counterfeiting can be found in the Product counterfeiting section on page 82.
Pricing our medicines
Continued innovation is required to address unmet medical need. Our challenge is to deliver innovations that bring benefits for patients and society at a level of investment and internal productivity that reflects the downward pressure on pricing.
Our global pricing policy provides the framework for optimising the profitability of all our products in a sustainable way. It balances many different factors, including ensuring appropriate patient access. When setting the price of a medicine, we take into consideration its full value to patients, those who pay for healthcare and society in general. Our pricing also takes account of the fact that, as a publicly owned company, we have a duty to ensure that we continue to deliver an appropriate return on investment to our shareholders.
We continually review our range of medicines (both those on the market and in the pipeline) to identify any that may be regarded as particularly critical to meeting healthcare needs. This may be either because they treat diseases that are (or are becoming) prevalent in developing countries, or because they are potentially a leading or unique therapy addressing an unmet need and offering significant patient benefit in treating a serious or life-threatening condition. In such cases, we aim to provide patient access to these medicines through expanded patient access programmes across all markets, including the US. We also support the concept of differential pricing in this context, provided that safeguards are in place to ensure that differentially priced products are not diverted from patients who need them, to be sold and used in more affluent markets.
Economic benefit
Our medicines play an important role in treating medical needs and in doing so they bring economic as well as therapeutic benefits. Effective treatments can help to save healthcare costs by reducing the need for more expensive care, such as hospital stays or surgery. They also contribute to increased productivity by reducing or preventing the incidence of diseases that keep people away from work.
“Our medicines...
bring economic as well
as therapeutic benefits.”
60
We developed the first innovation in influenza vaccines in over 60 years


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22Directors’ Report | Resources, Skills and Capabilities

(PHOTO OF ANDERS EKBLOM)
“I am passionate about creating a world-class R&D organisation that develops medicines which
make a real difference to the health of people around the world.”
Research and Development
Strategy
Our R&D strategy is centred on delivering sustained business growth through a continuous flow of new and innovative medicines that meet unmet medical need at prices payers find acceptable. Our strategic objective is to deliver a flow of new medicines (two new molecular entities per year on average). In line with our ongoing externalisation strategy, we continue to look beyond our own laboratories, and actively seek acquisitions and alliances with third parties to gain access to the best science and/or technology platforms. In 2009, we completed three Phase III ready in-licence deals (2008: three). In addition, we have acquired Novexel (completion of the acquisition is subject to the expiry or termination of the applicable waiting period under the US Hart-Scott-Rodino Antitrust Improvements Act) thus gaining access to two further compounds; one of which is Phase III ready and the other of which is Phase II ready.
We are creating a knowledge-driven organisation by investing in information sources and tools to allow our scientists to integrate and exploit internal and external knowledge, as well as share this knowledge and enable innovative ways of working across the organisation. This information sharing culture is allowing our pre-clinical and clinical scientists to work together to select high quality targets and compounds and to design clinical studies to establish quickly
whether our compounds could become safe and effective medicines of the future. We are also focused on integrating our tools and databases to develop predictive platforms across R&D.
Our capabilities
AstraZeneca has had a long history of successful research leading to innovative, effective and valued medicines. We recognise the need to build on this tradition and this is reflected in our strategy.
As we develop potential medicines through a structured programme of studies, our focus is on ensuring that they are developed effectively to meet the needs of patients, regulators and payers. We do so by applying the best science to clinical need by designing appropriate programmes that ultimately deliver successful submissions to regulators. To this end, our cross-functional project and product teams bring together all the relevant skills and experience needed to ensure the rapid development of effective new medicines. They also manage the associated risks and ensure that quality and safety remain fundamental considerations at every stage.
Our R&D function has access to leading-edge technologies and capabilities such as stem cells and RNA interference technology which support the development of therapeutic agents across a range of Therapy Areas. Our medicines’ pipeline spans all modalities with the majority of our late-stage pipeline

 
Watermark
Working with others
We recognise that we cannot achieve our strategic goals on our own. To deliver successful medicines to market we need to work with doctors, patients and other stakeholders to understand what they need and want. We work with governments and those who pay for healthcare to ensure our products represent value for money. We also look to develop new ways of working with others who complement our existing skills, enhance our internal innovation or bring extra value to what we do. In doing so, we work to ensure that those we work with meet our high ethical standards.
Innovation, value and externalisation
In a world of rapidly advancing science and technology, no pharmaceutical company can rely exclusively on its own resources if it is to stay at the forefront of pharmaceutical innovation. Through our strategy of ‘externalisation’, we seek to expand our product portfolio and geographical presence through, for example, technology licensing arrangements and strategic collaborations and, where appropriate, acquisitions of complementary businesses.
Accessing products through externalisation is a key component of our efforts to both strengthen our pipeline of new products and to access opportunities to drive short-term growth. Our Strategic Planning and Business Development team works closely with our R&D, Global Marketing and Finance teams to deliver this.
We have completed over 60 major externalisation deals in the last three years as well as numerous smaller deals to enhance and strengthen the portfolio. Further details of the current status of a number of the products concerned can be found in the Therapy Area Review from page 55.
Significant late-stage deals completed in 2009 include the in-licence of ceftaroline, a next generation anti-infective, from Forest, and the in-licence of NKTR-118 and NKTR-119 from Nektar to address opioid-induced constipation. In December, we also successfully concluded a major in-licence agreement with Targacept for TC-5214, a late-stage product for major depressive disorder, and acquired Novexel (completion of the acquisition is subject to the expiry or termination of the applicable waiting period under the US Hart-Scott-Rodino Antitrust Improvements Act) to further build the infection portfolio.


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Performance

Early-stage deals help build longer-term strength in the portfolio and in June we concluded a ground-breaking deal with Merck under which the two companies will collaborate to research a novel combination anti-cancer regimen composed of two investigational compounds, MK-2206 from Merck and AZD6244 from AstraZeneca (in-licensed from Array). Other significant early-stage deals included a risk-share collaboration with Jubilant aimed at multiple neuroscience targets, and a further collaboration with the Institute of Cancer Research (UK) and Cancer Research Technology Limited.
During the year we also signed exclusive worldwide licence agreements with Catalyst Biosciences, Inc. to develop novel engineered proteases and with Trellis Bioscience Inc. to develop and commercialise antibodies focused on respiratory syncytial virus.
Deals that will help drive short-term growth include a co-promotion agreement for Abbott’s Trilipix in the US, a commercialisation agreement with Astellas for Symbicort in Japan, a distribution agreement with UCB for Cimzia in Brazil and a co-promotion agreement with Salix for Nexium in the US.
Another component of our externalisation strategy is to maximise value from our portfolio through disposals and out-licensing transactions. In 2009, part of our Swedish OTC (over-the-counter) portfolio was divested to GlaxoSmithKline and rights to ophthalmological indications for a number of AstraZeneca assets were granted to Alcon. Other disposals of note included the out-licence of two pre-clinical oncology assets to Celleron Therapeutics Limited and the divestment of a P38 Inhibitor programme to Flexion Therapeutics AG.
Outsourcing and contract manufacturing
As part of our drive to reshape the business we also outsource certain activities where we believe we can take advantage of third party expertise. Using specialist providers helps us improve efficiency and focus on our core business. Outsourcing also reduces costs and creates a more flexible cost base which can be changed as our needs change.
We have already contracted out a significant portion of our supply and manufacturing activity and are undertaking a programme of outsourcing other services and activities, including some R&D processes, information services, facilities management and other internal support functions.

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As part of our effort to ensure we have cost-effective and flexible support services, we signed a seven-year global outsourcing contract in December with NorthgateArinso UK Limited (NGA) for some human resource (HR) services. NGA will begin to manage HR activities, such as payroll and data management, enabling our internal HR organisation to focus on areas where they can most significantly contribute to the success of the business, for example business partnering and ‘centres of expertise’, such as talent management. For more information on our HR services, see the People section from page 33. Earlier in 2009, we signed a five-year contract with Genpact International, Inc. to provide global finance and accounting services and will continue to explore other areas where outsourcing can bring benefits to the business by improving service and reducing cost.
Responsible procurement
Our commitment to responsible business extends to ensuring that we work only with suppliers who embrace standards of ethical behaviour consistent with our own. This is required by our Code of Conduct and applies across the full range of our procurement activities worldwide.
Implementing our approach across the many thousands of suppliers we have around the world is a significant challenge for a global company the size of AstraZeneca. We have made some good progress in recent years and to further strengthen our effort in this area, in 2009 we published a new Global Responsible Procurement Standard. This standard defines our Responsible Procurement Process and provides clear direction about our risk-based approach to integrating ethical standards into our procurement activity worldwide. This includes a requirement to incorporate a responsible business clause in contracts with suppliers.

Training in the new standard was provided for procurement professionals during 2009. For all AstraZeneca employees, our Code of Conduct training now includes a responsible procurement awareness module.
Our Responsible Procurement Process is based on an escalating set of risk-based due diligence activities, applied in a pragmatic way. We assess a supplier’s ethical risk areas and identify whether further assessment is needed to assure us that the supplier has appropriate systems and controls in place to meet our ethical expectations. The same initial assessment process is used for all suppliers and more detailed, specific assessments are then made as required, proportionate to the level of risk a supplier presents. Our process allows us to share issues with suppliers and encourage them to improve their standards, rather than automatically excluding them from our supply chain. However, we will not use suppliers who are unable or unwilling to embrace, in a timely way, standards of ethical behaviour that are consistent with our own.
In 2009, we completed responsible procurement assessments of over 800 of our suppliers (representing over 65% of our total spend on third parties) and implemented further assessments where required. This ongoing assessment programme will continue throughout 2010.
Our existing supplier evaluation procedure requires that comprehensive on-site supplier audits of all our high-risk manufacturing suppliers are conducted at least once every four years. Medium-risk suppliers are audited at the start of the business relationship and additional audits conducted if there are significant changes at a supplier. These Integrated Supplier Evaluation Protocol (ISEP) audits cover a range of risk areas, including product security and waste handling as well as social elements, such as human rights and labour standards. During 2009, we conducted ISEP audits at 51 manufacturing sites at 45 different suppliers (2008: 34 sites at 31 suppliers). The 2008 figures are higher than reported last year because a post year end review identified that more audits had been conducted than reported in 2008.


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Development projects – new products and line extensions
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comprising small molecules. We also have a pipeline of biological approaches to targeting disease which includes antibodies, antibody derivatives, therapeutic proteins, peptides, and various types of live attenuated and sub-unit vaccines.
Our R&D activities cover the entire life-cycle of a medicine – from the initial discovery of a new chemical/molecular entity, through the rigorous phases of pre-clinical and clinical studies in man. After a medicine’s launch, our life-cycle management process (including line extensions) is designed to ensure both its continued safe use and to explore its potential for treating other diseases or extending its use into additional patient populations.
Our research process starts with the analysis of many thousands of compounds for their potential to become a new medicine. Only a few make it through the various stages and we work continuously to improve the quality of our chemical leads and biological targets, while working to eliminate, at an early stage, those compounds that are unlikely to succeed. We have also invested in a number of key academic collaborations to identify potential new targets, disease mechanisms and technology platforms. We continue to use Lean Sigma-based business improvement programmes. For example, through improvements in novel compound flow, material handling, and enhancement of many key decision-making tests, we have seen significant reductions in the turnaround time of data in drug hunting projects. We have also extended this way of working to a key supplier of compounds from China to improve our joint processes.
We use biomarkers to help identify the efficacy and safety of our compounds. Biomarkers are biological factors or measures that can be used to quantify the progress of a disease and/or the effects of a treatment, although it is not always easy to identify a marker for each molecule.
As responsible participants in the provision of valued medicines for patients we believe strongly in helping to ensure that the right medicines are prescribed to the right patients at the right doses – this is our interpretation of ‘personalised healthcare’. With this in mind we are investing in finding new ways to differentiate patients with apparently similar diagnoses. A successful example of this approach is the recent European regulatory approval of Iressa for patients with lung cancer who have an activating mutation of the epidermal growth factor receptor. As part of this approach we signed a collaboration agreement in December with Dako, a world leader in cancer diagnostics. We will work together with Dako to develop new medicines linked to diagnostic tests to predict which patients are most likely to respond to potential oncology treatments.
Even before clinical studies begin, safety assessment is a critical part of our research. A process including both in vitro and using computer modelling allows for ‘high throughput testing’ for safety early in the stages of selecting the best compounds for development. Our Lean Sigma approach has driven a series of process improvements which have reduced the loss of compounds in late-stage clinical development on account of safety concerns and cut the time
taken to deliver key safety studies, without compromising quality. Testing for safety is also carried out on animals before it is carried out in man. For further information see the Animal research section from page 26.
Strengthening the pipeline
In the short term, we have continued to build on the strong portfolio growth achieved over the last few years. Our portfolio volume in clinical phases has grown by 5% in 2009 and the distribution of the projects between the various phases of development continues to improve. In the medium term, we will continue to drive our pre-clinical and clinical Phase I and II projects towards proof of concept as rapidly as possible. We have a wide range of compounds across all modalities in early development and a total of 44 projects in Phase I, 34 projects in Phase II and 11 projects in Phase III/Registration development and are running 14 significant life-cycle management projects.
Further details are set out in the Development projects chart above and the Pipeline by Therapy Area chart opposite and in the Development Pipeline table from page 196.
Improving productivity
The progress we are making in our drive to increase productivity continues to be reflected in the delivery of projects from the pre-clinical study phase (Discovery) and the growth of our early clinical study (Development) portfolio where we have embedded a culture of Lean Sigma. During 2009, 29 projects were selected for Development (2008: 32).


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Throughout 2009, we focused on driving continuous improvement activities across the entire R&D value chain. We maintained and improved the performance gains in cycle times achieved in 2008 for small molecules.
The use of predictive approaches in pre-screening of candidate molecules has had notably increased success rates in some areas in recent years. For example, we have seen failure in early Development due to genotoxicity fall to zero, and failure due to drug metabolism and pharmacokinetics has reduced significantly. Further application of these predictive approaches to the design and simulation of clinical trials using data from previous studies reduced the duration of the clinical trial for one Phase II project by one to two years, and its full projected development cost reduced by over $100 million.
Despite this improvement in productivity, we recognise the need to improve our rate of success in progressing projects from Phase II to Phase III. This is a focus for our future efforts.
Our resources
At the end of 2009, we had a global R&D organisation with around 11,600 people (10,500 full time equivalent employees) at 17 principal centres in eight countries.
Our main small molecule facilities are in the UK (Alderley Park, Macclesfield and Charnwood); Sweden (Lund, MöIndal and Södertälje); and the US (Waltham, Massachusetts and Wilmington, Delaware). Other sites which have a focus on research are in Canada (Montreal, Quebec); France (Reims); and the UK (KuDOS and Arrow Therapeutics’ sites). We have a clinical development facility in Osaka, Japan. Our principal sites for biologics and vaccines are in the US (Gaithersburg, Maryland and Mountain View, California) and the UK (Cambridge).
As part of our strategic expansion in important Emerging Markets, we continue to strengthen our research capabilities in Asia Pacific. Investment continued during 2009 at our ‘Innovation Centre China’ research facility in Shanghai, which opened in 2007. Our research facility in Bangalore also continues to grow
with capital investment supporting increases to R&D resources in India. Both facilities are increasingly involved in Development activities.
In 2009, we invested $4.4 billion in R&D (2008: $5.2 billion; 2007: $5.2 billion), $764 million on acquiring product rights (such as in-licensing), and additionally approved $329 million of R&D capital investment to strengthen our resources in line with our strategic objectives.
Several major capital projects were completed during 2009, and the facilities handed over to the business, including laboratory and office expansions in Boston (US), a new laboratory facility in Macclesfield (UK) and a new manufacturing facility in Mölndal (Sweden). Of the approved capital investment of $329 million, there were no new major small molecule R&D investments authorised during 2009. The focus of the $79 million that has been authorised is on improving and enhancing existing facilities. The remaining $250 million of approved investment was associated with our biologics laboratories in the US and the UK, and influenza vaccine programmes.


 
Pipeline by Therapy Area at 28 January 2010
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# Partnered product.
 
* Subject to expiry or termination of the applicable waiting period under the US Hart-Scott-Rodino Antitrust Improvements Act.
 
+ Orphan Drug.
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Externalisation
Our externalisation strategy continues to focus on enhancing our internal innovation through investment, external collaborations and acquisitions that further strengthen our pipeline of products. Further information on our activities can be found in the Working with others section from page 22.
Our New Opportunities group has continued to seek additional value from our portfolio by facilitating re-profiling across our Therapy Areas and by identifying additional disease areas in which our compounds can meet unmet medical need. For example, in 2009 we concluded a strategic alliance with the ophthalmology company, Alcon, to identify innovative eye care products using AstraZeneca compounds in areas adjacent to our Therapy Areas of focus.
R&D ethics
We are committed to delivering innovation responsibly by setting and working to consistently high ethical standards across all aspects of our R&D worldwide. Compliance with relevant laws and regulations is a minimum baseline and underpins our own global principles and standards, as outlined in our global Bioethics Policy.
Further information about our commitment to responsible research is available on our website, astrazeneca.com/responsibility.
Clinical trials
We conduct an increasing number of our clinical trials at multiple sites in several different countries. A broad geographic span helps us to ensure that those taking part reflect the diversity of patients around the world for whom the new medicine is intended. This approach also helps to identify the types of people for whom the treatment may be most beneficial.
We take a number of factors into account when choosing a trial location. These include the availability of experienced and independent ethics committees and a robust regulatory regime, as well as sufficient numbers of trained healthcare professionals and patients willing to participate in a trial.
When conducting a trial anywhere in the world, we operate to the highest of the standards required by the external international, regional or local regulations, and our own internal standards.
Before a trial begins, we work to make sure that those taking part understand the nature and purpose of the research and that proper procedures for gaining informed consent
are followed (including managing any special circumstances such as different levels of literacy). We also have procedures in place to ensure that the privacy of participants’ health information is protected.
We take very seriously our responsibility to protect trial participants from any unnecessary risks and avoid any serious adverse reactions. Throughout the research process, we continuously review, and make judgements on whether the potential benefits of a new medicine continue to outweigh the risk of side effects.
Whilst all our AstraZeneca clinical studies are conceptually designed and finally interpreted in-house, some of them are run for us by external contract research organisations (CROs). The percentage of studies we place with CROs varies, depending on the number of trials we have underway and the amount of internal resources available to do the work. In 2009, around 24% of patients in our global studies of our small molecule portfolio and around 89% of patients in our biologics studies were monitored by CROs on our behalf.
Our clinical data handling is outsourced to Cognizant Technology Solutions Sweden AB, a business process solution company and during the year, we announced a strategic alliance with Quintiles Limited to provide integrated services for the majority of our clinical pharmacology studies. These sourcing decisions have helped us to promote consistency, drive resource efficiency and, importantly, helped to speed up our internal data interpretation and decision-making.
We remain committed to making information about our clinical trial activities publicly available. We publish information on the registration and results of all new and ongoing AstraZeneca sponsored clinical trials for all products in all phases, including marketed medicines, medicines in development and those whose further development has been discontinued. We post results, irrespective of whether they are favourable or unfavourable to AstraZeneca on public websites, including (for small molecule compounds) on our own dedicated website, astrazenecaclinicaltrials. com. By the end of 2009, we had registered over 1,100 trials and published the results of more than 600 trials.
Animal research
Our pre-clinical research includes animal studies, which continue to play a vital role in the R&D of new medicines. They provide essential information, not available through other methods, about the effects of a potential new therapy on disease and the living body.


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Regulatory authorities around the world also require safety data from pre-clinical testing in animals before a new medicine can be tested in man.
We are committed to the responsible use of animals. All our research using animals is carefully considered and justified and, backed by our Bioethics Policy, we continue to drive the application of the 3Rs (Replacement, Reduction and Refinement of animal studies) across our research activity. Wherever possible, we use non-animal methods such as cell culture, computer modelling and ‘high-throughput screening’ that eliminate the need to use animals early in drug development, or reduce the number needed. As part of our drive for continuous improvement, we continue to use statistical design to optimise our studies and reduce the numbers of animals needed. We also work to refine our existing animal models to ensure that the animals we use are exposed to as little pain and stress as possible. We continuously review all our animal studies to make sure that they continue to add value to our research decision-making processes.
The number of animals we use each year depends on the amount of pre-clinical research we are doing and the complexity of the diseases under investigation. We remain focused on making sure that we minimise the use of animals without compromising the quality of the research data. In 2009, we used approximately 393,000 animals in-house (2008: 347,000). In addition, approximately 17,000 animals were used by external contract research organisations on our behalf (2008: 29,000). We believe that this number would be much greater without our active commitment to the 3Rs. We no longer report, as a KPI, the number of animals we use in our research, although we will continue to publish the figures each year. This reflects our commitment to continuous improvement through the application of the 3Rs and good scientific practice, which we believe is the true indicator of our performance. More information about our commitment is available on our website, astrazeneca.com/responsibility.
We only use primates in circumstances where no other species or non-animal methods can provide the safety or clinical benefit information that we are seeking in a study, and where the outcomes of the study are likely to bring significant advances for the development of new medicines. Our expanding biologics capability means that we will be increasing our primate use over time, particularly in the development of MAbs targeted at important areas such as cancer and respiratory disease.
MAbs are highly specific to human physiology, so primates are, in most cases, the only relevant animal model because of their similarity to humans.
In line with our global Bioethics Policy, AstraZeneca does not currently conduct or outsource work using wild caught primates or great ape species. In the rare case where there is a substantial medical need and no credible alternative model is available, exceptions may be considered. However, this will require rigorous secondary ethical and scientific review, in addition to our normal review processes, to challenge the need for the study, followed by appropriate Board level approval.
The welfare of all the animals we use continues to be a top priority. Compliance with relevant laws and regulations is a minimum baseline and underpins our own global Bioethics Policy and standards of animal care and welfare which apply worldwide. Qualified veterinary staff are involved in the development and implementation of our animal welfare programmes and everyone working with laboratory animals is trained and competent in their allocated responsibilities. As well as mandatory inspections by government authorities, we have a formal programme of regular audits carried out by our own qualified staff.
External contract research organisations that conduct animal studies on AstraZeneca’s behalf are also required to comply with our ethical standards, and we conduct regular audits to ensure our requirements are being met.
In November 2008, the European Commission published its proposal to revise the 1986 EU Directive 86/609 (Directive) on the protection of animals used for scientific purposes. We support the need for Europe-wide legislation concerning the use of animals in research and revision of the Directive to reflect advances in science and technology. However, we are contributing to discussions about changes in a number of areas that we believe are necessary to ensure that, alongside the promotion of high standards of animal welfare, the new legislation supports the ability to conduct, in Europe, R&D that addresses patient needs.
Stem cell research
As a company whose success is built on leading-edge science, we continuously monitor and assess new research capabilities to identify opportunities that could help us deliver better medicines for patients worldwide. We believe that stem cell research
may present several such opportunities in enhancing the drug discovery process as well as providing therapeutic options.
Significant scientific progress has been made in the development of stem cell-based research models for improved prediction of safety, metabolism and efficacy of emerging candidate drugs, with promising results. Our interest is in the potential of stem cells to differentiate into normal human cells, such as hepatocytes (liver cells) and cardiac myocytes (heart muscle cells) and use those cells in biological assays. We believe this could represent a significant step forward in increasing the clinical relevance of studies at an earlier stage of development of a potential new medicine and would help us to overcome the current limitations that a restricted supply of human cells presents. However, more work is needed to understand the full potential of this type of research. It is a relatively new area and we do not have all the necessary skills and technologies in-house. We are therefore working with external partners who have expertise and an ethical commitment consistent with our own, such as Cellartis AB (Cellartis), a biotech company focused on applications of human embryonic stem cells, cell technologies and the UK public-private partnership, Stem Cells for Safer Medicines. We also participated in a European Framework Research VI programme working with stem cells. Further collaborations will include the use of induced pluripotent stem cells.
Increasingly, we are also exploring the potential to treat disease by modulation of stem cells within target organs using either small molecules or biological therapies, an exciting new area often referred to as regenerative medicine. Here, we are embarking on several external collaborations, such as the one with Cellartis, combining the best ideas and latest innovation in academic research with our ability to search for new drugs. We are looking for the potential of molecules to direct the fate of stem cells towards therapeutic benefit in diseases such as diabetes and emphysema, thus identifying potentially new candidate drugs. Further investments will follow in this area.
Our commitment to ensuring high ethical standards is reflected in our Human Embryonic Stem Cell Research Policy framework, as set out in our Bioethics Policy, which demands compliance both with external legislation, regulations and guidelines, and with our own codes of practice.


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Medicines that
patients will
want and payers
will pay for


(PHOTO OF TONY ZOOK)
“Wherever they are in the world,
those who pay for our medicines
and the patients who use them
must remain the focus of everything we do.”
Sales and marketing
Customer focus
Our international sales and marketing organisation is active in over 100 countries. We have an extensive network focused on growing our business and driving levels of commercial excellence to maintain our position among the industry world leaders. As well as building on our leading positions in North America and Other Established Markets, such as Japan and Western Europe, we continue to increase our strength through strategic investment in Emerging Markets, where GDP growth and changing disease demographics present significant opportunities. See the market definitions table on page 206 for more information on AstraZeneca’s market definitions.
Our Global Marketing function is responsible for developing and leading our global brand strategy. It ensures a strong customer focus and commercial direction in the management of our pipeline and marketed products. At an early stage in the medicine discovery process we define what we believe the profile of a medicine needs to be to work most effectively in combating a particular disease. These disease target product profiles (TPPs) are based on the insights we gain through our relationships with healthcare professionals, patients and others for whom the medicine must add value, including regulators and payers. The attitudes and needs of these groups are key drivers of the development of the TPPs which are used throughout the
life-cycle of a medicine to guide our R&D activity and help shape the Therapy Area and marketing strategies. Early in the development of new products, we also consider how best to demonstrate the value of our medicines to payers.
Emerging Markets growth
During the course of 2009, AstraZeneca continued to execute its ambitious investment strategy across Emerging Markets in large markets such as China, Mexico, Brazil and Russia, as well as in medium-sized and smaller markets where there is significant unmet medical need.
In China (including Hong Kong), as a result of its current strategic focus on ‘Big Cities Big Hospitals’, AstraZeneca is the second largest multinational pharmaceutical company in the prescription market.
Our strategy for Emerging Markets is based upon a rapid expansion of the commercial organisation across areas where we assess there to be significant market potential. In this context we provide our country leaders with the autonomy to tailor their strategies to local customer needs. These local plans are supported by AstraZeneca’s global capabilities, one of which is a highly disciplined approach to sales force management.
To maximise these local opportunities, AstraZeneca has started to launch a range


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of branded genericised medicines. These medicines, which are within our key areas of therapy expertise, will make our products available to more patients and at lower price levels than is possible with patent-protected medicines.
As an example, to support our new branded generics business in India, we significantly increased our level of investment, enabling the launch of eight new products of which five were launched in the second half of 2009. This initiative will be rolled out in more than 20 Emerging Markets where we assess there to be potential.
Customer choice in North America
We continue to develop our sales and marketing effort in the US as we strive to best meet our customers’ needs. The focus for 2009 was to ensure that our interactions with healthcare professional (HCP) customers match their desire for more flexible methods to access our products that are not solely dependent on the traditional sales representative.
As a result, two new customer teams have been created to deliver services and information. One team was charged with delivering all the traditional services, but to do so remotely and at a time that matched the HCP’s schedule. The second team simply focused on delivering samples and patient support materials to the HCP’s practice. At the same time, we have expanded our web-based capabilities to improve the way we deliver service over the internet.
The intended result of these changes is to offer customers choices about how we can best meet their needs and the needs of their patients.
Reshaping in Other Established Markets
Across Europe, we have significantly reshaped the organisation in order to stay competitive in an evolving market place. By focusing on core activities and building capabilities around these, we have strengthened focus in the critical area of market access, whilst also being able to significantly improve productivity in the sales force.
Market access is an increasingly important area. In order to develop products that meet the needs of payers we are focusing even more on understanding the priorities and agendas of both payers and healthcare providers. Building on this information, we seek to demonstrate how our products offer value and support cost-effective healthcare.
8
Eight new products launched
in India in 2009
An effective sales force
In the majority of markets, we sell through wholly-owned local marketing companies. Elsewhere, we sell through distributors or local representative offices. Our products are marketed primarily to physicians (both primary care and specialist) as well as to other healthcare professionals. Marketing efforts are also directed towards explaining the economic as well as the therapeutic benefits of our products to governments and others who pay for healthcare. Face-to-face contact is still the single most effective marketing method but, increasingly, the efforts of our sales force are being complemented by our use of the internet. In the US, where it is an approved and normal practice, we also use direct-to-consumer advertising campaigns for some products.
To improve our commercial effectiveness we are benchmarking with leading industries in the area of customer insight. This helps develop a better understanding of real needs of customers upon which we can plan and act. It allows us to be more focused in our communications with customers.
Our rapid growth in Emerging Markets is driving demand for central commercial support, particularly in respect of sales force effectiveness. Core sales and marketing training programmes have been adapted for, and deployed in, local environments. The main focus of these programmes is to embed core commercial skills and to strengthen sales managers’ coaching and planning skills.
Working in collaboration
The preparations and launch of Onglyza, the first brand in the AstraZeneca/BMS diabetes alliance, has brought significant experience and learning to both organisations. The joint work between our companies has improved planning, time to market and execution of the launch. In June, we entered into an agreement under which AstraZeneca obtained the non-exclusive right to co-promote Trilipix, alongside Abbott in the US (excluding Puerto Rico). This is the second co-promotion agreement between AstraZeneca and Abbott, the first being for Crestor.
We will continue to explore opportunities to work in collaborations at local or regional levels as a model to improve success. This could either be through getting access to commercial capabilities, such as the collaboration to sell Symbicort with Astellas in Japan, or to strengthen the portfolio, such as the collaboration with UCB for the commercialisation of UCB’s Cimziain Brazil.
More information on our collaborations can be found in the Working with others section from page 22.
Sales and marketing ethics
Driving high ethical standards across all our sales and marketing activity is one of our top priorities. It is an important part of our overall commitment to patient health and safety, and to delivering business success responsibly.
Our business is global and culturally diverse. Societal expectations and legal requirements often vary significantly between the different countries in which we operate. We work to manage these differences effectively and deliver consistently high standards worldwide.
Everyone involved in sales and marketing activities is required to adopt the same core standards, regardless of their particular role or location. These standards are outlined in our Code of Conduct and supporting policies, and more detail is given in our regional and local marketing codes. Our local codes reflect differences in national legislation and healthcare systems. In cases where our standards differ from local law, we adopt whichever standard is higher. Our policies are regularly reviewed and updated, and targeted training is provided for our staff on an ongoing basis.
Compliance with our Code of Conduct and supporting policies is mandatory and monitored by line managers locally, with support from dedicated compliance professionals. We also have a nominated signatory network that works to ensure that our promotional materials meet all applicable internal and external code requirements.
Information concerning instances where our practices may not be up to the standards we require is collected through our various compliance and continuous assurance reporting routes and reviewed by senior management in local and/or regional compliance committees. As appropriate, serious breaches are reviewed by the Board and the Audit Committee. More information


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Breaches of external sales and marketing regulations or codes
(IMAGE)
“Driving high ethical standards across all
our sales and marketing
activity is one of our
top priorities.”
about our compliance and risk assurance processes is contained in the Managing risk section from page 79.
In 2009, we identified a total of 24 confirmed breaches of external sales and marketing regulations or codes globally (2008: 15; 2007: 32). The increase over 2008 is, we believe, largely due to increased self-reporting (ie where we have identified that a breach has occurred and voluntarily reported it to the relevant national authorities). This reflects our continued internal vigilance and determination to identify and follow through on possible breaches of the high standards we set ourselves. The number should also be viewed in the context of the continuing diligence of external code of practice agencies and regulatory authorities in identifying and processing complaints.
We also received a number of approaches about sales and marketing practices from regulatory authorities and other bodies that did not result in any formal ruling. Although these incidents are not included in our KPI number, we did follow-up with appropriate actions to help ensure that all relevant learning is taken fully into account in our future activities.
We take all breaches very seriously and take appropriate action to prevent repeat occurrences. This may include retraining or other corrective action, up to and including dismissal.
In September 2009, AstraZeneca 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).
Final settlement is subject to negotiation of a civil settlement agreement and a corporate integrity agreement. More information can be found in Note 25 to the Financial Statements from page 166.
We will continue to work to strengthen our governance of our sales and marketing activity through 2010, including additional monitoring and audit programmes, and performance measurement. Whilst our current KPI has provided a benchmark against which to measure our performance in recent years, the variations among the national external regulatory frameworks continue to create a challenge for us in interpreting the number of cases of confirmed breaches of external regulations or codes. In addition, a single confirmed breach by AstraZeneca can involve more than one employee failing to meet the standards required and we are aware that there may be failures to meet standards which are not ‘confirmed’ and so will not affect the KPI. We are therefore currently reviewing more meaningful ways in which to measure our performance and plan to introduce a new KPI during 2010 which will drive further improvement and support increased transparency in this key aspect of our activity.

 
Watermark
(PHOTO OF JEFF POTT)
“Patent protection underpins the
research-based pharmaceutical
industry – we recognise it brings
responsibilities as well as privileges.”


AstraZeneca Annual Report and Form 20-F Information 2009 



Table of Contents

Watermark
 
Directors’ Report | Resources, Skills and Capabilities

31
 
Performance
 

 
 
Innovative and
differentiated
medicines


 

Intellectual property
The discovery and development of a new medicine requires a significant investment of resources by research-based pharmaceutical companies over a period of 10 or more years. For this to be a viable investment, the results – new medicines – must be safeguarded from copying with a reasonable amount of certainty for a reasonable period of time.
The principal safeguard in our industry is a well-functioning patent system that recognises our effort and rewards our innovation with appropriate protection, allowing time to generate the revenue we need to re-invest in new pharmaceutical innovation. We are confident of our innovations and therefore commit significant resources to establishing effective patent protection for them, and to defending vigorously our patent and related intellectual property rights if they are challenged.
Patent process
We apply for patent protection relatively early in the R&D process to safeguard our increasing investment. Further innovation will mean that we frequently take out additional patents as we develop a product and its uses. We pursue these patents through patent offices around the world. In some countries, our competitors can challenge our patents in the patent offices, and in all countries competitors can challenge our patents in the courts. We can face challenges early in the patent process and throughout the life of the patent. These challenges can be to the validity of a patent and/or to the effective scope of a patent and are based on ever-evolving legal precedents. There can be no guarantee of success for either party in patent proceedings. For information about third party challenges to the patents protecting our products, see Note 25 to the Financial Statements from page 166.
The generic industry is increasingly challenging innovators’ patents, and almost all leading pharmaceutical products in the US have faced or are facing patent challenges from generic manufacturers. The research-based pharmaceutical industry is also experiencing increased challenges elsewhere in the world, for example in Europe, Canada, Asia and Latin America. Further information about the risk of the early loss and expiry of patents is contained in the Principal risks and uncertainties section from page 80.
Data exclusivity
Regulatory Data Protection (RDP or ‘data exclusivity’) is an important intellectual property right which arises in respect of certain data generated by our research activities, including clinical studies. Data which is required to be submitted to regulatory authorities in order to obtain marketing approvals for our medicines may be protected from use by third parties (such as generic manufacturers) for a specific number of years. The period of such protection differs significantly between countries. We believe in enforcing our rights to RDP and consider it an important protection for our innovations, particularly as patent rights are being increasingly challenged.
Compulsory licensing
Compulsory licensing (the overruling of patent rights to allow patented medicines to be manufactured and sold by other parties) is increasingly being included in the access to medicines debate. We recognise the right of developing countries to use the flexibilities in the World Trade Organization’s TRIPS (Trade-Related Aspects of Intellectual Property Rights) Agreement (including the Doha amendment) in certain limited circumstances, such as a public health emergency. We believe that this should apply only when all other ways of meeting the emergency needs have been considered and where healthcare frameworks and safeguards are in place to ensure that the medicines reach those who need them.
Patent expiries
The following table sets out certain patent expiry dates for our key marketed products. These expiry dates relate to the basic substance patent relevant to that product unless indicated otherwise. The expiry dates shown include any Patent Term Extension and Paediatric Exclusivity periods. Additional patents relating to the stated products may have terms extending beyond the quoted dates.
     
    US patent expiry
 
Nexium
  20151
 
Crestor
  2016
 
Toprol-XL
  Expired
 
Atacand
  2012
 
Symbicort
  2014 (substance combination)
 
Pulmicort Respules
  20192 (formulation)
 
Arimidex
  2010
 
Zoladex
  Expired
 
Seroquel/Seroquel XR
  2012 (substance)/2017 (XR formulation)
 
Synagis
  2015
 
 
1 Licence agreements with Teva and Ranbaxy allow each to launch a generic version in the US from May 2014, subject to regulatory approval.
 
2 A licence agreement with Teva permits their ongoing US sale of a generic version from December 2009.


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Table of Contents

32Directors’ Report | Resources, Skills and Capabilities

(PHOTO OF DAVID SMITH)
“As we drive for ever-greater
efficiency in producing our
medicines, we work harder to
ensure we control the quality
of our products.”
Supply and manufacturing
Core to our continued business success is our ability to provide our customers with a reliable supply of high quality medicines worldwide, when they want them, and to do so in the most cost-effective way.
Operational excellence
We seek to maximise the efficiency of our supply chain through a culture of continuous improvement. We focus on what adds value for our customers and patients, and eliminates waste. Improvements have delivered significant benefits in recent years, including reduced manufacturing lead times and lower stock levels, which both improve our ability to respond to customer needs and reduce inventory costs. Changes have also been achieved without compromising customer service and quality.
We have been applying Lean business improvement tools and ways of working to improve the efficiency of our manufacturing plants for a number of years and have recently started to apply it to the whole of our supply chain. In 2009, we seconded two Lean experts from Jaguar Land Rover to apply their knowledge of efficient car manufacturing techniques to our pharmaceutical supply chain.
Our customer focus means our supply chains change as the needs of our local markets evolve. In 2009, we established regional offices. This included sourcing centres in Shanghai, China and Bangalore, India, which were created to identify local high quality suppliers to support growing market demand. We also established a regional packing strategy to improve our ability to respond to customer requirements, retain control over quality and thereby equip the business for growth in emerging markets.
During 2009, as part of our commitment to strategic sourcing, we sold our Dunkirk active pharmaceutical ingredient (API) facility and entered into a contract manufacture agreement with the purchaser for the supply of certain APIs from that site. As part of our continuous review of our manufacturing assets to make sure that they are being used in the most effective way we also completed the sale of facilities in Caponago, Italy and Porriño, Spain. We closed our manufacturing site at Destelbergen, Belgium and announced our intention to exit from the plant at North Ryde, Australia. We recognise the impact that these changes can have on our employees’ morale and productivity and the increased risk of industrial action. We manage these risks by consulting fully with staff representatives and acting in line with local employment laws. Our human resources policies and processes are also focused on ensuring that the people affected are treated with respect, sensitivity, fairness and integrity. This commitment is covered in the People section from page 33.
Product quality
We are committed to delivering assured product quality that underpins both the safety and efficacy of our medicines.
Manufacturing processes for medicines can be very complex and must observe rigorous standards of quality. Both manufacturing plants and processes are subject to inspections by regulatory authorities to ensure compliance with prescribed standards which can vary between different regulatory authorities. Such authorities have the power to require changes and improvements, to halt production and impose conditions that must be satisfied before production can resume. Regulatory standards, and therefore manufacturing processes, can also change over time.
We hosted inspections from many different regulatory authorities in 2009. All observations are reviewed along with the outcomes of our own internal inspections and improvement actions are put in place as required to ensure ongoing compliance with expectations. If required, we take action to improve quality and enhance compliance across the organisation. The knowledge obtained from the inspections is shared across the Group.
We continue to be actively involved in influencing new product manufacturing regulations, both at national and international levels, through our membership of industry associations primarily in the EU, the US and Japan.
Our resources
At the end of 2009, we had approximately 9,500 people at 20 manufacturing sites in 16 countries working on the supply of our products.
Capital expenditure on supply and manufacturing facilities totalled approximately $360 million1 in 2009 (2008: $369 million1; 2007: $336 million1). As part of our overall risk management, we carefully consider the timing of investment to ensure that secure supply chains are in place for our products. We have a programme in place to provide appropriate supply capabilities for our new products.
In addition to our plant at North Ryde, Australia (from which we have announced our intention to exit), our principal small molecule manufacturing facilities are in the UK (Avlon and Macclesfield); Sweden (Snäckviken and Gärtuna, Södertälje); the US (Newark, Delaware and Westborough, Massachusetts); France (Reims); Japan (Maihara); China (Wuxi) and Puerto Rico (Canovanas). Approximately 600 people work in API supply and 8,000 in formulation and packaging. We operate a small number of sites for the manufacture of active ingredients in the UK and Sweden, complemented by efficient use of sourcing. Our principal tablet and capsule formulation sites are in the UK, Sweden, Puerto Rico and the US, and we also have major formulation sites for the global supply of parenteral and/ or inhalation products in Sweden, France and the UK.
With the addition of a seasonal work force to support the production of the H1N1 influenza vaccine, approximately 870 people are employed at our four principal biologics commercial manufacturing facilities in the US (Frederick, Maryland and Philadelphia, Pennsylvania); the UK (Speke); and the Netherlands (Nijmegen) with capabilities in
 
1 Figures adjusted to reflect the impact of the MedImmune acquisition.


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33
Performance

process development, manufacturing and distribution of biologics, including worldwide supply of MAbs and influenza vaccines. Our biologics production capabilities are scalable, which enables efficient management of our combined small molecule and biologics pipeline.
Managing sourcing risk
Our global procurement policies and integrated risk management processes are aimed at ensuring uninterrupted supply of sufficiently high quality raw materials and other key supplies, all of which are purchased from a range of suppliers. We focus on a range of risks to global supply, such as disasters that remove supply capability or the unavailability of key raw materials, and work to ensure that these risks are effectively mitigated. Contingency plans include the appropriate use of dual or multiple suppliers and maintenance of appropriate stock levels. Although the price of raw materials may fluctuate from time to time, our global purchasing policies seek to avoid such fluctuations becoming material to our business. We also take steps to ensure the quality of the raw materials that we receive from third parties; for more information see the Product quality section on page 32.
We also take into account reputational risk associated with our use of suppliers and are committed to working only with suppliers that embrace standards of ethical behaviour that are consistent with our own. See the Responsible procurement section from page 23.
People
With nearly 63,000 employees worldwide, we value the diverse skills and capabilities that a global workforce brings to our business. We work continuously to align these skills and capabilities with strategic and operational needs, whilst maintaining high levels of employee engagement and commitment. This means providing employees with effective leadership, clear targets, open lines of communication, learning and development opportunities and a healthy and safe workplace. All this needs to take place in a culture in which diversity is valued and individual success depends solely on personal merit and performance.
AstraZeneca is committed to making full use of the talents and resource of all its workers within the organisation. We therefore have policies in place to ensure that we avoid any discrimination, including discrimination on the grounds of disability. These include recruitment and selection, performance management, career development and promotion, transfer and training (including re-training, if needed, for employees who have become disabled) and reward.
A strategic approach
Our business strategy drives our approach to managing human resources (HR) issues across AstraZeneca. Identifying and building skills and capability for the long term is critical if we are to deliver that strategy successfully. To that end we have been developing a strategic workforce planning (SWP) capability.
SWP generally takes a longer-term view of five to seven years and is designed to ensure we have the right capabilities in the right location at the right time. SWP also addresses issues such as ensuring a diverse workforce and the challenges of attracting and retaining talent globally.
Targets and accountabilities
Clear targets and accountabilities are essential for ensuring that people understand what is expected of them as we deliver our business strategy. The Board and the SET are responsible for setting our high-level strategic objectives and managing performance against these (see the Reserved matters and delegation of authority section on page 92). Managers across AstraZeneca are accountable for working with their teams to develop individual and team performance targets that are aligned to our strategic objectives and against which individual and team contributions are measured and rewarded.
Our focus on optimising performance is reinforced by performance-related bonus and incentive plans. AstraZeneca also encourages employee share ownership by offering the opportunity to participate in various employee share plans, some of which are described in the Directors’ Remuneration Report from page 101 and also in Note 24 to the Financial Statements from page 161.
Learning and development
We encourage and support all our people in achieving their full potential with a range of high quality learning and development (L&D) opportunities around the world.
We are implementing a new global approach, backed by the creation of our global L&D organisation, which aims to ensure that standards of best L&D practice are consistently applied in the most efficient way. During 2009, we have continued to develop and deploy global on-line and other development resources, as we seek to make L&D tools and programmes available to all employees, creating a common platform that increases access to learning and supports self-development across the organisation.
(PHOTO OF LYNN TETRAULT)
“Our people are the key to our past and future success – we need to nurture our talent and develop the leaders of tomorrow.”
Employees by geographical area
(IMAGE)
         
Geographical area
    %  
 
A UK
    14.3  
 
B Sweden
    15.3  
 
C Rest of Europe
    17.5  
 
D North America
    25.3  
 
E Latin America
    6.1  
 
F Africa, Asia and Australasia
    21.5  
The percentage of employees based in the UK as reported last year, included employees who were a cost to AstraZeneca UK Limited although they were not based in the UK. Only employees based in the UK have been counted for the purposes of the above graph.


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34Directors’ Report | Resources, Skills and Capabilities

During 2009, we implemented a refreshed on-line L&D portal, with access to all core leadership and management development tools. We also launched a number of specific business area websites.
Our leadership development frameworks are focused on six core capabilities, which we believe are essential for strong and effective leadership: passion for customers, strategic thinking, acting decisively, driving performance, working collaboratively, and developing people and the organisation. These capabilities apply to all employees and are used across our HR processes. In 2009, we complemented the core leadership capabilities with the launch of a set of manager accountabilities. These define what we expect from all managers across the dimensions of ethical conduct and compliance, people management and engagement, as well as fiscal and financial awareness. Building line manager capability has been supported by the launch of a number of global learning programmes, which address key elements of people management.
Talent management
To ensure we maintain a flow of effective leaders, we work to identify individuals with the potential for more senior and complex roles. These talent pools provide succession candidates for a range of leadership roles across AstraZeneca that are critical to our continued business success. We regard these individuals as key assets to the organisation and we therefore focus on proactively supporting them to reach their potential with, for example, targeted development opportunities.
Engagement and dialogue
We aim to provide an inclusive environment that encourages open discussion and debate at all levels throughout AstraZeneca. As well as line manager briefings and team meetings, we use a wide range of media to communicate with our employees around the world.
To support our goal of promoting high levels of employee engagement, we also use an annual global employee survey (FOCUS) to track employee opinion across a range of key topic areas. The results, which are communicated to all employees, provide valuable insights that inform strategic planning across the business.
Eighty six percent of our employees participated in our 2009 FOCUS survey, reflecting their continued confidence in this feedback mechanism. Results showed that employee engagement scores which were already very strong had improved compared to 2008 and employees felt that the clarity of
direction provided by senior leaders had also improved. The survey also identified key areas that continue to require attention, in particular the need for further strengthening leadership capability in effective communications and change management. In addition, our scores around work-life balance decreased slightly in some functions. Our leaders take this feedback very seriously and targets that address employee engagement and the effectiveness of senior leadership communications in particular are included in the SET business performance management framework for 2010.
Managing the impact of business change
Our continuing strategic drive to improve efficiency and effectiveness through our previously announced restructuring programmes has resulted in the delivery of a gross reduction of approximately 12,600 positions during the period 2007 to 2009. To ensure that a consistent approach, based on our core values, was and continues to be adopted throughout the programme, specific guidance was provided for the HR teams and line managers throughout the organisation. Differences in the legal frameworks and the customary practice in the different geographies in which we operate is a challenge. The global guidance provided aims to ensure that the same or similar elements are included in local implementation of business change. These include, for example, open communication and consultation with employees, face-to-face meetings, re-deployment support and appropriate financial arrangements. In line with our core values, we expect the people affected to be treated with respect, sensitivity, fairness and integrity at all times. It was therefore encouraging that the engagement scores in our 2009 FOCUS employee survey continued to improve despite business change that typically involves headcount reduction.
Consultation
We work to ensure a level of global consistency in managing employee relations, whilst allowing enough flexibility to support the local markets in building good relations with their workforces that take account of local laws and circumstances. To that end, relations with trades unions are nationally determined and managed locally in line with the applicable legal framework and standards of good practice. Managers throughout AstraZeneca are trained in consultation requirements as well as relevant employment law, where applicable. Training is done at a local level and we have a range of HR and line manager networks for sharing experience and good practice, and promoting alignment across the organisation. At a global level, we have a Head of Employee Relations who supports national management in ensuring that their local
activities are consistent with our high-level principles. As we continue to develop our global platform for managing HR we seek to ensure that the strength of our local management approaches is not undermined.
There are particularly well-developed arrangements for interactions with trades unions and employee representative groups across Europe. Before it became a legal requirement under European law in 1995, both our heritage companies, Astra and Zeneca, had European Consultation Committees (ECCs) in place. Our single AstraZeneca ECC comprises trade union representatives and locally elected employees, and is chaired by a SET member. The committee meets once a year and a sub-committee meets quarterly to discuss, among other things, business developments and any potential impact these may have on the workforce.
We are always striving to improve consultation arrangements. For example, in 2009 the Joint Consultation and Information infrastructure in the UK was changed and a new arrangement was agreed and implemented in full consultation with representatives. The new arrangement enables dialogue, participation and involvement of employees in a process that is more responsive and flexible to changing needs than the one it replaced.
Human rights
AstraZeneca is fully supportive of the principles set out in the United Nations Universal Declaration of Human Rights. Our Code of Conduct and supporting policies outline the high standards of employment practice with which everyone in AstraZeneca is expected to comply, both in spirit and letter, worldwide.
Overall accountability for progressing the human rights agenda within AstraZeneca lies with our Global Human Resources function, supported by our Global Corporate Responsibility Team who co-ordinate with relevant functions to ensure that human rights issues continue to be appropriately integrated into responsible business strategies.
In January 2010, AstraZeneca signed up to the United Nations Global Compact (UNGC), a strategic policy initiative for businesses that are committed to aligning their operations and strategies with 10 universally accepted principles in the areas of human rights, employment, environment and anti-corruption. We are now working within the framework of the 10 UNGC principles to understand how these principles apply to our business, what we are doing well and where more work may be needed.


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Performance

More information about our commitment in human rights-related areas is included in this Annual Report including access to medicines, diversity, safety, health and wellbeing, employee relations, sales and marketing practice and working with suppliers. Full details are available on our website, astrazeneca.com/responsibility.
Diversity
With a global workforce comes a rich diversity of skills, capabilities and creativity. We value highly the benefits that such diversity can bring to our individual employees, to our stakeholders and ultimately to our business.
We aim to foster a culture of respect and fairness, where differences are recognised, valued and harnessed, and where individual success depends solely on ability, behaviour, work performance and demonstrated potential. Every manager across AstraZeneca is responsible for ensuring that this happens.
As we continue to reshape our organisation and our global footprint in line with business objectives, our continuing challenge is to ensure that diversity is appropriately supported in our workforce, reflected in our leadership and integrated into business and people strategies.
In 2009, to further strengthen our drive in this area, we appointed a Global Diversity Leader, a new position, whose role is to develop a global Diversity & Inclusion strategy, in partnership with senior leaders who will be accountable for its implementation in the business. We are currently working to identify key areas of strategic focus, considering how best to implement a global strategy with the flexibility needed for local interpretation and implementation, and agreeing KPIs.
As part of this work, during 2009 we identified the need to look more closely at the advancement of women in AstraZeneca. Our data shows that we have 52% of women and 48% of men in our workforce (of the 40,000 people currently in our global HR database) and 24% of 82 senior managers reporting to the SET are women. We are now working with an external expert in this field on a global research project designed to help us better understand some of the causes underlying the data. The outcomes will inform the ongoing development of the Diversity & Inclusion strategy.
Safety, health and wellbeing
Providing a safe workplace and promoting the health and wellbeing of all our people remains a core priority. A safe, healthy working environment not only benefits employees, it supports our business through improved employee engagement, retention and productivity.
We continue to make significant investment in providing a wide range of health and wellbeing improvement programmes across AstraZeneca. These vary according to health risk profile, function and local culture, and include general health initiatives aimed at increasing exercise levels, reducing tobacco use, improving nutrition and managing stress. We also have plans in place to deal with the effect of pandemic flu, including the provision of anti-virals for employees based in areas where adequate supplies may not be available through national treatment regimes.
Work-related stress is currently our greatest single cause of occupational illness, with continued business change, high workloads and interpersonal issues being identified as significant factors. As part of our ongoing efforts in this area, we are adopting an increasingly proactive, risk-based approach, using wellbeing risk assessment tools to identify high-risk areas and target interventions more effectively.
We regret that during 2009, one of our sales representatives in Thailand died in a traffic accident whilst driving on AstraZeneca business. We work hard to identify the root causes of any serious accident and use a range of investigation procedures to help us avoid repetition. Learning is shared with management and staff, and our conclusions about underlying causes are used to improve our management systems.
In recent years, our strengthened efforts to promote driver safety worldwide have delivered some improvements and we are maintaining focus in this important area at all levels of the organisation.
Our long-standing ‘Road Scholars’ scheme in the US (the home to our largest sales force) continues to be a valuable channel for building awareness and improving driver skills. A driver safety objective is now also included in the US performance management framework. Outside the US, our ‘Drive Success’ programme takes into account the different driving environments in the various countries in which we operate and provides a high-level framework of common standards to be adopted by each country. The ‘Drive Success’ programme
(IMAGE)
 
1 Data exclude MedImmune.
 
2 With and without days lost.
was launched in 2008 across Europe, Latin America, the Middle East and Africa. Roll-out was completed during 2009 with the launch in Asia Pacific, including Japan.
During the year, we also commissioned a global assessment of our driver safety programmes by an external expert in this field, the results of which were presented to the SET. Both programmes were reported to have a solid foundation on which to build. Key findings centred on the need for clear global and local improvement targets and closer alignment of the two programmes. In response, we have developed a set of KPIs and global targets, together with a new Global Driver Safety Standard, all of which will be introduced across the organisation during 2010.
Our KPI for safety, health and wellbeing combines the frequency rates for accidents resulting in serious injuries and new cases of occupational illness into one KPI, with an overall target of a 50% reduction in the combined rates by the end of 2010, compared with a 2001/2002 reference point. The overall serious injury accident rate for AstraZeneca employees decreased by 2% in 2009, whilst the occupational illness rate increased by 32%. This equates to a combined increase of 9% compared to 2008. The occupational illness rate increase is due largely to a number of suspected cases in 2008 being confirmed as work-related during 2009 and therefore included in the 2009 data, rather than in the 2008 data. We remain on track to achieve the targeted 50% reduction by the end of 2010. Data on our performance over the last three years is shown above.
We are currently in the process of finalising a new safety, health and environment strategy, including associated safety and health targets.


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36Directors’ Report | Financial Review

     
(PHOTO OF SIMON LOWTH)
  “Revenue growth and operational
efficiencies drove a strong cash
performance, reducing net debt
well ahead of plan.”
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


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Reviews

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:
>   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.
 
>   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.
 
>   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.
 
>   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.
>   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.
 
>   Net Funds/Debt. This represents our interest bearing loans and borrowings, less cash and cash equivalents, current investments and derivative financial instruments.
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:
>   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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38Directors’ Report | Financial Review

>   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.
 
>   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.
 
>   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.
 
>   Macro factors such as greater demand from an ageing population and increasing requirements of servicing Emerging Markets.
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:
>   Reported sales of $32,804 million, representing CER sales growth of 7% (Reported: 4%).
 
>   Strong performance in Emerging Markets with CER sales growth of 12% (Reported: 2%).
 
>   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.
 
>   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.
 
>   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%).
 
>   Net cash inflow from operating activities increased to $11,739 million (2008: $8,742 million).
 
>   Dividends increased to $2,977 million (2008: $2,739 million).
>   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.
 
>   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.
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


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Sales by Therapy Area (2009 and 2008)
                                                                 
                    2009     2008     2009 compared to 2008   
                                    Growth due                       
                            CER     to exchange             CER     Reported   
                    Reported     growth     effects     Reported     growth     growth   
                    $m     $m     $m     $m     %      
   
Cardiovascular
                    8,376       1,737       (324 )     6,963       25       20   
   
Gastrointestinal
                    6,011       (157 )     (176 )     6,344       (2 )     (5)
   
Infection and other
                    2,631       257       (77 )     2,451       10        
   
Neuroscience
                    6,237       566       (166 )     5,837       10        
   
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        
   
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        
   
Distribution costs
    (298 )     (37 )     30       (291 )     (0.9 )     (0.9 )     13        
   
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        
   
Other operating income and expense
    553       33       (4 )     524       1.7       1.7       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.

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.
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,


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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                  
 

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


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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 )
 
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.
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 )
 
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.
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.


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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          
   
Summary of shareholder distributions
 
    Shares             Dividend     Dividend     Shareholder  
    re-purchased     Cost     per share     cost     distributions  
    (million)     $m     $     $m     $m  
   
2000
    9.4       352       0.7       1,236       1,588  
   
2001
    23.5       1,080       0.7       1,225       2,305  
   
2002
    28.3       1,190       0.7       1,206       2,396  
   
2003
    27.2       1,154       0.795       1,350       2,504  
   
2004
    50.1       2,212       0.94       1,555       3,767  
   
2005
    67.7       3,001       1.3       2,068       5,069  
   
2006
    72.2       4,147       1.72       2,649       6,796  
   
2007
    79.9       4,170       1.87       2,740       6,910  
   
2008
    13.6       610       2.05       2,971       3,581  
   
2009
                2.30       3,336 1     3,336  
   
Total
    371.9       17,916       13.075       20,336       38,252  
   
1Total dividend cost estimated based upon number of shares in issue at 31 December 2009.

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.
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.
Results of operations – summary
analysis of year to 31 December 2008
In 2008 sales increased by 7% on a Reported basis and by 3% on a CER basis compared to 2007. Exchange rate movements benefited Reported sales by 4%. More details on our sales performance by Therapy Area are given in the Therapy Area Review from page 55 in the Performance 2008 sections.
Core gross margin of 80.4% in 2008 was 0.8% higher than 2007 at CER (Reported: 79.1%; 0.8% higher). Principal drivers were lower payments to Merck (1.0%), continued efficiency gains and mix factors (1.2%), partially offset by higher royalty payments (0.6%) and intangible asset impairments and other provisions (0.8%).
Core R&D costs of $4,953 million were down 1% at CER in 2008 compared to 2007 (Reported: 0%). The inclusion of a full year of MedImmune expense was offset by improved productivity and efficiency, restructuring benefits, portfolio changes and lower charges relating to intangible asset impairments charged to Core R&D expense.
In 2008, Core SG&A costs of $9,940 million were up 3% at CER (Reported: 4%) due chiefly to the inclusion of a full year of MedImmune costs, increased investment in Emerging Markets and some higher legal expenses.
Core other income of $734 million was $6 million higher in 2008 compared to 2007 (Reported: decreased $204 million) with MedImmune’s licensing and royalty income streams offset by expected lower one-time gains and royalty income.
Impairment charges relating to intangible fixed assets totalled $631 million in 2008. Charges totalling $407 million, including impairments in respect of Ethyol and HPV cervical cancer vaccines, were excluded from Core operating Profit in 2008. Charges totalling $224 million, including $115 million in respect of Pulmicort Respules, were included in Core operating Profit.


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43
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Sales by Therapy Area (2008 and 2007)
                                                                 
                    2008     2007     2008 compared to 2007   
                            CER     Growth due to             CER     Reported   
                    Reported     growth     exchange effects     Reported     growth     growth   
                    $m     $m     $m     $m     %      
   
Cardiovascular
                    6,963       29       248       6,686              
   
Gastrointestinal
                    6,344       (275 )     176       6,443       (4 )     (2)
   
Infection and other1
                    2,451       706       31       1,714       41       43   
   
Neuroscience
                    5,837       346       151       5,340       6        
   
Oncology
                    4,954       (109 )     244       4,819       (2 )      
   
Respiratory & Inflammation
                    4,128       278       139       3,711       7       11   
   
Other businesses
                    924       54       24       846       6        
   
Total
                    31,601       1,029       1,013       29,559       3       7   
   
1Includes Synagis and FluMist which were acquired in June 2007.
Operating profit (2008 and 2007)
    2008     2007     Percentage of sales     2008 compared to 2007   
            CER     Growth due to             Reported     Reported     CER     Reported   
    Reported     growth     exchange effects     Reported     2008     2007     growth     growth   
    $m     $m     $m     $m     %     %     %      
   
Sales
    31,601       1,029       1,013       29,559                       3        
   
Cost of sales
    (6,598 )     38       (217 )     (6,419 )     (20.9 )     (21.7 )     (1 )      
   
Gross profit
    25,003       1,067       796       23,140       79.1       78.3       5        
   
Distribution costs
    (291 )     (39 )     (4 )     (248 )     (0.9 )     (0.8 )     16       17   
   
Research and development
    (5,179 )     (88 )     71       (5,162 )     (16.4 )     (17.5 )     2       –   
   
Selling, general and administrative costs
    (10,913 )     (433 )     (116 )     (10,364 )     (34.6 )     (35.1 )     4        
   
Other operating income and expense
    524       (188 )     (16 )     728       1.7       2.5       (26 )     (28)
   
Operating profit
    9,144       319       731       8,094       28.9       27.4       4       13   
   
Net finance expense
    (463 )                     (111 )                                 
   
Profit before tax
    8,681                       7,983                                   
   
Taxation
    (2,551 )                     (2,356 )                                
   
Profit for the period
    6,130                       5,627                                  
   
 
                                                               
   
Earnings per share ($)
    4.20                       3.74                                  
   
Growth rates on line items below operating profit, where meaningful, are given elsewhere in this Annual Report.

In 2008, Core operating profit was up 9% at CER from 2007 (Reported: 13%). CER Core operating margin increased by 1.6% to 34.7% of sales as improvements in gross margin were offset by higher SG&A costs. Reported operating profits, at 28.9%, increased by 1.5% compared with 2007 as a result of improvements in gross margin and R&D efficiencies which more than offset a modest increase in SG&A costs.
Net finance expense was $463 million in 2008 compared to $111 million for 2007.
In 2008, the increase in interest expense was driven by additional borrowings arising as a result of the acquisition of MedImmune in 2007. Our exposure to interest costs was reduced in 2008, from the closing position in 2007, as we moved debt used to finance the purchase of MedImmune from short-term, higher interest rate commercial paper, to longer-term debt financing at lower interest rates. The 2008 net finance expense benefited from a net fair value gain of $130 million relating to two long-term bonds due to widening credit spreads.
In 2008, the effective tax rate was 29.4% (2007: 29.5%).
In 2008, Core EPS were $5.10, an increase of 8% at CER on 2007, as the increase in Core operating profit and the benefit of a lower number of shares outstanding was partially offset by increased net finance expense. Reported EPS increased by 12% to $4.20.
Profit for the period totalled $6,130 million. Adverse exchange rate movements arising on consolidation of $1,336 million and actuarial losses in the year of $1,232 million resulted in a total comprehensive income for the year of $4,224 million.
Financial position, including cash flow
and liquidity – 2008
In 2008, total net assets increased by $1,145 million to $16,060 million. The increase due to Group profit of $6,101 million was offset by dividends of $2,767 million and net share re-purchases of $451 million. Exchange rate movements arising on consolidation and actuarial losses also reduced net assets during 2008.
In March 2008, AstraZeneca paid $2.6 billion to Merck. This payment resulted in AstraZeneca acquiring Merck’s interests in certain AstraZeneca products including Pulmicort, Rhinocort, Symbicort and Toprol-XL and has been included in intangible assets as explained below.
Property, plant and equipment
In 2008, property, plant and equipment fell by $1,255 million to $7,043 million primarily due to depreciation and impairments of $1,182 million and exchange rate movements of $1,131 million offset by additions of $1,113 million.
Goodwill and intangible assets
In 2008, goodwill and intangible assets increased by $846 million to $22,197 million.
The main components within goodwill are the amounts capitalised on the acquisition of MedImmune of $8,757 million and on the restructuring of our US joint venture with Merck in 1998. No significant amounts were capitalised within goodwill in 2008. The total goodwill balance reduced by $10 million in 2008 due to exchange rate movements.


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Intangible assets increased by $856 million to $12,323 million in 2008. Additions totalled $2,941 million, amortisation was $807 million and impairments totalled $631 million. Exchange rate movements in 2008 reduced intangible assets by $603 million.
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 certain options). $994 million of this payment relates to certain AstraZeneca products, including Pulmicort, Rhinocort, Symbicort and Toprol-XL. As a result of the payment AstraZeneca no longer has to pay contingent payments on these products to Merck and has obtained the ability to fully exploit these products and to fully exploit other opportunities in the Respiratory Therapy Area that AstraZeneca was previously prevented from doing by Merck’s interests in these products. The remainder of the payment ($1,656 million) represents payments on account for the product rights that will crystallise if we exercise options in 2010.
In March 2008, a $257 million intangible asset impairment charge was taken as a result of the entry of generic Ethyol, a product capitalised on the acquisition of MedImmune, into the US market. The settlement of the Pulmicort Respules patent litigation triggered an impairment of $115 million. The remaining impairments for 2008 resulted from the termination of projects in development and a charge for $91 million relating to the reassessment of the licensing income expected to be generated by the HPV cervical cancer vaccine. Reported performance for 2008 included impairments in respect of Ethyol, HPV cervical cancer vaccine and other projects in development (principally the return of rights to Infinity Pharmaceuticals) which management believed were not part of Core performance for 2008. As a result, management adjusted for impairments totalling $407 million in presenting Core performance.
Inventories
Inventories decreased in 2008 by $483 million to $1,636 million due to exchange rate movements of $298 million along with an underlying reduction in inventory of $185 million.
Receivables, payables and provisions
Trade and other receivables increased by $593 million to $7,261 million in 2008. Exchange rate movements reduced receivables by $429 million. The underlying increase of $1,022 million was driven by increased sales in Emerging Markets, the extension of major credit terms in the UK and increased insurance recoverables.
In 2008, trade and other payables increased by $130 million, or $675 million after removing the impacts of exchange rate movements, primarily due to increases in US managed market accruals. Trade payables include $2,136 million in respect of accruals relating to rebates and reductions in our US market.
Provisions in 2008 increased by $122 million driven mainly by increases in specific insurance and long-term provisions.
Tax payable and receivable
Net income tax payable in 2008 increased by $667 million to $1,968 million, principally due to tax audit provisions and cash tax timing differences. Net deferred tax liabilities decreased mainly as a result of the impact of actuarial losses suffered in the year, the amortisation and impairment of MedImmune intangible assets, and exchange rate benefits.
Retirement benefit obligations
Net retirement benefit obligations in 2008 increased by $734 million principally as a result of actuarial losses of $1,232 million offset by exchange rate benefits of $434 million. During 2008, approximately 95% of the Group’s obligations were concentrated in three countries.
Cash flow
Cash generated from operating activities was $8,742 million in 2008 compared with $7,510 million in 2007. The increase of $1,232 million was principally driven by an increase in operating profit before depreciation, amortisation and impairment costs of $1,814 million, a decrease in tax payments of $354 million and lower working capital outflows of $233 million, offset by an increase in interest payments of $355 million and a decrease in non-cash items of $814 million, which includes movements on provisions.
Net cash outflows from investing activities were $3,896 million in 2008 compared with $14,887 million in 2007.
In 2008, cash distributions to shareholders were $3,349 million through dividend payments of $2,739 million and share re-purchases of $610 million.
During 2008 we issued a further €500 million, 5.625% 18-month bond as part of our re-financing programme, the proceeds of which were used to re-finance maturing commercial paper.
Gross debt (including loans, short-term borrowings and overdrafts) was $11,848 million at 31 December 2008 (2007: $15,156 million). Of this debt, $993 million was due within one year.
Net debt of $7,174 million decreased in 2008 by $1,938 million from 31 December 2007.
Investments, divestments
and capital expenditure
The major product acquisitions in 2008 reflected our ongoing commitment to strengthening the product pipeline.
In 2007 AstraZeneca acquired MedImmune. On the acquisition of MedImmune, the purchase price for outstanding shares of $13.9 billion was allocated between intangible assets of $8.1 billion (including assets in respect of Synagis and motavizumab RSV franchise, FluMist, Ethyol and products in development), goodwill of $8.8 billion and net liabilities of $3.0 billion. This allocation, based on strict accounting requirements, does not allow for the separate recognition of valuable elements such as buyer-specific synergies, potential additional indications for identified products or the premium attributable to a well-established, highly-regarded business in the innovative biologics market. Such elements are instead subsumed within goodwill, which is not amortised. Further details of this acquisition are included in Note 22 to the Financial Statements from page 154.
Financial risk management
Financial risk management policies
Insurance
Our risk management processes are described in the Managing risk section from page 79. These processes enable us to identify risks that can be partly or entirely mitigated through the use of insurance. We negotiate best available premium rates with insurance providers on the basis of our extensive risk management procedures. In the current insurance market, the level of cover is decreasing whilst premium rates are increasing. Rather than simply paying higher premiums for lower cover, we focus our insurance resources on the most critical areas, or where there is a legal requirement, and where we can get best value for money. Risks to which we pay particular attention include business interruption, Directors’ and Officers’ liability and property damage. Recently, insurance for product liability has not been available on commercially acceptable terms and the Group has not held product liability insurance since February 2006.
Taxation
Tax risk management forms an integrated part of the Group risk management processes. Our tax strategy is to manage tax risks and tax costs in a manner consistent with shareholders’ best long-term interests, taking into account both economic and reputational factors. We draw a distinction between tax


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planning using artificial structures and optimising tax treatment of business transactions, and we engage only in the latter.
Treasury
The principal financial risks to which the Group is exposed are those arising from liquidity, interest rate, foreign currency and credit. The Group has a centralised treasury function to manage these risks in accordance with Board-approved policies. Specifically, liquidity risk is managed through maintaining access to a number of sources of funding to meet anticipated funding requirements, including committed bank facilities and cash resources. Interest rate risk is managed through maintaining a debt portfolio that is weighted towards fixed rates of interest. Accordingly the Group’s net interest charge is not significantly affected by movements in floating rates of interest. We do not currently hedge the impact on earnings and cash flow of changes in exchange rates, with the exception of the currency exposure that arises between the booking and settlement dates on non-local currency purchases and sales by subsidiaries and the external dividend, along with certain non-US dollar debt. Credit risk is managed through setting and monitoring credit limits appropriate for the assessed risk of the counterparty.
Our capital and risk management objectives and policies are described in further detail in Note 15 to the Financial Statements from page 144 and in the Managing risk section from page 79.
Sensitivity analysis of the Group’s exposure to exchange rate and interest rate movements is detailed in Note 16 to the Financial Statements from page 146.
Critical accounting policies
and estimates
Our Financial Statements are prepared in accordance with IFRS as adopted by the EU (adopted IFRS) and as issued by the IASB, and the accounting policies employed are set out in the Accounting Policies section in the Financial Statements from page 128. In applying these policies, we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities. The actual outcome could differ from those estimates. Some of these policies require a high level of judgement because the areas are especially subjective or complex. We believe that the most critical accounting policies and significant areas of judgement and estimation are in:
>   Revenue recognition
 
>   Research and development
 
>   Goodwill and intangible assets
 
>   Litigation
 
>   Post-retirement benefits
 
>   Taxation
 
>   Segmental reporting.
Revenue recognition
Revenue is recorded at the invoiced amount (excluding inter-company sales and value added taxes) less movements in estimated accruals for rebates and chargebacks given to managed-care and other customers and product returns – a particular feature in the US. The impact in the rest of the world is not significant. It is the Group’s policy to offer a credit note for all returns and to destroy all returned stock in all markets. Cash discounts for prompt payment are also deducted from sales. Revenue is recognised at the point of delivery, which is usually when title passes to the customer either on shipment or on receipt of goods by the customer depending on local trading terms. Income from royalties and from disposals of intellectual property, brands and product lines is included in other operating income.
Rebates, chargebacks and returns in the US At the time of invoicing sales in the US, rebates and chargebacks that we expect to pay, in as little time as two weeks or as much as eight months, are estimated. These rebates typically arise from sales contracts with third party managed-care organisations, hospitals, long-term care facilities, group purchasing organisations and various federal or state programmes (Medicaid ‘best price’ contracts, supplemental rebates etc) and can be classified as follows:
>   Chargebacks, where we enter into arrangements under which certain parties, typically hospitals, the Department of Veterans Affairs and the Department of Defense, are able to buy products from wholesalers at the lower prices we have contracted with them. The chargeback is the difference between the price we invoice to the wholesaler and the contracted price charged by the wholesaler. Chargebacks are paid directly to the wholesalers.
 
>   Regulatory, including Medicaid and other federal and state programmes, where we pay rebates based on the specific terms of agreements in individual states, which include product usage and information on best prices and average market prices benchmarks.
>   Contractual, under which entities such as third party managed-care organisations, long-term care facilities and group purchasing organisations are entitled to rebates depending on specified performance provisions, which vary from contract to contract.
The effects of these deductions on our US pharmaceuticals turnover are set out below.
Accrual assumptions are built up on a product-by-product and customer-by-customer basis, taking into account specific contract provisions coupled with expected performance, and are then aggregated into a weighted average rebate accrual rate for each of our products. Accrual rates are reviewed and adjusted on a monthly basis. There may be further adjustments when actual rebates are invoiced based on utilisation information submitted to us (in the case of contractual rebates) and claims/invoices are received (in the case of regulatory rebates and chargebacks). We believe that we have been reasonable in our estimates for future rebates using a similar methodology to that of previous years. Inevitably, however, such estimates involve judgements on aggregate future sales levels, segment mix and the customer’s contractual performance.
Cash discounts are offered to customers to encourage prompt payment. Accruals are calculated based on historical experience and are adjusted to reflect actual experience.
Industry practice in the US allows wholesalers and pharmacies to return unused stocks within six months of, and up to 12 months after, shelf-life expiry. The customer is credited for the returned product by the issuance of a credit note. Returned product is not exchanged for product from inventory and once a return claim has been determined to be valid and a credit note has been issued to the customer, the returned goods are destroyed and not resold. At the point of sale in the US, we estimate the quantity and value of goods which may ultimately be returned. Our returns accruals in the US are based on actual experience. Our estimate is based on the preceding 12 months for established products together with market-related information, such as estimated stock levels at wholesalers and competitor activity, which we receive via third-party information services. For newly launched products, we use rates based on our experience with similar products or a pre-determined percentage.


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Gross to net sales
                                                 
                    2009     2008     2007     2006  
                    $m     $m     $m     $m  
 
Gross sales
                    22,641       20,029       18,456       16,577  
 
Chargebacks
                    (1,841 )     (1,726 )     (1,130 )     (975 )
 
Regulatory – US government and state programmes
                    (1,357 )     (1,005 )     (732 )     (532 )
 
Contractual – Managed-care and group purchasing organisation rebates
                    (4,753 )     (3,658 )     (3,179 )     (2,413 )
 
Cash and other discounts
                    (428 )     (390 )     (356 )     (329 )
 
Customer returns
                    (187 )     (48 )     (18 )     (46 )
 
Other
                    (196 )     (167 )     (145 )     (256 )
 
Net sales
                    13,879       13,035       12,896       12,026  
 
Movement in provisions
 
                            Adjustment             Carried forward  
            Brought forward     Provision for     in respect     Returns     at 31 December  
            at 1 January 2009     current year     of prior years     and payments     2009  
            $m     $m     $m     $m     $m  
 
Chargebacks
            359       1,947       (106 )     (1,804 )     396  
 
Regulatory – US government and state programmes
            520       1,373       (16 )     (1,102 )     775  
 
Contractual – Managed-care and group purchasing organisation rebates
            1,084       4,732       20       (4,389 )     1,447  
 
Cash and other discounts
            39       428             (426 )     40  
 
Customer returns
            77       194       (2 )     (93 )     177  
 
Other
            57       198       (2 )     (194 )     59  
 
Total
            2,136       8,871       (106 )     (8,009 )     2,895  
 
 
                            Adjustment             Carried forward  
            Brought forward     Provision for     in respect     Returns     at 31 December  
            at 1 January 2008     current year     of prior years     and payments     2008  
            $m     $m     $m     $m     $m  
 
Chargebacks
            186       1,745       (19 )     (1,553 )     359  
 
Regulatory – US government and state programmes
            428       997       8       (913 )     520  
 
Contractual – Managed-care and group purchasing organisation rebates
            900       3,622       36       (3,474 )     1,084  
 
Cash and other discounts
            38       390             (389 )     39  
 
Customer returns
            85       48             (56 )     77  
 
Other
            53       167             (163 )     57  
 
Total
            1,690       6,969       25       (6,548 )     2,136  
 
 
            Additions in             Adjustment             Carried forward  
    Brought forward     respect of     Provision for     in respect     Returns     at 31 December  
    at 1 January 2007     MedImmune     current year     of prior years     and payments     2007  
    $m     $m     $m     $m     $m     $m  
 
Chargebacks
    92       2       1,115       15       (1,038 )     186  
 
Regulatory – US government and state programmes
    314       69       769       (37 )     (687 )     428  
 
Contractual – Managed-care and group purchasing organisation rebates
    635       5       3,100       79       (2,919 )     900  
 
Cash and other discounts
    29       1       356             (348 )     38  
 
Customer returns
    160       1       19       (1 )     (94 )     85  
 
Other
    47             153             (147 )     53  
 
Total
    1,277       78       5,512       56       (5,233 )     1,690  
 

For products facing generic competition (such as Ethyol and Toprol-XL in the US) our experience is that we usually lose the ability to estimate the levels of returns from wholesalers with the same degree of precision that we can for products still subject to patent protection. This is because we have limited or no insight into a number of areas – the actual timing of the launch of a generic competitor following regulatory approval of the generic product (for example, a generic manufacturer may or may not have produced adequate pre-launch inventory), the pricing and marketing strategy of the competitor, the take-up of the generic and (in cases where a generic manufacturer has approval to launch just one dose size in a market of several dose sizes) the likely level of switching from one dose to another. Under our accounting policy,
revenue is recognised only when the amount of the revenue can be measured reliably. Our approach in meeting this condition for products facing generic competition will vary from product to product depending on the specific circumstances.
The movements on US pharmaceuticals revenue accruals are set out above.
The adjustments in respect of prior years benefited Reported US pharmaceuticals turnover by 0.24% in 2007, and decreased turnover by 1% in 2008.
We have distribution service agreements with major wholesaler buyers, which serve to reduce the speculative purchasing behaviour of the wholesalers and reduce short-term
fluctuations in the level of inventory they hold. We do not offer any incentives to encourage wholesaler speculative buying and attempt, where possible, to restrict shipments to underlying demand when such speculation occurs.
Royalty income
Royalty income is recorded under other operating income in the Financial Statements. Royalties tend to be linked to levels of sales or production by a third party. At the time of preparing the Financial Statements, we may have to estimate the third party’s sales or production when arriving at the royalty income to be included. These estimates, which may differ from actual sales or production, do not result in a material impact on Reported other operating income.


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Reviews

Sales of intangible assets
A consequence of charging all internal R&D expenditure to the income statement in the year in which it is incurred (which is normal practice in the pharmaceutical industry) is that we own valuable intangible assets which are not recorded on the balance sheet. We also own acquired intangible assets which are included on the balance sheet. As a consequence of regular reviews of product strategy, from time to time we sell such assets and generate income. Sales of product lines are often accompanied by an agreement on our part to continue manufacturing the relevant product for a reasonable period (often about two years) whilst the purchaser constructs its own manufacturing facilities. The contracts typically involve the receipt of an upfront payment, which the contract attributes to the sale of the intangible assets, and ongoing receipts, which the contract attributes to the sale of the product we manufacture. In cases where the transaction has two or more components, we account for the delivered item (for example, the transfer of title to the intangible asset) as a separate unit of accounting and record revenue on delivery of that component provided that we can make a reasonable estimate of the fair value of the undelivered component. Where the fair market value of the undelivered component (for example, a manufacturing agreement) exceeds the contracted price for that component we defer an appropriate element of the upfront consideration and amortise this over the performance period. However, where the fair market value of the undelivered component is equal to or lower than the contracted price for that component we treat the whole of the upfront amount as being attributable to the delivered intangible assets and recognise that part of the revenue upon delivery. No element of the contracted revenue related to the undelivered component is allocated to the sale of the intangible asset. This is because the contracted revenue relating to the undelivered component is contingent on future events (such as sales) and so cannot be anticipated.
Research and Development
Our business is underpinned by our marketed products and development portfolio. The R&D expenditure on internal activities to generate these products is generally charged to the income statement in the year that it is incurred. Purchases of intellectual property and product rights to supplement our R&D portfolio are capitalised as intangible assets. Such intangible assets are amortised from the launch of the underlying products and are tested for impairment both before and after launch. This policy is in line with practice adopted by major pharmaceutical companies.
Impairment testing of goodwill
and intangible assets
We have significant investments in goodwill and intangible assets as a result of acquisitions of businesses and purchases of assets, such as product development and marketing rights.
For the purpose of impairment testing of goodwill, the Group is regarded as a single cash-generating unit.
The recoverable amount is based on value in use, using discounted risk-adjusted projections of the Group’s pre-tax cash flows over 10 years, a period reflecting the average patent-protected lives of our current products. The projections include assumptions about product launches, competition from rival products and pricing policy as well as the possibility of generics entering the market. In setting these assumptions we consider our past experience, external sources of information (including information on expected increases and ageing of the populations in Established Markets and the expanding patient population in newer markets), our knowledge of competitor activity and our assessment of future changes in the pharmaceutical industry. The 10-year period is covered by internal budgets and forecasts. Given that internal budgets and forecasts are prepared for all projections, no general growth rates are used to extrapolate internal budgets and forecasts for the purposes of determining value in use.
In arriving at value in use, we disaggregate our projected pre-tax cash flows into groups reflecting similar risks and tax effects. For each group of cash flows we use an appropriate discount rate reflecting those risks and tax effects. In arriving at the appropriate discount rate for each group of cash flows, we adjust AstraZeneca’s post-tax weighted average cost of capital (7.6% for 2009) to reflect the impact of risks and tax effects. The weighted average pre-tax discount rate we used was approximately 14%.
As a cross-check, we compare our market capitalisation to the book value of our net assets and this indicates significant surplus at 31 December.
No goodwill impairment was identified.
The Group has also performed sensitivity analysis calculations on the projections used and discount rate applied. The Directors have concluded that, given the significant headroom that exists, and the results of the sensitivity analysis performed, there is no significant risk that reasonable changes in key assumptions will cause the carrying value of goodwill to exceed its value in use.
Impairment reviews have been carried out on all intangible assets that are in development (and not being amortised), all major intangible assets acquired during the year, all intangible assets that have had indications of impairment during the year and all intangible assets recognised on the acquisition of MedImmune. Sales forecasts and specific allocated costs (which have both been subject to appropriate senior management sign-off) are discounted using AstraZeneca’s risk-adjusted pre-tax weighted average cost of capital.
The majority of our investments in intangible assets and goodwill arose from the restructuring of the joint venture with Merck in 1998 and 2008, the acquisition of MedImmune in 2007 and the payment to partially retire Merck’s interests in our products in the US in 2008, and we are satisfied that the carrying values are fully justified by estimated future cash flows.
Litigation
In the normal course of business, contingent liabilities may arise from product-specific and general legal proceedings, from guarantees or from environmental liabilities connected with our current or former sites. Where we believe that potential liabilities have a less than 50% probability of crystallising or are very difficult to quantify reliably, we treat them as contingent liabilities. These are not provided for but are disclosed in Note 25 to the Financial Statements from page 166.
In cases that have been settled or adjudicated, or where quantifiable fines and penalties have been assessed and which are not subject to appeal (or other similar forms of relief), or where a loss is probable and we are able to make a reasonable estimate of the loss, we indicate the loss absorbed or the amount of the provision accrued.
AstraZeneca is defending its interests in various federal and state investigations and civil litigation matters relating to drug marketing and pricing practices and in respect of which AstraZeneca has made an aggregate provision of $636 million in the year. $524 million of this provision has been made in respect of the US Attorney’s Office’s investigation into sales and marketing practices involving Seroquel, with the remainder relating to average wholesale price litigation pending in the US federal court. The current status of these matters is described more fully in Note 25 to the Financial Statements from page 166. This provision constitutes our best estimate at this time of the losses expected for these matters.


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48Directors’ Report | Financial Review

Where it is considered that the Group is more likely than not to prevail, legal costs involved in defending the claim are charged to profit as they are incurred. Where it is considered that the Group has a valid contract which provides the right to reimbursement (from insurance or otherwise) of legal costs and/or all or part of any loss incurred or for which a provision has been established, we consider recovery to be virtually certain and the best estimate of the amount expected to be received is recognised as an asset.
At 31 December legal defence costs of approximately $656 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 amount may increase as AstraZeneca believes that it is more likely than not that the vast majority of costs above the $521 million recorded as an insurance receivable will ultimately be recovered through this insurance, although there can be no assurance of additional coverage under the policies, or that the insurance receivable we have recognised will be realisable in full.
Assessments as to whether or not to recognise provisions or assets and of the amounts concerned usually involve a series of complex judgements about future events and can rely heavily on estimates and assumptions. AstraZeneca believes that the provisions recorded are adequate based on currently available information and that the insurance recoveries recorded will be received. However, given the inherent uncertainties involved in assessing the outcomes of these cases and in estimating the amount of the potential losses and the associated insurance recoveries, we could in future periods incur judgments or insurance settlements that could have a material adverse effect on our results in any particular period.
The position could change over time, and there can, therefore, be no assurance that any losses that result from the outcome of any legal proceedings will not exceed the amount of the provisions that have been booked in the accounts.
Although there can be no assurance regarding the outcome of legal proceedings, we do not currently expect them to have a material adverse effect on our financial position, but they could significantly affect our Reported financial results in any particular period.
Post-retirement benefits
We offer post-retirement benefit plans which cover many of our employees around the world. In keeping with local terms and conditions, most of these plans are ‘defined contribution’ in nature, where the resulting income statement charge is fixed at a set level or is a set percentage of employees’ pay. However, several plans, mainly in the UK (which has by far the largest single scheme), the US and Sweden, are defined benefit plans where benefits are based on employees’ length of service and final salary (typically averaged over one, three or five years). The UK and US defined benefit schemes were closed to new entrants in 2000. All new employees in these countries are offered defined contribution schemes.
In applying IAS 19 ‘Employee Benefits’, we recognise all actuarial gains and losses immediately through reserves. This methodology results in a less volatile income statement charge than under the alternative approach of recognising actuarial gains and losses over time. Investment decisions in respect of defined benefit schemes are based on underlying actuarial and economic circumstances with the intention of ensuring that the schemes have sufficient assets to meet liabilities as they fall due, rather than meeting accounting requirements. The trustees follow a strategy of awarding mandates to specialist, active investment managers, which results in a broad diversification of investment styles and asset classes. The investment approach is intended to produce less volatility in the plan asset returns.
In assessing the discount rate applied to the obligations, we have used rates on AA corporate bonds with durations corresponding to the maturities of those obligations.
In all cases, the pension costs recorded in the Financial Statements are assessed in accordance with the advice of independent qualified actuaries but require the exercise of significant judgement in relation to assumptions for future salary and pension increases, long-term price inflation and investment returns.
Taxation
Accruals for tax contingencies require management to make judgements and estimates in relation to tax audit issues and exposures. Amounts accrued are based on management’s interpretation of country-specific tax law and the likelihood of settlement. Tax benefits are not recognised unless the tax positions are probable of being sustained. Once considered to be probable, management reviews each material tax benefit
to assess whether a provision should be taken against full recognition of the benefit on the basis of potential settlement through negotiation and/or litigation. All such provisions are included in creditors due within one year. Any recorded exposure to interest on tax liabilities is provided for in the tax charge.
AstraZeneca faces a number of transfer pricing audits in jurisdictions around the world and, in some cases, is in dispute with the tax authorities. These disputes usually result in taxable Profits being increased in one territory and correspondingly decreased in another. Our balance sheet positions for these matters reflect appropriate corresponding relief in the territories affected. The total net accrual included in the Financial Statements to cover the worldwide exposure to transfer pricing audits is $2,327 million, an increase of $699 million, which is due to a number of new audits, revisions of estimates relating to existing audits, offset by a number of negotiated settlements and exchange rate effects.
Included in the total net accrual are amounts in respect of the following transfer pricing arrangements:
>   AstraZeneca and Her Majesty’s Revenue & Customs (HMRC) have made a joint referral to the UK Court in respect of transfer pricing between our UK operation and one of our overseas operations for the years 1996 to date as there continues to be a material difference between the Group’s and HMRC’s positions. An additional referral in respect of controlled foreign company aspects of the same case was made during 2008. Absent a negotiated settlement, litigation is set to commence in 2010.
 
>   AstraZeneca has applied for an advance pricing agreement in relation to intra-group transactions between the UK and the US which is being progressed through competent authority proceedings under the relevant double tax treaty.
Management continues to believe that AstraZeneca’s positions on all its transfer pricing audits and disputes are robust and that AstraZeneca is appropriately provided.
For transfer pricing audits where AstraZeneca and the tax authorities are in dispute, AstraZeneca estimates the potential for reasonably possible additional losses above and beyond the amount provided to be up to $575 million. However, management believes that it is unlikely that these additional losses will arise. Of the remaining tax exposures, AstraZeneca does not expect material additional losses. It is not possible to estimate


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Reviews
Payments due by period
                                         
    Less than 1 year     1-3 years     3-5 years     Over 5 years     Total  
    $m     $m     $m     $m     $m  
   
Bank loans and other borrowings
    2,512       2,769       834       12,209       18,324  
   
Operating leases
    132       128       80       131       471  
   
Contracted capital expenditure
    739                         739  
   
Total
    3,383       2,897       914       12,340       19,534  
   

the timing of tax cash flows in relation to each outcome, however, it is anticipated that a number of significant disputes may be resolved over the next one to two years. Included in the provision is an amount of interest of $565 million.
Segmental reporting
During the year AstraZeneca has adopted IFRS 8 ‘Operating Segments’. IFRS 8 requires an entity to report financial and descriptive information about its reportable segments. Reportable segments are operating segments or aggregations of operating segments that meet specified criteria. In addressing these criteria, it was determined that AstraZeneca is engaged in a single business activity of pharmaceuticals and that the Group does not have multiple operating segments. Our biopharmaceuticals business consists of the discovery and development of new products, which are then manufactured, marketed and sold. All of these functional activities take place (and are managed) globally on a highly integrated basis. We do not manage these individual functional areas separately.
We consider that the SET is AstraZeneca’s chief operating decision-making body (as defined by IFRS 8). The operation of the SET is principally driven by the management of the commercial operations, R&D and manufacturing and supply. The SET also includes Finance, Human Resources and General Counsel representation.
All significant operating decisions are taken by the SET. While members of the SET have responsibility for implementation of decisions in their respective areas, operating decision-making is at SET-level as a whole. Where necessary, decisions are implemented through cross-functional sub-committees that consider the group-wide impact of a new decision. For example, product launch decisions would be initially considered by the SET and, on approval, passed to an appropriate sub-team for implementation. The impacts of being able to develop, produce, deliver and commercialise a wide range of pharmaceutical products drive the SET’s decision-making process.
In assessing performance, the SET reviews financial information on an integrated basis for the Group as a whole, substantially in the form of, and on the same basis as, the Group’s IFRS Financial Statements. The high upfront cost of discovering and developing new products, coupled with the relatively insignificant and stable unit cost of production, means that there is not the clear link that exists in many manufacturing businesses between the revenue generated on an individual product sale and the associated cost (and hence margin) generated on a product. Consequently, the profitability of individual drugs or classes of drugs is not considered a key measure of performance for the business and is not monitored by the SET.
Resources are allocated on a group-wide basis according to need. In particular, capital expenditure, in-licensing and R&D resources are allocated between activities on merit, based on overall therapeutic considerations and strategy under the aegis of the Group’s R&D Executive Committee to facilitate a group-wide single combined discovery and development strategy. The Group’s recent acquisitions in the biologics area, MedImmune and Cambridge Antibody Technology Group plc, have been integrated into the existing management structure of AstraZeneca both for allocation of resources and for the purposes of assessment and monitoring of performance. As such, although biologics is a relatively new technological area for the Group, it does not operate as a separate operating segment.
Off-balance sheet transaction
and commitments
We have no off-balance sheet arrangements and our derivative activities are non-speculative. The table above sets out our minimum contractual obligations at the year end.
Other accounting information
New accounting standards
New IFRS which have been issued (both adopted and not yet adopted) are discussed in the Accounting Policies section in the Financial Statements from page 128.
Sarbanes-Oxley Act section 404
As a consequence of our listing on the NYSE, AstraZeneca is required to comply with those provisions of the Sarbanes-Oxley Act applicable to foreign issuers. Section 404 of the Sarbanes-Oxley Act requires companies annually to assess and make public statements about the quality and effectiveness of their internal control over financial reporting.
Our approach to the assessment has been to select key transaction and financial reporting processes in our largest operating units and a number of specialist areas, such as financial consolidation and reporting, treasury operations and taxation, so that, in aggregate, we have covered a significant proportion of each of the key line items in our Financial Statements. Each of these operating units and specialist areas has ensured that its relevant processes and controls are documented to appropriate standards, taking into account, in particular, the guidance provided by the SEC. We have also reviewed the structure and operation of our ‘entity level’ control environment. This refers to the overarching control environment, including structure of reviews, checks and balances that are essential to the management of a well-controlled business.
The Directors have concluded that our internal control over financial reporting is effective at 31 December and the assessment is set out in the Directors’ Responsibilities for, and Report on, Internal Control over Financial Reporting section in the Financial Statements on page 122. KPMG has audited the effectiveness of our internal control over financial reporting and, as noted in the Auditor’s Report on the Financial Statements and on Internal Control over Financial Reporting (Sarbanes-Oxley Act Section 404) on page 123, their report is unqualified.


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50Directors’ Report | Geographical Review

Geographical Review

2009 in brief
>   Significant growth continues to be delivered by key products: Arimidex (7%), Crestor (29%), Seroquel (12%) and Symbicort (23%). Nexium growth of 9% outside the US.
 
>   Despite a continually challenging environment, including pressure from generic medicines, combined sales of Arimidex, Crestor, Nexium, Seroquel and Symbicort were up 10% in the US to 66% of our total US sales.
 
>   In North America, despite several key mergers (Merck/Schering-Plough, Pfizer/Wyeth), AstraZeneca maintained its position as the second largest pharmaceutical company in Canada. In the US, AstraZeneca is now the third largest pharmaceutical company. In the US, AstraZeneca grew its audited sales faster than any other pharmaceutical company in the top 10.
 
>   Solid sales performance outside the US, up 6%.
 
>   Strong brand performance in our Western Europe markets but intense competition and governmental controls over healthcare expenditure.
 
>   Emerging Markets delivered strong sales growth, up 12% with Emerging Europe sales up 7% and Emerging Asia Pacific sales (including China) up 15%.
 
>   Live attenuated H1N1 influenza (swine flu) vaccine approved. AstraZeneca contracted with the US Department of Health and Human Services to supply 42 million doses of live attenuated H1N1 influenza vaccine at $389 million.
 
>   For the first time, the seasonal influenza vaccine, FluMist, sold out of its approximately 10 million dose supply.
 
For more information regarding our products see the Therapy Area Review from page 55. Details of material legal proceedings can be found in Note 25 to the Financial Statements from page 166 and details of relevant risks are set out in the Principal risks and uncertainties section from page 80.
See the market definitions table on page 206 for information on AstraZeneca’s market definitions.
North America
US
Sales in the US increased 9% to $14,778 million, benefiting from the 10% growth of our leading brands. Combined sales of those brands, namely Arimidex, Crestor, Nexium, Seroquel (all formulations) and Symbicort, were up 10% to $9,717 million (2008: $8,803 million) and sales of Toprol-XL and its authorised generic increased as a result of supply issues facing its generic competitors. AstraZeneca is currently the third largest pharmaceutical company in the US, with a 6% share of US prescription pharmaceutical sales. Sales for Aptium Oncology, Inc. fell by 1% to $393 million (2008: $395 million) and sales for Astra Tech AB rose by 4% to $83 million (2008: $80 million).
Seroquel maintained its strong position as the number one prescribed atypical anti-psychotic on the market, with sales up 13% to $3,416 million (2008: $3,015 million). Seroquel (all formulations) posted total prescription growth of 2% with an increase of 408,000 prescriptions, driven by strong Seroquel XR prescription growth of 195%. At the end of 2009, Seroquel XR accounted for 11.1% of the Seroquel total prescription volume in the US, up from 3.4% at the end of 2008.
Throughout 2009, Nexium continued to lead the branded proton pump inhibitor (PPI) market for new prescriptions, total prescriptions and total capsules dispensed. Generic lansoprazole and Prevacid OTC 24 Hour were introduced in November, leaving Nexium as the only branded product with significant market share in the PPI class. In the face of continuing generic, OTC and pricing pressures, Nexium sales were down 9% to $2,835 million in 2009 (2008: $3,101 million).
Crestor achieved sales of $2,100 million (2008: $1,678 million) and a total prescription growth of 22.8%. For the second year in a row Crestor was the only branded statin to grow market share despite pressure from generic medicines. In fact, in 2009, Crestor‘s total prescription growth of 22.8% significantly outpaced the market by 17.5% and that of total generic statins by 3.3%. We continue to see increased interest in the clinical profile of Crestor from physicians following receipt of the atherosclerosis indication. Crestor is the fastest growing branded statin prescribed by cardiologists and internists.


In June, AstraZeneca and Abbott submitted an NDA for Certriad for the treatment of mixed dyslipidaemia. AstraZeneca and Abbott have also entered into an agreement under which AstraZeneca obtained the non-exclusive right to co-promote Trilipix, alongside Abbott in the US (excluding Puerto Rico), from June. This is the second co-promotion agreement between AstraZeneca and Abbott. In 2008, the companies announced a non-exclusive agreement for Abbott to co-promote Crestor alongside AstraZeneca in the US (excluding Puerto Rico).
Onglyza was launched in August, the first launch in the collaboration with BMS. Execution of the Onglyza launch strategy remains on-target and the number of physicians prescribing the product is growing. Brand awareness is increasing and is in line with expectations.
Sales for Toprol-XL and the authorised generic, which is marketed and distributed by Par Pharmaceutical Companies, Inc. increased 227% to $964 million (2008: $295 million) following the withdrawal from the market of two other generic metoprolol succinate products in early 2009. AstraZeneca worked diligently following these withdrawals to ensure an adequate supply of Toprol-XL and the authorised generic. In September, Watson Pharmaceuticals Inc. received approval for 25mg and 50mg strengths of metoprolol succinate. We expect further generic competition in 2010.
Arimidex continued to perform well with sales up 16% to $878 million (2008: $754 million) for the full year. Arimidex continues to be the market leader in new prescriptions in hormonal treatments for post-menopausal women with hormone receptor positive breast cancer in the US.
Patent protection in the US for the Casodex advanced prostate cancer indication expired in April 2009. In July, multiple generic formulations of Casodex were approved by the FDA and entered the market. As a result, 2009 sales of Casodex declined 49% to $148 million (2008: $292 million).
Sales for Pulmicort Respules were down 21% to $692 million (2008: $874 million) as a result of the ‘at risk’ launch of generic budesonide inhalation suspension by Teva in November 2008. On 25 November 2008, the parties settled the ensuing litigation and in accordance with the settlement agreement, Teva commenced sales of its generic product under an exclusive licence from AstraZeneca on 15 December 2009.


AstraZeneca Annual Report and Form 20-F Information 2009 


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51
Reviews
Our financial performance
                                                                                         
    2009     2008     2007     2009 compared to 2008     2008 compared to 2007  
                    Growth due                     Growth due                                  
            CER     to exchange             CER     to exchange             CER     Reported     CER     Reported  
    Sales     growth     effect     Sales     growth     effect     Sales     growth     growth     growth     growth  
    $m     $m     $m     $m     $m     $m     $m     %     %     %     %  
   
US
    14,778       1,268             13,510       142       2       13,366       9       9       1       1  
   
Canada
    1,203       37       (109 )     1,275       95       35       1,145       3       (6 )     8       11  
   
North America
    15,981       1,305       (109 )     14,785       237       37       14,511       9       8       2       2  
   
Western Europe
    9,277       257       (723 )     9,743       55       573       9,115       3       (5 )     1       7  
   
Japan
    2,341       142       242       1,957       73       223       1,661       7       20       4       18  
   
Australasia
    853       98       (88 )     843       107       21       715       12       1       15       18  
   
Other Established Markets
    12,471       497       (569 )     12,543       235       817       11,491       4       (1 )     2       9  
   
Emerging Europe
    1,091       87       (211 )     1,215       102       85       1,028       7       (10 )     10       18  
   
China
    811       168       16       627       136       54       437       27       29       31       43  
   
Emerging Asia Pacific
    780       52       (74 )     802       72       (19 )     749       6       (3 )     10       7  
   
Other Emerging
    1,670       208       (167 )     1,629       247       39       1,343       13       3       18       21  
   
Emerging Markets
    4,352       515       (436 )     4,273       557       159       3,557       12       2       16       20  
   
Total Sales
    32,804       2,317       (1,114 )     31,601       1,029       1,013       29,559       7       4       3       7  
   

Symbicort pMDI continued to deliver steady growth in the US with sales up 91% to $488 million (2008: $255 million). It surpassed a 15% total prescription share and a 17% new prescription share of the inhaled corticosteroid/long-acting beta-agonist market. Symbicort pMDI is now prescribed to 26% of all patients who are new to combination therapy. In February 2009, it was approved for the maintenance treatment of airflow obstruction in patients with chronic obstructive pulmonary disease, including chronic bronchitis and emphysema.
Synagis is the only FDA-approved MAb to help protect high-risk babies against severe respiratory syncytial virus (RSV). In 2009, sales in the US were $782 million (2008: $923 million). Sales in the 2009-2010 RSV season started slower than anticipated due to payer pressure as a result of the introduction of more restrictive guidelines regarding the use and dosing of Synagis by the American Academy of Pediatrics and the adoption of these guidelines.
AstraZeneca’s monovalent H1N1 influenza (swine flu) vaccine, which is made using the same technology and process as AstraZeneca’s seasonal influenza vaccine, FluMist, was approved by the FDA in September for the same patient population as FluMist (patients two to 49 years of age). AstraZeneca began shipping product to the US Department of Health and Human Services (HHS) in September. All sales in the US were through the HHS and totalled $389 million.
AstraZeneca has a number of new drug application submissions under review by the regulatory authorities in the US and the EU, including: Crestor (for a new indication, as an sNDA based on the results of the JUPITER study), Vimovo, Certriad, motavizumab and Symbicort pMDI as an sNDA for paediatric use as well as sNDAs for Seroquel XR for generalised anxiety disorder (acute, maintenance and use in elderly), and for the use of Seroquel XR as monotherapy for the treatment of patients with major depressive disorder (acute, maintenance and use in elderly). Further information about the status of these submissions and others is contained in the Therapy Area Review from page 55.
Currently, there is no direct government control of prices for commercial prescription drug sales in the US. However, some publicly funded programmes, such as Medicaid and TRICARE (Department of Veterans Affairs), have statutorily mandated rebates and discounts that have the effect of price controls for these programmes. Additionally, pressure on pricing, availability and utilisation of prescription drugs for both commercial and public payers continues to increase, driven by, among other things, an increased focus on generic alternatives. Primary drivers of increased generic use are budgetary policies within healthcare systems and providers, including the use of ‘generics only’ formularies, and increases in patient co-insurance or co-payments. In 2009, 75% of the prescriptions dispensed in the US were generic. Despite these price pressures and a challenging economic environment, AstraZeneca increased net product sales in 2009 by 9% and IMS Health audited sales for the US market show that AstraZeneca
was the fastest growing branded company in the top 10. While it is unlikely that there will be widespread adoption of a broad national price-control scheme in the near future, there will continue to be increased attention to pharmaceutical prices and their impact on healthcare costs for the foreseeable future.
In 2010, we anticipate there will be continued focus on health reform that may result in the implementation of changes in legislation and regulation. AstraZeneca believes that every American should have affordable health insurance and prescription drug coverage. In reviewing different health reform proposals that Congress is considering, AstraZeneca will ask whether any particular provision:
>   Promotes market competition that leads to improved health outcomes
 
>   Ensures patient safety is maintained or enhanced
 
>   Expands coverage for the uninsured
 
>   Fosters and rewards innovation
 
>   Provides protection for intellectual property.
For further discussion of the proposed US healthcare reforms, see the Competition, price controls and price reductions section on page 83.
In its fourth year of operation, the Medicare Part D prescription drug programme maintained high levels of enrolment and beneficiary satisfaction. It also achieved prescription volume growth similar to that of other mature markets and provided access to our medicines for a large segment of the patient population. Overall access for AstraZeneca’s products in key accounts was maintained or improved in 2009.


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We continue our long-standing commitment to educating Medicare beneficiaries and supporting healthcare professionals in all aspects of Medicare Part D through our partnership with the National Council on Aging. This includes a consumer website, My Medicare Matters, which was revised this year to provide detailed, yet easy-to-understand information about Medicare services including Part D for people with commonly diagnosed diseases among the elderly, starting with diabetes, cancer and Alzheimer’s disease and related dementias. Funding from AstraZeneca also supports MyMedicareCommunity.org, an on-line community for healthcare professionals and grass roots organisations serving people with Medicare.
Additionally, through the AZ&Me Prescription Savings Programme, AstraZeneca provides prescription access to financially needy Medicare Part D beneficiaries. AstraZeneca has been providing patient assistance to the uninsured for 30 years. Last year, we provided more than $750 million in savings to approximately 505,000 people without drug coverage (approximately 3.8 million prescriptions).
Canada
Despite the entry of generic forms of Seroquel IR in late 2008, total product sales in Canada increased by 3% to $1,203 million (2008: $1,275 million) and we remain the second largest brand name pharmaceutical company in Canada. Combined sales of Crestor, Nexium, Symbicort and Atacand were up 18% to $872 million (2008: $805 million) with Crestor and Nexium among the top 10 prescription products in Canada by sales. Sales of Seroquel were down 68% to $48 million (2008: $160 million) as a result of generic entry. Crestor maintained its number two ranking in the statin market and was the fastest-growing product in both new and total prescription segments (25.5% and 27.6% growth, respectively). Crestor is also the second largest pharmaceutical product in Canada by sales.
AstraZeneca received a number of important regulatory approvals from Health Canada in 2009, including regulatory approval for Onglyza for the treatment of Type 2 diabetes, Symbicort Turbuhaler for the treatment of chronic obstructive pulmonary disease and Seroquel XR for the treatment of major
depressive disorder. In addition, new tablet strengths (32/12.5mg and 32/25mg) were approved for Atacand Plus.
Key organisational efficiencies were obtained through structural changes, as well as the move to regional shared service models and common North American technology platforms.
A recent study, ‘The Rx&D International Report on Access to Medicines, 2008-2009’ by George Wyatt, highlights that only 55% of innovative medicines receive approval from Canada’s Health Technology Assessment appraisal system compared to an international average of 73%. The Patented Medicine Prices Review Board (PMPRB) has the role of ensuring that prices charged by manufacturers for patented medicines are not excessive. Recent PMPRB guideline changes to be introduced in 2010 have secured a competitive pricing environment for the Canadian pharmaceutical industry.
The provinces have adopted different approaches to pharmaceutical funding, from one end of the continuum in Quebec, with more open access, to more restricted access in British Columbia. Ontario, Alberta and British Columbia have all undertaken reviews of their drug reimbursement system, resulting in the introduction of product listing agreements, the reduction of generic prices and changes to the role of pharmacists. The trend in Canada indicates provinces will continue to introduce policy changes that drive cost savings, while providing reasonable patient access to innovative medicines.
Rest of World
Sales in the Rest of World performed strongly in 2009, up 6% (flat as reported) to $16,823 million (2008: $16,816 million), despite the world economic crisis. Key products (Arimidex, Crestor, Nexium, Seroquel and Symbicort) delivered a strong performance, up 15% (+8% reported) with sales of $7,977 million (2008: $7,413 million). China, Emerging Asia Pacific and Other Emerging markets delivered particularly strong sales, up 14% (+7% reported) with sales of $3,261 million (2008: $3,058 million).
Other Established Markets
Sales in Other Established Markets increased by 4% (-1% reported). The key products driving sales growth in 2009 were Crestor, Symbicort, Nexium and Seroquel.
Western Europe
In our Western Europe markets, we saw good growth of 3% (-5% reported). The weakness of the pound sterling in comparison to the euro resulted in a significant change in the pattern of export trade within the EU with strong sales in the UK (up 27%, +6% reported) more than offsetting sales declines in Italy (down 3%, -9% reported), Spain (down 6%, -11% reported), and the Nordics (ie Sweden, Finland, Denmark and Norway) (down 5%, -16% reported).
Within our Western Europe markets, Crestor has delivered a strong financial performance and has outperformed the market with strong double-digit growth. Likewise, Seroquel has outperformed the market by two times with the successful launch of Seroquel XR and the bipolar indication driving performance. Symbicort has defended its market position and Nexium has moved from second to first place in its class. Arimidex has maintained its position as the leading aromatase inhibitor. Sales of Casodex continue to decline following patent expiries in 2008.
Sales in our Western Europe markets continued to be impacted by government initiatives to contain drug expenditures and by generic erosion of those of our products which have lost patent protection and Regulatory Exclusivity.
We have continued with our programme of resource management in our Western Europe markets and have reduced our cost base by 5% and headcount by over 600 during 2009.
Overall our sales in France were up 2% (-4% reported) to $1,849 million (2008: $1,922 million). The strong performance of Crestor and Nexium, which gained significant market share from competitors, was offset by the continuing impact of patent expiry for Casodex.
In Germany, sales were up 3% (-2% reported) to $1,278 million (2008: $1,307 million) with good growth in Atacand, Symbicort and Seroquel offsetting the continued declines in Nexium, resulting from government restrictions to access, and Casodex following patent expiry.


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As a result of the weak pound sterling and its impact on export sales through parallel trade, in the UK sales were up 27% (+6% reported) to $1,082 million (2008: $1,020 million) driven by Crestor (up 62%, +35% reported), Seroquel (up 64%, +35% reported), Symbicort (up 42%, +18% reported) and Nexium (up 95%, +59% reported).
In Italy, overall sales declined by 3% (-9% reported) to $1,199 million (2008: $1,323 million) as a result of reference pricing and Casodex patent expiry. However, Crestor performed well, increasing its sales by 8% (+3% reported) and Seroquel showed strong growth, increasing sales by 36% (+28% reported).
In Spain, sales were down 6% (-11% reported) to $768 million (2008: $863 million) due to Seroquel (down 17%, -21% reported), Symbicort (down 3%, -9% reported) and Arimidex (down 30%, -33% reported). However, Nexium performed well with sales up 15% (+9% reported).
Most governments in Europe intervene directly to control the price and reimbursement of medicines. The decision-making power of prescribers in Europe has been eroded in favour of a diverse range of payers. While the systems to control pharmaceutical spending vary, they have all had a noticeable negative impact on the uptake and availability of innovative medicines. Several governments have imposed price reductions and increased the use of generic medicines as part of healthcare expenditure control. Several countries are applying strict tests of cost-effectiveness to medicines, which has reduced access for European patients to medicines in areas of high unmet medical need. These and other measures all contribute to an increasingly difficult environment for branded pharmaceuticals in Europe.
Japan
In Japan, strong volume gains of 8.3% increased overall sales by 7% (+20% reported) to $2,341 million (2008: $1,957 million) and allowed us to maintain our twelfth place position in the market. This was achieved despite a decline of 5% (+6% reported) of Casodex, our largest product in Japan, following the launch of generic competitors in May 2009. The key drivers of growth were the continued success of Crestor (up 58%, +76% reported), the continued growth of Losec (up 8%, +20% reported) and the increased penetration of Seroquel (up 25%, +39% reported).
In addition, future growth prospects received a boost in 2009 with the approval of Symbicort Turbuhaler for the Japanese market. Symbicort Turbuhaler was launched in January 2010 into an asthma market where the proportion of patients treated by inhaled corticosteroids is growing but lags behind other major markets by five to 10 years. Symbicort Turbuhaler is being promoted in Japan by both AstraZeneca and Astellas.
In Japan there is formal central government control of prices by the Ministry of Health, Labour and Welfare (MHLW) and the pricing and reimbursement system has been stable in recent years. Regular price revisions are imposed in April every other year that reduce the reimbursement price of almost all products. Accordingly, prices were not revised in 2009, but will be in 2010. At the same time, it is expected that in April 2010, a new pricing rule will be adopted on a trial basis to reward the development of innovative new products. Under this rule, new products with a below industry-average doctor margin will be subject to either a zero or a significantly reduced price revision, as long as the manufacturer has demonstrated appropriate progress in developing unapproved products and indications requested by the government. The long-term objective of the Japanese government is to raise generic volume share from 20.9% in 2008 to 30% by 2012; recent reforms have supported this goal by making the substitution of a generic product for a branded product easier.
Australasia
In Australia and New Zealand, we delivered a strong sales performance with sales up 12% (+1% reported) to $853 million (2008: $843 million), driven mainly by sales growth for Crestor, Atacand, Nexium, Seroquel and Symbicort. These five brands grew by 26% (+14% reported). Crestor‘s performance in Australia has been particularly strong, gaining over 6% volume market share in the year.
Emerging Markets
In the Emerging Markets, sales increased by 12% (+2% reported) to $4,352 million (2008: $4,273 million), accounting for nearly 49% of total sales growth outside the US. Sales in Emerging Europe were up 7% (-10% reported) to $1,091 million (2008: $1,215 million). Sales in China (excluding Hong Kong) increased by 27% (+29% reported) to $811 million (2008: $627 million).
In many of the larger markets, such as Brazil and Mexico, patients tend to pay directly for prescription medicines and consequently these markets are at less risk of direct government interventions on pricing and reimbursement. In other markets such as South Korea, Taiwan and Turkey where governments do pay for medicines, we are seeing measures to reduce the cost of prescriptions in line with the systems in Europe, Canada and Australia.
Emerging Europe
As part of our ongoing growth strategy, we have significantly increased our presence in the Russian market and sales have grown by 23% (-2% reported) to $180 million (2008: $184 million). The strongest performance has been seen in the cardiovascular (up 61%, +26% reported) and respiratory (up 33%, +6% reported) Therapy Areas.
In Romania, AstraZeneca has increased its market share to 3.3% in a very dynamic prescription market environment. Sales have increased by 51% (+29% reported) to $92 million (2008: $71 million), driven primarily by Crestor (up 54%, +29% reported) and Nexium (up 59%, +36% reported).
In late 2009 the government in Turkey imposed unprecedented levels of price reductions on the pharmaceutical industry. As a result our full-year growth was limited to 6%.
Ukraine, Kazakhstan, Belarus and Georgia have been particularly challenged by the financial crisis, most notably in Ukraine, although the pharmaceutical sector has been less affected than others by the GDP decline.
China
In China, in line with our growth and expansion strategy of the past five years, we have continued to build our presence and sales (excluding Hong Kong) were up 27% (+29% reported) to $811 million (2008: $627 million). We are the second largest multinational pharmaceutical company in the prescription market in China (including Hong Kong) with a growth rate for prescription sales of 29%. Our investment in China increased with further growth in the number of sales representatives, and continued to support our innovation discovery research centre in Shanghai and our several external collaborations.


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In November, the third edition of China’s National Reimbursable Drugs List (NRDL) was published by the Ministry of Human Resources and Social Security (MHRSS), five years after the publication of the second edition in 2005. 131 new ‘western’ medicines were added to the list, representing a 13% increase. For AstraZeneca Crestor, Nexium i.v., Symbicort and Seloken XR were included on the list for the first time whilst previous restrictions that applied to Arimidex, Casodex and Zoladex were removed. Based on the current guidelines issued by MHRSS, we expect the new list to be operational at the provincial and hospital level in the second half of 2010.
In August, China’s National Essential Drug System (NEDL) was officially launched. This formulary lists 307 essential drugs (205 chemical and biologics and 102 formulated traditional Chinese medicines) which should be used in all government owned healthcare institutions. Seloken and Losec MUPS are listed in the NEDL. The Chinese Government has a target that by the end of 2009, 30% of basic healthcare institutions (ie community health centres and rural hospitals) will stock all drugs listed in the NEDL.
Emerging Asia Pacific
In Emerging Asia Pacific, overall sales were up 6% (-3% reported) to $780 million (2008: $802 million) with double-digit growth in India, Malaysia and Vietnam and a more subdued performance in Thailand, the Philippines and Singapore due to the more pronounced impact of the economic crisis and government interventions in these countries.
Other Emerging markets
Latin America
During 2009, GDP growth in Latin America slowed significantly to -2.1% from 4.2% in 2008, as a result of the global financial crisis. The pharmaceutical market in Latin America grew by 12% compared to 2008 and AstraZeneca’s sales grew 8% (-4% reported) to $1,118 million (2008: $1,159 million), mainly driven by Brazil, Argentina and Venezuela. As a result, our market share grew to 2.4% (2008: 2.3%) in the prescription market, improving our position again from eleventh last year to tenth this year in the regional competitor rankings.
Atacand, Crestor, Nexium, Seroquel and Symbicort showed strong performance, with overall sales up 17% (+5% reported) to $544 million (2008: $516 million). Nexium is our number one prescription product in Latin America, with sales up 4% (-5% reported) to $175 million (2008: $185 million), and is ranked fourth in the top 20 products of the Latin American prescription market. Crestor is our second largest prescription product, with overall sales up 27% (+14% reported) to $146 million (2008: $128 million), and is now number seven in the top 20 Latin American prescription products.
Brazil, Mexico and Venezuela are our three largest markets in the region, with sales up 18% (+4% reported) to $457 million (2008: $440 million), down 9% (-26% reported) to $261 million (2008: $353 million) and up 15% (+15% reported) to $163 million (2008: $142 million), respectively. Mexico in particular has been heavily impacted by the global financial crisis as a result of its reliance on the US economy.
Middle East and Africa (MEA)
During 2009, MEA has achieved strong growth essentially driven by Maghreb and Egypt. Our largest three markets in the region are now South Africa, the Gulf States and Saudi Arabia.
Sales force expansion in MEA over the past few years has directly contributed to this strong performance in the region, with Crestor, Symbicort and Seroquel demonstrating growth. Overall, AstraZeneca’s sales in MEA are growing twice as fast as the pharmaceutical market in MEA.
      


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Therapy Area Review

This section contains further information about the Therapy Areas in which our efforts are focused: Cardiovascular, Gastrointestinal, Infection, Neuroscience, Oncology, and Respiratory & Inflammation.
We describe the business environment, trends and other factors that have influenced our decision to focus on diseases in these six areas, our strategic objectives for each and our progress towards achieving these objectives. We include information about our marketed medicines and how they are designed to make a meaningful difference for patients, together with an overview of performance during the year. We also report in detail on the potential new products and product life-cycle developments in our pipeline that reflect our commitment to maintaining a flow of innovation that adds value for our shareholders and society.
For a list of all our potential new products and product life-cycle developments see the Development Pipeline table from page 196.
Many of our products are subject to litigation. Detailed information about material legal proceedings can be found in Note 25 to the Financial Statements from page 166. Details of relevant risks are set out in the Principal risks and uncertainties section from page 80.
11
Projects in Phase III
34
Projects in Phase II
44
Projects in Phase I
43
Projects in pre-clinical


(IMAGE)
 
1 Includes Synagis and FluMist which were acquired in June 2007.


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Cardiovascular
In brief
>   Onglyza has been launched in the US, Canada, Mexico, Germany, the UK and Denmark and has been approved in Argentina, Brazil, India and all other EU countries.
 
>   Crestor sales up 29% to $4.5 billion. Crestor approval has broadened to every EU country with launches in Germany and Spain in 2009.
 
>   Crestor was approved in the US for the treatment of paediatric patients from 10 to 17 years of age with heterozygous familial hypercholesterolemia based on the PLUTO study. This study fulfilled our paediatric exclusivity obligations, which resulted in Paediatric Exclusivity being granted in July, which will provide an additional six months of exclusivity to market Crestor in the US.
 
>   Crestor filings were submitted in the US and the EU as well as other markets seeking an outcomes indication and labelling based on the JUPITER study which demonstrated a significant reduction in major cardiovascular (CV) events (44% compared to placebo) in men (over 50) and women (over 60) with elevated high-sensitivity C-reactive protein but low/normal cholesterol levels.
 
>   The parties concluded discovery in the Crestor consolidated ANDA patent litigations filed in the US District Court for the District of Delaware. The actions involve eight generic drug manufacturers challenging the patent covering the active ingredient for Crestor. The Court decided numerous pre-trial motions, including a denial of AstraZeneca’s and the licensor’s (Shionogi) motion for summary judgment in respect of alleged inequitable conduct. The Court amended the pre-trial schedule, re-setting the beginning trial date to 22 February 2010.
 
>   In Canada, previously reported Patented Medicines (Notice of Compliance) Regulations proceedings in respect of Crestor continued and others were commenced in response to Notices of Allegation from further generic manufacturers.
 
>   Atacand sales up 5% to $1.4 billion.
 
>   Toprol-XL US sales up 227% for the full year.
 
>   MAA filed for Brilinta/Brilique (ticagrelor) in October and an NDA in November.
 
>   In December, AstraZeneca and BMS submitted an NDA for the once-daily fixed-dose combination of Onglyza (saxagliptin) and metformin.
 
>   US submission for Certriad, a fixed-dose combination of Crestor (rosuvastatin calcium) and Abbott’s Trilipix (fenofibric acid), for the treatment of mixed dyslipidaemia.
 
>   An NDA for Axanum, a single capsule of Nexium and aspirin, was filed in April.
 
Our marketed products
Crestor1 (rosuvastatin calcium) is a statin for the treatment of dyslipidaemia and hypercholesterolemia, and to slow the progression of atherosclerosis.
 
Atacand2 (candesartan cilexetil) is an angiotensin II antagonist for the 1st line treatment of hypertension and symptomatic heart failure.
 
Seloken/Toprol-XL (metoprolol succinate) is a beta-blocker once-daily tablet for 24-hour control of hypertension and for use in heart failure and angina.
 
Tenormin (atenolol) is a cardioselective beta-blocker for hypertension, angina pectoris and other CV disorders.
 
Zestril3 (lisinopril dihydrate) is an ACE inhibitor used for the treatment of a wide range of CV diseases, including hypertension.
 
Plendil (felodipine) is a calcium antagonist for the treatment of hypertension and angina.
 
Onglyza4 (saxagliptin) is a dipeptidyl peptidase IV inhibitor for the treatment of Type 2 diabetes.
 
1 Licensed from Shionogi & Co. Ltd.
 
2 Licensed from Takeda Chemicals Industries Ltd.
 
3 Licensed from Merck & Co., Inc.
 
4 Co-developed and co-commercialised with Bristol-Myers Squibb Company.
Our strategic objectives
An estimated 17.5 million people died from cardiovascular (CV) disease in 2005, 7.6 million due to heart attacks, despite improvements in the quality of diagnosis and treatment. Direct and indirect costs of treating coronary heart disease were estimated to be 192 billion in Europe in 20081 and $313 billion in the US in 20092.
Backed by over 40 years’ experience, AstraZeneca is a world leader in CV medicines. We aim to build on our strong position, focusing on the growth areas of atherosclerosis (hardening of the arteries), thrombosis (blood clotting), diabetes and atrial fibrillation.
Hypertension, atherosclerosis
and dyslipidaemia
High blood pressure (hypertension) and abnormal levels of blood cholesterol (dyslipidaemia) damage the arterial wall and thereby lead to atherosclerosis. CV events driven by atherosclerotic disease remain the leading cause of death in the western world. Lipid-modifying therapy, primarily statins, is a cornerstone for the treatment of atherosclerosis. Within the lipid-modifying market, generics are taking a significant share of the market and it is anticipated that generic atorvastatin (Lipitor) will be available late in 2011.
Our focus
Our key marketed products
Since its launch in 2003, our statin, Crestor, has continued to gain market share, based on its differentiated profile in managing cholesterol levels and its unique recent label indication for treating atherosclerosis. Crestor approval has broadened to every EU country with launches in Germany and Spain in 2009.
Fewer than half of the people thought to have high levels of low-density lipoprotein cholesterol (LDL-C) ‘bad cholesterol’ get diagnosed and treated and, of those people, only about half reach their physician’s recommended cholesterol target using existing treatments. Crestor is the most effective statin in lowering LDL-C and the majority of patients reach their LDL-C goals using the usual 10mg starting dose. Crestor also produces an increase in high-density lipoprotein cholesterol (HDL-C) ‘good cholesterol’, across a range of doses. At its usual 10mg starting dose, Crestor has been shown, versus placebo, to reduce LDL-C by up to 52% and raise HDL-C by up to 14%, with eight out of 10 patients reaching their lipid goals.
In December, the FDA approved Crestor for use as an adjunct to diet for slowing the progression of atherosclerosis in patients with elevated cholesterol. Crestor is the only statin with an atherosclerosis indication in the US which is not limited by disease severity or restricted to patients with coronary heart disease.
Atacand, first launched in 1997, is approved for the treatment of hypertension in over 100 countries and for symptomatic heart failure in 70 countries. Atacand is an angiotensin II antagonist, and this class of medicine is the fastest-growing segment of the global hypertension market. Atacand Plus (candesartan cilexetil/hydrochlorothiazide) is a fixed-dose combination of Atacand and the diuretic hydrochlorothiazide, indicated for the treatment of hypertension in patients who require more than one hypertensive therapy. Atacand Plus is approved in 88 countries. In 2008, AstraZeneca sought approval in Europe and other markets for two additional dose strengths of Atacand Plus. In 2009, the new strengths of Atacand Plus (32mg/12.5mg and 32mg/25mg) were approved in Canada, Australia, Sweden and nine other markets. Further approvals and launches are anticipated in 2010.
1 European cardiovascular disease statistics, 2008 edition, Steven Allender et al, British Foundation Health Promotion Research Group.
 
2 National Heart, Lung, and Blood Institute. Fact Book, Fiscal Year 2008, hlbi.nih.gov/about/factbook/ FactBookFinal.pdf.


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Our financial performance
                                                                                         
    2009     2008     2007     2009 compared to 2008     2008 compared to 2007   
                    Growth due                     Growth due                                  
            CER     to exchange             CER     to exchange             CER     Reported     CER     Reported   
    Sales     growth     effect     Sales     growth     effect     Sales     growth     growth     growth     growth   
    $m     $m     $m     $m     $m     $m     $m     %     %     %      
   
Seloken/Toprol-XL1
    1,443       677       (41 )     807       (667 )     36       1,438       84       79       (46 )     (44)
   
Crestor
    4,502       1,048       (143 )     3,597       714       87       2,796       29       25       26       29   
   
Atacand
    1,436       67       (102 )     1,471       123       61       1,287       5       (2 )     10       14   
   
Plendil
    241       (20 )     (7 )     268       (18 )     15       271       (7 )     (10 )     (7 )     (1)
   
Tenormin
    296       (15 )     (2 )     313       (17 )     22       308       (5 )     (5 )     (6 )      
   
Zestril
    184       (40 )     (12 )     236       (72 )     13       295       (17 )     (22 )     (24 )     (20)
   
Onglyza
    11       11                                     n/m       n/m       n/m       n/m   
   
Other
    263       9       (17 )     271       (34 )     14       291       3       (3 )     (12 )     (7)
   
Total
    8,376       1,737       (324 )     6,963       29       248       6,686       25       20             4   
   
1Includes sales of the authorised generic of Toprol-XL to Par Pharmaceutical Companies, Inc.

Therapy area world market
(MAT/Q3/09)
(PIE CHART)
         
Market sectors   $bn  
 
A High blood pressure
    51.1  
 
B Abnormal levels of blood cholesterol
    35.4  
 
C Diabetes
    28.5  
 
D Thrombosis
    23.0  
 
E Other
    21.7  
CV is the single largest therapy area in the global healthcare market with a worldwide market value of $160 billion.
CV disease remains the greatest risk to life for adults, accounting for 17 million deaths worldwide each year. In the US, 23 million people suffer from diabetes and two in five people with diabetes still have poor lipid profiles, one in three have poor blood pressure control and one in five have poor glucose control.
160bn
CV is the single largest therapy area
in the global healthcare market.
Worldwide market value of $160 billion
Following an sNDA submission in April 2009, the FDA has approved Atacand for the treatment of hypertension in children one to 17 years of age. This sNDA submission has also resulted in the granting of an additional six-month period of exclusivity to market Atacand in the US.
Clinical studies of our key
marketed products
GALAXY, our long-term global clinical research programme for Crestor, which investigates links between optimal lipid control, atherosclerosis and CV morbidity and mortality, has completed a number of studies involving over 65,000 patients in over 55 countries. Some of the studies undertaken as part of the GALAXY programme are referred to below, namely the JUPITER, PLUTO, AURORA, SATURN and PLANETS I and II studies.
Regulatory submissions for Crestor based on the JUPITER study results, details of which were included in our 2008 Annual Report and Form 20-F Information, are under review in the US and the EU as well as in other markets with approvals in Malaysia and Colombia. The JUPITER study was the subject of an FDA Advisory Committee in December with the Committee voting positively on the benefit/risk profile demonstrated in the study. A decision by the FDA on the submission is expected in the first quarter of 2010.
The PLUTO study evaluated the efficacy and safety of Crestor in patients 10 to 17 years of age with heterozygous familial hypercholesterolemia. Completion of the PLUTO study fulfilled our paediatric exclusivity requirements in the US and resulted in an additional six-month period of exclusivity to market Crestor in the US being granted in July. In October, a successful paediatric registration for Crestor was achieved.
The AURORA study, published in April 2009, evaluated the effects of Crestor 10mg and placebo on survival and major CV events in patients with end-stage renal disease on chronic hemodialysis and demonstrated that Crestor had no positive impact on such patients. The findings of the AURORA study are consistent with other previously published results with other statins and suggest that the CV disease present in chronic hemodialysis patients is different from other clinical settings and is not positively impacted by statin treatment.
Ongoing studies of Crestor include the SATURN study and the PLANETS I and II studies. The SATURN study, which is designed to measure the impact of Crestor 40mg and atorvastatin (Lipitor) 80mg on the progression of atherosclerosis in high-risk patients, is expected to report in 2011. The PLANETS I and II studies, which are designed to compare the efficacy and safety of Crestor 10mg and 40mg to atorvastatin (Lipitor) 80mg in patients with proteinuric renal disease in diabetics and nondiabetics, respectively, are expected to report in the first half of 2010.
In the pipeline
We continue the search for the next major therapy to reduce atherosclerotic risk. In collaboration with Abbott, we are developing an investigational compound, Certriad, a fixed-dose combination of the active ingredients in Crestor (rosuvastatin calcium) and Abbott’s Trilipix (fenofibric acid). An NDA submission in respect of Certriad for the treatment of mixed dyslipidaemia was announced jointly by both companies in June.


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Certriad is a potential new approach to help patients with mixed dyslipidaemia achieve their treatment goals using a single capsule, which targets all three major blood lipids: LDL-C, HDL-C and triglycerides. Study results presented in 2008 showed that this combination provides greater benefit across multiple lipid parameters than the individual monotherapies, with significantly improved HDL-C and triglycerides compared to Crestor therapy alone, and significantly improved LDL-C compared to Trilipix alone.
In 2009, AstraZeneca and the University of Virginia entered into a strategic research collaboration to enhance development of new treatments primarily for coronary artery disease with a secondary focus on peripheral vascular disease. The collaborative pre-clinical research projects will focus on identifying disease mechanisms and biological targets that have the potential to be starting points for successful and commercially viable treatments for these diseases, both major causes of CV morbidity and mortality worldwide.
Diabetes
The number of people affected by Type 2 diabetes continues to grow, predominantly driven by obesity. Type 2 diabetes is a chronic progressive disease and patients often require multiple medications to control their condition. There are a number of established oral generic and branded classes, such as sulfonylureas and thiazolidinediones; however, newer classes such as oral dipeptidyl peptidase IV inhibitors are entering the market successfully by offering effective blood sugar control and improved tolerability. Several new classes of drugs are in development in this area. CV safety has been given particular emphasis in recent regulatory reviews and guidance documents provided by the FDA. Additional patient safety requirements for new medicines can also be anticipated from other regulatory authorities.
Our focus
Our key marketed products
The collaboration on a worldwide basis1 between AstraZeneca and BMS to develop and commercialise two compounds discovered by BMS (Onglyza (saxagliptin) and dapagliflozin) for the treatment of Type 2 diabetes continues to make good progress.
During 2009, Onglyza was launched in the US, Canada, Mexico, Germany, the UK and Denmark and was approved in Argentina, Brazil, India and the EU. A large worldwide study assessing CV events will be conducted as a US post-marketing requirement.
In the pipeline
In December, AstraZeneca and BMS submitted an NDA for the once-daily fixed-dose combination of Onglyza(saxagliptin) and metformin.
Dapagliflozin is a potential oral anti-diabetic, which belongs to the novel class of sodium-glucose co-transporter 2 inhibitors. It is designed to be used both as monotherapy and in combination with other therapies for Type 2 diabetes. Early Phase III data demonstrate that, when compared to a placebo, 24 weeks’ treatment with dapagliflozin improved blood glucose parameters, resulted in weight loss and was well tolerated in patients with Type 2 diabetes. The extensive Phase III programme is ongoing.
Our activities in the glucokinase activator (GKA) area continued during 2009, and Phase II studies for AZD1656 are ongoing. The GKA mechanism of action induces insulin release from the pancreas and reduces glucose output from the liver, with marked blood glucose reducing effects in situations of hyperglycaemia.
During 2009, we also progressed our AZD4017, AZD8329 and AZD7867 projects into early clinical testing. These potential medicines aim to increase insulin sensitivity and thereby induce better glycaemic control with beneficial effects on body weight and blood lipids.
In December, AstraZeneca concluded an agreement with Biovitrum AB (publ) (Biovitrum) for the acquisition of all Biovitrum’s rights to its leptin modulator programme aimed at treating obesity. The leptin modulator programme is currently in pre-clinical development.
Acute coronary syndromes
Acute coronary syndromes (ACS) is an umbrella term for sudden chest pain and other symptoms due to insufficient blood supply (ischaemia) to the heart muscles. ACS is the acute culmination of ischemic heart disease, the leading cause of death worldwide (WHO 2008). There remains a significant need to improve outcomes and reduce the costs of treating ACS.
Our focus
In the pipeline
Brilinta/Brilique (ticagrelor) is the first reversibly binding, oral, adenosine diphosphate receptor antagonist being developed to reduce the risk of blood clots and thrombotic events in patients diagnosed with ACS. In August, AstraZeneca announced results from the Phase III study, PLATO, a head-to-head
18,624 patient outcomes study of ticagrelor plus aspirin versus the active comparator, clopidogrel (Plavix/Iscover), plus aspirin. The PLATO study was designed to establish whether ticagrelor could achieve meaningful CV and safety endpoints in ACS patients. The PLATO study included all the major ACS patient types (unstable angina, ST segment elevation myocardial infarction and non-ST segment elevation myocardial infarction) and followed patients who underwent invasive procedures (eg stent placement or surgery) or were managed with prescription medication.
The data from the PLATO study suggests that ticagrelor has achieved greater efficacy in the primary endpoint, reduction of CV events (CV death, heart attack, stroke), over clopidogrel without an increase in major bleeding. This efficacy endpoint was driven by a statistically significant reduction in both CV deaths and heart attacks with no difference in strokes. Ticagrelor is the first investigational antiplatelet that has demonstrated a reduction in CV death versus clopidogrel in patients with ACS. The reduction in the risk of CV events with ticagrelor occurred early and this benefit increased over time compared to clopidogrel.
The PLATO trial design prospectively identified 66 subgroups. The findings from 62 of the 66 subgroups were consistent with the results of the overall study population. Given the large number of subgroups evaluated, the four inconsistent findings may have been due to chance. One of the four subgroups showed a difference in efficacy results between patients in North America and those enrolled elsewhere. Alongside explanation by the play of chance, this raised questions of whether geographic differences between populations of patients or practice patterns influenced the effects of the randomised treatments. While no definitive explanation has been found to date, further analyses suggest a possible association between aspirin dose and the primary efficacy results, such that reduced efficacy was observed with ticagrelor and increasing aspirin doses. AstraZeneca and the PLATO investigators are continuing to explore these and other hypotheses, as well as other follow-on analyses of the PLATO trial data set, and plan to publish in due course.
AstraZeneca filed an MAA for ticagrelor in October and an NDA in November.
Axanum is a single capsule of aspirin (acetylsalicylic acid (ASA)) (75-325mg) and Nexium. Low-dose ASA (75-325mg) is the mainstay therapy for patients who are at high
1 The collaboration for saxagliptin excludes Japan.


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risk of having a CV event such as a heart attack or stroke. Patients report that low-dose ASA treatment can cause gastrointestinal (GI) problems and up to 30% of patients with upper GI problems (ie complications and symptoms) caused by the use of low-dose ASA discontinue or take deliberate breaks from their low-dose ASA treatment due to GI problems, which leaves them without adequate CV protection and puts them at greater risk of having a CV event. The risk of a CV event increases as early as 10 days from the discontinuation of the treatment.
An NDA in respect of Axanum was submitted to the FDA in April 2009 for risk reduction of peptic ulcers associated with low-dose ASA (75-325mg) therapy in patients at risk. The proposed labelling also includes the approved low-dose ASA indications. The submission was based on the results of the OBERON and ASTERIX studies evaluating the safety and efficacy of Nexium in reducing the risk of gastric and/or duodenal ulcers in patients taking low-dose ASA (75-325mg) continuously during the studies, which is defined as at least five days per week.
The data from the recent OBERON study, a double-blind, randomised, prospective analysis of 2,426 patients taking low-dose ASA (75-325mg), revealed that each of Nexium 20mg and 40mg reduced the cumulative proportion of patients with peptic ulcers after 26 weeks of treatment by 80-85% compared to placebo. Upper GI symptoms were assessed showing that the proportion of patients treated with Nexium with upper GI symptoms was significantly lower than in the placebo arm.
The ASTERIX study was a randomised, double-blind, placebo-controlled, study in 991 patients. Patients were randomised to treatment with either once-daily Nexium 20mg or placebo for six months while continuing to take their low-dose ASA therapy. After six months, Nexium was shown to reduce the risk of developing an ulcer by 70%.
Atrial fibrillation
Atrial fibrillation (AF) is the most common cardiac arrhythmia. Rhythm-control therapy to control the symptoms of AF is dominated by generic amiodarone, which is effective at maintaining patients in normal heart rhythm but very poorly tolerated. AF is associated with an increased risk of cerebral embolism resulting in stroke and disability. To reduce the risk of such AF-related complications, anti-coagulation with vitamin K antagonists can be used. New anti-coagulation therapies with improved convenience are emerging.
Our focus
In the pipeline
For the control of heart rhythm in AF, our focus is on atrial-specific agents as a way to reduce the risk of pro-arrhythmic effects. Our first compound in this area is in pre-clinical development. During 2009, the development of AZD1305, a combined ion-channel blocker which was in Phase II concept testing, was discontinued due to an emerging unfavourable benefit/risk profile.
Our oral, direct thrombin inhibitor (AZD0837) is ready to be taken into Phase III testing for the prevention of strokes and other embolic events in AF patients, using a once-daily extended release formulation that provides a sustained anti-coagulation effect throughout the dosing interval. AstraZeneca is considering the potential for AZD0837 in a number of indications as well as evaluating potential collaborations with third parties for its future development.
Litigation
Detailed information about material legal proceedings relating to our CV products can be found in Note 25 to the Financial Statements from page 166.
Financial performance 2009/2008
Performance 2009
Reported performance
CV sales were up 20% as reported to $8,376 million (2008: $6,963 million). Strong growth from Crestor, driven by the promotion of the atherosclerosis indication, and substantially increased sales of Toprol-XL and the authorised generic version of the drug in the US were the major contributors to growth in CV sales.
Performance – CER growth rates
CV sales were up 25% from 2008 at CER.
Crestor sales increased by 29% to $4,502 million. US sales for Crestor for the full year increased by 25% to $2,100 million. The total prescription share of Crestor in the US statin market increased to 11.3% in December 2009 from 9.9% in December 2008, and it was the only branded statin to gain market share. Crestor sales outside the US were up 33% for the full year to $2,402 million, over half of global sales for the product. Sales of Crestor were up 24% in our Western Europe markets to $968 million and 58% in Japan, driving sales growth in Other Established Markets and Canada up 33% in total. Sales of Crestor in Emerging Markets increased by 32%.
Sales of Seloken/Toprol-XL and its authorised generic increased by 84% to $1,443 million in 2009, as a result of increased sales of Toprol-XL and its authorised generic in the US. Sales in the US increased by 227% to $964 million following the withdrawal from the market of two other generic metoprolol succinate products in early 2009. However, we expect further generic competition in 2010.
Sales of Atacand in the US for the full year were unchanged from 2008 at $263 million, and account for 18% of global Atacand sales. Atacand sales outside the US were up 5% to $1,173 million, with a 3% increase in Other Established Markets and Canada and a 13% increase in Emerging Markets.
Alliance revenue from the Onglyzacollaboration with BMS totalled $11 million in 2009.
Performance 2008
Reported performance
CV sales were up 4% as reported to $6,963 million (2007: $6,686 million). Strong growth from Crestor, fuelled by the promotion of the atherosclerosis indication, and increased sales of Atacand offset the continuing significant declines in Seloken/Toprol-XL.
Performance – CER growth rates
CV sales were unchanged from 2007 at CER. Crestor sales increased by 26% to $3,597 million. US sales for Crestor for the full year increased by 18% to $1,678 million. Crestor total prescription share in the US statin market increased to 9.9% in December 2008 from 8.6% in December 2007, and was the only branded statin to gain market share. Crestor sales outside the US were up 34% for the full year to $1,919 million, over half of global sales for the product. Sales of Crestor were up 16% in our Western Europe markets to $836 million and 93% in Japan. Sales of Crestor in Emerging Markets increased by 41%.
Sales of Toprol-XL and authorised generic sales of the drug in the US were down 70% for the full year to $295 million. For the full year, Seloken sales outside the US were up 1% to $512 million.
US sales for Atacand for the full year increased 1% to $262 million. Atacand sales outside the US were up 12% to $1,209 million, a 10% increase in Other Established Markets and Canada, and an 18% increase in Emerging Markets.


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Gastrointestinal
In brief
>   Sales of Nexium $5 billion, down 1%.
 
>   Nexium oral and intravenous was approved in the EU and other markets for the short-term maintenance of haemostasis and prevention of re-bleeding in patients following therapeutic endoscopy for acute bleeding gastric or duodenal ulcers.
 
>   An sNDA for Nexium was submitted for risk reduction of peptic ulcers associated with low-dose acetylsalicylic acid therapy in patients at risk.
 
>   Losec/Prilosec sales $946 million, declining in the EU and the US due to continuing generic erosion. Overall sales down 10%; Japan sales increased 8%; China sales increased 21%.
 
>   A Danish court issued an injunction against sales of generic esomeprazole magnesium by Sandoz A/S (Sandoz). The injunction prohibits Sandoz from selling, offering for sale or marketing the pharmaceutical products ‘Esomeprazole Sandoz’ and other pharmaceutical products containing esomeprazole magnesium with an optical purity of equal or greater to 99.8% enantionmeric excess in Denmark.
 
>   AstraZeneca filed applications in Austria seeking interlocutory injunctions to restrain Hexal Pharma GmbH and 1A Pharma GmbH, both companies in the Sandoz group, from marketing products containing generic esomeprazole magnesium in Austria.
 
>   AstraZeneca initiated legal proceedings in Portugal to suspend approvals for Sandoz’s generic esomeprazole. In October the court granted AstraZeneca a preliminary injunction against Sandoz, suspending the efficacy of the marketing and price approvals for Sandoz’s generic esomeprazole. The decision has been appealed by the Portuguese authorities.
 
>   In January 2010, AstraZeneca settled US Nexium patent litigation against Teva Pharmaceuticals Ltd (Teva Pharma) and affiliates. AstraZeneca has granted Teva Pharma a licence to enter the US market with its generic esomeprazole, subject to regulatory approval, on 27 May 2014, or earlier in certain circumstances. Teva Pharma conceded validity/enforceability of all patents in Teva Pharma’s US Nexium patent litigations and that Teva Pharma’s proposed generic esomeprazole would infringe six US Nexium patents.
 
>   Patent litigation continuing in the US against other generic manufacturers following an ANDA relating to Nexium.
 
>   In Canada, Patented Medicines (Notice of Compliance) Regulations proceedings involving Apotex relating to Nexium continued. A hearing is scheduled to commence on 31 May 2010.
 
Our marketed products
Nexium (esomeprazole) is the first proton pump inhibitor (PPI) for the treatment of acid-related diseases to offer clinical improvements over other PPIs and other treatments.
 
Losec/Prilosec (omeprazole) is used for the short-term and long-term treatment of acid-related diseases.
 
Entocort (budesonide) is a locally acting corticosteroid for the treatment of inflammatory bowel disease.
 
Our strategic objectives
We aim to maintain our strong position in gastrointestinal (GI) treatments by continuing to focus on PPIs. New Nexium line extensions include prevention of re-bleeding in patients with peptic ulcer bleeding and prevention of low-dose aspirin associated peptic ulcers. Our R&D is focused on finding new, innovative ways for treating acid-related disease.
Our focus
Our key marketed products
Nexium is marketed in approximately 100 countries and is available in oral (tablet/ capsules and oral suspension) and intravenous (i.v.) dosage forms for the treatment of acid-related diseases. Nexium is an effective short-term and long-term therapy for patients with gastro-oesophageal reflux disease (GERD). Nexium is also approved for the treatment of GERD in children one to 17 years of age. For the treatment of active peptic ulcer disease, seven-day Nexium triple therapy (in combination with two antibiotics for the eradication of H.pylori) heals most patients without the need for follow-up anti-secretory therapy. In Europe and other markets, Nexium is approved for the healing and prevention of ulcers associated with NSAID therapy, including cyclooxygenase 2 selective inhibitors. In the US, Nexium is approved for reducing the risk of gastric ulcers associated with continuous NSAID therapy in patients at risk of developing gastric ulcers. Nexium is also approved in the US, the EU, Canada and Australia for the treatment of patients with the rare gastric disorder, Zollinger-Ellison syndrome. Following treatment with Nexium i.v., oral Nexium is approved in the EU and other markets for the maintenance of haemostasis and prevention of re-bleeding of gastric or duodenal ulcers.
Nexium i.v., which is used when oral administration is not suitable for the treatment of GERD and upper GI side effects induced by NSAIDs, is approved in 86 countries including the US and all EU countries. Nexium i.v. is also approved in the EU and other markets for the short-term maintenance of haemostasis and prevention of re-bleeding in patients following therapeutic endoscopy for acute bleeding gastric or duodenal ulcers.
Losec/Prilosec was first launched in 1988 and is approved for the treatment of GERD. We continue to maintain certain patent property covering Losec/Prilosec.
Losec/Prilosec is available both as a prescription-only medication and, in some countries, as an OTC medication where it offers consumers a more effective self-medication option for the treatment of heartburn compared to antacids and H2 receptor antagonists. In 2009, an agreement to license rights for Losec for OTC use to Bayer Consumer Care AG was announced. This agreement will extend the number of markets in which Losec is available as an OTC product.
In November, the FDA issued a Public Health Advisory to consumers and Information for Healthcare Professionals about the label update to Plavix (clopidogrel) about interactions with Prilosec and Prilosec OTC and potentially with other medicines that inhibit the CYP2C19 enzyme, including Nexium. AstraZeneca has full confidence in the overall benefit/risk and safety profile of Losec/Prilosec and Nexium. We will continue to evaluate thoroughly the safety and effectiveness of Losec/Prilosec and Nexium in accordance with AstraZeneca’s procedures. AstraZeneca is involved in ongoing dialogue with the FDA, the EMEA and the CHMP about any pharmacological interaction and its clinical relevance.
Entocort is approved for the treatment of two types of inflammatory bowel disease. Entocort capsules are approved for use both as an acute treatment of and for maintenance of remission for mild to moderate Crohn’s disease. Entocort enema is approved in some markets for the treatment of ulcerative colitis. Entocort has better tolerability compared to other corticosteroids in the treatment of both conditions. In Crohn’s disease, Entocort also has greater efficacy than aminosalicylic acid medicines.
Clinical studies of key marketed products
Data from the LOTUS study (a multinational, randomised study of 554 patients) in which Nexium was compared to surgery for the management of GERD has now reported five years of follow-up. The results show that both therapies are very effective, with proportions of patients still in remission above 90% and with both therapies being well tolerated. The paediatric GERD programme in the youngest age group of zero to one year of age has been completed and submissions to regulatory authorities have commenced.


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Our financial performance
                                                                                         
    2009     2008     2007     2009 compared to 2008     2008 compared to 2007   
                    Growth due                     Growth due                                  
            CER     to exchange             CER     to exchange             CER     Reported     CER     Reported   
    Sales     growth     effect     Sales     growth     effect     Sales     growth     growth     growth     growth   
    $m     $m     $m     $m     $m     $m     $m     %     %     %      
   
Nexium
    4,959       (73 )     (168 )     5,200       (121 )     105       5,216       (1 )     (5 )     (2 )     –   
   
Losec/Prilosec
    946       (105 )     (4 )     1,055       (156 )     68       1,143       (10 )     (10 )     (14 )     (8)
   
Other
    106       21       (4 )     89       2       3       84       24       19       2        
   
Total
    6,011       (157 )     (176 )     6,344       (275 )     176       6,443       (2 )     (5 )     (4 )     (2)
   

Therapy area world market
(MAT/Q3/09)
(PIE CHART)
         
Market sectors   $bn  
 
A PPI
    26.0  
 
B Other
    13.0  
The GI world market is valued at $39 billion, with the PPI market accounting for $26 billion.
In the West (ie Europe and North America) between 10-20% of adults suffer from GERD. The prevalence of GERD in Asia is lower, but increasing. Despite effective PPI treatments, around 40% of patients do not achieve full relief from symptoms.
39bn
The GI world market is valued at $39 billion, with the proton pump inhibitor market accounting for $26 billion
AstraZeneca conducted two studies, OBERON and ASTERIX, to evaluate the safety and efficacy of Nexium in the prevention of gastric and/or duodenal ulcers in patients who take low-dose aspirin (acetylsalicylic acid (ASA)) (75-325mg) continuously during the studies, which is defined as at least five days per week. The results of these studies are described in more detail in the Cardiovascular section from page 56. In April 2009, AstraZeneca submitted an sNDA for the low-dose ASA (75-325mg) indication for Nexium and an NDA for the new product Axanum based upon the findings in these studies.
In the pipeline
Our research activities focus on reflux inhibitors and hypersensitivity therapy. Our lead compound, lesogaberan (AZD3355), is undergoing clinical studies in Phase II. Follow-up compounds are in different stages up to Phase II testing.
Litigation
Detailed information about material legal proceedings relating to our GI products can be found in Note 25 to the Financial Statements from page 166.
Financial performance 2009/2008
Performance 2009
Reported performance
GI sales for 2009 were down 5% on a reported basis to $6,011 million from $6,344 million in 2008.
Performance – CER growth rates
GI sales fell by 2% at CER.
Global Nexium sales were down 1% to $4,959 million from $5,200 million the previous year. The decline was driven by the decrease in the US of 9% to $2,835 million, however this was largely mitigated by sales outside the US increasing by 9% to $2,124 million. In the US, dispensed retail tablet volumes decreased by less than 1% despite increased generic and OTC competition. In respect of Nexium, there was growth in Canada (11%), Western Europe (7%) and Emerging Markets (15%).
For the full year, sales of Losec/Prilosec fell 10% to $946 million. Prilosec sales in the US were down 63% as a result of continued generic erosion. Outside the US, Losec sales were flat, despite increases in China (21%) and Japan (8%).
Performance 2008
Reported performance
GI sales for 2008 were down 2% on a reported basis to $6,344 million from $6,443 million in 2007.
Performance – CER growth rates
GI sales fell by 4% at CER. Growth in Canada (9%), Japan (5%) and Emerging Markets (20%) more than offset the 5% decline in sales in our Western Europe markets.
Nexium sales were down 2%, excluding the effects of exchange, to $5,200 million from $5,216 million the previous year. The decline was driven by the decrease in the US of 8% to $3,101 million, however, this was largely mitigated by sales outside the US increasing by 9% to $2,099 million. In the US, dispensed retail tablet volumes increased (2%) and Nexium was the only major PPI brand to do so in 2008.
For the full year, sales of Losec/Prilosec fell 14% to $1,055 million. Prilosec sales in the US were down 25% as a result of generic competition for the 40mg dosage form in the second half of the year. Outside the US, Losec sales declined by 11%, despite increases in China (19%) and Japan (5%).


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Infection
In brief
>   Synagis sales of $1.1 billion; in the US $782 million.
 
>   Merrem/Meronem sales of $872 million, up 5%.
 
>   H1N1 influenza (swine flu) vaccine successfully developed and delivered to the US Department of Health and Human Services (HHS) (sales $389 million).
 
>   FluMist sales of $145 million.
 
>   Filed formal regulatory reply to the motavizumab Complete Response Letter.
 
>   In-licence of ceftaroline from Forest outside the US, Canada and Japan.
 
>   Acquired the infection research company Novexel (completion of the acquisition is subject to the expiry or termination of the applicable waiting period under the US Hart-Scott-Rodino Antitrust Improvements Act).
 
>   Expanded collaboration with Forest to include two antibiotic development programmes: ceftazidime/NXL-104 (CAZ104) and ceftaroline/ NXL-104 (CEF104).
 
Our marketed products
Synagis (palivizumab) is a humanised MAb used for the prevention of serious lower respiratory tract disease caused by respiratory syncytial virus (RSV) in paediatric patients at high risk of acquiring RSV disease.
 
Merrem/Meronem1 (meropenem) is a carbapenem anti-bacterial used for the treatment of serious infections in hospitalised patients.
 
FluMist (influenza virus vaccine live, intranasal) is a live, attenuated, trivalent influenza virus vaccine approved for active immunisation of people two to 49 years of age against influenza disease caused by influenza virus subtypes A and B contained in the vaccine.
 
H1N1 influenza (swine flu) vaccine was successfully developed and delivered to the HHS and is indicated for the active immunisation of individuals two to 49 years of age against influenza caused by pandemic H1N1 virus.
 
Cubicin™2 (daptomycin) is a cyclic lipopeptide anti-bacterial used for the treatment of serious infections in hospitalised patients.
 
1 Licensed from Dainippon Sumitomo Pharma Co., Ltd.
 
2 Licensed from Cubist Pharmaceuticals, Inc.
Our strategic objectives
We aim to build a leading franchise in the treatment of infectious diseases through continued commercialisation of brands such as Synagis, Merrem and FluMist, effective use of our structural and genomic-based discovery technologies and antibody platforms, and continued research into novel approaches in areas of unmet medical need.
Resistant bacterial infections
World demand for antibiotics remains high due to escalating resistance and the increased risk of serious infections in both immunosuppressed patients and ageing populations. Many bacterial infections currently have few satisfactory treatment options prompting demand for new and better therapies. The in-licensing from Forest of ceftaroline, ceftazidime/NXL-104 (CAZ104) and ceftaroline/NXL-104 (CEF104) adds to the strong AstraZeneca portfolio and reinforces our commitment to treating resistant bacterial infections.
Our focus
Our key marketed products
Merrem/Meronem is the leading carbapenem anti-bacterial and has a growing share of the intravenous antibiotic market because of its activity against bacteria resistant to many other agents. Cubicin is used for the treatment of serious Gram-positive infections in hospitalised patients and is sold by AstraZeneca in selected territories in Asia and the Middle East.
In the pipeline
During 2009, we licensed ceftaroline from Forest and will be responsible for its registration and marketing outside the US, Canada and Japan. Four Phase III studies have been completed for ceftaroline, with NDA filings made in December and MAA filings anticipated in 2010. Ceftaroline has demonstrated activity against a number of infections and multi-drug resistant pathogens, including MRSA.
In December we acquired Novexel (completion of the acquisition is subject to the expiry or termination of the applicable waiting period under the US Hart-Scott-Rodino Antitrust Improvements Act), a private infection research company in France, and we will collaborate with Forest on the future co-development and commercialisation of two antibiotic development programmes, CAZ104 and CEF104. CAZ104 is a combination of NXL-104 and ceftazidime, a third generation cephalosporin to which resistance has emerged. It is expected to move into Phase III development in late 2010 for serious infections requiring intensive care unit stays such as
intra-abdominal, urinary tract and hospital acquired pneumonia. CEF104 is a combination of NXL-104 and ceftaroline, which is expected to move into Phase II development in late 2010 in indications where a mixed Gram-negative and Gram-positive profile can be of use, such as skin and diabetic foot infections.
To meet the high and growing need for new and better therapies for resistant bacterial infections we have also built an anti-bacterials discovery capability that places AstraZeneca among the industry leaders with the capability to create novel mechanism anti-bacterials. Out of this work, a candidate anti-bacterial drug, AZD9742, with a novel mechanism of action entered Phase I testing late in 2009.
Respiratory syncytial virus
Approximately half of all infants are infected with respiratory syncytial virus (RSV) during the first year of life and nearly all children in the US have been infected by the time they reach their second birthday. Unlike other viral infections, there is no complete and durable immunity created by RSV, so repeated infection is likely and common. Premature babies (earlier than 36 weeks gestational age, especially those less than 32 weeks) and babies with chronic lung disease or congenital heart disease are at an even greater risk of contracting severe RSV disease than full-term babies.
Our focus
Our key marketed products
Synagis is used for the prevention of serious lower respiratory tract disease caused by RSV in children at high risk of the disease. It was the first MAb approved in the US for an infectious disease and since its launch in 1998 it has become the standard of care for RSV prevention. Synagis remains the only immunoprophylaxis in the marketplace indicated for the prevention of RSV in paediatric patients at high risk of RSV. Synagis is administered by intra-muscular injection.
In the pipeline
We filed a biological licence application with the FDA for an improved anti-RSV MAb, motavizumab, and received a Complete Response Letter in 2008. We filed a formal regulatory reply to the Complete Response Letter in December 2009. We do not believe that further clinical studies will be required by the FDA for marketing approval.
In addition, an intranasal vaccine is being developed for the prevention of lower respiratory tract illness caused by RSV and parainfluenza virus-3 (PIV3) in infants. There are two RSV vaccine programmes: MEDI-559 and MEDI-534. We are conducting several


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Our financial performance
                                                                                         
    2009     2008     2007     2009 compared to 2008     2008 compared to 2007   
                    Growth due                     Growth due                                   
            CER     to exchange             CER     to exchange             CER     Reported     CER     Reported   
    Sales     growth     effect     Sales     growth     effect     Sales     growth     growth     growth     growth   
    $m     $m     $m     $m     $m     $m     $m     %     %     %      
   
Merrem
    872       44       (69 )     897       97       27       773       5       (3 )     13       16   
   
Synagis1
    1,082       (148 )           1,230       612             618       (12 )     (12 )     n/m       n/m   
   
FluMist1
    145       41             104       51             53       39       39       n/m       n/m   
   
H1N1 influenza vaccine
    389       389                                     n/m       n/m       n/m       n/m   
   
Other
    143       (69 )     (8 )     220       (54 )     4       270       (31 )     (35 )     (20 )     (19)
   
Total
    2,631       257       (77 )     2,451       706       31       1,714       10       7       41       43   
    
1 Acquired in June 2007.

Therapy area world market
(MAT/Q3/09)
(PIE CHART)
         
Market sectors   $bn  
 
A Anti-bacterials
    35.2  
 
B Anti-virals
    22.1  
 
C Others
    20.6  
The world infection market is valued at $78 billion, with anti-bacterials accounting for approximately 45% and anti-virals for 28%.
World demand for antibiotics remains high, due to escalating resistance and the increased risk of serious infections in both immunosuppressed patients and ageing populations. Approximately half of all infants are infected with RSV during the first year of life. Seasonal influenza results in three to five million cases of severe illness and up to a half a million deaths globally each year.
78bn
The world infection market is valued at $78 billion, with anti-bacterials accounting for approximately 45% and anti-virals for 28%
Phase I and Phase I/II studies for these vaccines, both alone and in collaboration with the US National Institute of Allergy and Infectious Diseases.
Influenza virus
Influenza is the most common vaccine-preventable disease in the developed world. According to WHO estimates, seasonal influenza results in three to five million cases of severe illness and up to half a million deaths globally each year, primarily among the elderly. Rates of infection are highest among children, with school-aged children significantly contributing to the spread of the disease. Influenza also has socio-economic consequences related to both direct and indirect healthcare costs, including hospitalisations, work absence and loss of work productivity when either a caregiver or child is sick with influenza.
Our focus
Our key marketed products
FluMist is the first live, attenuated nasally delivered vaccine approved in the US for the prevention of disease caused by influenza virus subtypes A and B in eligible children and adults, two to 49 years of age. Beginning in the 2009/2010 season, the Centers for Disease Control and Prevention’s Advisory Committee on Immunization Practices in the US voted to expand recommendations for routine seasonal influenza vaccination to include all school-age children up to 18 years of age. In 2009, FluMist was approved for marketing in South Korea, Hong Kong and Israel. Applications are under review in Canada, Mexico and the EU. The total product supply of approximately 10 million seasonal FluMist doses sold out in 2009.
In response to the novel H1N1 influenza (swine flu) pandemic need in 2009, the US Department of Health and Human Services (HHS) awarded AstraZeneca a contract to develop and manufacture 42 million doses of influenza A (H1N1) 2009 monovalent vaccine. The total contract value is approximately $389 million. The monovalent H1N1 influenza
vaccine, which is made using the same technology and process as FluMist, was approved by the FDA in September for the same patient population as FluMist. AstraZeneca began shipping product to the HHS in September.
In the pipeline
We continually strive to seek ways to improve our influenza vaccine. Each year we conduct clinical studies enabling us to develop and release a new vaccine for that year’s influenza virus. In addition, we are investigating the potential of a quadravalent live attenuated influenza vaccine and have two studies for this underway.
Hepatitis C virus
Hepatitis C virus (HCV) infects an estimated 170 million people worldwide and the current market for HCV therapy exceeds $2 billion annually. However, therapy for the strains that predominate in the US and Western Europe requires 12 months’ treatment and produces a durable cure in only 50% of patients. Key opinion leaders expect the current standard of treatment (interferon plus ribavirin) to change to a form of combination therapy involving one or more new mechanism of action direct-acting anti-virals and there are several small and large pharmaceutical companies with varying HCV pipelines focused on such therapies. A future paradigm of combinations of anti-virals as standard care offers the opportunity for several new therapies to be widely used.
Our focus
In the pipeline
Projects in development include AZD7295, a novel HCV compound, currently in Phase II.
Sepsis
Sepsis is a life-threatening condition resulting from uncontrolled severe infections, which affects an estimated three million people a year worldwide. Few industry pipelines are focused on the development of products specifically for registration for the treatment of sepsis or septic shock.


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Our focus
In the pipeline
The development programme for CytoFab, an anti-TNFα polyclonal antibody, our potential treatment for severe sepsis licensed from Protherics Inc. (now part of the BTG plc group), continues in Phase II development. CytoFab has the potential to be one of a limited number of medicines specifically developed for patients with severe sepsis.
Tuberculosis
Tuberculosis (TB) remains a worldwide threat and is newly diagnosed in over eight million people worldwide every year. It is one of the greatest causes of death from infectious disease in the developing world.
Our focus
As part of our commitment to make a contribution to improving health in the developing world, we are working to find a new, improved treatment for TB. We have a dedicated research facility in Bangalore, India that is focused on finding a treatment for TB that will act on drug-resistant strains, simplify the treatment regime (current regimes are complex and lengthy, meaning many patients give up before the infection is fully treated) and will be compatible with HIV/AIDS therapies (TB and HIV/AIDS form a lethal combination, each speeding the other’s progress). Over 80 scientists in Bangalore are working closely with our infection research centre in Boston, US as well as with academic leaders in the field, and they have full access to all AstraZeneca’s platform technologies, such as ‘high throughput screening’ and compound libraries. It is a complex area of research but a candidate drug, AZD5847, entered Phase I studies late in 2009.
Litigation
Detailed information about material legal proceedings relating to our Infection products can be found in Note 25 to the Financial Statements from page 166.
Financial performance 2009/2008
Performance 2009
Reported performance
Total Infection sales increased on a reported basis by 7% to $2,631 million. H1N1 influenza vaccine sales were $389 million.
Performance – CER growth rates
Infection sales were up 10% at CER. This was driven by sales of $389 million for the H1N1 influenza vaccine to the US government and continued growth in Merrem/Meronem (5%) and FluMist (39%), which more than offset the 12% decline in Synagis sales.
Worldwide sales of Synagis in the fourth quarter were $401 million, a 21% decrease from the same period in 2008, driven by a decrease of 31% of US Synagis sales for the fourth quarter. This decline in the US is a result of the adoption of new guidelines published by the American Academy of Pediatrics restricting the usage of Synagis at the start of the 2009/2010 RSV season.
FluMist sales were $145 million for the full year.
Performance 2008
Reported performance
Total Infection sales increased on a reported basis by 43% to $2,451 million as a full year of Synagis and FluMist sales were taken in the Group for the first time, and Merrem/Meronem sales enjoyed another year of good growth.
Performance – CER growth rates
Infection sales were up 41% at CER.
For the full year, Synagis sales were $1,230 million. Synagis sales in 2007 were $618 million, but this only reflected sales since the acquisition of MedImmune in June 2007. Worldwide sales of Synagis in the fourth quarter were $506 million, a 5% increase over the same period in 2007 when the product was included in sales.
FluMist sales were $104 million for the full year. In contrast to 2008, all of 2007’s FluMist sales of $53 million were realised in the fourth quarter as a result of the timing of regulatory approvals for the new formulation and expanded label.


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Neuroscience
In brief
>   Total Seroquel sales up 12% to $4.9 billion.
 
>   Seroquel has been granted Paediatric Exclusivity in the US as a result of studies conducted in children and adolescents, which will provide an additional six months of exclusivity to market Seroquel in the US.
 
>   In December, the FDA approved Seroquel XR as an adjunctive treatment to anti-depressants in adults with major depressive disorder (MDD). AstraZeneca also received a Complete Response Letter for its Seroquel XR submission for MDD as acute and maintenance monotherapy in adults and for acute therapy in the elderly.
 
>   In September, Seroquel XR and Seroquel were approved under the European Mutual Recognition Procedure for the prevention of recurrence in bipolar disorder.
 
>   In December, the FDA approved Seroquel for the treatment of schizophrenia in adolescents 13 to 17 years of age as monotherapy, and for the acute treatment of manic episodes associated with bipolar I disorder in children and adolescents 10 to 17 years of age, both as monotherapy and as an adjunct to lithium or divalproex.
 
>   The EU submission for Seroquel XR for the treatment of MDD received a negative opinion in May but has been referred to the CHMP and the outcome is anticipated in the first quarter of 2010.
 
>   Seroquel XR submissions for generalised anxiety disorder (GAD) received a Complete Response Letter from the FDA in February 2009 (adult population) and in September (elderly population).
 
>   Global development and licence agreement with Targacept for Targacept’s late-stage compound TC-5214.
 
>   In-licence of NKTR-118 and NKTR-119 from Nektar.
 
>   AstraZeneca established several neuroscience research collaborations in 2009, amongst which is a collaboration with Jubilant in the areas of chemical lead generation and lead optimisation to support our efforts in analgesia and neurology.
 
>   The US Court of Appeals affirmed a Summary Judgment Motion granted to AstraZeneca in the patent infringement actions commenced against two generic drug manufacturers in the US following the filing of ANDAs relating to Seroquel.
 
>   Three consolidated ANDA patent infringement lawsuits, previously filed in the US against Handa, Accord and Biovail, proceed in discovery. The three ANDAs seek approval to market generic copies of Seroquel XR before the expiry of its patents.
 
>   Personal injury actions in the US and Canada involving Seroquel are being defended vigorously, with successful results to date in the US.
 
>   Agreement in principle reached 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). Final settlement is subject to negotiation of a civil settlement agreement and a corporate integrity agreement. Other litigation and government investigations regarding sales and marketing practices are being defended vigorously.
 
Our marketed products
Seroquel (quetiapine fumarate) is an atypical anti-psychotic drug approved for the treatment of schizophrenia and bipolar disorder (mania, depression and maintenance). Seroquel XR (an extended release formulation of quetiapine fumarate) is generally approved for the treatment of schizophrenia, bipolar disorder and in some territories for MDD and GAD. Approved use for Seroquel and Seroquel XR varies based on territory.
 
Zomig (zolmitriptan) is used for the treatment of migraines with or without aura.
 
Diprivan (propofol) is an intravenous general anaesthetic used in the induction and maintenance of anaesthesia, light sedation for diagnostic procedures and for intensive care sedation.
 
Naropin (ropivacaine) is a long-acting local anaesthetic, replacing the previous standard treatment of bupivacaine.
 
Xylocaine (lidocaine) is a widely used short-acting local anaesthetic.
 
EMLA (lidocaine + prilocaine) is a local anaesthetic for topical application.
 
Our strategic objectives
Disorders of the central nervous system (CNS) represent the number one disease burden today in high-income countries1. In many other world regions, including Asia, the prevalence of CNS disorders is expected to grow substantially2 as the standard of living increases. We aim to strengthen our position in neuroscience through further growth of Seroquel and Seroquel XR and by the successful introduction of a range of new medicines aimed at significant medical need in psychiatry, analgesia (pain control) and cognition, including Alzheimer’s disease and attention deficit hyperactivity disorder.
Psychiatry
Most branded schizophrenia products will face generic competition in the period 2012 to 2015, with major current atypical anti-psychotic patents expiring by 2018. Future demand will be for products with significantly improved efficacy and tolerability. The depression and anxiety markets are currently dominated by generic selective serotonin re-uptake inhibitors and serotonin norepinephrine re-uptake inhibitors. As growth in the US slows, the Japanese and other Asian markets continue to expand due to increased diagnosis and use of pharmacological treatments in response to both targeted government programmes and wider acceptance of pharmacological treatments. Generic growth is anticipated over the next five years as patents expire, which will make market entry for new innovative products more difficult in the medium and longer term.
It will be increasingly important to develop new medicines addressing the needs of specific patient segments, and to work closely with the specialists in the medical community and the public health sector to address the growing burden of psychiatric disease on society.
Our focus
Our key marketed products
Seroquel is a leading atypical anti-psychotic treatment for schizophrenia and bipolar disorder. Seroquel remains the most commonly prescribed atypical anti-psychotic treatment in the US, where it is the only atypical anti-psychotic approved as monotherapy treatment for both bipolar depression and bipolar mania as well as the leading atypical brand globally by sales value.
First launched in 1997, Seroquel is now approved in 94 countries. Seroquel XR, an extended release formulation that offers patients and doctors a once-daily treatment, was launched in the US for the treatment of schizophrenia in 2007 and is now approved in 63 countries for schizophrenia, 38 countries for bipolar mania, 37 countries for bipolar depression and eight countries, including the US, for bipolar maintenance, in three markets for major depressive disorder (MDD), and in one market for generalised anxiety disorder (GAD).
In January 2009, the FDA granted a six-month Paediatric Exclusivity to Seroquel for its licensed indications, based on studies that we conducted in adolescents with schizophrenia, and in children and adolescents with bipolar mania. The six-month Paediatric Exclusivity will extend the exclusivity to market Seroquel in the US to March 2012.
In September, Seroquel and Seroquel XR were approved in the EU for the prevention of recurrence of bipolar disorder in patients whose manic, mixed or depressive episode has responded to treatment with Seroquel or Seroquel XR. Following this new indication, Seroquel and Seroquel XR are the only agents approved in the EU to treat all phases of bipolar disorder, acute depressive episodes, acute manic episodes and maintenance treatment to prevent recurrence of any mood event in bipolar disorder.
In 2008, regulatory submissions were made for the use of Seroquel XR in MDD and GAD. In December 2008, the FDA approved Seroquel XR as an adjunctive treatment to anti-depressants in adults with MDD. The FDA also issued Complete Response Letters in December 2009 for the monotherapy submissions as acute and maintenance therapy in adults and acute therapy in the elderly. The MDD application in the EU was rejected in May and AstraZeneca has now
1 WHO ranking 2008, disease burden measured by disability adjusted life years.
 
2 Brookmeyer R et al, Alzheimer’s & Dementia 2007; Arthritis Foundation, American Chronic Pain Foundation, Reforming Chinese Healthcare through Public-Private Partnership, Swiss Re May 2007.


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Our financial performance
                                                                                         
    2009     2008     2007     2009 compared to 2008            2008 compared to 2007
 
                    Growth due                     Growth due                                  
            CER     to exchange             CER     to exchange             CER     Reported     CER     Reported  
    Sales     growth     effect     Sales     growth     effect     Sales     growth     growth     growth     growth  
    $m     $m     $m     $m     $m     $m     $m     %     %     %     %  
 
Seroquel
    4,866       521       (107 )     4,452       346       79       4,027       12       9       9       11  
 
Diprivan
    290       18       (6 )     278       (3 )     18       263       6       4       (1 )     6  
Zomig
    434       2       (16 )     448       (3 )     17       434             (3 )     (1 )     3  
 
Local anaesthetics
    599       27       (33 )     605       13       35       557       4       (1 )     2       9  
 
Other
    48       (2 )     (4 )     54       (7 )     2       59       (4 )     (11 )     (12 )     (8 )
 
Total
    6,237       566       (166 )     5,837       346       151       5,340       10       7       6       9  
 

Therapy area world market
(MAT/Q3/09)
(PIE CHART)
         
Market sectors   $bn  
 
A Psychiatry
    56.7  
 
B Neurology
    40.1  
 
C Analgesia
    29.9  
 
D Anaesthesia
    4.9  
The neuroscience world market totals $132 billion. The medical need in neuroscience is significant.
Depression and anxiety disorders remain under-diagnosed and under-treated, with 15% of the population suffering from major depression at least once in their lives. Schizophrenia affects around 1% of the adult population, and 17 million people suffer from bipolar disorder across the major markets. Chronic pain is the most common reason for seeking medical care. Alzheimer’s disease affects approximately 24 million people worldwide (predicted to reach 40 million by 2020) and current therapy does not significantly change the course of this progressive neuro-degenerative disorder.
132bn
The neuroscience world market
totals $132 billion
referred the application to the CHMP, with the outcome anticipated in early 2010.
Complete Response Letters for the Seroquel XR GAD submission were received from the FDA in February 2009 (adult population) and September (elderly population). The application was considered unfavourably by an FDA Advisory Committee in April 2009; dialogue with the FDA remains ongoing.
In December, the FDA approved Seroquel for the treatment of schizophrenia in adolescents 13 to 17 years of age as monotherapy, and for the acute treatment of manic episodes associated with bipolar disorder in children and adolescents 10 to 17 years of age, both as monotherapy and as an adjunct to lithium or divalproex.
In the pipeline
AstraZeneca and Targacept have entered into a strategic collaboration and licence agreement for the global development and commercialisation of Targacept’s late-stage compound, TC-5214. TC-5214 is being developed as an adjunct to anti-depressant therapy in adults with MDD who do not respond adequately to 1st line anti-depressant treatment. TC-5214, which recently completed a Phase IIb study, is a nicotinic ion channel blocker that is thought to treat depression by modulating the activity of various neuronal nicotinic receptor subtypes. AstraZeneca and Targacept will jointly design a global Phase III clinical programme, anticipated to begin in mid-2010, with the goal of filing an NDA in 2012.
We have progressed AZD8418 into Phase I and AZD8529 into Phase II for the treatment of schizophrenia. AZD7268 entered into Phase II for the treatment of depression and anxiety. Development of AZD7325 was discontinued.
In 2009, AstraZeneca entered into a number of research collaborations, including those mentioned below. AstraZeneca has entered into a research collaboration with Jubilant in the area of new chemical lead generation and optimisation effectiveness to support our efforts
in analgesia and neurology. AstraZeneca has also entered into a collaboration with PsychoGenics, Inc. to support behaviour profiling of new medicines across several disease areas. Furthermore, AstraZeneca has entered into a research agreement with Duke University to identify novel strategies and targets for better treatment of bipolar disorder using optogenetics.
Analgesia and anaesthesia
(pain control)
Major unmet need remains for improvements in both efficacy and tolerability in the neuropathic pain market, including addressing the needs of specific patient segments such as those with debilitating conditions, for example mechanical hypersensitivity. It is believed that advances in the understanding of the mechanisms which lead to neuropathic pain will allow for improved patient segmentation and, potentially, this could increase the success rate of research in this condition.
The osteoarthritis (OA) market is steadily growing, due to ageing populations and novel agents entering the market. However, the established use of branded generic treatment makes market entry more difficult. Biologics are an emerging treatment option for OA, and this is an area in which we have an active interest through our biologics activities.
Our focus
Our key marketed products
In 2009, Zomig nasal spray was approved for the acute treatment of migraine attacks in adolescents (12 to 17 years of age) in 14 member states in the EU.
Diprivan is the world’s best-selling intravenous general anaesthetic. A complete changeover to Diprivan EDTA, a microbial-resistant formulation, will be effective from 2010.
EMLA submissions/approvals of patch presentation have continued, particularly in Europe. In Japan, EMLA is out-licensed to Sato Pharmaceuticals Co., Ltd. which expects to file a Japanese new drug application for EMLA cream in 2010.


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In the pipeline
Vimovo (PN400) is a fixed-dose combination tablet of enteric-coated naproxen and immediate release esomeprazole which uses proprietary technology licensed from Pozen Inc. through a collaboration established in August 2006. It is being developed for the relief of signs and symptoms of OA, rheumatoid arthritis and ankylosing spondylitis in patients at risk of developing NSAID-associated gastric ulcers. Risk factors for the NSAID-associated gastric ulcers include age, a documented history of gastric ulcers, or concomitant use of low-dose aspirin. OA is the most common form of arthritis and the most common cause of chronic pain, affecting nearly 151 million individuals worldwide. The PN400 Phase III studies demonstrated that patients at risk of developing NSAID-associated gastric ulcers taking PN400 experienced significantly fewer endoscopically confirmed gastric ulcers compared with patients taking enteric-coated naproxen (500mg) alone. An NDA was filed in June. The FDA has confirmed that the proposed trade name for PN400, Vimovo, is acceptable and that it will be re-reviewed 90 days prior to the approval of the NDA. A regulatory filing in the EU was submitted in October.
In September, AstraZeneca licensed two potential products, NKTR-118 and NKTR-119, from Nektar. NKTR-118, an oral peripherally-acting opioid antagonist, is in clinical development for the treatment of opioid induced constipation (OIC), which is the key gastrointestinal (GI) side effect of opioid treatment for pain, for which there are limited therapeutic treatment options. Data from a Phase II study demonstrated that oral NKTR-118 improved lower GI dysfunction by increasing the frequency of bowel movements in patients with OIC, while simultaneously preserving opioid-mediated pain relief. NKTR-119 is an earlier-stage programme that combines NKTR-118 with an opioid, with the goal of treating pain without the side effect of constipation traditionally associated with opioid therapy.
AZD2423 has progressed into Phase I studies and AZD2066 has entered into Phase II studies for the treatment of neuropathic (caused by nerve damage) pain. AZD3043, a short-acting anaesthetic, has entered Phase I studies. Additionally, we have extended our research collaboration with the University of Heidelberg to further understanding of the pathophysiology of chronic pain conditions.
Cognition
Alzheimer’s disease (AD) remains one of the largest areas of unmet medical need and also one of high risk for neuroscience product development, due in part to the challenges
of establishing efficacy in clinical studies. Current treatments, which physicians consider inadequate, target the symptoms, not the underlying cause, of the disease. Growth in this area is strong (20% to 40% across the world) but all existing marketed treatments will face patent expiry by 2015. Disease modification, delivered through biologics and/or small molecule treatments, is clearly the hope for AD patients. Along with better diagnostics, it is expected to allow for earlier intervention and better clinical outcomes, but the first wave of disease modifiers is still several years away.
Attention deficit hyperactivity disorder (ADHD) affects 22 million children worldwide3 (plus another several million adults). While there are a number of treatments available today, which work well for many of these young patients, they also carry certain risks because a great majority of them are psycho-stimulants (mostly amphetamines and methylphenidate). We continue to work on treatment options that would offer strong efficacy without the challenges that current treatments bring. We also hope to offer new options to adult ADHD patients, many of whom remain undiagnosed or untreated today.
Our focus
In the pipeline
The current portfolio of potential medicines in this area includes six development programmes, of which three are in clinical evaluation in AD, ADHD and cognitive disorders in schizophrenia (CDS). In addition to developing molecules for cognitive disorders, we continue to progress one development phase molecule for the treatment of other neurodegenerative diseases.
Through our collaboration with the Karolinska Institute in Sweden, the Banner Alzheimer’s Institute in Phoenix, Arizona and others, our R&D capabilities in positron emission tomography (PET) imaging of the human brain continue to progress. AstraZeneca’s amyloid PET ligands may enable us to detect AD early and to assess drug effects in AD. We have discovered and taken into patient studies two C-11 amyloid PET ligands, which are being developed as research biomarkers. Additionally, a collaboration with the Mental Health Research Institute in Australia has been initiated to develop new ways of identifying AD patients at early stages of the disease.
Compounds in clinical evaluation include products deriving from our relationship with Targacept (AZD3480, TC-5619 and AZD1446). AZD3480, a neuronal nicotinic receptor agent, is currently in Phase II clinical testing in ADHD. In 2009, Targacept announced top-line results from a Phase IIa ADHD study in which the primary outcome measure was met. TC-5619
has entered a Phase IIa study in CDS. AZD1446 has entered Phase IIa studies in ADHD and AD.
Litigation
Detailed information about material legal proceedings in respect of our Neuroscience products can be found in Note 25 to the Financial Statements from page 166.
Financial performance 2009/2008
Performance 2009
Reported performance
Neuroscience sales on a reported basis grew by 7% to $6,237 million in 2009 from $5,837 million in 2008.
Performance – CER growth rates
Neuroscience sales grew by 10% to $6,237 million from $5,837 million last year.
US sales for Seroquel (all formulations) for the full year were $3,416 million, 13% ahead of last year. Seroquel (all formulations) remains the market leader in the US anti-psychotic market, with a total prescription share of 31.3% in December 2009.
For the full year, Seroquel (all formulations) sales outside the US increased by 8% to $1,450 million. In the Rest of World (ie excluding the US and Canada) value and volume growth for Seroquel were well ahead of the atypical anti-psychotic market.
Sales of Zomig for the full year were down 3% in the US to $182 million. Sales outside the US were up 3% to $252 million.
Performance 2008
Reported performance
Neuroscience sales grew by 9% in 2008, up to $5,837 million from $5,340 million in 2007. All geographic areas experienced growth and Seroquel (all formulations) grew strongly by 11%.
Performance – CER growth rates
Neuroscience sales grew by 6% to $5,837 million from $5,340 million in 2007.
US sales for Seroquel (all formulations) for the full year were $3,015 million. For the full year, Seroquel (all formulations) sales outside the US increased by 8% to $1,437 million. In the Rest of World (ie excluding the US and Canada) value and volume growth for Seroquel were well ahead of the atypical anti-psychotic market in all regions.
Sales of Zomig for the full year were up 6% in the US to $187 million. Sales outside the US were down 5% to $261 million.
3 Decision Resources 2008.


AstraZeneca Annual Report and Form 20-F Information 2009 


Table of Contents

68Directors’ Report | Therapy Area Review

 


Oncology
In brief
>   Arimidex sales up 7% to $1.9 billion and continues to be the leading branded hormonal therapy for early breast cancer in the US, Japan, Spain, the UK and France.
 
>   Zoladex sales $1.1 billion, flat from the previous year.
 
>   Casodex sales $0.8 billion, down 34%, following expiry of patents in all major territories.
 
>   Iressa was approved in the EU for the treatment of adults with locally advanced or metastatic non-small cell lung cancer (NSCLC) with activating mutations of the epidermal growth factor receptor-tyrosine kinase (EGFR-TK).
 
>   Faslodex 500mg has been shown to be more efficacious than Faslodex 250mg at treating breast cancer and regulatory submissions to change the dose have been made in the EU and the US, together with the first filing in Japan.
 
>   Withdrawal of the US and the EU regulatory submissions for Zactima in NSCLC in October but clinical studies continue in a number of other types of cancer.
 
>   Registration studies ongoing for Recentin in first line colorectal cancer and recurrent glioblastoma multiforme and NSCLC.
 
>   Registration studies ongoing for zibotentan (ZD4054) in castrate resistant prostate cancer.
 
>   Olaparib (AZD2281) is in ongoing Phase II studies for the treatment of certain types of breast and ovarian cancer. Olaparib will progress to Phase III development in breast cancer with genetic DNA repair deficits.
 
>   Teva Parenteral Medicines (Teva Par) has challenged our patents for Faslodex. In January 2010, AstraZeneca filed a patent infringement action against Teva Par in the US District Court for the District of Delaware.
 
Our marketed products
Arimidex (anastrozole) is an aromatase inhibitor for the treatment of early breast cancer.
 
Zoladex (goserelin acetate implant), in one- and three-month depots, is a luteinising hormone-releasing hormone agonist for the treatment of prostate cancer, breast cancer and certain benign gynaecological disorders.
 
Casodex (bicalutamide) is an anti-androgen therapy for the treatment of prostate cancer.
 
Iressa (gefitinib) is an EGFR-TK inhibitor that acts to block signals for cancer cell growth and survival in NSCLC.