AstraZeneca Annual Report
`and Form 20-F Information 2012
`
`AstraZeneca Annual Report and Form 20-F Information 2012
`
`Registered office and
`corporate headquarters
`AstraZeneca PLC
`2 Kingdom Street
`London W2 6BD
`UK
`Tel: +44 (0)20 7604 8000
`Fax: +44 (0)20 7604 8151
`
`Investor relations
`ir@astrazeneca.com
`
`UK: as above
`
`US
`Investor Relations
`AstraZeneca Pharmaceuticals LP
`1800 Concord Pike
`PO Box 15437
`Wilmington
`DE 19850-5437
`US
`Tel: +1 (302) 886 3000
`Fax: +1 (302) 886 2972
`
`Registrar
`Equiniti Limited
`Aspect House
`Spencer Road
`Lancing
`West Sussex BN99 6DA
`UK
`Tel: (freephone in the UK)
`0800 389 1580
`Tel: (outside the UK)
`+44 (0)121 415 7033
`
`Swedish Central Securities
`Depository
`Euroclear Sweden AB
`PO Box 191
`SE-101 23 Stockholm
`Sweden
`Tel: +46 (0)8 402 9000
`
`US Depositary
`JPMorgan Chase & Co
`PO Box 64504
`St Paul
`MN 55164-0504
`US
`Tel: (toll free in the US)
`888 697 8018
`Tel: (outside the US)
`+1 (651) 453 2128
`jpmorgan.adr@wellsfargo.com
`
`Delivering value
`through innovation
`
`This Annual Report
`is also available on
`our website,
`astrazeneca.com/
`annualreport2012
`
`Page 1 of 216
`
`AstraZeneca Exhibit 2106
`Mylan v. AstraZeneca
`IPR2015-01340
`
`

`

`Innovation is at the core of everything we
`do at AstraZeneca – from our research
`into effective new medicines to how we
`run our business.
`Our goal is to improve health for patients, bring benefits
`for stakeholders and deliver long-term shareholder value
`through continued successful innovation.
`Our innovation:
`
`> Improves health outcomes for patients
`
`P10
`
`
`
`
`
`
`
` > Delivers economic benefits
`for healthcare systems
` > Adds value beyond the medicines
`
` > Contributes to our local communities
`
`P22
`
`P104
`
`P138
`
`In a world where the demand for healthcare continues
`to grow, the advances made through innovation are vital
`to address unmet medical need and deliver sustained
`improvement in healthcare worldwide.
`
`Important information for readers of this Annual
`Report For further information in relation to the inclusion of
`reported performance, Core financial measures and constant
`exchange rate (CER) growth rates as used in this Overview
`from page 2 and throughout the Performance and Corporate
`Governance sections from pages 24 and 106 respectively,
`please refer to the Financial Review on page 88. Throughout
`this Annual Report, growth rates are expressed at CER unless
`otherwise stated.
`
`Definitions The Glossary and the Market definitions table from
`page 209 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 section and elsewhere in this
`Annual Report.
`
`Use of terms In this Annual Report, unless the context
`otherwise requires, ‘AstraZeneca’, ‘the Group’, ‘we’, ‘us’ and
`‘our’ refer to AstraZeneca PLC and its consolidated entities.
`
`Statements of dates Except as otherwise stated, references
`to days and/or months in this Annual Report are references
`to days and/or months in 2012.
`
`Cautionary statement regarding forward-looking
`statements A cautionary statement regarding forward-looking
`statements and other essential information relating to this
`Annual Report can be found on the inside back cover.
`
`Directors’ Report The following sections make up the
`Directors’ Report, which has been prepared in accordance
`with the requirements of the Companies Act 2006:
`
`> Strategy
`> Performance
`> Corporate Governance
`> Development Pipeline
`> Shareholder Information
`> Corporate Information
`
`This Annual Report
`is also available on
`our website,
`astrazeneca.com/
`annualreport2012
`
`+
`
`-
`
`AstraZeneca
`Welcome to the AstraZeneca
`Annual Report and Form
`20-F Information 2012
`(Annual Report). You will find
`this Annual Report on our
`website, astrazeneca.com/
`annualreport2012
`
`Strategy
`To compete as a global
`biopharmaceutical business
`delivering great medicines
`to patients through innovative
`science and excellence
`in development and
`commercialisation
`
`Performance
`2012 financial performance
`was defined by significant
`revenue decline associated
`with the loss of exclusivity
`for several products
`
`Corporate
`Governance
`In addition to the regular
`programme of meetings for
`the Board and its Committees
`2012 was a busy year with new
`appointments, a record number
`of business development deals
`and our strategic review
`
`Financial
`Statements
`
`Met or exceeded
`financial targets as
`a result of disciplined
`financial management
`and lower Reported
`tax rate
`
`Additional
`Information
`
`More information about our
`business and about being
`an AstraZeneca shareholder
`
`Important information for readers
`of this Annual Report
`Cautionary statement regarding
`forward-looking statements
`The purpose of this Annual Report is to provide
`information to the members of the Company. The
`Company and its Directors, employees, agents and
`advisers do not accept or assume responsibility to
`any other person to whom this Annual Report 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 of 1995 and the UK Companies Act 2006,
`we are providing the following cautionary statement:
`This Annual Report 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
`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 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 in 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 75 of this Annual
`Report. Nothing in this Annual Report should be
`construed as a profit forecast.
`Inclusion of Reported performance,
`Core financial measures and constant
`exchange rate growth rates
`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, 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 2012 obtained from
`IMS Health, a leading supplier of statistical data to the
`pharmaceutical industry. For the US, dispensed new or
`total prescription data and audited sales data are taken,
`respectively, from IMS Health National Prescription Audit
`and IMS National Sales Perspectives for the 12 months
`ended 31 December 2012; such data is not adjusted
`for Medicaid and similar 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 are given at CER. For the purposes of this Annual
`Report, unless otherwise stated, references to the world
`pharmaceutical market or similar phrases are to the
`54 countries contained in the IMS Health MIDAS
`Quantum database, which amounted to approximately
`92% (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 Annual Report.
`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 Annual Report.
`Figures
`Figures in parentheses in tables and in the Financial
`Statements are used to represent negative numbers.
`
`Designed and produced by
`Board and SET photography Marcus Lyon
`
`
`
`This Annual Report is printed on
`Heaven 42 which is FSC® certified
`virgin fibre. The pulp is a mix, partly
`bleached using an Elemental
`Chlorine Free (ECF) process and
`partly bleached using a Totally
`Chlorine Free process. Printed
`in the UK by Pureprint using
`its alcofree® and pureprint®
`environmental printing technology,
`and vegetable inks were used
`throughout. Pureprint is a CarbonNeutral® company.
`Both the manufacturing mill and the printer are
`registered to the Environmental Management System
`ISO14001 and are Forest Stewardship Council®
`chain-of-custody certified.
`
`Page 2 of 216
`
`

`

`Who are we?
`
`An introduction to AstraZeneca, what
`we do and where we do it, and an
`overview of our financial and operational
`performance in 2012
`
`A year in review
`
`The Chairman and Chief Executive Officer
`review how we did in 2012 and consider
`the prospects for 2013 and beyond
`
` Introduction and overview
`
`2 AstraZeneca at a glance
`6 Chairman’s Statement
`8
` Chief Executive Officer’s
`Review
`
`P2
`
`P6
`
`How do we create sustainable value?
`
`The life-cycle of a medicine and our business model
`
`Investment period
`
`Returns period
`
`P14
`
`How does our strategy help us deliver our aims?
`
`Our business model
`
`Our industry
`
`Our strategy
`
`P12
`
`P16
`
`P20
`
` Strategy
`12 Our business model
`14 Life-cycle of a medicine
`16 Our industry
`20 Our strategy
`
` Performance
`24 Key Performance Indicators
`30 Business Review
`50 Therapy Area Review
`70 Geographical Review
`74 Risk
`86 Financial Review
`
` Corporate Governance
`106 Board of Directors and
`Senior Executive Team
`110 Corporate Governance
`Report
`122 Directors’ Remuneration
`Report
`
`How did we do in delivering our strategy in 2012?
`Risk
`KPIs
`Business Review
`The risks that might stop us achieving
`Measuring our
`How the business
`our strategy and how we manage them
`performance against
`performed in 2012
`> Product pipeline
`the Key Performance
`> Our resources,
`> Commercialisation and business execution
`Indicators for each
`skills and capabilities
`> Supply chain and delivery
`of our priorities
`> Our Therapy Areas
`> Legal, regulatory and compliance
`> Markets around the world
`> Economic and financial
`in which we operate
`> Our finances
`
`P24
`
`P30
`
`P74
`
`How does the way we are managed and paid support
`the delivery of our strategy?
`
` Financial Statements
`141 Auditor’s Report
`142 Consolidated Statements
`150 Notes to the Group
`Financial Statements
`
`Board and Senior Executive Team
`
`P106
`
`Corporate Governance Report
`
`Directors’ Remuneration Report
`
`The Board sets our strategy and monitors progress
`towards delivering our strategic priorities and
`meeting our annual plans. In our Corporate
`Governance Report, introduced by the Chairman,
`we review the work of the Board and its
`Committees in 2012 and how we maintain
`good governance across the Group.
`
`The principal role of our Remuneration Committee
`is to develop remuneration policies and practices
`that support the implementation of our business
`strategy and help create shareholder value over
`time. The Committee, led by its Chairman, Non-
`Executive Director John Varley, reports on how
`it discharged its responsibilities in 2012.
`
`P110
`
`P122
`
` Additional Information
`199 Development Pipeline
`203 Shareholder Information
`206 Corporate Information
`209 Glossary
`212 Index
`
`AstraZeneca Annual Report and Form 20-F Information 2012
`
`1
`
`Overview
`
`Strategy
`
`Performance
`
`Corporate Governance
`
`Financial Statements
`
`Additional Information
`
`Page 3 of 216
`
`

`

`Overview | AstraZeneca at a glance
`We are a global, innovation-driven
`biopharmaceutical business
`
`Our primary focus is the discovery, development and commercialisation of prescription
`medicines for six important areas of healthcare: Cardiovascular, Gastrointestinal, Infection,
`Neuroscience, Oncology and Respiratory & Inflammation.
`
`We operate in over 100 countries and our innovative medicines are used by millions
`of patients worldwide. We are one of only a handful of companies to span the entire
`life-cycle of a medicine from discovery, early and late-stage development, to the global
`commercialisation of primary care, specialty care-led and specialty care medicines. Using
`these skills and capabilities we can make a real difference to the health of a broad range of
`patients by delivering great medicines in disease areas where there is unmet medical need.
`
`We want AstraZeneca to be valued as a source of great medicines and trusted as a
`company that delivers business success responsibly. Our Responsible Business Plan
`provides the framework for ensuring that we operate with integrity and high ethical
`standards across all our activities.
`
`$10,655m
`
`Regional sales US (-21%)
`
` 14,400*
`
`employees in the Americas (27.9%)
`
`30,200*
`
`Sales and Marketing employees: numbers
`in Established Markets, such as the US,
`have fallen, whereas the numbers in
`Emerging Markets have increased and
`now represent 53% of the total
`
`Financial summary
`
`$27.97bn
`
`Sales down 15% at CER to $27,973 million
`($33,591 million in 2011)
`
`$10.4bn
`
`Core operating profit down 18% at CER
`to $10,430 million ($13,167 million in 2011)
`
`$8.1bn
`
`Reported operating profit down 34%
`at CER to $8,148 million ($12,795 million
`in 2011)
`
`$6.41
`
`Core EPS for the full year decreased
`by 9% at CER to $6.41 ($7.28 in 2011)
`
`$4.99
`
`Reported EPS for the full year decreased
`by 29% at CER to $4.99 ($7.33 in 2011)
`
`$5.9bn
`
`Net cash shareholder distributions
`decreased by 37% to $5,871 million
`including net share repurchases
`of $2,206 million ($9,370 million net
`cash shareholder distributions
`including $5,606 million net share
`repurchases in 2011)
`
`Our medicines
`Our 10 leading medicines by sales value are:
`
`Cardiovascular
`
`Atacand
`for hypertension
`and heart failure
`
`2010: $1,483m
`2011: $1,450m
`
`2012
`$1,009m
`(-27%)
`
`2
`
`Crestor
`for managing
`cholesterol levels
`
`2010: $5,691m
`2011: $6,622m
`2012
`$6,253m
`(-4%)
`
`Gastrointestinal
`
`Infection
`
`Seloken/Toprol-XL
`for hypertension, heart
`failure and angina
`
`Nexium
`for acid-reflux
`
`
`Synagis
`for RSV, a respiratory
`infection in infants
`
`2010: $1,210m
`2011: $986m
`
`2012
`$918m
`(-4%)
`
`2010: $4,969m
`2011: $4,429m
`
`2012
`2012
`
`$3,944m$3,944m
`
`(-10%)(-10%)
`
`2010: $1,038m
`2011: $975m
`
`2012
`$1,038m
`(+6%)
`
`AstraZeneca Annual Report and Form 20-F Information 2012
`
`Page 4 of 216
`
`

`

`Regional sales Western Europe (-19%)
`
`$6,486m
`23,600*
`
`employees in EMEA (45.6%)
`
`51,700*
`
`employees worldwide
`
`$5,080m
`
`Regional sales Established ROW (-14%)
`
` 13,700*
`
`employees in Asia Pacific (26.5%)
`
`$5,752m
`
`Regional sales Emerging Markets (+4%)
`
`9,800*
`
`employees work in our R&D organisation
`and we have 10 principal R&D centres
`in six countries
`
` 10,300*
`
`employees work at our 22 Supply and
`Manufacturing sites in 16 countries
`
`* All figures are approximate.
`
`Neuroscience
`
`Seroquel IR
`for schizophrenia
`and bipolar disorder
`
`2010: $4,148m
`2011: $4,338m
`
`2012
`$1,294m
`(-70%)
`
`Oncology
`
`Respiratory & Inflammation
`
`Seroquel XR
`for schizophrenia, bipolar
`disorder and major
`depressive disorder
`2010: $1,154m
`2011: $1,490m
`
`2012
`$1,509m
`(+4%)
`
`Zoladex
`for prostate
`and breast cancer
`
`2010: $1,115m
`2011: $1,179m
`
`2012
`$1,093m
`(-5%)
`
`Pulmicort
`for asthma and chronic
`obstructive pulmonary
`disease
`2010: $872m
`2011: $892m
`
`2012
`$866m
`(-1%)
`
`Symbicort
`for asthma and chronic
`obstructive pulmonary
`disease
`2010: $2,746m
`2011: $3,148m
`
`2012
`$3,194m
`(+5%)
`
`AstraZeneca Annual Report and Form 20-F Information 2012
`
`3
`
`Overview
`
`Strategy
`
`Performance
`
`Corporate Governance
`
`Financial Statements
`
`Additional Information
`
`Page 5 of 216
`
`

`

`Overview | AstraZeneca at a glance
`
`Financial overview
`
`Sales
`$m (-15%)
`
`12
`
`11
`
`10
`
`Core operating profit
`$m (-18%)
`
`Core pre-R&D operating profit
`$m (-16%)
`
`27,973
`
`33,591
`
`33,269
`
`12
`
`11
`
`10
`
`10,430
`
`13,167
`
`13,603
`
`12
`
`11
`
`10
`
`14,882
`
`18,200
`
`17,822
`
`Net cash flow from
`operating activities $m
`
`Reported operating profit
`$m (-34%)
`
`Reported pre-R&D
`operating profit $m (-25%)
`
`12
`
`11
`
`10
`
`6,948
`
`7,821
`
`10,680
`
`12
`
`11
`
`10
`
`8,148
`
`12,795
`
`11,494
`
`12
`
`11
`
`10
`
`13,391
`
`18,318
`
`16,812
`
`Our year in brief
`
`February > AstraZeneca
`announces an accelerated
`R&D transformation
`programme and the end
`of R&D activity at sites in
`Sweden (Södertälje) and
`Canada (Montreal)
`
`March > AstraZeneca and
`Targacept decide not to pursue
`regulatory filing on TC-5214 due
`to inconclusive Phase III results
`> As anticipated, the Seroquel IR
`patent in the US expired, a number
`of generic products entered the
`market and our sales declined
`
`April > Entered into
`agreement to acquire
`Ardea and its Phase III
`development product
`candidate, lesinurad, as a
`potential treatment for the
`chronic management of
`hyperuricaemia in patients
`with gout
`
`June > David Brennan
`retires as CEO
`> Louis Schweitzer retires
`as Chairman of the Board
`and Leif Johansson starts
`as the new Chairman
`
`2012
`
`F
`
`M
`J
`
`A
`
`M
`
`J
`
`J
`
`March > AstraZeneca receives approval
`from the FDA for FluMist Quadrivalent for
`the prevention of influenza. This marked
`the first four-strain influenza vaccine, and
`the only intra-nasal four-strain vaccine,
`approved by the FDA
`
`April > AstraZeneca agrees
`with Amgen to jointly
`develop and commercialise
`five monoclonal antibodies
`from Amgen’s clinical
`inflammation portfolio
`
`June > AstraZeneca
`enhances its presence
`in Asia with the opening
`of the Zhangjiang Park
`Regional Hub Headquarters
`in Shanghai
`
`Operational overview
`
`Pipeline
`
`84
`
`pipeline projects
`
`88
`
`countries
`
`> 84 pipeline projects
`including 71 in clinical
`development, of which
`11 are in Phase III or
`under regulatory review;
`19 withdrawn during
`the year
`
` > Brilinta/Brilique has
`been approved in 88
`countries, launched
`in 82 countries and
`remains under review
`in 23 countries.
`Global sales of
`$89 million in 2012
`
`Deliver the business
`
`15%
`
`reduction in revenue
`
`> Revenue fell by 21% in
`the US; 19% in Western
`Europe; and 14% in
`Established Rest of
`World. Revenue rose by
`4% in Emerging Markets
`
`11%
`
`reduction in R&D
`expense
`
`> Core R&D expense for
`the full year was down
`11%, despite absorbing
`higher costs from
`spending on in-licensed,
`acquired or partnered
`projects, as these were
`more than offset by
`restructuring benefits
`and lower intangible
`impairments than
`in 2011
`
`$4.5bn
`
`loss of exclusivity
`reduction
`
`> Some $4.5 billion of
`revenue decline was
`related to loss of
`exclusivity on several
`brands in the portfolio.
`Seroquel IR declined
`by more than $3 billion;
`regional losses of
`exclusivity for Atacand,
`Nexium and Crestor
`had a further negative
`impact of more than
`$1 billion
`
`4
`
`AstraZeneca Annual Report and Form 20-F Information 2012
`
`Page 6 of 216
`
`

`

`Core earnings per
`Ordinary Share $ (-9%)
`
`12
`
`11
`
`10
`
`6.41
`
`7.28
`
`6.71
`
`Reported earnings per
`Ordinary Share $ (-29%)
`
`12
`
`11
`
`10
`
`4.99
`
`5.60
`
`7.33
`
`Shareholder distributions
`
`Distributions to shareholders $m
`
`Dividends
`Share repurchases1
`Total
`
`Dividend for 2012
`
`First interim dividend
`Second interim dividend
`Total
`
`2012
`3,665
`2,6352
`6,300
`
`2011
`3,764
`6,0153
`9,779
`
`2010
`3,361
`2,6044
`5,965
`
`$
`0.90
`1.90
`2.80
`
`Pence
`58.1
`120.5
`178.6
`
`SEK
`6.26
`12.08
`18.34
`
`Payment date
`10 September 2012
`18 March 2013
`
`1 The share repurchase programme was suspended effective 1 October 2012.
`2 Share repurchases in 2012, net of proceeds from the issue of share capital equal
`to $429 million, were $2,206 million.
`3 Share repurchases in 2011, net of proceeds from the issue of share capital equal
`to $409 million, were $5,606 million.
`4 Share repurchases in 2010, net of proceeds from the issue of share capital equal
`to $494 million, were $2,110 million.
`
`
`
`August > Expansion of BMS
`diabetes alliance through
`inclusion of the Amylin product
`portfolio
`> EU gives marketing
`authorisation for Zinforo
`
`October > Pascal Soriot
`starts as CEO
`> Suspension of share
`repurchase programme
`
`November > Forxiga approved
`in Europe for the treatment
`of Type 2 diabetes
`
`A
`
`S
`
`O
`
`2012
`
`N
`
`D
`
` 2013 J
`
`September > AstraZeneca
`ranks in the top 7% in the sector
`in the Dow Jones Sustainability
`World and European Indexes,
`with a score of 83%
`
`October > Collaboration
`with Ironwood in China
`to co-develop and co-
`commercialise linaclotide
`
`January 2013 > Changes
`to the Senior Executive Team
`announced
`
`$600m
`
`revenue growth
`
`> Symbicort, Faslodex,
`Onglyza, Iressa, Brilinta/
`Brilique and Seroquel
`XR combined to deliver
`$600 million of revenue
`growth
`
`Business shape
`
`$1.85bn
`
`in benefits
`
`12%
`
`reduction in SG&A
`
`People
`
`81%
`
`score
`
`> By the end of 2012,
`annual benefits of
`$1.85 billion had
`been realised from
`the phases of our
`restructuring
`programme announced
`in 2010 and 2012
`
`> Our employee
`engagement score
`in our annual FOCUS
`survey among
`all employees
`decreased by three
`percentage points
`compared with 2011
`
`> Expenditures in Core
`SG&A were 12% lower
`than 2011, a result of
`restructuring benefits
`and spending discipline
`partially offset by
`inclusion of amortisation
`expense related to the
`expansion of the
`diabetes alliance with
`BMS and increased
`promotional cost in
`Emerging Markets
`
`5,500
`
`reduction in employees
`
`> Net reduction of some
`5,500 employees
`since 2011 included
`recruitment of
`approximately 5,700
`employees to drive
`our expansion in
`Emerging Markets,
`build new capabilities
`and replace leavers
`
`AstraZeneca Annual Report and Form 20-F Information 2012
`
`5
`
`Overview
`
`Strategy
`
`Performance
`
`Corporate Governance
`
`Financial Statements
`
`Additional Information
`
`Page 7 of 216
`
`

`

`Overview | Chairman’s Statement
`Chairman’s
`Statement
`
`Dear Shareholder
`I am glad I was able to meet a number of
`you in April 2012 when AstraZeneca held its
`Annual General Meeting in London. At that
`meeting you elected me as a Director and
`it is my privilege to have served as your
`Chairman since June.
`
`Louis Schweitzer and David Brennan
`The day of the AGM was, by any measure,
`an historic one for your Company. It was the
`day on which David Brennan announced his
`decision to retire from AstraZeneca as your
`Chief Executive Officer. It was also the day
`on which your previous Chairman, Louis
`Schweitzer, brought forward the date of his
`intended retirement to 1 June to coincide
`with that of David.
`
`Louis had been a Director since 2004 and
`your Chairman for seven years. During that
`time he worked tirelessly to ensure that the
`Board was effective in its task of setting our
`strategy and overseeing its implementation.
`We are grateful to him for his efforts
`on your behalf.
`
`As Chief Executive Officer, David led
`AstraZeneca with skill, integrity and courage
`during a period of enormous change for the
`industry and for the Company in particular.
`I would like to thank David for his selfless
`leadership during his six years at the helm.
`
`Non-Executive changes
`Part of the strength of any board comes
`from refreshing and renewing the mix of
`people sitting around the boardroom table.
`When I joined the Board, I was pleased that
`both Graham Chipchase and Geneviève
`Berger also became Non-Executive
`Directors. They bring, respectively, in-depth
`financial and scientific expertise, as well as
`significant international business experience
`to our discussions.
`
`Also in April 2012, we said farewell to
`Michele Hooper who stood down from
`the Board. We are all grateful for her
`distinguished contribution to our work and
`her dedicated service as Chairman of the
`Audit Committee and senior independent
`Non-Executive Director. In her place, John
`Varley took over as senior independent
`Non-Executive Director and Rudy Markham
`became Chairman of the Audit Committee.
`
`A new Chief Executive Officer
`Upon my election to the Board I was also
`appointed Chairman of the Nomination
`Committee. This enabled me to lead
`the important process of selecting David
`Brennan’s successor. This was a process
`that included both internal and external
`candidates and culminated in the
`appointment of Pascal Soriot to the Board
`as the Company’s Chief Executive Officer
`on 1 October.
`
`Pascal joined us from Roche where he had
`been serving as Chief Operating Officer of
`the company’s pharmaceuticals division.
`His was a key appointment at an important
`time for AstraZeneca. The Board is certain
`that Pascal’s leadership qualities, combined
`with his strategic thinking and extensive
`
`experience in the industry, make him
`the right person to drive AstraZeneca
`to success over the coming years. I am
`confident that Pascal’s approach and
`his track record of delivering results in
`innovation-driven businesses will be valued
`by shareholders and employees alike.
`
`Following David’s departure, Simon Lowth
`acted as Interim Chief Executive Officer.
`The Board and I would like to record our
`appreciation for his impressive leadership
`in this period. Supported by a highly
`capable and committed executive team,
`Simon maintained the organisation’s focus
`on key business priorities during a period
`of significant change.
`
`Sound governance
`All the changes I have outlined took
`place at the same time as AstraZeneca
`completed a record number of business
`development deals. We also undertook our
`annual strategic review, in which Pascal has
`been fully involved, as well as our regular
`programme of meetings and business
`activity. That we have been able to do all
`this is a tribute both to the sound corporate
`governance processes we have in place
`and to the dedication and hard work of my
`fellow Directors. I am grateful to all of them
`for the contribution they made in 2012.
`
`Challenging times
`We will need to harness all our skills,
`capabilities and experience if we are to
`successfully navigate the current harsh
`climate for the pharmaceutical sector.
`The world pharmaceutical market is still
`growing and underlying demographic
`trends remain favourable to long-term
`industry growth. However, many of the
`drivers of demand and supply in the
`industry are under pressure.
`
`6
`
`AstraZeneca Annual Report and Form 20-F Information 2012
`
`Page 8 of 216
`
`

`

`“ 2012 financial performance was
`defined by significant revenue
`decline associated with the loss
`of exclusivity for several products.
`For 2013, challenging market
`conditions will persist.”
`
`On the demand side, we face increased
`competition from generic medicines as
`some of the world’s most successful drugs
`come off patent. In addition, securing
`recognition (through reimbursement approval)
`and reward (through favourable pricing and
`sales) for innovation is becoming more
`difficult in the face of intensifying pricing
`pressures, particularly in Established
`Markets facing rising healthcare costs.
`On the supply side, the industry faces an
`ongoing R&D productivity challenge. R&D
`costs have risen significantly over the past
`decade, while industry-wide probability of
`success continues to decline.
`
`Strategic focus
`It is for the reasons outlined above that
`the outcome of our current strategic review
`is so important. Our strategy is rooted in
`our heritage as a company focused on
`innovative science to deliver great medicines
`to patients. I firmly believe that it is the
`path we need to take if we are to remain
`competitive and return to growth. That path
`must also include a commitment to the
`responsible and sustainable development
`of our business. That is why I was so
`pleased that we were once again listed in
`the Dow Jones Sustainability World Index
`in 2012 and retained our listing on the
`European Index for the fifth year running.
`
`Financial performance
`We cannot hope to secure our long-term
`success if we do not meet our financial
`targets and deliver acceptable levels of
`return to our owners. Group sales in 2012
`were down 15% to $27,973 million (2011:
`$33,591 million) and Reported operating
`profit was down 34% at $8,148 million
`(2011: $12,795 million). Revenue in the US
`was down 21% while revenue outside the
`US was down 11%.
`
`More than 13 percentage points of the
`revenue decline, approximately $4.5 billion,
`was related to loss of exclusivity on several
`brands in the portfolio. Seroquel IR alone
`declined by more than $3 billion, while
`regional losses of exclusivity for Atacand,
`Nexium and Crestor accounted for more
`than $1 billion. Additionally, the disposals
`of Astra Tech and Aptium accounted
`for around 1.7 percentage points of the
`decline. On the other hand, taken together,
`Symbicort, Faslodex, Onglyza, Iressa,
`Brilinta/Brilique and Seroquel XR accounted
`for more than $600 million of revenue
`growth. Additionally, our diabetes alliance
`with BMS is strengthened by the inclusion
`of the Amylin portfolio and the approval
`of Forxiga in Europe.
`
`Reported earnings per share were down
`29% to $4.99. The decline reflects the
`$1.08 per share benefit in 2011 from the
`sale of Astra Tech and higher restructuring
`costs in 2012.
`
`Returns to shareholders
`Consistent with our progressive dividend
`policy, the Board has recommended a
`second interim dividend of $1.90. This
`brings the dividend for the full year to
`$2.80 (178.6 pence, SEK 18.34). In 2012,
`cash distributions to shareholders through
`dividends totalled $3,665 million and net
`share repurchases totalled $2,206 million.
`In October, we announced the suspension
`of our share repurchase programme for
`2012 and the Board has decided that no
`share repurchases will take place in 2013
`in order to maintain the flexibility to invest
`in the business.
`
`Outlook
`We believe challenging market conditions
`will persist in 2013, including continued
`government interventions in price. The
`revenue impact from the loss of exclusivity
`will also continue to affect our performance.
`In the context of the ongoing update to our
`strategy, we have withdrawn the planning
`assumptions for revenue and margin
`evolution for the period 2010 to 2014
`we outlined in January 2010. We plan
`to hold a Capital Markets Day in March
`2013 to provide a more detailed exposition
`of our strategic priorities.
`
`Leif Johansson
`Chairman
`
`AstraZeneca Annual Report and Form 20-F Information 2012
`
`7
`
`Overview
`
`Strategy
`
`Performance
`
`Corporate Governance
`
`Financial Statements
`
`Additional Information
`
`Page 9 of 216
`
`

`

`Overview | Chief Executive Officer’s Review
`Chief Executive
`Officer’s Review
`
`I am both excited and honoured to
`have been asked to lead AstraZeneca.
`Throughout my career I have had enormous
`respect for its people and what they have
`achieved. Since joining in October, I have
`seen for myself the passion and commitment
`that exists within the Group to improve the
`lives of patients around the world.
`
`In the Strategy section from page 12 of
`this Annual Report, we talk more about
`the background to our strategy and the
`review we are undertaking. For the rest
`of my Review I want to look at the progress
`we made towards our goals in 2012, as
`well as consider some of the setbacks
`we encountered.
`
`This level of energy should come as no
`surprise as our innovative medicines mean
`that more people than ever before are
`able to lead longer and healthier lives.
`As we seek to show throughout this
`Annual Report, successful pharmaceutical
`innovation, delivered responsibly, adds
`value not only for patients and shareholders
`but also for healthcare systems and the
`communities in which we work.
`
`The challenge
`Leif has already described in his Chairman’s
`Statement how, in addition to the well-known
`challenges that confront the pharmaceutical
`sector, the loss of exclusivity of several
`of our major brands largely defined
`AstraZeneca’s financial performance in
`2012. I believe that our ability to provide
`an acceptable level of return to you in the
`years ahead will come