What science can do
AstraZeneca Annual Report and Form 20-F Information 2017
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Welcome
We are a global, science-led biopharmaceutical
business and in this Annual Report we
report on the progress we made in 2017 in
pushing the boundaries of science to deliver
life-changing medicines.
can
Science
Expand treatment options
Oncology | From page 48
Understand disease
Cardiovascular & Metabolic Diseases | From page 52
Transform outcomes
Respiratory | From page 56
Front cover and inside
front cover image:
Upstream intervention in
the inflammatory cascade.
When lungs are stressed by
allergens, pathogens or irritants,
epithelial cells produce
cytokines that trigger multiple
downstream inflammatory
pathways in the lungs.
AstraZeneca is researching
antibodies that bind to these
upstream epithelial cytokines
to prevent a range of
inflammatory responses.
Important information for readers of this Annual Report
For more information in relation to the inclusion of
Reported performance, Core financial measures and
constant exchange rate (CER) growth rates as used
in this Annual Report, please see the Financial Review
on page 66.
Definitions
The Glossary and the Market definitions table from
page 235 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 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.
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 page 240.
Directors’ Report
The following sections make up the Directors’ Report,
which has been prepared in accordance with the
requirements of the Companies Act 2006:
> Chairman’s Statement
> Chief Executive Officer’s Review
> Business Review
> Therapy Area Review
> Financial Review: Financial risk management
> Corporate Governance: including the Audit Committee
Report and Corporate Governance Report
> Directors’ Responsibility Statement
> Development Pipeline
> Sustainability: supplementary information
> Shareholder Information
Strategic Report
The following sections make up the Strategic Report,
which has been prepared in accordance with the
requirements of the Companies Act 2006:
> AstraZeneca at a glance
> Chairman’s Statement
> Chief Executive Officer’s Review
> Marketplace
> Business model and life-cycle of a medicine
> Strategy and Key Performance Indicators
> Business Review
> Therapy Area Review
> Risk Overview
> Financial Review
Contents
Financial highlights
Total Revenue*
down 2% to $22,465 million at actual
rate of exchange (down 2% at CER),
comprising Product Sales of $20,152 million
and Externalisation Revenue of $2,313 million
Net cash flow from operating activities
down 14% at actual rate of exchange
to $3,578 million
2017
2016
2015
$22.5bn
$22,465m
$23,002m
$24,708m
2017
2016
2015
$3.6bn
Reported operating profit
down 25% at actual rate of exchange
to $3,677 million (down 28% at CER)
Core operating profit
up 2% at actual rate of exchange
to $6,855 million (unchanged at CER)
2017
2016
2015
$3.7bn
$3,677m
$4,902m
$4,114m
2017
2016
2015
$6.9bn
Reported EPS
for the full year down 14% at actual rate
of exchange to $2.37 (down 15% at CER)
Core EPS
for the full year down 1% at actual rate
of exchange to $4.28 (down 2% at CER)
2017
2016
2015
$2.37
$2.37
$2.77
$2.23
2017
2016
2015
$4.28
$3,578m
$4,145m
$3,324m
$6,855m
$6,721m
$6,902m
$4.28
$4.31
$4.26
Financial Review from page 66.
* As detailed on page 140, Total Revenue consists
of Product Sales and Externalisation Revenue.
For more information
within this Annual Report
For more information see
www.astrazeneca.com
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Strategic Report
AstraZeneca at a glance 2
Chairman’s Statement 4
Chief Executive
Officer’s Review 5
Marketplace 8
Business model and
life-cycle of a medicine 14
Strategy and Key
Performance Indicators 17
Business Review 22
Therapy Area Review 46
> Oncology 48
> Cardiovascular &
Metabolic Diseases 52
> Respiratory 56
> Other Disease Areas 60
Risk Overview 63
Financial Review 66
Corporate Governance
Chairman’s Introduction 86
Corporate
Governance Overview 87
Board of Directors 88
Senior Executive Team 90
Corporate
Governance Report 92
Audit Committee Report 100
Directors’
Remuneration Report 105
Financial Statements
Auditors’ Report 129
Consolidated Statements 135
Group Accounting Policies 139
Notes to the Group
Financial Statements 145
Group Subsidiaries
and Holdings 190
Company Statements 194
Company Accounting
Policies 196
Notes to the Company
Financial Statements 197
Group Financial Record 199
Additional Information
Development Pipeline 202
Patent Expiries of Key
Marketed Products 208
Risk 210
Geographical Review 221
Sustainability: supplementary
information 227
Shareholder Information 228
Trade Marks 234
Glossary 235
Index 239
This Annual Report is also available on our website,
www.astrazeneca.com/annualreport2017
AstraZeneca Annual Report & Form 20-F Information 2017 / Contents
1
AstraZeneca
at a glance
A global biopharmaceutical business
delivering medicines to patients through
innovative science and excellence in
development and commercialisation.
Our Purpose is to push the boundaries of science
to deliver life-changing medicines. We want to
be valued and trusted by our stakeholders as a
source of great medicines over the long term.
Our strategic priorities
Reflect how we are
working to achieve
our Purpose
1. Achieve Scientific Leadership
2. Return to Growth
3. Be a Great Place to Work
Distinctive R&D
capabilities:
Small molecules,
oligonucleotides
and other emerging
drug platforms,
as well as biologic
medicines, including
immunotherapies,
and innovative
delivery devices
Oncology
Our ambition is to
eliminate cancer
as a cause of death
through scientific
discovery and
collaborations.
We seek to achieve
this by means of
exploiting the
power of four
scientific platforms
11
new molecular entities (NMEs) in Phase III/
pivotal Phase II or under regulatory review
covering 19 indications
2017
2016
2015
2014
11
12
15
13
Cardiovascular &
Metabolic Diseases
We are following the
science to transform
how cardiovascular,
renal and metabolic
diseases are
understood, interact
and impact one
another
Respiratory
We aim to transform
the treatment of
respiratory disease
with our growing
portfolio of medicines
and scientific
research targeting
disease modification
We are also
selectively active
in the areas of
autoimmunity,
neuroscience
and infection
Oncology
$4,024m
20% of total
2016: $3,383m
2015: $2,825m
Tagrisso sales up 126%
(126% at CER) and approved
in more than 60 markets
Iressa sales of $528 million,
up 3% (3% at CER); Lynparza
sales of $297 million, up 36%
(35% at CER)
Imfinzi launched in the US in
May and sales of $19 million;
Calquence launched in the
US in October and sales of
$3 million
Cardiovascular &
Metabolic Diseases
$7,266m
36% of total
2016: $8,116m
2015: $9,489m
Brilinta sales of $1,079
million, up 29% (29% at
CER) and Forxiga sales
of $1,074 million, up 29%
(28% at CER)
Sales of Onglyza were
down by 15% (16% at
CER) to $611 million
Legacy sales: Crestor
down 30% (30% at CER)
to $2,365 million
Respiratory
Other Disease Areas
$4,706m
23% of total
2016: $4,753m
2015: $4,987m
$4,156m
21% of total
2016: $5,067m
2015: $6,340m
Symbicort sales of
$2,803 million, down 6%
(6% at CER)
Sales of Pulmicort up
11% (12% at CER) at
$1,176 million
Fasenra approved in the
US in November
Nexium sales down 4%
(3% at CER) to $1,952 million
Sales of Synagis up 1%
(1% at CER) to $687 million
Seroquel XR sales of $332
million, down 55% (55%
at CER)
FluMist/Fluenz sales of
$78 million, down 25%
(28% at CER)
A science-led
innovation strategy
Strategy and Key Performance
Indicators from page 17.
Broad R&D platform in
three main areas
Achieve Scientific Leadership
from page 23 and Therapy
Area Review from page 46.
Portfolio of specialty and
primary care products
(Product Sales)
2
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategic Report Oncology. See page 48
Cardiovascular & Metabolic Diseases. See page 52
Respiratory. See page 56
Global commercial
presence, with strength
in Emerging Markets
(Product Sales)
US
Emerging Markets
Europe
$6,169m
31% of total
2016: $7,365m
2015: $9,474m
$6,149m
30% of total
2016: $5,794m
2015: $5,822m
$4,753m
24% of total
2016: $5,064m
2015: $5,323m
Established
Rest of World
$3,081m
15% of total
2016: $3,096m
2015: $3,022m
Commercial Highlights:
Growth Platforms grew
by 5% (6% at CER) in 2017
and represented 68% of
Total Revenue
Return to Growth from page 26.
Emerging Markets: Sales
growth of 6% (8% at CER),
in line with long-term
ambitions. China sales in
the year grew by 12% (15%
at CER), supported by the
launches of new medicines
New CVMD: Sales growth
of 9% (9% at CER). Strong
performances from Farxiga
and Brilinta, with sales
exceeding $1 billion in 2017
Respiratory: Sales declined
by 1% (1% at CER). Sales of
Symbicort declined by 6% (6%
at CER) and Pulmicort sales
rose by 11% (12% at CER)
Japan: 1% growth in sales
(4% at CER), underpinned
by the growth of Tagrisso
and Forxiga, partly mitigated
by the impact of the entry
of generic competition to
Crestor in the second half
of the year
New Oncology: Sales
growth of 98% (98% at
CER). Sales of Tagrisso
reached $955 million to
become AstraZeneca’s
largest-selling Oncology
medicine
Our talented employees:
Committed to achieving
our Purpose in a sustainable
way and upholding our
Values by fostering a strong
AstraZeneca culture
Be a Great Place to Work from page 34.
61,100
employees
2016: 59,700
2015: 61,500
100%
of employees
trained in new
Code of Ethics
Strategic R&D centres
1. Cambridge, UK (HQ)
2. Gaithersburg, MD, US
3. Gothenburg, Sweden
Other R&D centres
4. California, US
5. Boston, MA, US
6. Alderley Park and Macclesfield, UK
7. Shanghai, China
8. Osaka, Japan
3
6
1
4
5
2
8
7
Our capital-allocation priorities:
Striking a balance between
the interests of the business,
our financial creditors and
shareholders, and supporting
our progressive dividend policy
Financial Review from page 66.
Distributions to
shareholders
Dividends
Dividend per
Ordinary Share
for 2017
$3,519m
2016: $3,561m
2015: $3,486m
1st interim
dividend
$0.90
Pence: 68.9
SEK: 7.40
Payment date:
11 September 2017
Proceeds from
issue of shares
$(43)m
2016: $(47)m
2015: $(43)m
2nd interim
dividend
$1.90
Pence: 133.6
SEK: 14.97
Payment date:
19 March 2018
Total
$3,476m
2016: $3,514m
2015: $3,443m
Total
$2.80
Pence: 202.5
SEK: 22.37
2016: $2.80
2015: $2.80
AstraZeneca Annual Report & Form 20-F Information 2017 / AstraZeneca at a glance
3
Strategic Report Chairman’s
Statement
Your Board of Directors is
focused on ensuring that
AstraZeneca returns to growth.
“ I share Pascal’s
excitement about
AstraZeneca’s
prospects as a
science-led
innovator...”
Medicines for the long term
The long-term prospects for the pharmaceutical
sector, however, remain encouraging.
AstraZeneca too is focused on the long term
and we are committed to operating in a way
that recognises the interconnection between
business growth, the needs of society and
the limitations of the planet. Our listing, for
another year, in the Dow Jones Sustainability
World and European Indices bears testament
to our continued achievements in this regard.
We are also one of only 25 companies to
be recognised by investor benchmarking
organisation, CDP, for both our climate
change and water stewardship programmes.
Returns to shareholders and outlook
In 2017, and against this background, Reported
earnings per share (EPS) of $2.37 represented a
decline of 14% (15% at CER). The performance
was driven by a decline in Total Revenue and
increased SG&A costs, partly offset by a net tax
benefit, continued progress on R&D cost control
and an increase in Other Operating Income and
Expense. Core EPS declined by 1% (2% at CER)
to $4.28. Given this performance, the Board
has declared a second interim dividend of
$1.90 per share (133.6 pence, 14.97 SEK)
bringing the dividend per share for the full
year to $2.80 (202.5 pence, 22.37 SEK). At the
same time, the Board reaffirmed its continued
commitment to our progressive dividend policy.
I share Pascal’s excitement about
AstraZeneca’s prospects as a science-led
innovator and its ability to deliver value for
patients and shareholders.
Leif Johansson
Chairman
One of the Board’s basic responsibilities is to
set our strategy and monitor progress towards
meeting our objectives, so that we bring our
science to patients, create value for society,
and reward you, our shareholders.
Executing our strategy
In 2017, we made encouraging progress
across all our therapy areas, as well as in
commercial execution and cost discipline.
After a number of years of falling revenue,
I am pleased we were able to report a growth
in Product Sales in the final quarter of 2017.
We are now positioned for Product Sales
growth from 2018.
I firmly believe that the significant progress
we have made against each of our three
strategic pillars vindicates the strategy we set
in 2013. As a Board, we have reviewed and
confirmed that strategy each year. We also
regularly review the supporting business
performance reports, including pipeline
updates and the results of key clinical trials.
Continued global uncertainty
The progress made by AstraZeneca
in executing its strategy is all the more
impressive given the continued challenges
we face. These include strong competition
from both branded and generic medicines
around the world. Pricing and reimbursement
also remains challenging in many markets –
including the US and Europe.
In Europe, there is the added uncertainty
of Brexit, the UK’s announcement under
Article 50 of its intention to leave the EU,
which has potential implications for both
the UK and the remaining EU27. We are
engaging with stakeholders and taking
actions to mitigate potential risks arising
from all possible outcomes.
CVMD:
Stem cell differentiating
into heart muscle
(cardiac regeneration)
4
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategic Report Chief Executive
Officer’s Review
While Total Revenue declined over
the year, it rose in the last quarter of
2017, a sign of how we are steadily
turning a corner.
S
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“ 2017 represented
a defining year
for AstraZeneca.
2018 will be
equally important...”
After experiencing the falling revenues of
recent years, as some of our best-selling
medicines lost exclusivity, our revenues
improved over the course of 2017. Strong
commercial execution helped us bring our
science to more patients, making the most
of our exciting pipeline. We made encouraging
progress in all main therapy areas and
delivered strong growth in China, our second
largest market.
Strategic progress
In my Review for 2017, I would therefore like to
pay tribute to our achievements and look more
closely at five medicines we launched during
the year that bring both very real benefits
to patients and underpin our future growth.
I also want to consider some of the challenges
we face as we work to realise the full potential
of our medicines and ensure we deliver our
science to patients around the world.
Returning to growth
Between 2011 and 2017, Product Sales in
Established Markets of our very successful
older products that have lost exclusivity
reduced by more than $13 billion (after taking
into account currency movements). We expect
to lose a further $1 billion of Product Sales
in 2018, in particular through the loss of
exclusivity for Crestor in Europe and Japan.
Overall, Total Revenue declined by 2% in 2017.
As shown in the table overleaf, Product
Sales declined by 5% from $21,319 million
to $20,152 million, including a decline in
Crestor sales of $1,036 million and Seroquel
XR sales of $403 million.
But now, a new AstraZeneca is emerging
from those headwinds, helped by our Growth
Platforms, which gathered momentum
during the year and grew by 5% (6% at CER).
They now represent 68% of Total Revenue.
The strategy we set ourselves in 2013
was based on three pillars. We wanted to:
> Achieve Scientific Leadership
> Return to Growth
> Be a Great Place to Work
Achieving scientific leadership
In the five years since then, we have
launched 13 new molecular entities (NMEs),
including four alone in 2017. And, in 2017,
we brought those medicines to more people
with 19 major regional approvals – a new
AstraZeneca record. It is an indicator
of our scientific leadership in our three
chosen therapy areas that we published
82 manuscripts in ‘high-impact’ scientific
publications compared to 75 in 2016, and
just seven in 2010. We are well on our way
to meeting our longer-term goals of delivering
one or more NMEs annually and sustainably
delivering two NMEs annually by 2020.
As well as launching five medicines last
year, we continued to unlock more uses for
existing treatments, including for Lynparza
and Tagrisso. In addition, Brilinta/Brilique
and Farxiga/Forxiga, by bringing benefits
to millions of patients, each exceeded
$1 billion in annual sales for the first time.
Externalisation Revenue in 2017 increased
by 37% (38% at CER) to $2,313 million.
Particularly significant was our global
strategic oncology collaboration with MSD to
co-develop and co-commercialise Lynparza
for multiple cancer types. We will also jointly
with MSD develop and seek to commercialise
our MEK inhibitor selumetinib, currently
being developed for multiple indications,
including thyroid cancer.
AstraZeneca Annual Report & Form 20-F Information 2017 / Chief Executive Officer’s Review
5
Chief Executive
Officer’s Review continued
19
19 NME and major LCM
regional approvals
68%
Five Growth Platforms represent
68% of Total Revenue
5
Five significant launches from
each of our three therapy areas
“ Our future
depends,
however,
not only on
the number of
projects but the
quality of our
science…”
6
Global Product Sales by therapy area
Actual
growth
%
2017
CER
growth
%
Sales
$m
Actual
growth
%
2016
CER
growth
%
Sales
$m
Actual
growth
%
2015
CER
growth
%
19
19
3,383
20
20
2,825
(10)
(1)
(18)
(5)
(10)
(1)
(17)
8,116
4,753
5,067
(5)
21,319
(14)
(5)
(20)
(10)
(13)
(3)
(19)
9,489
4,987
6,340
(8)
23,641
(7)
(3)
(2)
(23)
(9)
7
4
7
(16)
(1)
Sales
$m
4,024
7,266
4,706
4,156
20,152
Oncology
Cardiovascular &
Metabolic Diseases
Respiratory
Other Disease Areas
Total
Being a great place to work
As I talk to our employees around the world,
whether in our labs, offices or on the road with
our sales teams, I am constantly reminded
that our achievements are only made possible
by a skilled and talented team who live our
Values and are true to our Purpose.
It is they who are transforming AstraZeneca:
exploring new ways of working; improving
productivity; and embracing new technology.
The culture we are creating is aimed at
releasing the talents of our people and
enabling science to thrive. We know there
is more we can do but we are simplifying
how we work; improving diversity to reflect
the world and societies in which we work;
and increasing our focus on sustainability.
Like the Chairman, I am particularly pleased to
see the external recognition we are receiving
for our sustainability activities. We also have
cause to celebrate the start of our Healthy
Lung Asia Programme, the third anniversary of
our Healthy Heart Africa Programme and the
seventh year of our Young Health Programme
– a global disease prevention programme.
People at AstraZeneca know that scientific
progress is best made when we take smart risks
in following the science. We also know that
sometimes means we experience setbacks.
For example, in July, the initial results of the
MYSTIC trial showed that Imfinzi in combination
with tremelimumab for 1st line non-small cell
lung cancer (NSCLC) did not meet the primary
endpoint of progression-free survival (PFS).
The study for overall survival (OS) continues.
Following the Phase III programme results,
we decided to discontinue the development
of tralokinumab, an antibody in severe,
uncontrolled asthma. Earlier in the year,
we received a second Complete Response
Letter from the FDA for ZS-9, a potential new
medicine for hyperkalaemia, an important
area of unmet medical need, and we continue
to work towards its approval. Overall, however,
the number of successes far outweighed the
disappointments.
Delivering for patients
By way of example, five significant launches
from each of our three main therapy areas
in 2017 showed how our rebuilt pipeline is
starting to deliver our science to patients.
Imfinzi (durvalumab) received accelerated
approval from the FDA in May for the
treatment of advanced bladder cancer.
It was a significant moment both for patients
who had limited treatment options and for
us as it was our first immuno-oncology (IO)
approval. Imfinzi is the cornerstone of our
extensive IO programme, in development
across many tumour types, both as
monotherapy and with other medicines.
Later in May, we announced positive top-line
results for the Phase III PACIFIC trial as Imfinzi
demonstrated superior PFS in patients with
locally-advanced, unresectable NSCLC.
In October, the FDA granted accelerated
approval of Calquence (acalabrutinib) as a
treatment for relapsed or refractory mantle cell
lymphoma (MCL). This represented another
landmark for us as it was our first approval in
blood cancer and was approved less than five
months after its regulatory submission. With a
development programme including more than
35 clinical trials in multiple blood cancers,
the promise of Calquence is significant.
In February, the FDA approved Qtern (Forxiga
10mg and Onglyza 5mg fixed-dose combination)
as an adjunct to diet and exercise to improve
glycaemic control in adults with Type 2
diabetes who have inadequate control with
Forxiga (10mg) or who are already treated
with Forxiga and Onglyza.
Finally, in our Respiratory therapy area,
Bevespi Aerosphere (glycopyrrolate and
formoterol fumarate) was launched in
the US for COPD, using, for the first time,
our Aerosphere delivery technology that uses
a pressurised metered-dose inhaler (pMDI).
Fasenra (benralizumab) was approved in
November in the US for patients with severe
asthma with an eosinophilic phenotype and
is our first approved respiratory biologic
medicine. It is a new anti-eosinophilic
monoclonal antibody which has demonstrated
efficacy versus placebo in pivotal clinical trials
and is the first respiratory biologic with an
eight-week maintenance dosing regimen.
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategic Report can
Science
provide more
options for patients
with lung cancer
Sustainable delivery
If our launches are delivering benefits to
patients now, our pipeline is intended to
ensure we deliver those benefits sustainably
in the years to come. During 2017, we made
18 NME or life-cycle management regulatory
submissions in major markets and approved
nine Phase III investment decisions. These will
provide plenty of news in 2018 as we await
regulatory decisions and data read outs
from clinical trials. Looking further ahead,
we approved 14 NME Phase II starts or
progressions in 2017 which will shape our
future in the years to come.
Our future depends, however, not only on the
number of projects in our pipeline but the quality
of our science. In that regard, we are relentless
in our search for the best science – whether
it is in our own labs or those of others with
whom we collaborate. For example, we are
harnessing the power of genomics through
global collaborations and scientific innovation
with the aim of transforming drug discovery
and development. Additionally, by focusing
on quality rather than quantity, our IMED
Biotech Unit has seen a four-fold increase
in productivity, while costs have remained
broadly unchanged.
A great team
Great science needs great people, and great
people need great teams if they are going to
deliver their best work. I am therefore grateful
to all my colleagues at AstraZeneca for their
tremendous efforts in 2017. These efforts made
it a defining year and continued to transform
the organisation. I would also like to welcome
three new members to the Senior Executive
Team who joined during the year. Leon Wang
joined us in January with responsibility for
our International Region. Iskra Reic joined in
April with responsibility for Europe and David
Fredrickson took over from Jamie Freedman
in charge of the Oncology Business Unit in
October. I welcome the skills, experience
and diversity they bring to our discussions.
All three were internal appointments and
speak to the strength of our pipeline of talent.
Looking ahead
2017 saw two more of our medicines each
exceed $1 billion in annual sales, five significant
launches and more potential uses found for
existing medicines. We remain committed to
our progressive dividend policy. Our strategy
is working, propelled by a strong pipeline,
good sales performance and continued
cost discipline.
2017 represented a defining year for
AstraZeneca. 2018 will be equally important
as we seek to deliver the full potential of our
medicines and ensure we deliver our science
to patients around the world.
I am excited about AstraZeneca’s prospects
as a science-led innovator as I believe we will
deliver value for patients and shareholders in
the long term.
Pascal Soriot
Chief Executive Officer
Imfinzi PACIFIC trial
Lung cancer accounts for about
one quarter of all cancer deaths,
more than any other cancer.
With the emergence of new targeted
small molecules and immunotherapies,
significant progress is being made in
the treatment of patients for whom the
disease has already spread through
the body (metastatic). But for patients
with an earlier stage disease, known
as locally advanced unresectable
non-small cell lung cancer (NSCLC),
treatment options have been limited
and clinical outcomes remain poor.
Aiming to provide solutions to those
unmet medical needs, we have initiated
a broad immuno-oncology development
programme in NSCLC, using the
immune system to treat the cancer,
both in the locally advanced and
metastatic settings. For patients with
locally advanced NSCLC, where the
tumour cannot be surgically removed,
the current standard of care is
concurrent chemoradiation therapy
(CRT), followed by a period of active
surveillance during which patients
are monitored closely for progression.
Although most patients with locally
advanced disease initially respond
to CRT, the vast majority will advance
to metastatic disease within 12 months.
In the Phase III PACIFIC clinical trial,
Imfinzi demonstrated a statistically
significant and clinically meaningful
improvement in progression-free
survival following CRT, and reduced
the rate of distant metastasis formation.
No other Phase III trial has demonstrated
these results in more than two decades.
AstraZeneca Annual Report & Form 20-F Information 2017 / Chief Executive Officer’s Review
7
Strategic Report Marketplace
Despite global economic, political and social
challenges, the pharmaceutical industry is
expected to enjoy long-term growth. This is
due to favourable demographic trends and
significant unmet medical needs.
“ Pricing and
reimbursement
remain
challenging
in many
markets.”
The global context
> Global cyclical economic upswing continues, however:
– Political and economic uncertainty resulting from the UK Brexit vote
and US election of Donald Trump persists
– Global recovery vulnerable and may not be sustainable
The October 2017 World Economic Outlook
of the International Monetary Fund (IMF)
highlighted that the global cyclical upswing
that had begun during 2016 was continuing
to gather strength, with accelerating growth
in Europe, Japan, China and the United States.
However, both political and economic
uncertainty continues following the Brexit
vote in the UK and the election of Donald
Trump to president of the US. The IMF goes
on to suggest that the global recovery might
not be sustainable and is also vulnerable to
serious risks.
The pharmaceutical sector
> Demand for healthcare continues to increase, but challenges remain
> US is the largest global market, with 45% of global sales
> Strong growth in 2017, primarily from emerging markets
> Emerging market growth predicted to remain strong to 2021
Against this uncertain background, however,
the demand for healthcare continues to
increase. While this is a favourable trend
for long-term industry growth, challenges
remain. These include expiring patents,
competition from and growing use of generic
medicines, obtaining regulatory approval,
securing reimbursement for new medicines,
improving R&D productivity, and attaining
pricing and sales sufficient to generate
revenue and sustain the cycle of innovation.
Looking ahead, and as shown on the page
opposite, expanding patient populations and
continuing unmet medical need are expected
to contribute to growth in pharmaceutical
sales. The table on estimated pharmaceutical
sales and market growth to 2021 overleaf
also illustrates that we expect the developing
markets, including Africa, Middle East, CIS,
Indian subcontinent, South East and East
Asia, and Latin America, to continue to fuel
pharmaceutical growth.
As shown in the table overleaf, global
pharmaceutical sales grew by 2.9% in 2017.
Established Markets saw average revenue
decline of 2.7% and Emerging Markets
revenue grew at 7.7%. The US, Japan,
China, Germany and France are the world’s
top five pharmaceutical markets. In 2017,
the US had 45.5% of global sales (2016:
45.9%; 2015: 46.0%).
8
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategic Report Expanding patient populations
Estimated world
population (UN, bn)
Estimated population
over the age of 60 (WHO, bn)
2100
2050
2030
2017
2050
2015
11.2
9.8
8.6
7.6
80%
By 2050, 80% of all older
people will live in low- and
middle-income countries.
2.0
0.9
Unmet medical need
Prevalence of NCDs
40m
Oncology
Estimated annual
cancer cases (m)
2032
2012
CVMD
The prevalence of non-communicable diseases (NCDs), such as cancer
and cardiovascular, metabolic and respiratory diseases, is increasing
worldwide. NCDs are often associated with ageing populations
and lifestyle choices, including smoking, diet and lack of exercise.
The WHO estimates that NCDs kill 40 million people each year and
disproportionately affect low- and middle-income countries where
nearly three quarters of these deaths occur.
8.8m
Cancer is a leading cause of
death worldwide and accounted
for 8.8 million deaths in 2015.
70%
Approximately 70% of the world’s
cancer deaths occur in low- and
middle-income countries.
22
14
17.5m
More than 17.5 million
people worldwide die from
cardiovascular (CV) disease
every year.
$3.76tn
From 2011 to 2025, the cumulative
economic losses in low- and
middle-income countries
from CV disease are projected
to be $3.76 trillion.
$2.5tn
The total economic burden
of CV disease in upper
middle-income countries
through 2025 is estimated
to be $2.52 trillion.
Respiratory
315m
Some 315 million adults in
the world have asthma, with
prevalence expected to rise.
It causes some 346,000 deaths
annually. Severe asthma accounts
for ~10% of patients but ~50% of
the economic burden of asthma.
329m
Globally, some 329 million
people have chronic obstructive
pulmonary disease (COPD), and
this number is expected to rise.
At initial diagnosis, ~31% of
COPD patients have severe or
very severe forms of this disease.
New approaches in the
treatment of asthma
AstraZeneca is developing
a therapy aimed at producing
long-term benefit in asthma by
addressing imbalances in the
immune system that may be an
underlying cause of the disease.
Rather than simply treating
symptoms by relaxing airway
constriction and dampening
inflammation in the lung, this
therapy aims to target toll-like
receptor 9 in dendritic cells
in the lung.
This could potentially
change the way immune cells
communicate with each other
and restore a healthy balance
to the immune system.
AstraZeneca Annual Report & Form 20-F Information 2017 / Marketplace
9
Strategic Report Global pharmaceutical sales
World ($bn)
US ($bn)
Europe ($bn)
2017
2016
2015
996
968
906
2017
2016
2015
453
444
416
2017
2016
2015
214
209
197
$996bn (2.9%)
$453bn (2.2%)
$214bn (2.8%)
Established ROW ($bn)
Emerging Markets ($bn)
2017
2016
2015
112
115
109
2017
2016
2015
$112bn (-2.7%)
$216bn (7.7%)
216
201
183
Data based on world market sales using
AstraZeneca market definitions as set out
in the Market definitions on page 235. Source:
IQVIA, IQVIA Midas Quantum Q3 2017
(including US data). Reported values and
growth are based at CER. Value figures are
rounded to the nearest billion and growth
percentages are rounded to the nearest tenth.
Estimated pharmaceutical sales and market growth – 2021
North America
EU
Other Europe (Non-EU countries)
$596bn
4.3%
$237bn
2.8%
Japan
Oceania
South East Asia and East Asia
$80bn
-1.4%
Latin America
Africa
$83bn
6.2%
$16bn
0.9%
$26bn
6.4%
CIS
$23bn
8.5%
$207bn
6.0%
$28bn
8.0%
Middle East
Indian subcontinent
$25bn
4.2%
Estimated pharmaceutical sales – 2021.
Data is based on ex-manufacturer prices
at CER. Source: IQVIA.
$41bn
10.1%
Estimated pharmaceutical market growth.
Data is based on the compound annual
growth rate from 2016 to 2021. Source: IQVIA.
Marketplace
continued
10
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategic Report Increased transparency of data used for
regulatory decision-making continues to be
an area of interest to regulatory authorities
in the EU and the US. We believe that
transparency enhances the scientific
understanding of how our medicines work
and is in the medical interest of our patients.
For more information about biosimilars, please see
Loss of exclusivity and genericisation on page 12.
Our strategic response
> Engage in responsible testing, manufacturing
and marketing in compliance with regulations.
> Maintain effective working relationships
with health authorities worldwide, including
the FDA in the US, the EMA in the EU,
the PMDA in Japan, and the CFDA in China.
> Continue to monitor the situation in the EU,
as well as the broader global regulatory
landscape, to ensure that we meet current
and future drug approval requirements.
> Consistent with a long-standing commitment
to making information about our clinical
research publicly available, we continue to
work with regulators and other stakeholders
to ensure the appropriate level of data
transparency.
> Continue to collaborate with industry,
academia and government bodies to
drive innovation, streamline regulatory
processes, and define and clarify approval
requirements for innovative drug and
biologic products.
The pharmaceutical sector:
opportunities and challenges
Advances in science and technology
Scientific innovation is critical to addressing
unmet medical need and the delivery of
new medicines will rely on a more advanced
understanding of disease and the use of new
technology and approaches. These include
precision medicines, genomics and digital
healthcare. Scientific and technological
breakthroughs in small molecules and in
biologics are also helping accelerate
innovation. Innovation might also be
accelerated through the use of large volumes
of biological data from disease biology and
genomics. Such advances have resulted in
increased numbers of FDA Priority Reviews
and Breakthrough Designations.
The cost of developing new medicines
continues to rise with global R&D investment
expected to reach more than $160 billion in
2017. Regulators and payers are demanding
greater evidence of the comparative
effectiveness of medicines. On the other
hand, a greater emphasis on Proof of Concept
is helping to improve productivity and reduce
costs by showing the potential efficacy of
drugs earlier in the development process.
Against this background, the FDA approved
46 novel drugs in 2017 compared with 22 in
2016 and 45 in 2015. Nevertheless, the risk
of any products failing at the development
or launch stages, or not securing regulatory
approvals continues.
Our strategic response
> Continue to focus on innovative science
in our chosen therapy areas – secured
19 approvals of NMEs or major LCM
projects in major markets in 2017.
> Work to develop a diverse range of
drug modalities such as modified RNA,
antisense oligonucleotides and bi-specific
monoclonal antibodies (mAbs).
> Maintain scientific work on pioneering
technologies including genome editing
with CRISPR/Cas9, and machine learning
and artificial intelligence.
> Our Precision Medicine and Genomics
team is strengthening our ability to match
targeted medicines to patients who need
them most.
> Partner with academia, governments,
industry and scientific organisations to
allow us to access the best and most
advanced science and technology.
> Commitment to science is reflected in
our co-location near bio-science clusters
in Cambridge, UK; Gaithersburg, MD, US;
and Gothenburg, Sweden.
> Keep up our track record of high-impact
publications with 82 in 2017 – compared
with 75 in 2016.
For more information, please see Risk from page 210
and Achieve Scientific Leadership from page 23.
Regulatory environment
The public’s expectation of safe, effective
and high-quality medicines is reflected in a
highly regulated biopharmaceutical industry.
At the same time, we are seeing instances
of government policy and regulation being
introduced to stimulate innovation in drug
development, and of regulatory health
authorities implementing programmes
intended to speed up patient access to
transformative medicines. In the US, for
example, the 21st Century Cures Act of 2016
and the FDA Reauthorization Act of 2017
focus on accelerating the discovery,
development and delivery of innovative new
treatments for patients, and modernising the
US regulatory environment.
In Japan, the PMDA has adopted a new
conditional early approval system to speed
patient access to medicines addressing
unmet medical needs requiring the conduct
of confirmatory clinical studies. In China,
recent proposed changes in regulations focus
on improving the ability of pharmaceutical
companies to deliver innovative medicines to
the marketplace in a more timely manner and
providing treatments for diseases where there
is an unmet medical need.
Furthermore, international harmonisation of
regulatory requirements is being advanced in
many areas through organisations such as the
International Council for Harmonization (ICH),
the Pharmaceutical Inspection Cooperation
Scheme (PIC/S), the Pan American Network
for Drug Regulatory Harmonization (PANDRH),
and the International Conference of Drug
Regulatory Authorities (ICDRA).
There are also uncertainties. In Europe,
they include how the UK will work with the
EU regulatory system following its exit from
the EU, and the relocation of the EMA from
London to Amsterdam in the Netherlands
(and the likely disruption this will cause to
regulatory processes). The impact of the
implementation of the EU Clinical Trials
Regulation on UK-based clinical trials needs
to be assessed in the context of Brexit
outcomes. The EMA has just over a year to
prepare for the move and take up operations
in Amsterdam on 30 March 2019 at the latest.
In the area of biosimilar development, regulatory
requirements for the registration of biosimilar
products continue to evolve and become better
defined. However, significant areas of regulatory
policy are still evolving. Among these are
transparency of data regarding level of evidence
to support approval of claims for biosimilarity
in labelling, standards for interchangeability and
pharmaceutical substitution, and traceability
of pharmacovigilance reports through naming
conventions that permit differentiation
of products.
AstraZeneca Annual Report & Form 20-F Information 2017 / Marketplace
11
Strategic Report Marketplace
continued
Pricing of medicines
Pricing and reimbursement remain
challenging in many markets. We continue
to see examples where healthcare services
(including pharmaceuticals) are highly
regulated by governments, insurers and other
private payers through various controls on
pricing and reimbursement. Implementation of
cost containment reforms and shifting market
dynamics are further constraining healthcare
providers, while difficult economic conditions
burden patients who have out-of-pocket
expenses relating to their medicines.
Pharmaceutical companies are now expending
significant resources to demonstrate the
economic as well as the therapeutic value
of their medicines.
These efforts are all the more relevant given
the shift in the industry over the last decade
from primary care to a specialty care focus.
Specialty drugs are used for the treatment
of complex, chronic, or rare conditions such
as cancers and hepatitis C. Pricing for these
products reflects the higher value they bring
to patients and payers, as well as the smaller
patient numbers as a result of targeted
treatment options. These higher drug costs
have heightened the desire and need for payers
to manage their expenditure and drug utilisation.
Pricing controls and transparency measures
remain a priority in key markets such as China,
where the National Reimbursement Drug
List (NRDL) was updated in 2017. In Europe,
governments continue to implement and
expand price control measures for medicines
and, in other markets, there has been a trend
towards rigorous and consistent application
of pricing regulations, including reference
pricing. For example, in Saudi Arabia prices
are set according to the lowest of a basket of
reference market prices.
12
We are also experiencing pressure on
pricing in the US from a number of quarters.
For example, political leadership is
considering drug pricing controls and
transparency measures at the national and
local levels. Changes to the Affordable Care
Act (ACA) and ongoing efforts to reform
the healthcare system continue to create
uncertainty in the market. While policymakers
in the US have advocated for repeal and
replacement of the ACA, full repeal appears
unlikely. Thus, the administration has taken
steps to significantly change ACA regulations,
including repealing the individual mandate
provision of the ACA which requires citizens
to have insurance or pay a penalty. Changes
to ACA regulations may have downstream
implications for coverage and access.
With respect to healthcare reform more
broadly, modifications to Medicare and other
government programmes including changes
aimed at reducing drug prices, such as
importation schemes, are possible. Further,
the healthcare industry may be used as
a means to offset government spending.
US federal agencies continue to propose
and implement policies and programmes with
the goal of expanding access and coverage,
reducing costs, increasing transparency,
transforming the delivery system, and
improving quality and patient outcomes.
For more information about pricing and price controls
in the US and other major markets, please see Return
to Growth from page 26 and Risk from page 210.
Our strategic response
> Internal pricing policy based on
four principles: value, sustainability,
access and flexibility.
> Aim to enable our Emerging Markets to
deliver better and broader patient access
through innovative and targeted equitable
pricing strategies and practices.
> Partner with industry, government and
academia to find ways to bring new
medicines to market more quickly
and efficiently, as well as foster an
environment that facilitates medical
and scientific innovation.
> Engage with policymakers to support
improvements in access, coverage,
care delivery, quality of care and patient
care outcomes.
> Consider innovative outcomes contracts
with payers as a mechanism to pay for value.
> Evaluate the use of real-world evidence to
further bolster the evidence base around
therapeutic and economic value.
Loss of exclusivity and genericisation
Patent protection for pharmaceutical products
is finite and, after protection expires, payers,
physicians and patients gain greater access
to generic alternatives (both substitutable and
analogue) in many important drug classes.
These generic alternatives are primarily lower
priced because generic manufacturers are
largely spared the costs of R&D and market
development. As a result, demand for
generics is high. For prescriptions dispensed
in the US in 2017, generics constituted 84.9%
of the market by volume (2016: 84.4%).
Generic competition can also result from
patent disputes or challenges before patent
expiry. Increasingly, generics companies
are launching products ‘at risk’, for example,
before resolution of the relevant patent
litigation. This trend, which is likely to continue,
creates significant market presence for the
generic version while the litigation remains
unresolved. Given the unpredictable nature
of patent litigation, some companies have
settled such challenges on terms acceptable
to the innovator and generic manufacturer.
While competition authorities generally accept
such agreements as a legitimate way to settle
these disputes, they have questioned some
settlements as being anti-competitive.
Biologics typically retain exclusivity for longer
than traditional small molecule pharmaceuticals,
with less generic competition. With limited
experience to date, the substitution of
biosimilars for the original branded product
has not followed the same pattern as generic
substitution in small molecule products and,
as a result, erosion of the original biologic’s
branded market share has not been as rapid.
This is due to biologics’ complex manufacturing
processes and the inherent difficulties in
producing a biosimilar, which could require
additional clinical trials. However, with regulatory
authorities in Europe and the US continuing to
implement abbreviated approval pathways for
biosimilar versions, innovative biologics are
likely to face increased competition. Similar to
biologics, some small molecule pharmaceutical
products are in complex formulations and/or
require technically challenging manufacturing
and thus may not follow the pattern of
generic market erosion seen with traditional,
tableted pharmaceuticals. For those products,
the introduction of generic alternatives (both
substitutable and analogue) can be slower.
For more information, please see Intellectual Property
from page 32.
Our strategic response
> Investment in innovative research and
development, both internally and with
partners, to advance novel therapeutics
through the pipeline.
> A strong patent strategy – from building
robust patent estates that protect our
pipeline and products to defending and
enforcing our patent rights.
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategic Report “ Scientific
innovation
is critical to
addressing unmet
medical need.”
Competition
Our competitors include large, research-
based pharmaceutical companies (similar
to AstraZeneca) that discover, develop and
sell innovative, patent-protected prescription
medicines and vaccines, smaller biotechnology
and vaccine businesses, and companies
that produce generic medicines. However,
the pharmaceutical market is highly
competitive. For example, our Diabetes and
Respiratory franchises continue to see pricing
pressure. In immuno-oncology, the large
number of clinical trials being carried out
highlight the competitive nature of this area.
While our peers face similar challenges,
they tackle them in different ways. Some
companies have pursued a strategy focused
on branded prescription pharmaceuticals.
Others have diversified by acquiring or
building branded generics businesses
or consumer portfolios, or have looked to
geographic expansion, especially in Emerging
Markets. Companies are also focused on
improving R&D productivity and operational
efficiency. Across the industry, business
development deals (including licensing and
collaborations) and competition for business
development opportunities have continued.
The speed of technological change,
including digital health, and the development
of artificial intelligence also threatens to
disrupt existing technologies and undermine
current business models.
Our strategic response
> To be a ‘pure-play’, global, science-led
biopharmaceutical company that focuses
on the discovery, development and
commercialisation of prescription
medicines, primarily for the treatment of
unmet medical need in three therapy areas.
> Establishing priorities that reflect our focus
on innovative science, emerging drug
platforms and new technologies.
For more information, please see Strategy and
Key Performance Indicators from page 17 and
Risk from page 210.
Trust
The pharmaceutical industry faces challenges
in building and maintaining its reputation
and the trust of its stakeholders. This reflects
past sales and marketing practices, pricing
practices by some, as well as legal disputes
between pharmaceutical companies and
governmental and regulatory authorities.
To address these challenges, companies are
seeking to strengthen a culture of ethics and
integrity, adopt higher governance standards
and improve relationships with employees,
shareholders and other stakeholders.
Numerous companies, including those
in the pharmaceutical industry, have been
investigated by the China Public Security
Bureau following allegations of bribery,
and criminal and financial penalties have
been imposed. In the US, investigations by
the DOJ and SEC under the Foreign Corrupt
Practices Act are continuing across the
industry, as are investigations by the
UK Serious Fraud Office under the UK
Bribery Act. During 2017, there were also
Congressional hearings in the US related
to pricing while, in the UK, the Competition
and Markets Authority has been investigating
allegations of excessive charging.
Sustainability programmes, particularly
focused on access to healthcare, seek to
build trust in pharmaceutical companies
as providers of medicines for the long term.
More generally, if we want to be trusted by our
stakeholders, we need to operate in a way that
meets their expectations, thereby maintaining
and building our reputation with them.
The reputation of the sector can be
undermined by counterfeit medicines which
can fail to provide effective treatment and
sometimes cause direct harm to patients.
They represent a global challenge and
companies work with health authorities,
industry bodies and law enforcement
agencies to bring those involved to justice.
Our strategic response
> Furthering ethics and transparency,
and broadening access to healthcare
are two of our sustainability priorities.
> Launched an updated Code of Ethics built
on a refusal to tolerate bribery or any other
form of corruption.
> Enhanced programme to protect patients
from dangers of illegally traded medicines.
For more information about ethics, please see Ethical
sales and marketing from page 40.
AstraZeneca Annual Report & Form 20-F Information 2017 / Marketplace
13
Strategic Report Business model
and life-cycle
of a medicine
AstraZeneca at a glance summarises our
business. In this section, we review our
business model – how we create financial
value and the resources we need in order
to bring benefits to patients.
Why AstraZeneca?
We are a global biopharmaceutical
business which has:
> A science-led innovation strategy
> An R&D platform across small
molecules and biologics
> Three main therapy areas:
Oncology, Cardiovascular &
Metabolic Diseases, Respiratory
> A portfolio of specialty care
and primary care medicines
> A global footprint
Our Purpose
We push the boundaries of science to deliver life-changing medicines.
Our Purpose underpins everything we do. It gives us a reason to
come to work every day. It reminds us why we exist as a Company.
It helps us deliver benefits to patients and create value for shareholders.
Our Values
We follow the science.
We put patients first.
We play to win.
We do the right thing.
We are entrepreneurial.
Our Values determine how we work together and the behaviours that
drive our success. Our Values guide our decision making, define our
beliefs and foster a strong AstraZeneca culture.
Our Sustainability
We want to be valued and trusted by our stakeholders as a source
of great medicines over the long term.
Our sustainability priorities – broadening access to healthcare, furthering
ethics and transparency, and protecting the environment – underpin our
business model and support the delivery of our business strategy.
Business Review from page 22.
Who we are
Nucleotide therapies:
antiMRNA
14
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategic Report What we do
Our business activities span the entire life-cycle of a medicine.
How we create financial value
Investment
We invest in the discovery, development, manufacturing
and commercialisation of our pipeline of innovative small
molecule and biologic prescription medicines, including
targeted business development through collaboration,
in-licensing and acquisitions.
Revenue generation
We generate revenue from Product Sales of our existing
medicines and Growth Platform launches, as well as from
our externalisation activities. Our focus is on creating
products that facilitate profitable future revenue generation,
while bringing benefits to patients.
Reinvestment
We reinvest in developing the next generation of innovative
medicines and in our Growth Platforms that provide the
platform for future sources of revenue in the face of recent
losses of key product patents.
Life-cycle of a medicine
Investment in dis
Research and d
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elo
c
o
v
e
r
y
,
d
s
r n
Reinvest m e nt o f r e t u
sivity
Outputs
> Improved health
> Returns to
shareholders
Inputs
> Applying our
resources to
meet unmet
medical need
u
l
c
x
e
-
t
s
o
P
s
r
a
e
y
+
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3
4
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r
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–
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tected medicines Reven
ate
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mercialisation of p
Research and development phases 5–15 years
Launch phase 5–15 years
1. Find potential medicine
4. Phase II studies
7. Launch new medicine
> Identify unmet medical need aligned with our
three therapy areas and undertake scientific
research to identify potential new medicines.
> Initiate process of seeking patent protection.
2. Pre-clinical studies
> Conduct laboratory and animal studies to
understand if the potential medicine is safe to
introduce into humans and in what quantities.
> Conduct studies on small- to medium-sized
groups of patients to test effectiveness and
tolerability of the medicine and determine
optimal dose.
> Design Phase III studies to generate
data needed for regulatory approvals
and pricing/reimbursement globally.
5. Phase III studies
> Determine likely efficacy, side effect profile
> Engage in studies in a larger group
and maximum dose estimates.
3. Phase I studies
> Begin clinical studies with small groups of
healthy human volunteers (small molecules)
or patients (biologics) to understand how the
potential medicine is absorbed into the body,
distributed around it and excreted.
of patients to gather information about
effectiveness and safety of the medicine
and evaluate the overall benefit/risk profile.
preparation for its launch.
6. Regulatory submission and pricing
> Seek regulatory approvals for manufacturing,
> Determine approximate dosage and identify
marketing and selling the medicine.
side effects.
> Submit clinical data to regulatory authorities
(and, if requested, generate further data
increasingly in real-world settings) to
demonstrate the safety and efficacy of
the medicine to enable them to decide
on whether to grant regulatory approvals.
Note: This is a high-level overview of a medicine’s life-cycle and is illustrative only. It is neither intended to, nor
does it, represent the life-cycle of any particular medicine or of every medicine discovered and/or developed by
AstraZeneca, or the probability of success or approval of any AstraZeneca medicine.
> Raise awareness of patient benefit and
appropriate use, market and sell medicine.
> Clinicians begin to prescribe medicines
and patients begin to benefit.
> Continuously monitor, record and analyse
reported side effects. Review need to update
the side effect warnings to ensure that
patients’ wellbeing is maintained.
> Assess real-world effectiveness, and opportunities
to support patients and prescribers, to achieve
maximum benefit from the medicine.
8. Post-launch research and development
benefit/risk profile of the medicine in larger
and/or additional patient populations.
> Life-cycle management activities to broaden
understanding of a medicine’s full potential.
> Consider additional diseases or aspects of
disease to be treated by or better ways of
administering the medicine.
> Submit data packages with requests for
life-cycle management to regulatory
authorities for review and approval.
Post-exclusivity 20+ years
9. Post-exclusivity
> Patent expiry and generic entry.
> Reinvestment of returns.
> Initiate branding for the new medicine in
> Conduct studies to further understand the
AstraZeneca Annual Report & Form 20-F Information 2017 / Business model and life-cycle of a medicine
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Strategic Report
Business model
and life-cycle
of a medicine
continued
What does our
business model require
to be successful?
A talented and diverse workforce
We need to acquire, retain and develop a
talented and diverse workforce united in
pursuit of our Purpose and Values and
fostering a strong AstraZeneca culture.
See Employees from page 35.
A leadership position in science
We need to achieve scientific leadership if we
are to deliver life-changing medicines. To that
end, we need to focus on innovative science,
prioritise and accelerate our pipeline and
transform our innovation and culture model.
See Achieve Scientific Leadership from page 23.
Effective partnerships
We need business development, specifically
partnering, which is an important element
of our business model. It supplements and
strengthens our pipeline and our efforts to
achieve scientific leadership.
See Partnering on page 31.
61,100
employees
$5.8bn
invested in our science
>600
collaborations worldwide
Commercialisation skills
We need a strong global commercial presence and
skilled people to ensure that we can successfully
launch our medicines, that they are available when
needed and that patients have access to them.
>100
countries in which
we are active
See Return to Growth from page 26.
Intellectual property (IP)
We need to create and protect our IP rights.
Developing a new medicine requires significant
investment over many years, with no guarantee of
success. For our investments to be viable, we seek
to protect new medicines from being copied for a
reasonable period of time through patent protection.
>100
countries where we
obtain patent protection
See Intellectual Property from page 32.
A robust supply chain
We need a supply of high-quality medicines,
whether from one of the 31 Operations sites
in 18 countries in which we manufacture or
the $13 billion we spend on the purchase of
goods, services and active pharmaceutical
ingredients (APIs).
See Operations from page 30 and
Supply chain management on page 42.
Financial strength
We need to be financially strong, including
having access to equity and debt finance,
to bear the financial risk of investing in the
entire life-cycle of a medicine.
See Financial Review from page 66.
$13bn
spent with suppliers
$4bn
net cash flow from
operating activities
16
How we add value
Improved health
Continuous scientific innovation is vital
to achieving sustainable healthcare which
creates value by:
> improving health outcomes and
transforming patients’ lives
> enabling healthcare systems to
reduce costs and increase efficiency
> improving access to healthcare
and healthcare infrastructure
> helping develop the communities
in which we operate through local
employment and partnering.
Financial value
Revenue from our Product Sales and
externalisation activities generates
cash flow, which helps us:
> fund our investment in science and
Growth Platforms to drive long-term value
> follow our progressive dividend policy
> meet our debt service obligations.
This involves balancing the interests of our
business, financial creditors and shareholders.
See Financial Review from page 66.
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategic Report Strategy
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Strategy and Key
Performance Indicators
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We announced our strategy for returning to growth in 2013. We moved on from the first
phase in our journey, focused on rebuilding our pipeline, in 2015. The second stage is
crucial as we drive our Growth Platforms forward, continue to launch new medicines
and make them available to patients. As we look ahead to 2020 and beyond, continued
investment in our pipeline will keep us on track to return to sustainable growth in line
with our targets.
In 2017, our strategic priorities were focused under the following three pillars:
1. Achieve Scientific Leadership
We are focusing our science
on three therapy areas and
accelerating our pipeline. We
are also transforming our way
of working.
2. Return to Growth
We are focusing on our Growth
Platforms and transforming the
business through specialty care,
devices and biologic medicines.
Targeted business development
reinforces our efforts.
3. Be a Great Place to Work
We are evolving our culture
and simplifying our business.
We want to attract and retain
the best talent.
We also want to do business
sustainably.
Achieve Group Financial Targets
Effective delivery of our three strategic pillars will help us achieve our financial targets.
We aim to deliver great medicines to patients while maintaining cost discipline and a flexible cost base.
We wish to maintain a progressive dividend policy and a strong balance sheet.
The following pages present our Key Performance Indicators (KPIs) for 2017. Our KPIs
are aligned to our three strategic priorities and are the indicators against which we
measure our productivity and success. We also monitor financial targets, which indicate
whether we have delivered our strategy in a way that allows us to continue to operate as
a successful business.
Our remuneration arrangements are also aligned to our strategic priorities as set out
in our Group scorecard and reflected in our KPIs. Achieve Scientific Leadership, Return to
Growth and Achieve Group Financial Targets are included in the annual bonus targets.
Strategic Report
For more information, see the Directors’ Remuneration Report from page 105.
Our operating model comprises key business functions that are aligned to delivery
of our strategy. In addition, our therapy areas provide strategic direction for each
of our disease areas all the way from early-stage development to commercialisation.
Our Strategic Report therefore encompasses two types of review:
Business Review
Provides information on key activities and
progress within each of the three strategic pillars.
Within this section we report on our pipeline,
the key business functions that are integral to
delivering our strategy (R&D and Commercial),
as well as those that we see as vital strategic
enablers (Partnering and Operations) or underpin
our business model (Intellectual Property).
We also report on our employees and how
we do business sustainably.
Therapy Area Review
Looks at each of our therapy areas,
their developments and focus for 2017,
as well as what is in the pipeline.
We also review the risks that might
challenge the delivery of our strategy.
For more information:
Business Review from page 22;
Therapy Area Review from page 46;
Risk from page 210.
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategy and Key Performance Indicators
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Messenger RNA being read
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signalling proteins
Strategy and Key
Performance Indicators
continued
Strategic priorities
Key Performance Indicators
Achieve Scientific Leadership
Transform our innovation
and culture model
Focus on novel science, such as
immune-mediated therapy combinations
and precision medicine.
Co-location near bioscience clusters at
three strategic centres in Cambridge, UK;
Gaithersburg, MD, US; and Gothenburg,
Sweden helps to leverage our capabilities
and foster collaboration with leading
scientists and research organisations.
Accelerate through business development
Work to reinforce our therapy areas and
strengthen our portfolio and pipeline
through targeted business development,
including collaborations, in-licensing
and acquisitions.
Collaborate strategically to broaden and
accelerate the development of pipeline
assets (externalisation) and divest
non-core assets to realise value.
Focus on innovative science
in three main therapy areas
Focus on Oncology, Cardiovascular &
Metabolic Diseases, and Respiratory.
We are also selectively active in
autoimmunity, infection and neuroscience.
Work across small molecules,
oligonucleotides and other emerging
drug platforms, as well as biologic
medicines, including immunotherapies,
and innovative delivery devices that can
offer choice to patients.
Prioritise and accelerate our pipeline
Accelerate and invest in key R&D
programmes. At the end of 2017, 11 NMEs
were in Phase III or under regulatory
review, covering 19 indications.
Four NMEs were approved in 2017.
Having met the targets for 2016 we had
set ourselves in 2013, we are now on
target to meet our longer-term goals of
delivering one or more NMEs annually
and sustainably delivering two NMEs
annually by 2020.
Strengthen our early-stage pipeline
through novel science and technology.
Achieve Scientific Leadership from page 23;
Therapy Area Review from page 46;
Development Pipeline from page 202.
18
NME Phase II starts/progressions
Phase III investment decisions
14
2017
2016
2015
¹ 15 for determining annual bonus.
See page 112.
9
2017
2016
2015
14
16
11
9
7
6
NME or LCM project regulatory
submissions in major markets
NME and major LCM regional approvals
19
11
6
18
2017
2016
2015
19
2017
2016
2015
18
14
12
¹ 13 for determining annual bonus.
² 13 for determining annual bonus.
See page 112.
Clinical-stage strategic transactions
7
2017
2016
2015
7
10
10
“ We delivered four new
molecular entities (NMEs)
in 2017 and are on target to
meet our goals of delivering
one or more NMEs annually
and sustainable delivery of
two NMEs annually by 2020.”
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategic Report S
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Strategic priorities
Key Performance Indicators
Return to Growth
Focus on Growth Platforms
Emerging Markets – Focus on delivering
innovative medicines by investing in
Emerging Markets capabilities, with a
focus on China and other leading markets,
such as Brazil and Russia. The ongoing
transformation of our capabilities is
supporting new medicines and improving
access and affordability.
Respiratory – Work to maximise pipeline
value, devices and medicines to fulfil
unmet medical need and improve patient
outcomes in asthma and COPD.
New CVMD – From 2017, New CVMD
Growth Platform combined our broad
and innovative Diabetes franchise,
our cardiovascular medicine, Brilinta/
Brilique, and any new launches within
renal disease treatment.
Japan – Strengthen our Oncology franchise
and work to maximise the success of
our Diabetes medicines and established
medicines: Symbicort, Nexium and Crestor.
New Oncology – Aim to deliver six new
cancer medicines to patients by 2020.
We have delivered four New Oncology
medicines to date: Lynparza, Tagrisso,
Imfinzi and Calquence that make a
meaningful difference to patients.
New Oncology also includes Iressa (US).
Transform through specialty care,
devices and biologics
Biologic medicines now account for
about half of our NMEs in development,
potentially enhancing asset longevity.
A greater focus on innovative and
differentiated delivery devices affords
patients choice while ensuring product
durability. Our new specialty care portfolio
is expected to balance our strength in
primary care medicines.
Emerging Markets
Respiratory
$6,149m
Product Sales
$4,706m
Product Sales
2017
2016
2015
$6,149m
$5,794m
$5,822m
2017
2016
2015
$4,706m
$4,753m
$4,987m
Actual growth
2017 +6%
2016 0%
2015 0%
CER growth
2017 +8%
2016 +6%
2015 +12%
Actual growth
2017 -1%
2016 -5%
2015 -2%
CER growth
2017 -1%
2016 -3%
2015 +7%
New CVMD
Japan
$3,567m
Product Sales
$2,208m
Product Sales
2017
2016
2015
$3,567m
$3,266m
$2,843m
2017
2016
2015
$2,208m
$2,184m
$2,020m
Actual growth
2017 +9%
2016 +15%
2015 +17%
CER growth
2017 +9%
2016 +17%
2015 +21%
Actual growth
2017 +1%
2016 +8%
2015 -9%
CER growth
2017 +4%
2016 -3%
2015 +4%
New Oncology
$1,313m
Product Sales
2017
2016
2015
$1,313m
$664m
$119m
Actual growth
2017 +98%
2016 n/a
2015 n/a
CER growth
2017 +98%
2016 n/a
2015 n/a
Return to Growth from page 26;
Therapy Area Review from page 46;
Geographical Review from page 221.
“ Our Growth Platforms grew
by 5% in 2017 (6% at CER)
and now represent 68% of
Total Revenue.”
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategy and Key Performance Indicators
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Strategy and Key
Performance Indicators
continued
Strategic priorities
Key Performance Indicators
Employee belief in our strategy
Organisational structure – % of
employees within six management
steps of the CEO
Employees who would recommend
AstraZeneca as a great place to work
88%
2017
2016
2015
70%
88%¹
80%²
89%³
2017
2016
2015
¹ Source: December 2017 Pulse survey across
a sample of the organisation.
² Source: December 2016 Pulse survey across
a sample of the organisation.
³ Source: January 2016 Pulse survey across
a sample of the organisation.
81%
70%
82%
71%
2017
2016
2015
81%¹
74%²
83%³
¹ Source: December 2017 Pulse survey across
a sample of the organisation.
² Source: December 2016 Pulse survey across
a sample of the organisation.
³ Source: January 2016 Pulse survey across
a sample of the organisation.
Dow Jones Sustainability
Index rating
Access to healthcare: Healthy Heart
Africa programme
Environmental protection:
Operational carbon footprint¹
84%
2017
2016
2015
5.7m
people
84%
86%
84%
2017
2016
2015
Maintained listing in the Dow Jones
Sustainability World and Europe Indices
comprising the top 10% of the largest
2,500 companies. The decline to 84%
places us within two percentage points
of the industry’s best score.
Healthy Heart Africa is a signature
access to healthcare programme
providing screenings, diagnosis and
treatment of hypertension to nearly
six million people since launching.
1,659 kt CO₂e
5.7m
2m
1m
2017
2016
2015
1,659 kt COe
1,659 kt COe
1,777 kt COe
¹ Operational carbon footprint is emissions from
all Scope 1, 2 and selected Scope 3 sources.
See page 227.
Our 2017 operational carbon footprint met
our target of progressing our Science Based
Targets and represents a 7% reduction from
our 2015 baseline.
“ Our achievements are only made
possible by a skilled and talented
team who live our Values and are
true to our Purpose.”
Be a Great Place to Work
Evolve our culture
Work to improve our employees’
identification with our Purpose and Values
and promote greater understanding of,
and belief in, our strategy.
Invest in and implement tailored leadership
development programmes.
Simplify our business
Develop simpler, more efficient processes
and flatten our organisational structure
to improve productivity, encourage
accountability and improve decision
making and communication.
Attract and retain the best talent
Accelerate efforts to attract diverse,
top talent with new capabilities.
Be a Great Place to Work from page 34.
Do business sustainably
Secure our future
Deliver our business strategy in a way
that delivers wider benefits to society
and the planet.
Focus on:
> increasing access to healthcare
for more people
> furthering ethics and transparency
in everything we do
> environmental protection.
Connect our work with the UN Sustainable
Development Goals and integrate
our commitments into day-to-day
business activities.
Sustainability from page 38.
Note: We will review the Be a Great Place
to Work and Do business sustainably key
performance indicators in 2018 to evaluate
appropriate representation of the strategy.
We will continue to make updates on current
indicators publicly available.
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AstraZeneca Annual Report & Form 20-F Information 2017 / Strategic Report S
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Key Performance Indicators
Achieve Group Financial Targets
Cost discipline
Our aim is to deliver great medicines
for patients while maintaining cost
discipline and a flexible cost base.
Maintain a progressive dividend
Policy is to maintain or grow dividend
per share.
Maintain a strong balance sheet
Target a strong, investment-grade credit
rating and optimal cash generation.
Total Revenue¹
Net cash flow from operating activities
$22,465m
$3,578m
2017
2016
2015
$22,465m
$23,002m
$24,708m
2017
2016
2015
Actual growth
2017 -2%
2016 -7%
2015 -7%
CER growth
2017 -2%
2016 -5%
2015 +1%
Actual growth
2017 -14%
2016 +25%
2015 -53%
¹ As detailed on page 70, Total Revenue
consists of Product Sales and
Externalisation Revenue.
Reported EPS
$2.37
2017
2016
2015
Core EPS
$4.28
$2.37
$2.77
$2.23
2017
2016
2015
Actual growth
2017 -14%
2016 +24%
2015 +128%
CER growth
2017 -15%
2016 +9%
2015 +137%
Actual growth
2017 -1%
2016 +1%
2015 0%
CER growth
2017 -2%
2016 -5%
2015 +7%
$3,578m
$4,145m
$3,324m
$4.28
$4.31
$4.26
Dividend per share¹
$2.80
2017
2016
2015
$2.80
$2.80
$2.80
¹ First and second interim dividend for the year.
Financial Review from page 66.
“ The Board reaffirms its
commitment to the progressive
dividend policy.”
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategy and Key Performance Indicators
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Business Review
The first phase in AstraZeneca’s strategy focused on strengthening
and accelerating our product pipeline. In the second phase,
our focus has been on driving our Growth Platforms and
launching new products. This effort is driven by a business
that is organised to deliver our return to sustainable growth.
In this Business Review, we report
on how the elements of our business
are delivering against our strategic
priorities which are to:
1. Achieve Scientific Leadership
2. Return to Growth
3. Be a Great Place to Work
As outlined below, our operating model includes our R&D,
Commercial and Operations functions, together with our
therapy areas.
Since 2007, we have made significant efforts to restructure
and reshape our business to control costs and improve
long-term competitiveness.
Full details are provided in the Financial Review from page 66.
We are working to create a lean and simple organisation,
focused on driving distinctive science in our main
therapy areas.
Research & Development (R&D)
Our R&D activities are focused on three strategic R&D centres,
Gaithersburg, MD, US, Gothenburg, Sweden and Cambridge,
UK, which is also our global HQ.
Phase I and II – discovery and early-stage development
IMED
The Innovative Medicines and
Early Development (IMED)
Biotech Unit focuses on
scientific advances in small
molecules, oligonucleotides
and emerging drug platforms.
MedImmune
MedImmune is responsible
for global biologics R&D.
Phase III (late-stage development) and life-cycle management
Both IMED and MedImmune are responsible for delivering
projects to our Global Medicines Development (GMD) unit for
late-stage development.
Commercial
We group our sales and marketing functions into regions:
North America (US and Canada); Europe; and International
(China, Hong Kong, Asia Area, Australia & New Zealand, Russia
& Eurasia, Middle East & Africa, Latin America and Brazil). Japan
is categorised separately and is one of our Growth Platforms.
Operations
Our Operations function plays a key role in development,
manufacturing, testing and delivery of our medicines to
our customers.
Therapy areas
Our Global Product and Portfolio
Strategy group (GPPS) leads
our therapy area activities for
two of our three main therapy
areas – CVMD and Respiratory,
as well as our portfolio of
medicines in Other Disease
Areas. GPPS also serves as
the bridge between our R&D
and Commercial functions and
works to provide strategic
direction from early-stage
research to commercialisation.
GPPS works closely with
healthcare providers, regulatory
authorities and those who pay
for our medicines, seeking to
ensure those medicines help to
fulfil unmet medical needs and
provide economic as well as
therapeutic benefits.
In addition to this Group-wide
role, our Oncology Business
Unit, formed in April 2017, has
direct responsibility for sales,
marketing and medical affairs
activities in the US and in a
number of European markets,
including France, Germany,
Italy, Spain and the UK.
Responsibility for Oncology
in other markets remains with
the Commercial functions.
See Therapy Area Review
from page 46.
Minute pieces of tumour DNA
circulating in the bloodstream
22
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1. Achieve Scientific Leadership
We are using our distinctive scientific
capabilities, as well as investing
in key programmes and focused
business development, to deliver
life-changing medicines.
Overview
> 19 approvals of NMEs or major LCM
projects in major markets
– 9 Oncology approvals for Imfinzi,
Calquence, Faslodex, Lynparza
and Tagrisso
– 6 CVMD approvals for Bydureon,
Bydureon BCise, Forxiga and Qtern
– 1 Respiratory approval for Fasenra
– 3 Other approvals for Duzallo,
Kyntheum/Siliq
> 18 NME or major LCM regulatory
submissions in major markets
> 9 Phase III NME investment decisions
> 14 Phase II starts
> Accelerated reviews included
– 3 Breakthrough Therapy Designations
– 2 Orphan Drug Designations
– 2 Accelerated approvals
– 6 Priority Review Designations
> 10 projects discontinued
Scientific leadership and collaboration
AstraZeneca’s Purpose is to push the
boundaries of science to deliver life-changing
medicines. It underpins everything we do.
However, as we seek to achieve scientific
leadership, we know that we cannot do
so alone. We want the way we work to be
inclusive, open and collaborative. We believe
our biotech-style operating model gives us
access to the best science, both internal
and external, and we are open to exploring
new and different kinds of collaborations.
One of the measures of our success
in achieving scientific leadership and
demonstrating the quality of research
conducted in our laboratories is the number of
publications in high-quality and ‘high-impact’
journals. It is also critical for recruiting and
retaining the best scientists from around the
world. Scientists from IMED, MedImmune
and GMD have published 82 manuscripts
(a record number) in ‘high-impact’ peer-
reviewed journals, each with an impact factor
exceeding 15 (Thomson Reuters 5yr IF score)
and a score exceeding 1,054 in total.
This represents a twelve-fold improvement
since our drive to publish in ‘high-impact’
journals began in 2010.
Early science
We want to push the boundaries of science to
strengthen our early-stage product portfolio.
That means exploring novel biology and using
more diverse drug platforms. For example,
our partnership with Moderna is exploring
the use of modified ribonucleic acid (RNA) for
cardiac regeneration in patients undergoing
coronary artery bypass graft surgery
(AZD8601). With Ionis Therapeutics, we are
investigating an antisense oligonucleotide in
immuno-oncology (AZD9150), in combination
with Imfinzi. Also in 2017, we formed
partnerships with APT Therapeutics to access
their therapeutic protein platform; with Pieris
to develop novel inhaled drugs; and with
Bicycle Therapeutics, in support of both
our Respiratory and New CVMD Growth
Platforms, to develop a new class of
therapeutics based on its proprietary
bicyclic peptide product platforms.
We also identify collaborations that allow us
to out-license our own technology platforms.
For instance, we continued to expand the
utilisation of our antibody-drug conjugates
(ADC) technology platform through an
agreement with GamaMabs Pharma to
produce an ADC as a potential cancer therapy.
Working collaboratively and fostering
open innovation
Our collaborative approach to science was
exemplified in 2017 by our partnerships with
Imperial College, Crick Institute, and the MRC
Laboratory of Molecular Biology to further
our understanding of the underlying biology
of disease. Additionally, since the start of
our joint blue-skies programme with the MRC
Laboratory of Molecular Biology in 2014, we
have funded 22 research projects. We have
also continued to pioneer new approaches
to open innovation, enabling our scientists to
share their ideas more freely and collaborate
on projects with external scientists. The
IMED Open Innovation portal allows external
researchers to access the full range of open
innovation programmes. By the end of 2017,
our teams had reviewed more than 500
proposals for new drug projects. Of these, 32
have progressed as far as clinical trials, while
more than 294 are at pre-clinical trial stage.
During 2017, MedImmune continued to
support its internal development efforts with
collaborations. These included a research
collaboration with Michigan Medicine to
identify potential new therapies for the
prevention and treatment of diabetes, obesity
and related metabolic disorders. We also
announced a collaboration with Washington
University School of Medicine to advance next
generation personalised cancer immunotherapy
with neoantigen vaccines. We also renewed
our collaboration with a subsidiary of the
French National Institute of Health and Medical
Research conducting research into translational
biology and new disease mechanisms across a
range of therapeutic areas.
Precision medicine and genomics
Precision medicine, our new name for
personalised healthcare, reflects the broad
range of cutting-edge diagnostic technologies
we use, including molecular diagnostics,
tissue diagnostics, next-generation
sequencing and point-of-care diagnostics.
Building on our historical focus on Oncology,
we now cover all three main therapy areas.
Today, 90% of our clinical pipeline follows a
precision medicine approach – 10 percentage
points more than in 2016. We are industry
leading in this field with 19 diagnostic tests
launched, linked to four of our medicines
(Iressa, Lynparza, Tagrisso and Imfinzi) and
one linked to a drug we have just externalised
(Zurampic); joint first for the number of
FDA approvals of precision medicines;
and the highest number of biomarker-related
publications in scientific journals since 2014.
In 2017, we delivered four diagnostic tests.
These included one diagnostic to detect
PD-L1 protein expression on both tumour
and immune cells for Imfinzi (bladder cancer);
one blood-based laboratory assay for
BRCA genes for Lynparza (ovarian cancer);
one point of care diagnostic for uric acid in
blood that can be used for Zurampic (gout)
and one tumour tissue next-generation
sequencing diagnostic for Tagrisso (NSCLC).
In Respiratory disease, we are now developing
our first point-of-care test for eosinophilic
respiratory disease with ChemBio
Diagnostics. In total, we invested over
$185 million in strategic partnerships
with leading diagnostic companies in 2017,
including Ventana (Roche Tissue Diagnostics),
Illumina, Roche Molecular Systems and
Myriad Genetics. We have an in-house
Centre for Genomics Research which
analyses genomes and enables us to
identify more effectively novel genetic causes
of diseases and integrate this knowledge
across our entire drug discovery and
development platform. We are also partnering
with experts in genomics to enhance our
expertise in this field.
AstraZeneca Annual Report & Form 20-F Information 2017 / Business Review
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Business Review
Achieve Scientific
Leadership continued
Science
Transformative approaches to drug discovery
and development
Within our early science units, we are exploring
emerging technologies to accelerate the
design and testing of tomorrow’s medicines.
Since 2013, many of the discoveries and
recommendations made by the IMED Futures
programmes have been integrated into the
way we operate today. Machine learning
and artificial intelligence are helping us
to transform our medicinal chemistry,
and informatics are converting ‘big data’
into valuable knowledge. For example, our
in-house gene-editing group has identified
novel targets and drug combinations using
CRISPR screens, and the teams published
papers in 2017 that have advanced these
technologies. Critical to improving target
validation is the development of better
predictive models of disease. We are
collaborating with experts in organ-on-a-chip
design, technology and biology from biotech
and academia such as TissUse, Nortis and
Emulate and, in 2017, five organ-chips were
under development with our collaborators.
In development, the ‘iDecide’ suite of digital
platforms is enabling the Digital Experimental
Cancer Medicine Team at The Christie
in Manchester, UK to put into practice
technology which will help to increase
the access to real-time clinical data.
Late-stage development
During 2017, GMD delivered clinical trial data
and submissions that resulted in 19 approvals
for new medicines in the US, EU, China and
Japan. As shown in the table opposite, our
pipeline includes 144 projects, of which 132
are in the clinical phase of development,
and we are making significant progress in
advancing our late-stage programmes through
regulatory approval with 18 NME or major
LCM regulatory submissions during 2017.
24
can
help target
medicines to
those most
likely to benefit
from them
Imfinzi diagnostic test
Imfinzi’s diagnostic test in bladder
cancer, which was essential to the
approval of the medicine, uses a
novel patient selection approach by
establishing PD-L1 status via immune
cell or tumour cell staining. It not only
provides clinicians with information
that may guide immunotherapy
decisions in 2nd line bladder cancer,
but also enables AstraZeneca and
diagnostic partner Ventana to drive
up testing rates before Imfinzi’s launch
in 1st line bladder cancer.
At the end of the year, we had 11 NME
projects in pivotal studies or under regulatory
review (covering 19 indications), compared
with 12 at the end of 2016.
Also in 2017, 12 NMEs progressed to their
next phase of development and 10 projects
were discontinued: six for poorer than
anticipated safety and efficacy results;
and four as a result of a strategic shift in
the environment or portfolio prioritisation.
As is to be expected when we are
investigating treatments for diseases
that are hard to treat, we also had some
setbacks during the year. These included
disappointing Phase III data results.
For example, the initial results of the MYSTIC
trial showed that Imfinzi in combination with
tremelimumab for 1st line NSCLC did not
meet the primary endpoint of progression-
free survival – please see Oncology from page
48 for more information. Also, the Phase III
programme for tralokinumab did not achieve
the desired outcomes of significantly reducing
exacerbation rates for patients with severe,
uncontrolled asthma or in reducing the use
of oral corticosteroids. See Respiratory from
page 56 for more information.
Accelerating the pipeline
GMD is prioritising its investment in specific
programmes in order to accelerate them,
so that new treatments get to patients more
quickly but still safely. As a result, we had
numerous study read-outs in 2017, including
key oncology trial outcomes for Tagrisso in
1st line EGFR-mutated NSCLC (FLAURA)
and for Imfinzi in stage 3, locally-advanced
unresectable NSCLC (PACIFIC), and we
expect a continued flow of new data
throughout 2018. Our teams have also been
quick to turn positive clinical trial data into
regulatory submissions. In 2017, we made
submissions in the US, EU and Japan for both
Imfinzi and Tagrisso for the indications noted
above and, in the US, we made a submission
and received approval for our first
haematological cancer drug, Calquence,
for relapsed/refractory mantle cell lymphoma.
Furthermore, Lynparza was submitted in the
US, EU and Japan for use by patients with
platinum-sensitive recurrent ovarian cancer
regardless of BRCA-mutation status, and
has already received US approval. We also
received approval in the US and EU for our
first respiratory biologic treatment, Fasenra,
for severe asthma, and in the EU for
combination use of Forxiga and Bydureon
for the treatment of Type 2 diabetes.
In 2017, we presented scientific rationale
that resulted in nine regulatory designations
for Breakthrough Therapy or Priority Review
for new medicines which offer the potential
to address unmet medical need in certain
diseases, and we also secured Orphan Drug
status for the development of three medicines
to treat very rare diseases. For more
information on our pipeline and regulatory
designations made during 2017, please see
the Therapy Area Review from page 46 and
the Development Pipeline from page 202.
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategic Report Development pipeline overview (as at 31 December 2017)
Phase I
50
Phase II
37
Late-stage
development*
23
Life-cycle
management projects*
34
> 50 projects in Phase I, including:
> 37 projects in Phase II, including:
– 34 NMEs
– 16 oncology combination projects
– 20 NMEs
– 7 significant additional indications
for projects that have reached
Phase III
– 10 oncology combination projects
> 34 LCM projects*
> 23 projects in late-stage development,
either in Phase III/pivotal Phase II
studies or under regulatory review:
– 11 NMEs not yet approved in
any market
– 8 projects exploring additional
indications for these NMEs
– 4 NMEs already approved or
launched in the EU, China, Japan
and/or the US
* NMEs and significant additional
indications.
* Only includes material projects where
first indication is launched in all markets.
$5.8bn
$5,757 million invested in
our science
82
82 manuscripts published
in ‘high-impact’ scientific
publications – a record number
We also work in partnership to advance our
clinical research – from strategic alliances
with contract research organisations (CROs)
for the delivery of clinical trials, to academic
collaborations.
Life-cycle management
GMD also drives an extensive life-cycle
management programme for already-
approved medicines to pursue further
indications and label updates to expand
the potential for our products to help more
patients. For example, this year we made
regulatory submissions for Lynparza to extend
treatment into breast cancer; we received
US approval for a new auto-injector Bydureon
BCise for Type 2 diabetes; and we secured
US approval for Faslodex for earlier treatment
of patients with advanced breast cancer.
To ensure we can deliver as many new
medicines programmes as we can with our
budgets and resources, we continuously seek
opportunities to enhance our ways of working
and, during 2017, we adopted new operating
models – for example within our clinical
supply chain – to drive further efficiencies
and cost effectiveness.
R&D resources
We have approximately 8,400 employees
in our R&D organisation, working in various
sites around the world. We have three
strategic R&D centres: Gaithersburg, MD, US;
Gothenburg, Sweden; and Cambridge, UK.
centre from the end of 2018. The site will be
fully operational from 2019. This is later than
originally planned and reflects the additional
innovation introduced into the development
programme, combined with its scale and
ambition. The overall investment in the
project will be higher than initially planned
and now stands at more than £500 million
($700 million), reflecting increased investment
in new technologies and equipment (for
example genomics, screening lab) as part
of our ongoing investment in R&D in the UK.
Other R&D centres are located in the UK
(Alderley Park and Macclesfield), the US
(Waltham, MA and California), Japan (Osaka)
and China (Shanghai). We also have a site in
Warsaw, Poland that focuses on late-stage
development.
In 2017, R&D expenditure was $5,757 million
(2016: $5,890 million; 2015: $5,997 million),
including core R&D costs of $5,412 million
(2016: $5,631 million; 2015: $5,603 million).
In addition, we spent $404 million on acquiring
product rights (such as in-licensing) (2016:
$821 million; 2015: $1,341 million). We also
invested $201 million on the implementation
of our R&D restructuring strategy
(2016: $178 million; 2015: $258 million).
The allocations of spend by early-stage
and late-stage development are presented
in the R&D spend analysis table below.
R&D spend analysis
Cambridge, UK, is a world-leading academic
and life sciences hub, and is where we are
building our new strategic R&D centre and
global corporate headquarters. More than
2,000 staff are already in the City and they
will begin to move into the new strategic R&D
Discovery and
early-stage
development
Late-stage
development
2017
2016
2015
36%
36%
39%
64%
64%
61%
AstraZeneca Annual Report & Form 20-F Information 2017 / Business Review
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Strategic Report
Business Review
continued
Science
2. Return to Growth
We seek to return to growth by
focusing on our Growth Platforms
and leveraging our strong global
commercial presence, particularly
in Emerging Markets, to ensure the
right medicines are available and
that patients have access to them.
can
help understand
the unique
challenges
facing patients
with asthma
US Fasenra launch
Shaping the external environment for
the launch of Fasenra in the US – with
the goal of recognising severe asthma
as a public health issue and highlighting
the unique challenges facing patients
with severe asthma, a cross-functional
team engaged with decision makers and
influencers, including state and federal
policymakers, patients, providers,
professional societies and advocacy
groups. The result was the updating
of how these stakeholders understand,
acknowledge, and communicate around
asthma as a heterogenous disease
requiring an individualised treatment
approach. This helped ensure that
external stakeholders understand
severe asthma and appreciate the need
for personalised treatment plans with
more advanced treatment options
including Fasenra.
Overview
> 2% decrease in Total Revenue to
$22,465 million at actual rate of exchange
(2% at CER); comprising Product Sales of
$20,152 million (down 5%; 5% at CER) and
Externalisation Revenue of $2,313 million
(up 37%; 38% at CER)
> 5% increase in Growth Platforms revenue
(6% at CER), contributing 68% of Total
Revenue
– Emerging Markets: Sales growth of 6%
– New CVMD: Sales growth of 9%
(9% at CER). Strong performances
from Farxiga and Brilinta, with sales
exceeding $1 billion in 2017
– Japan: 1% growth in sales (4% at CER),
underpinned by the growth of Tagrisso
and Forxiga, partly mitigated by the
impact of the entry of generic competition
to Crestor in the second half of the year
– New Oncology: Sales growth of 98%
(8% at CER) to $6,149 million. China sales
in the year grew by 12% (15% at CER),
supported by the launches of new medicines
– Respiratory: Sales declined by 1%
(1% at CER). Symbicort sales declined
by 6% (6% at CER) and Pulmicort sales
rose by 11% (12% at CER)
(98% at CER). Sales of Tagrisso reached
$955 million to become AstraZeneca’s
largest-selling Oncology medicine
> US revenue was down by 16% to $6,169
million; Europe down by 6% (7% at CER)
to $4,753 million; and Established ROW
was static (up 1% at CER) to $3,081 million
Nanoparticles circulating
in blood stream
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Our plans for growth
Our Commercial teams, which comprised
around 34,600 employees at the end of 2017,
are active in more than 100 countries. In most
countries, we sell our medicines through wholly-
owned local marketing companies. We also sell
through distributors and local representative
offices and market our products largely to
primary care and specialty care physicians.
Even as we continue to be impacted by the loss
of exclusivity on some of our leading medicines,
we have delivered increasing revenues from our
growth brands and launches. This return to
growth is being underpinned by the Growth
Platforms. In 2017, continued declines in revenue,
for example from the loss of exclusivity in 2016
of Crestor and Seroquel XR, were substantially
offset by the strong performance of certain
products from our Emerging Markets, New
CVMD and New Oncology Growth Platforms,
including Farxiga, Brilinta and Tagrisso. As
our strategy has progressed, so our Growth
Platforms have evolved, as shown in Strategy
and Key Performance Indicators from page 17.
Respiratory was joined by New Oncology from
January 2015 and, from January 2017, New
CVMD replaced Diabetes and Brilinta/Brilique.
Our two remaining Growth Platforms, Emerging
Markets and Japan, reflect the importance
of these markets to growing future revenues.
Overall, our Growth Platforms grew by 5%
at actual exchange rates (6% at CER) in 2017
and now represent 68% of all Total Revenue.
However, the pharmaceutical market is highly
competitive. For example, our Diabetes
franchise continues to see pricing pressure.
In immuno-oncology, the large number
of clinical trials that are being carried out
highlight the competitive nature of this area
and renders speed to market critical.
More information on our performance around the
world in 2017 can be found in the Geographical
Review from page 221.
Pricing and delivering value
Our medicines help treat unmet medical
need, improve health and create economic
benefits. Effective treatments can lower
healthcare costs by reducing the need for
more expensive care, preventing more
serious and costly diseases and increasing
productivity. Nevertheless, and as outlined
in Marketplace from page 8, we are acutely
aware of the economic challenges faced by
payers and remain committed to delivering
value. We are committed to a pricing policy
for our medicines based on four principles:
> We determine the price of our medicines
while considering their full value for patients,
payers and society. The agreement on price
involves many national, regional and local
stakeholders, reflecting factors such
as clinical benefit, cost effectiveness,
improvement to life expectancy and
quality of life.
> We aim to ensure the sustainability
of both the healthcare system and our
research-led business model. We believe
we share a collective responsibility
with healthcare providers and other
stakeholders to work together to enable
an efficient healthcare system for patients
today and support a pipeline of new
medicines for patients tomorrow.
> We seek to ensure appropriate patient
access to our medicines. We work closely
with payers and providers to understand
their priorities and requirements, and play
a leading role in projects to align better
the requirements of regulatory and health
technology assessment (HTA) agencies
or other organisations that provide value
assessment of medicines. For example,
we have a leading role in the European
IMI ADAPT-SMART programme for
exploring adaptive licensing.
> We pursue a flexible pricing approach
that reflects the wide variation in global
healthcare systems. We have developed
patient access programmes that are
aligned with the ability to pay of patients
and healthcare systems. We are committed
to the appropriate use of managed
entry schemes and the development
of real-world evidence and we are
investigating innovative approaches
to the pricing of medicines, such as
payment for outcomes received by
the patient and healthcare system.
US
As the sixteenth largest prescription-based
pharmaceutical company in the US, we have
a 2.5% market share of US pharmaceuticals
by sales value. In 2017, Product Sales in
the US decreased by 16% to $6,169 million
(2016: $7,365 million).
The US healthcare system is complex with
multiple payers and intermediaries exerting
pressure on patient access to branded
medicines through regulatory and voluntary
rebates. Regulatory rebates are statutorily
mandated chargebacks and discounts paid
on government-funded programmes such as
Medicaid, Department of Defense (including
TRICARE) and Department of Veteran’s
Affairs. Voluntary rebates are paid to managed
care organisations and pharmacy benefit
managers for commercially insured patients,
including Medicare Part D patients. In the
Medicare Part D programme, in addition
to voluntary negotiated rebates, branded
pharmaceutical manufacturers are statutorily
required to pay 50% of the patient’s out-of-
pocket costs during the ‘coverage gap’
portion of their benefit design. As part of
the ACA, we also pay a portion of an overall
industry Patient Protection and Affordable
Care Act Branded Prescription Drug Fee.
In 2017, the overall measurable reduction in our
profit before tax for the year due to discounts
on branded pharmaceuticals in the Medicare
Part D Coverage Gap and an industry-wide
HealthCare Reform Fee was $119 million
(2016: $471 million; 2015: $786 million).
In the US, there is significant pricing pressure
driven by payer consolidation, restrictive
reimbursement policies and cost control tools,
such as exclusionary formularies and price
protection clauses. Many formularies, which
specify particular medicines that are approved
to be prescribed in a healthcare system, or
under a health insurance policy, employ ‘generic
first’ strategies and/or require physicians to
obtain prior approval for the use of a branded
medicine where a generic alternative exists.
These mechanisms can be used by
intermediaries to limit the use of branded
products and put pressure on manufacturers
to reduce net prices. In 2017, 84.9% of
prescriptions dispensed in the US were generic,
compared with 84.4% in 2016. In addition,
patients are seeing changes in the design of
their health plan benefits and may experience
variation, including increases, in both
premiums and out-of-pocket payments for their
branded medications. The patient out-of-pocket
spend is generally in the form of a co-payment
or co-insurance, but there is a growing trend
towards high deductible health plans which
require patients to pay the full list price until
they meet certain out-of-pocket thresholds.
Ongoing scrutiny of the US pharmaceutical
industry, focused largely on pricing, has been
the basis of multiple policy proposals in the
US. Proposed changes under consideration
include varying approaches to price controls
on medicines (including price transparency)
as well as potential reforms to government
regulated programmes (such as Medicare
Part B, Medicare Part D, Medicaid or other
provisions under the ACA). Repeal of the
Medicare Part D non-interference clause
that currently prohibits the government from
negotiating directly with manufacturers on
drug prices as well as allowing the importation
of medicines into the US from other countries
have been considered as a mechanism to
reduce drug costs. In addition, lawmakers at
both the federal and state level have sought
increased drug pricing transparency and
have proposed and implemented policies that
include measures relating to the submission of
proprietary manufacturer data, establishment
of price parameters that are indexed to certain
federal programmes, and reporting of changes
in pricing beyond certain thresholds.
AstraZeneca Annual Report & Form 20-F Information 2017 / Business Review
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Business Review
Return to Growth
continued
Though widespread adoption of a broad
national price control scheme in the near
future is unlikely, we continue to comply with
new state-level regulations in this area and we
recognise the sustained potential for substantial
changes to laws and regulations regarding
drug pricing that could have a significant
impact on the pharmaceutical industry.
The PACIFIC Early Access Programme (EAP)
went live in September 2017 with the first
patient included in October 2017. The PACIFIC
EAP is now open in 16 EU countries with
additional countries planned to be active.
This is a great example of our ability to put
the patient first and to offer life-changing
medicine to patients in need.
We understand that our medicines will not
benefit patients if they are unable to afford
them and that’s why we offer a number of
resources and programmes that can help
increase patients’ access to medication and
reduce their out-of-pocket costs. We focus
our formulary access on affordability for
patients through rebate payments as well
as savings cards for eligible patients when
the out-of-pocket costs are not affordable.
AstraZeneca has one of the longest-standing
patient assistance programmes in the
industry, AZ&Me, which provides eligible
patients with AstraZeneca medicines at no
cost. AstraZeneca has provided prescription
savings to 4.5 million patients across the
US and Puerto Rico over the past 10 years.
For more information, see Community
Investment on page 45.
Europe
The total European pharmaceutical market
was worth $214 billion in 2017. We are the
fourteenth largest prescription-based
pharmaceutical company in Europe (see
Market definitions on page 235) with a 2.2%
market share of pharmaceutical sales by value.
In 2017, our Product Sales in Europe
decreased by 6% at actual rate of
exchange (7% at CER) to $4,753 million
(2016: $5,064 million). Key drivers of the
decline, leaving aside the impact of
divestments such as the anaesthetics
portfolio, Seloken and Zomig, were continued
competition from Symbicort analogues,
ongoing volume erosion of Pulmicort,
Seroquel XR and Nexium following loss of
exclusivity, and the continued impact of early
generic entry in certain markets for Crestor
and Faslodex, which we expect to continue
in 2018. The continued macroeconomic
environment, pricing pressure from payers
and parallel trade across markets also
affected sales. Despite these conditions,
we continued to launch innovative medicines
across Europe and saw significant progress
of certain products across our Growth
Platforms, in particular with Forxiga,
Xigduo, Brilinta, Lynparza and Tagrisso.
Following the presentation of the PACIFIC
trial at ESMO in 2017, we have overseen a
mobilisation of medical teams across Europe
to be able to offer early access to Imfinzi for
patients with unresectable stage 3 NSCLC.
Established Rest of World (ROW)*
In 2017, Product Sales in Japan increased by
1% at actual rate of exchange (increased 4%
at CER) to $2,208 million (2016: $2,184 million),
as a result of the strong growth from the
brands in our Growth Platforms and Nexium.
Particularly strong performances from
Tagrisso and the Diabetes franchise helped
to drive this volume growth, offsetting generic
competition. Crestor, for example, is now
facing significant generic competition.
In September 2017, a Crestor authorised
generic entered the market and in December
2017 we saw more than 20 generic companies
enter the statin market with generic
rosuvastatin. We now hold ninth position in
the ranking of pharmaceutical companies
by sales of medicines in Japan. Despite the
mandated biennial government price cuts and
increased intervention from the government to
rapidly increase the volume share of generic
products, Japan remains an attractive market
for innovative pharmaceuticals. These price
cuts are likely to continue as are experimental
decisions by regulators based on cost
effectiveness assessments.
Canada has a mixed public/private payer
system for medicines that is funded by the
provinces, insurers and individual patients.
It has also now become common for public
payers to negotiate lower non-transparent
prices after they have gone through a review
by the Canadian Agency for Drugs and
Technology in Health, a health technology
assessment body. Most private insurers pay
full price, although there is increasing pressure
to achieve lower pricing. Overall, the split for
AstraZeneca’s portfolio is 63% funded by
private payers and 37% with public plans.
Our sales in Australia and New Zealand
declined by 5% at actual rate of exchange
(7% at CER) in 2017. This was primarily due
to the continued erosion of Crestor, Nexium
and Seroquel by generic medicines and
price reductions on established brands.
Sales declined less in 2017 than in 2016 as
the pace of generic erosion has moderated
while the sales growth from new products
such as Brilinta, Lynparza and the Diabetes
portfolio has continued. Brilinta, Lynparza and
the Diabetes portfolio grew by 15% at actual
rate of exchange (10% at CER), 100% (actual
and CER) and 27% at actual rate of exchange
(25% at CER) respectively.
* Established ROW comprises Australia, Canada,
New Zealand and Japan.
Expansion in Emerging Markets
Emerging Markets, as defined in Market
definitions on page 235, comprise various
countries with dynamic, growing economies.
As outlined in Marketplace from page 8,
these countries represent a major growth
opportunity for the pharmaceutical industry
due to high unmet medical needs and sound
economic fundamentals. Emerging Markets
are not immune, however, to economic
downturn. Market volatility is higher than in
Established Markets and various political and
economic challenges exist. These include
regulatory and government interventions.
In selected markets, governments are
encouraging local manufacturing by offering
more favourable pricing legislation and pricing
is increasingly controlled by governments
with price referencing regulations.
Growth drivers for Emerging Markets
include new medicines across our Diabetes,
Respiratory, Oncology and CV portfolios.
To educate physicians about our broad
portfolio, we are selectively investing in sales
capabilities where opportunities from unmet
medical needs exist. We are also expanding
our reach through multi-channel marketing
and external partnerships.
With revenues of $6,149 million, AstraZeneca
was the sixth largest multinational
pharmaceutical company, as measured
by prescription sales, and the second fastest-
growing top 10 multinational pharmaceutical
company in Emerging Markets in 2017.
In China, AstraZeneca is the second largest
pharmaceutical company by value in the
hospital sector, as measured by sales.
Sales in China in 2017 increased by 12%
at actual rate of exchange (15% at CER)
to $2,955 million (2016: $2,636 million). We
delivered sales growth above the growth rate
of the hospital market sector through strategic
brand investment, systematic organisational
capability improvements and long-term market
expansion programmes in core therapy areas.
In addition, five products including Brilinta,
Onglyza and Faslodex were listed in the
updated National Reimbursed Drug List
(NRDL) and we launched two key products
(Tagrisso and Forxiga) during 2017. Pricing
practices remain a priority for regulators
and new national regulations, in addition to
provincial and hospital tenders, continue to put
increasing pricing pressures on pharmaceutical
companies in China. The industry-wide growth
rate is expected to be a moderate single digit
percentage, following the recent update of
the NRDL and expanding health insurance
coverage. Nevertheless, the healthcare
environment in China remains dynamic.
Opportunities are arising from incremental
healthcare investment, strong underlying
demand for our more established medicines
and the emergence of innovative medicines.
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help more patients
in China
Access to healthcare
We continue to make our medicines affordable
to more people on a commercially and socially
sustainable basis. As, on average, almost
half of medicine funding in emerging countries
is paid for by the patient or their families,
we base our approach in these markets
on an understanding of their economic
circumstances and the burden placed on them
by health costs. We are aiming to enable our
Emerging Markets to deliver better and broader
patient access through innovative and targeted
equitable pricing strategies and practices.
We have a variety of access programmes
around the world, each tailored to meet the
needs of the local community, which include
a patient’s ability to pay. These include patient
assistance programmes, such as Terapia
Plus in Ukraine, Karte Zdorovia in Russia
and FazBem in Brazil.
Other programmes are focused on developing
healthcare system infrastructure. For example,
Phakamisa supports the South African
healthcare system by bringing together
different organisations to strengthen
healthcare capabilities and improve
access to treatment and support networks.
It aims to reduce the burden of breast and
prostate cancer and lung disease through
the promotion of primary prevention,
early detection and access to affordable
medicines. Launched in September 2017,
Healthy Lung Asia is a region-wide initiative,
with programmes being tailored and
developed in nine countries across Asia in
collaboration with local partners. The overall
objective of Healthy Lung Asia is to raise
the profile of respiratory disease with policy
makers and build health system capacity
to support future access. It started with
programmes in Vietnam and Indonesia.
For more information, see page 39.
We also run donation programmes, such as
in Cambodia, where we celebrated the ninth
year of our partnership with Americares in
support of the Cambodia Breast Cancer
Initiative. In 2017, it provided approximately
700 screenings, more than 8,000 education
sessions, and diagnosed 59 cases of
breast cancer.
For more information on product donations,
see Community investment on page 45.
China market development
Our business in China is able to
expand only by meeting the needs of an
increasing number of patients. In order
to do this, we partner with stakeholders
at the local, provincial and national
level and we recognise that our ability
to grow our business is directly related
to even more patients being able to
access quality healthcare.
One important way we do this is
through our China Commercial
Innovation Centre, where, with our
partners, we develop ways to integrate
technology into all parts of healthcare
delivery, increasing the chance that the
right treatment is delivered to the right
patient at the right time. For example,
by working with different stakeholders,
our online nebulisation centres across
certain parts of China are now up and
running and their availability is updated
in real time. Therefore, patients who
need to access treatment have all the
information they need to access care
wherever they may need it.
Healthy Heart Africa (HHA) was launched
in Kenya in October 2014 in collaboration
with the Ministry of Health in support of its
commitment to combat NCDs. Following
the success of HHA in Kenya, we developed
a partnership with the Federal Ministry of
Health in Ethiopia in 2016 to integrate HHA
programming into the Ethiopian healthcare
system, in support of the Government
National Strategic Action Plan for NCDs.
HHA aims to reach 10 million people with
high blood pressure across Africa by 2025,
supporting WHO’s global target of a 25%
reduction in hypertension prevalence by 2025,
and on page 40 you can see the progress
we have made.
For more information on Broadening access to healthcare
as one of our sustainability priorities, please see page 39.
AstraZeneca Annual Report & Form 20-F Information 2017 / Business Review
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Business Review
Return to Growth
continued
Science
Operations
Our manufacturing and supply
function supports our Return to
Growth, and our Operations
2020 plan provides a focus for
our investments. They will help
ensure we are able to respond
to patient and market needs for
our medicines.
Operations 2020 was launched in 2015
to enhance supply capabilities in order to
respond better to patient and market needs.
It focuses on supporting the delivery of
our new product launches, strengthening
our science and technology capabilities
across the globe, creating a more agile
and flexible supply chain, and embedding
Lean principles throughout our network.
Our goal is to be recognised as a leader in
the biopharmaceutical supply chain by 2020.
Quality, regulation and compliance
We are committed to high product quality,
which underpins the safety and efficacy of
our medicines. We maintain a comprehensive
quality management system to assure
compliance and quality. Similarly, we set strict
standards for safety, health and environment
at each of our sites. Manufacturing facilities
and processes are subject to rigorous and
continuously evolving regulatory standards.
They are subject to inspections by regulatory
authorities, who are authorised to mandate
improvements to facilities and processes,
halt production and impose conditions
for production to resume.
In 2017, we hosted 56 independent inspections
from 21 regulatory authorities. We reviewed
observations from these inspections together
with the outcomes of internal audits and, where
necessary, implemented improvement actions.
Following the second CRL received at ZS
Pharma for ZS-9, the site has completed
manufacturing process validation and the
NDA was refiled with the FDA in December.
For further details please see the CVMD
section from page 52.
We are committed to maintaining the highest
ethical standards and compliance with internal
policies, laws and regulations. We review
and comment upon evolving national and
international compliance regulations through
our membership of industry associations,
including IFPMA, EFPIA and PhRMA.
Pharmaceutical Technology & Development
(PT&D)
The integration of PT&D into our Operations
organisation since 2016 has driven greater
collaboration between our technical groups
and manufacturing sites, allowing substantial
manufacturing and scientific expertise and
leadership to inform decisions for the discovery,
development and commercialisation of small
molecule portfolios.
We are actively working on over 150 drug
projects across our R&D and Commercial
portfolios, streamlining over 400 innovation
ideas from concept to business case,
and supporting more than 250 AstraZeneca
clinical studies worldwide. We also support
over 100 in-line brands and small molecule
30
can
bring benefits
to patients faster
when we work
in partnership
Strategic partnership with MSD
In July 2017, AstraZeneca announced
a strategic collaboration with MSD to
maximise the potential of Lynparza as
a monotherapy and as the backbone
for oncology combinations, as well
as explore the potential of selumetinib,
an inhibitor of MEK, part of the mitogen-
activated protein kinase (MAPK)
pathway. The collaboration was driven
by our commitment to following the
science: PARP inhibition is increasingly
recognised as a foundation for
mono and combination therapies.
For example, blocking PD-L1 can
potentiate the effect of PARP inhibition
in tumour suppression and MEK
inhibitors can make a tumour more
responsive to immunotherapy.
The collaboration enables us to work
hand-in-hand with another leading
oncology company and one of the
key players in immuno-oncology to
accelerate new and existing ideas.
The increased resources and focus
bring potential benefit to more patients
in need faster than we can do alone.
Together, we are building an even
broader clinical programme and we
are working hard to deliver it as quickly
as possible.
marketed products through our new global
Manufacturing Science and Technology
organisation and manufacturing site
Centers of Excellence.
Our continued innovation in science and
technology allows us to enable and differentiate
products including Lynparza, Qtern, Bevespi,
Calquence, Brilinta and potential new products
such as PT010 as they are introduced into the
marketplace and ultimately into the hands of
patients globally. In 2017, we also launched the
Turbo+ programme, our digital Integrated
Patient Solution for Symbicort Turbuhaler.
For more information, please see Respiratory on page 56.
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategic Report Manufacturing capabilities
Our principal tablet and capsule formulation
sites are in the UK, Sweden, China, Puerto
Rico and the US, with local/regional supply
sites in Russia, Japan, Indonesia, Egypt,
India, Germany, Mexico, Brazil, Argentina
and Algeria. We also have major formulation
sites for the global supply of parenteral
and/or inhalation products in the US,
Sweden, France, Australia and the UK.
Most of the manufacture of API is delivered
through the efficient use of external
sourcing that is complemented by internal
capability in Sweden.
For biologics, our principal commercial
manufacturing facilities are in the US (Frederick,
MD; Greater Philadelphia, PA; Boulder and
Longmont, CO), the UK (Speke), and the
Netherlands (Nijmegen) with capabilities in
process development, manufacturing and
distribution of biologics, including global
supply of mAbs and influenza vaccines.
In 2017, we launched our first two new
biologics medicines, Imfinzi and Fasenra,
using our large-scale drug substance
manufacturing facility in Frederick, MD,
US. We continue to develop additional
manufacturing capacity for both drug
substance and drug product production.
Our new small-scale/high-titre drug substance
manufacturing facility, also in Frederick,
began producing clinical supply material
in 2017. Our recently acquired facility in
Longmont, CO, US has been integrated into
our Colorado Biologics operations to provide
cold chain logistics support to our Boulder,
CO, US drug substance manufacturing facility.
In Sweden, we expect our new biologics drug
product manufacturing facility to be available
for clinical trial programmes by the end of 2018.
For small molecules we are constructing a new
small-scale development and launch facility
alongside our existing manufacturing facility
in Wuxi, China. This investment will support the
acceleration of delivery of our new innovative
medicines to patients in China. Completion
of this high-potential facility, expected in 2018,
will complete our ability to execute in China
across the whole life-cycle of a medicine from
discovery to commercialisation.
At the end of 2017, approximately 12,600
people were employed at 31 Operations
sites in 18 countries.
For more information on Supply chain management,
please see page 42.
Partnering
Business development, specifically
partnering, is an important element
of our business. It supplements and
strengthens our pipeline and our
efforts to achieve scientific leadership.
We partner with others around
the world, including academia,
governments, industry, scientific
organisations and patient groups,
as well as other biopharmaceutical
companies, to access the best science
to stimulate innovation and accelerate
the delivery of new medicines to target
unmet medical need. We currently
have more than 600 collaborations
around the world.
More generally, our business development
activity takes many forms and can be broadly
grouped into:
> alliances, collaborations and acquisitions
to enhance our portfolio and pipeline in
our main therapy areas
> externalisation activity to maximise the
value of our assets
> divestments of non-priority medicines.
We continue to assess opportunities to make
strategic, value-enhancing additions to our
portfolio and pipeline in our main therapy
areas, including through in-licensing and
acquisitions. No acquisitions were completed
in 2017.
Over the past three years, we have completed
more than 250 major or strategically important
business development transactions, including
some 54 in 2017. Of these transactions,
17 were related to pre-clinical assets or
programmes and nine to precision medicine
and biomarkers. Twenty transactions helped
expand our biologics capabilities.
Externalisation is a core component of our
strategy and has an important role to play in
the delivery of our ambition as we continue to
sharpen our focus on developing key assets
within our main therapy areas. This activity
creates additional value from our existing
medicines as well as recurring Externalisation
Revenue and falls broadly into two categories:
(a) collaborations that help us access therapy
area expertise and (b) collaborations that help
us increase the number of patients and the
reach of medicines in which we maintain
an ongoing interest, but which typically sit
outside our main therapy areas.
Examples of collaborations entered into
in 2017 that help us access therapy area
expertise or generate sustainable and
ongoing income include:
> our partnership with MSD regarding
Lynparza and selumetinib in Oncology
> our collaboration with Sanofi Pasteur
for MEDI8897
> our agreement with TerSera for Zoladex
in the US and Canada.
In each case, we are optimising the long-
term value of each medicine through the
collaboration.
Examples of collaborations that help us
increase our reach to a greater number of
patients include the strategic partnership
with Circassia regarding the promotion
of Tudorza and the development and
commercialisation of Duaklir in the US.
Tudorza and Duaklir are important
components of AstraZeneca’s Respiratory
franchise globally and this collaboration will
support their commercialisation in the US
for the benefit of millions of COPD patients.
It also further sharpens our focus on
Symbicort, Bevespi Aerosphere, Fasenra and
other respiratory development programmes.
Alongside these externalisation opportunities,
we also divest medicines that typically sit
outside our main therapy areas and that can
be deployed better by a partner, in order to
redirect investment and resource in our main
areas of focus while ensuring continued
or expanded patient access. For example,
in 2017, we sold to Aspen our remaining rights
in the anaesthetic portfolio, we divested
commercial rights to Seloken/Seloken ZOK
in Europe to Recordati and divested to
Grünenthal the global, ex-Japan, rights to
Zomig. These agreements will enable us
to concentrate our resources on bringing
multiple new medicines to patients.
The resulting revenue from these activities
supports our R&D investments in our main
therapy areas. Thirteen transactions that
contribute to Externalisation Revenue and
a further 10 divestments or out-licences
were completed in 2017.
More information on our partnering activity in 2017
can be found in the Financial Review from page 66
and Notes 1 and 2 to the Financial Statements from
page 145.
AstraZeneca Annual Report & Form 20-F Information 2017 / Business Review
31
Strategic Report Business Review
Return to Growth
continued
31
We have 31 Operations sites in
18 countries
250
Completed more than 250 major or
strategically important business
transactions in the last three years
600
We have more than 600
collaborations worldwide
“ Our industry’s
principal
economic
safeguard is a
well-functioning
system of
patent and
related
protection.”
32
Patent expiries
The table on pages 208 and 209 sets out
certain patent expiry dates and sales for
our key marketed products.
Other exclusivities
Regulatory data protection (RDP or ‘data
exclusivity’) is an important additional form
of exclusivity which is separate from, but runs
in parallel to, patent exclusivity. RDP arises
in respect of data which is required to be
submitted to regulatory authorities to obtain
marketing approvals for our medicines.
Significant investment is required to generate
such data (for example, through conducting
global clinical trials) and this proprietary data
is protected from use by third parties (such as
generic manufacturers) for a number of years
in a limited number of countries. The period
of such protection, and the extent to which
it is respected, differs significantly among
countries and varies depending on whether
an approved drug is a small or large molecule
compound. RDP is an important protection
for our products, and we strive to enforce
our rights to it, particularly as patent rights
are increasingly being challenged.
The RDP period starts from the date of the
first marketing approval from the relevant
regulatory authority and runs parallel to any
patent protection. For small molecule drugs,
RDP generally expires prior to patent expiry
in all major markets.
If a product takes an unusually long time
to secure marketing approval, or if patent
protection has not been secured, has expired
or has been lost, then RDP may be the sole
IP right protecting a product from copying.
Generic manufacturers, we believe, should
not be allowed to rely on AstraZeneca’s data
to support the generic product’s approval
or marketing until the RDP right has expired.
In the EU, the RDP period is eight years
followed by two years’ marketing exclusivity.
In the US, new chemical entities (NCEs) are
entitled to a period of five years’ RDP under
the Federal Food, Drug and Cosmetic Act.
This period of RDP runs parallel to any
pending or granted patent protection and
starts at the approval of the new application.
There are circumstances where RDP could
be the sole layer of exclusivity protecting a
product from being copied. Further, under
the Biologics License Application process,
the FDA will grant 12 years’ data RDP for a
new biologic to an innovator manufacturer.
Intellectual Property
Our industry’s principal economic
safeguard is a well-functioning
system of patent and related
protection that recognises our
efforts and rewards innovation with
appropriate protection – and allows
time to generate the revenue we
need to reinvest in pharmaceutical
innovation. Patent rights are limited
by territory and duration.
A significant portion of a patent’s duration
can be spent during R&D, before it is possible
to launch the protected product. Therefore,
we commit significant resources to
establishing and defending our patent
and related IP protections for inventions.
Patent process
We file patent protection applications for our
inventions to safeguard the large investment
required to obtain marketing approvals for
potential new drugs. As we further develop a
product and its uses, these new developments
may necessitate new patent filings. We apply
for patents through government patent offices
around the world. These assess whether our
inventions meet the strict legal requirements
for a patent to be granted. Our competitors
can challenge our patents in patent offices
and/or courts. We may face challenges early
in the patent application process and
throughout a patent’s life. The grounds for
these challenges could be the validity of a
patent and/or its effective scope and are
based on ever-evolving legal precedents.
We are experiencing increased challenges in
the US and elsewhere in the world (such as in
Australia, Brazil, Canada, China, Europe and
Japan) and there can be no guarantee of
success for either party in patent proceedings.
For information about third party challenges to
patents protecting our products, see Note 28
to the Financial Statements from page 182.
For more information on the risks relating to
patent litigation and early loss and expiry of
patents, please see Risk from page 210.
The basic term of a patent is typically 20 years
from the filing of the patent application with
the relevant patent office. However, a product
protected by a pharmaceutical patent may not
be marketed for several years after filing, due
to the duration of clinical trials and regulatory
approval processes. Patent Term Extensions
(PTE) are available in certain major markets,
including the EU and the US, to compensate
for these delays. The term of the PTE can vary
from zero to five years, depending on the
time taken to obtain any marketing approval.
The maximum patent term, when including
PTE, cannot exceed 15 years (EU) or 14 years
(US) from the first marketing authorisation.
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategic Report can
Science
improve R&D
productivity
5Rs
In a research paper published in Nature
Reviews Drug Discovery in January 2018,
our IMED Biotech Unit documents a
more than four-fold improvement in
R&D productivity following significant
revision of its approach and adoption
of a ‘5R framework’ – right target, right
patient, right tissue, right safety, right
commercial potential. The framework
has guided successful, efficient drug
discovery and development while
financial investment in R&D has
remained unchanged.
The IMED Biotech Unit’s 5R framework
focuses on quality rather than quantity
at all stages of drug discovery and
development. Hence, the number of
projects in discovery has decreased
while their likelihood of success has
increased. Other key factors include
investment in state-of-the-art
technologies, such as CRISPR
(see page 126), and next-generation
sequencing, to produce better quality
drug candidates for development, as
well as a change in culture to focus
on the science. As a result, its success
rate in discovering new compounds,
which then progress through the
pipeline to completion of Phase III
clinical trials, increased from 4% in
the period 2005-2010 to 19% in the
period 2012-2016. This places
R&D productivity well above the
pharmaceutical industry average
of 6% for small molecules in the
period 2013-2015.
and update. We monitor our systems and
data with sophisticated technology to
identify and address potential weaknesses
in the management of cyber security risk.
Over 54,000 employees have also completed
internal cyber awareness training in 2017.
We recognise that cyber security is a rapidly
evolving landscape and attacks display
ever-increasing levels of sophistication.
The risk of a cyber security event cannot be
discounted despite these preventative actions.
For more details, please see Risk from page 210.
At the end of 2017, our IT organisation
comprised approximately 3,715 people across
our sites in the UK, Sweden, the US, and our
global technology centres in India (Chennai)
and Mexico (Guadalajara).
Under Orphan Drug laws in the EU and US,
market exclusivity is granted to an innovator
who gains approval for a pharmaceutical
product developed to treat a rare disease.
What qualifies as a rare disease differs
between the EU and US. Qualifying Orphan
Drugs are granted 10 years’ market exclusivity
in the EU and seven years’ market exclusivity
in the US.
Compulsory licensing
Compulsory licensing (where a Patent
Authority imposes a licence on the Patentee)
is on the increase in certain markets in
which we operate. We recognise the right of
developing countries to use the flexibilities in
the World Trade Organization’s Agreement on
Trade-Related Aspects of Intellectual Property
Rights (including the Doha amendment) in
certain circumstances, such as a public health
emergency. We believe this should apply only
when all other ways of meeting the emergency
needs have been considered and where
healthcare frameworks and safeguards
exist to ensure the medicines reach those
who need them.
Information technology and
information services resources
In 2017, we embarked on the second
phase of our IT journey, taking
what we successfully delivered in
our three-year transformation to
the next level. The foundation of our
future focus is based on improved
cost efficiency, systems performance
and better support for the business
priorities. Our focus for the next
three years is to optimise and enable
accelerated revenue growth and
profitability through digitisation
and innovation.
Leveraging the operating model implemented
during the transformation, we will build on
business productivity and ensure targeted
outcomes that accelerate drug developments,
help us bring products to market faster
and support tools required for specialised
medicines. We will also harness our internal
capabilities to develop robust strategies
on data and analytics, software engineering
and cloud technology – all of which will
support the business and its various
transformation programmes.
Protecting our IT systems, IP and confidential
information against cyber attacks is a
key concern. Our IT organisation seeks
continuous improvement of our IT protection
by developing and implementing robust,
effective and agile risk-based approaches to
protect our resources and keep pace with the
rapidly evolving cyber security risk landscape.
To help guard against cyber threats, we have
adopted a comprehensive cyber security
process and policy, which we regularly review
AstraZeneca Annual Report & Form 20-F Information 2017 / Business Review
33
Strategic Report Business Review
continued
3. Be a Great Place to Work
Great people are central to our
success and being a great place to
work is at the heart of our efforts
to release the talents of our people.
We promote a culture, both for
employees and those third parties
with whom we work, that delivers
sustainable good performance and
long-term business success.
Overview
> Encouraging improvements in scores
in our employee survey (Pulse)
> Continued development of women and
increase in the representation of women
in senior roles
> Employee retention remains challenging
in specific areas of the business
> Maintained listing in Pharmaceuticals,
Biotechnology and Life Sciences industry
group of Dow Jones Sustainability Index
> Launched Code of Ethics based on
our Values
> Continued progress towards our target
to source 100% renewable power by 2025
> Launched Healthy Lung Asia to raise
profile of respiratory disease and build
health system capacity
“ To foster innovation,
we seek to ensure
that our employees
reflect the diversity
of the communities
in which we operate.”
Selective crystal structure traps
potassium and removes it from
the body
34
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategic Report Employees
To achieve our strategic priorities,
we continue to acquire, retain and
develop a talented and diverse
workforce united in the pursuit of
our Purpose and living our Values.
We value the talents and skills of our employees
and our people strategy supports our strategic
priority of being a great place to work.
Build and develop organisations
and capabilities
We are committed to hiring and promoting talent
ethically and in compliance with applicable laws.
Our current Global People Policy sets out how
we will meet our commitment to promoting and
maintaining a culture of diversity and equal
opportunity, in which individual success depends
solely on personal ability and contribution.
It describes the principles of our commitment
and provides a framework for developing and
implementing the people plans needed to
ensure we deliver these principles consistently
worldwide. The Global People Policy and its
supporting Standards are designed to help
protect against discrimination on any grounds
(including disability) and cover recruitment and
selection, performance management, career
development and promotion, transfer, training,
retraining (including retraining, if needed, for
people who have become disabled), and
reward. More information on our Global
Policy framework can be found on page 40,
our Code of Ethics on page 98 and our
Global Policies can be found on our website,
www.astrazeneca.com/sustainability.
To help deliver our strategic priorities, we are
identifying and recruiting emerging talent, as
well as investing in internships and recruitment
opportunities globally. For example, we conduct
a global programme to hire recent graduates
for our pharmaceutical technical development,
procurement, quality, engineering, IT,
supply chain, and biometrics and information
sciences functions. We also have a graduate
programme for IMED, which complements our
established IMED Post Doctorate Programme
for researcher recruitment. Additionally, we
offer a 12-week internship opportunity for
business school students to contribute to key
initiatives in our Oncology therapeutic area.
Hiring over recent years means that employees
with less than two years’ service now represent
31% of our global workforce (up from 20% in
2012). This provides a greater balance in terms
of refreshing talent and retaining organisational
experience. 2017 saw an increase in hiring
to support our strategic objectives. Our data
indicates that these recent hires are performing
strongly, although in some areas of the
business retention of this population is
challenging. During 2017, we hired 11,000
permanent employees. Voluntary employee
turnover remained stable at 9.7% in 2017.
The voluntary employee turnover rate among
our high performers increased in 2017 to
7.1% (from 6.1% in 2016), while the voluntary
employee turnover of recent hires decreased
to 12.2% (from 12.7% in 2016). We seek to
reduce regretted turnover through more
effective hiring and induction, exit interviews,
risk assessments and retention plans.
The uncertainty faced by individuals and their
families following the UK’s decision to leave
the EU in the referendum in June 2016 could
have an impact on hiring and retaining staff in
some business-critical areas. Consequently,
we are considering ways in which we might
support existing staff who might be impacted
and, through our hiring process, ways of
supporting potential staff.
Develop a strong and diverse
pipeline of leaders
To foster innovation, we seek to harness different
perspectives, talents and ideas as well as
ensuring that our employees reflect the diversity
of the communities in which we operate.
As part of our commitment to diversity and
inclusion we have implemented numerous
initiatives across the globe, such as unconscious
bias training, the formation of various employee
resource groups (such as an LGBT network)
and, in some parts of the business, the creation
of a People Manager objective to ensure all
recruitment includes diverse applicant slates
and diverse interview panels.
Our commitments include a goal to increase
the number of women on our leadership teams.
As shown in the gender diversity figure on page
37, women comprise 50.1% of our global
workforce. There are currently five women on
our Board (42% of the total). Below Board level,
the representation of women in senior roles
(ie roles at Career Level F or above which
constitute the six highest bands of our
employee population) increased to 44.4% in
2017 (from 43.2% in 2016), which exceeded
our scorecard target of 43.5% for this
measure and compares favourably to external
benchmarks. Women are also currently
promoted at a higher rate than men across
all levels of seniority, positively impacting the
gender balance. In 2017, AstraZeneca was
ranked 15th in the FTSE 100 for Women on
Boards and 9th for Women on Executive
Committees and Direct Reports. Our progress
has been recognised externally with Bahija
Jallal (Executive Vice-President, MedImmune)
being named 2017 Woman of the Year by the
Healthcare Businesswomen’s Association.
In 2017, we extended our Women as Leaders
experience to support the accelerated
development of high-potential women in
AstraZeneca. In addition, we have developed
women’s networks in most countries, held a
womens’ summit in the UK, US and Sweden,
and continued to support mentoring
S
t
r
a
t
e
g
i
c
R
e
p
o
r
t
Sales and Marketing workforce
composition (%)
Emerging Markets 57%
Established Markets 43%
relationships, for example introducing
mentoring by senior females for emerging
talent in Operations.
In 2017, 88% of vacancies across the top three
levels of our organisation were filled internally,
reflecting our long-term commitment to
develop high-quality leaders. To ensure
our senior leadership reflects our diverse
geographic footprint, we track the country of
origin of senior leaders and reflect this in our
diversity targets. In 2017, 13.4% of leadership
roles that report to our senior leadership team
have a country of origin that is an Emerging
Market or Japan (an increase from 5% in 2012,
but below our 2017 target of 16%).
Diversity is integrated across our new Code
of Ethics and associated workforce policy.
In addition to the two diversity metrics tracked
in the AstraZeneca scorecard, on an annual
basis the SET and Board are provided with a
comprehensive overview of the AstraZeneca
workforce, covering a wide range of metrics
and measures (including trends around gender
diversity, leadership ethnic diversity and
age profile). The SET is also provided with a
quarterly summary of key workforce metrics,
including gender diversity and leadership
ethnic diversity. Within the US, we track overall
ethnic minority representation, ethnic minority
representation in senior roles, and ethnic
minority representation in succession plans.
Drive a vibrant, high-performing culture
Continuing our emphasis on high performance,
in 2017 our high performers were promoted at
twice the rate of the wider employee population.
We require every employee to have high-quality
objectives, aligned to our strategy, which we
monitor closely. Managers are accountable for
working with their employees to develop individual
and team performance targets, and for ensuring
employees understand how they contribute to
our overall business objectives. Through increased
investment in technology, we have also
extended our global annual salary and incentive
review process to cover 87% of the population
(60% in 2016). We encourage participation in
various employee share plans, some of which
are described in the Directors’ Remuneration
Report from page 105, and also in Note 27
to the Financial Statements, from page 179.
AstraZeneca Annual Report & Form 20-F Information 2017 / Business Review
35
Business Review
Be a Great Place to Work
continued
Our salary and bonus budgets are distributed
in line with our principles, allowing us to clearly
differentiate reward according to performance.
Employee opinion surveys help us measure
employee satisfaction and engagement, and
progress in our aim of being a great place to
work. Our most recent survey, carried out in
December 2017, showed an improvement
compared to the survey at the start of the
year in scores for all 11 items common to both
surveys. Importantly, we saw good progress
in employee understanding and belief in our
strategy, perception of AstraZeneca as a great
place to work and questions related to personal
development. Despite progress in the latest
survey, there remains further opportunity for
improvement around leadership communication.
Generate a passion for people
development
We encourage employees to take ownership
of their own development and encourage
leaders to spend time supporting their
employees’ development. To support this,
we have implemented a global platform to
increase the visibility and accessibility of
job opportunities and received over 18,500
applications from internal candidates through
this platform in 2017.
As part of our ambition to transform the
learning culture in AstraZeneca, we have
implemented a best-practice cloud-based
global learning management system that
will provide a platform to ensure development
opportunities are available to all employees.
In 2017, we launched ‘Leading People’,
a social online learning platform, with over
4,000 managers enrolling on the course.
We saw a significant increase in the score in
a number of key Pulse survey items among this
cohort, in particular those around engagement
and personal development. This work was
recognised with a significant external award.
Furthermore, in 2017, we also launched a
pilot for over 200 employees for the related
programme ‘Leading Self’, which will be
rolled out to all employees globally in 2018.
Human rights
Our Global People Policy and Human Rights
Statement commit us to respecting and
promoting international human rights – not only
in our own operations, but also in our wider
spheres of influence, such as our third-party
providers. To that end, we integrate human
rights considerations into our processes and
practices. We are also committed to ensuring
that there is no modern slavery or human
trafficking in our supply chains or any part of
our business. Our full statement required under
section 54 of the UK Modern Slavery Act is
available on our website, www.astrazeneca.com.
We support the principles set out in the United
Nations Universal Declaration of Human Rights
and the International Labour Organization’s
(ILO) standards on child labour and minimum
wages. We are also members of the United
Nations Global Compact on Human Rights.
We measure human rights by means of a
labour review survey every two years in
all countries where we have a presence.
The review focuses on ILO core themes,
including freedom of association and
collective bargaining, child labour,
discrimination, working hours and wages,
including questions on the Living Wage.
Where local gaps to ILO minimum standards
are identified, such as maternity leave or
grievance procedures, we put in place local
plans to close those gaps where allowed by
relevant national legislation. Our reporting
in this area is assured by Bureau Veritas.
For more information, please see page 227.
A global business
Employees by reporting region (%)
By geographical area
Emerging Markets 43.1%
Europe 28.4%
US 21.0%
Established Rest
of World 7.5%
8
2
3
7
6
4
1
5
11
10
9
12
1. US
12,800
(21.0%)
2. UK
6,600
(10.7%)
3. Sweden
5,800
(9.4%)
4. Canada
700
(1.2%)
5. Central and
South America
3,000
(4.9%)
6. Middle East
and Africa
1,600
(2.6%)
7. Other Europe
7,500
(12.4%)
8. Russia
1,300
(2.1%)
9. Other Asia
Pacific
6,300
(10.3%)
10. China
11,600
(19.0%)
11. Japan
2,900
(4.7%)
12. Australia and
New Zealand
1,000
(1.6%)
All numbers as at 31 December 2017.
61,100
employees
Co-locating around three
strategic R&D centres
1. Gaithersburg, MD, US
2,900
2. Cambridge, UK
2,200
3. Gothenburg, Sweden
2,200
36
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategic Report In 2017, we signed up to the ‘Fair Wage’
database and will use this data to measure
and monitor performance and issue directions
on the Living Wage.
Managing change
We continue to implement plans to invest in our
three strategic R&D centres in the US, UK and
Sweden. We encourage and support employees
to relocate and have made good progress.
For example, as at 31 December 2017, 2,200
employees were working in Cambridge and,
of these employees, 560 have relocated from
other sites in the UK. In addition to the 750
employees hired in 2015 and 2016, we hired
a further 350 permanent employees in
Cambridge in 2017. We are using interim
infrastructure in and around Cambridge to
house these employees until our new site
is ready. For employees who do not accept
offers to relocate to Cambridge, we provide
career support, outplacement support and
competitive severance packages. For more
information on our move to Cambridge,
please see R&D resources on page 25.
For more information on our restructuring programme,
please see the Financial Review from page 66.
Employee relations
We seek to follow a global approach
to employee relations guided by global
employment principles and standards,
local laws and good practice. We work to
develop and maintain good relations with
local workforces and work closely with
our recognised national trade unions.
We also regularly consult with employee
representatives or, where applicable, trade
unions, who share our aim of retaining key
skills and mitigating job losses. According
to our internal Human Rights survey carried
out in 2016, 58% (106 countries surveyed)
of countries in which AstraZeneca operates
recognise and have a relationship with
trade unions. Where trade unions do
not exist in an area of operation, 99% of
countries have established arrangements
to engage similarly with their workforce.
Safety, health and wellbeing
We work to promote a safe, healthy and
energising work environment for employees
and partners. Our standards apply globally
and are stated in our Global Safety,
Health and Environment Policy located
on www.astrazeneca.com/sustainability.
Due diligence includes establishing
and monitoring a set of safety, health and
wellbeing targets aimed at supporting our
people and keeping AstraZeneca among the
sector leaders in performance. Our reporting
in this area is assured by Bureau Veritas.
For more information, please see page 227.
As shown below, we made progress against
our strategic targets in 2017, achieving a 17%
reduction in the reportable injury rate and a
28% reduction in vehicle collision rate from
the 2015 baseline. Building on our previous
success in establishing a culture of health
and wellbeing, we continue to focus on active
health promotion. We have programmes to
address all four essential health activities –
healthy eating and drinking, physical activity,
tobacco cessation and mental wellbeing –
at 67% of our sites.
In 2017, we carried out several activities and
initiatives focused on delivery of improvements
in key risk areas, including driver safety (our
highest risk for significant injury and fatalities),
behavioural safety, ergonomics, fall prevention
and industrial hygiene. We also increased
focus on learning from incidents.
Gender diversity
Safety
Board of Directors of the Company
Directors of the Company’s subsidiaries*
Vehicle collisions
Male 58%
Female 42%
Male 71.7%
Female 28.3%
Year
2017
2016†
2015 baseline 4.13
Collisions
per million km
Target
2.97
3.60
3.76
4.00
SET*
AstraZeneca employees
Reportable injuries
Male 64%
Female 36%
Male 49.9%
Female 50.1%
Reportable injury rate
per million hours worked
1.44
1.52
Target
1.56
1.64
Year
2017
2016†
2015 baseline 1.73
† 2016 data re-stated.
* For the purposes of section 414C(8)(c)(ii) of the Companies Act 2006, ‘Senior Managers’ are the SET, the directors
of all of the subsidiaries of the Company and other individuals holding named positions within those subsidiaries.
AstraZeneca Annual Report & Form 20-F Information 2017 / Business Review
37
Strategic Report Business Review
Be a Great Place to Work
continued
Sustainability
We want to be valued and trusted
by our stakeholders as a source of
great medicines over the long term.
That is why we are committed to
operating in a way that recognises
the interconnection between
business growth, the needs of society
and the limitations of our planet.
This means delivering our business
strategy in a way that broadens
access to our medicines, minimises
the environmental footprint of
our products and processes, and
ensures that ethics and transparency
underpin everything we do.
Sustainability strategy
We have three priority areas aligned with
our Purpose and business strategy that allow
us to have the most impact on benefiting our
patients, our business, broader society and
the planet. We determined these priorities,
along with a set of foundational areas,
through a structured sustainability materiality
assessment that engaged external and
internal stakeholders. We measure our
progress towards our objectives through
annual and long-term targets.
Learn more in our 2017 Sustainability Report available
on our website, www.astrazeneca.com/sustainability.
38
Priority areas and objectives
1. Broadening access to healthcare
Through collaboration and
innovation we strive to expand
access to our medicines.
> Commitment 1: Promote awareness and prevention of
non-communicable diseases (NCDs) to reduce their global
burden and cost
See from page 39.
> Commitment 2: Build capacity to help improve the underlying
healthcare infrastructure and remove barriers to accessing
medical treatment
> Commitment 3: Make our medicines available and more affordable
to people on a commercially and socially sustainable basis
2. Furthering ethics and transparency
We commit to maintaining
integrity in everything we do.
> Commitment 1: Working to consistent global standards of ethical
sales and marketing practices in all our markets
> Commitment 2: Working only with suppliers who have standards
See from page 40.
consistent with our own
> Commitment 3: Working on continued transparency with our
data in clinical trials
> Commitment 4: Applying sound bioethics to all our work
> Commitment 5: Maintaining a strong focus on patient safety
3. Protecting the environment
We follow the science to
protect the planet.
> Commitment 1: Managing our impact on the environment, across
all our activities, with a particular focus on greenhouse gas
emissions, waste and water use
See from page 43.
> Commitment 2: Ensuring the environmental safety of our products
Our focus on these three
areas does not diminish
our commitment to the
foundational areas of
our sustainability agenda.
See from page 35 and page 40.
> Ensuring that diversity in its broadest sense is reflected in
our leadership and people strategies
> Embedding a consistent approach to human rights across our
worldwide activities
> Promoting the safety, health and wellbeing of all our people worldwide
> Building a robust talent pipeline to support our future growth
> Investing in community growth
Benchmarking and assurance
Recognition of our work in sustainability
DJSI
> Named in the Dow Jones Sustainability World and
CDP
ISAE3000 Assured
Europe Indices
> Attained industry best scores for: Codes of Business Conduct,
Labour Practice Indicators, Climate Strategy, Policy Influence
and Health Outcome Contribution
> Climate A List – Among the top 5% of companies participating in
CDP’s climate change programme in recognition of our strategy
and actions to reduce emissions and mitigate climate change
> Water A List – Among the top 10% of companies participating
in CDP’s water stewardship programme for our commitment to
transparency around environmental risks and demonstration of
pursuing best practice
> We are one of only 25 companies worldwide to be included on the
A List for both climate and water in 2017. We are one of only 13
companies worldwide on both A lists for two consecutive years
> Bureau Veritas has provided independent external assurance to
a limited level in accordance with the International Standard on
Assurance Engagements 3000 (ISAE3000), and in accordance with
ISAE3410 Assurance Engagements on Greenhouse Gas Statements
for the sustainability information contained within this Annual
Report and Form 20-F
For more information, please see Sustainability: supplementary
information on page 227 and the letter of assurance on the
Sustainability pages on our website, www.astrazeneca.com.
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategic Report Science
can
help people
with respiratory
disease in Asia
Healthy Lung Asia
The overall objective of Healthy Lung
Asia is to raise the profile of respiratory
disease with policy makers and build
health system capacity to support future
access to healthcare. Our three-pillar
approach includes:
> Partnerships and awareness:
Convene national taskforces to raise
awareness of/address health system
changes needed to improve outcomes.
> Understanding and skills: Develop
medical education materials with
a clear objective of spreading
evidence-based practice at scale.
> Capacity and access: Holistic,
partnership-driven interventions in
selected countries to resolve issues
of infrastructure, education or access.
So far, we have signed three Memoranda
of Understanding, including with Vietnam
and Indonesia, formed 14 partnerships,
educated some 2,000 GPs, screened more
than 10,000 patients, and committed to
create more than 500 respiratory centres.
Our activities demonstrate how we are
working to improve access to healthcare by
making our medicines available and more
affordable to people on a commercially
and socially sustainable basis. We are also
developing health systems infrastructure
by building capacity to help improve the
underlying healthcare infrastructure and
access to medical treatment.
To address local needs, our programmes
are typically governed by their respective
commercial market leaders. Due diligence
includes setting and measuring performance
towards targets. We have internal targets
and our annual Sustainability Report lists our
external targets and progress. We undergo
third-party assurance for these external
targets and our reporting in this Annual
Report is assured by Bureau Veritas –
for more information please see page 227.
Sustainability governance
Sustainability governance frames the way we
operate. Geneviève Berger, a Non-Executive
Director, oversees the implementation of our
sustainability matters on behalf of the Board
of Directors. Beginning in 2017, every member
of the SET is accountable for a specific
sustainability initiative.
Our Sustainability Advisory Board (SAB),
is comprised of five SET members and four
external sustainability experts. It met once in
2017 to guide strategic direction, recommend
opportunities and provide external insight and
feedback. Throughout the year, we engaged
with employees and external stakeholders
including investors, Ministries of Health,
NGOs, patients and suppliers.
1. Broadening access to healthcare
Marketplace on page 8 demonstrates
the burden of NCDs with 40 million deaths
annually which disproportionately affects
low- and middle-income countries where
nearly three quarters of these deaths occur.
In Return to Growth from page 26, we review
how, as a business focused on medicines
for NCDs, we aim to meet the challenges
posed in each of our Regions, particularly
for those patients in Emerging Markets who
may need help to access our medicines and
where barriers to healthcare are not always
pricing related.
Young Health Programme
We also promote awareness and prevention
of NCDs to reduce their burden and cost.
To that end, we continue to develop our Young
Health Programme (YHP), a global disease
prevention programme with a focus on youth.
Through YHP, we invest in on-the-ground
programmes, advocacy, and research and
evidence generation to address this global
health issue. 2017 was the seventh year of
our commitment to YHP and, during the year,
we reached nearly 427,000 young people
with health information on NCDs and risk
behaviours and trained more than 2,800 peer
educators. We launched a new three-year
programme in Brazil and renewed multi-year
commitments in Germany and Portugal.
We also worked collaboratively with our
advocacy partners, NCD Child and Rise Up
Together, to ensure youth health needs were
represented at the World Health Assembly,
the UN and in national advocacy efforts.
Understanding our impact was a primary
focus of activities in 2017, with publication of
our first Social Return on Investment analysis.
We looked at four YHP markets and calculated
a social return of between approximately $6
and $9 for every dollar invested.
For more information on YHP, please see
page 201.
Further information on YHP can be found on its
website, www.younghealthprogrammeyhp.com.
Learn more in our 2017 Sustainability Report,
on www.astrazeneca.com/sustainability.
AstraZeneca Annual Report & Form 20-F Information 2017 / Business Review
39
Strategic Report
Business Review
Be a Great Place to Work
continued
can
help people
with hypertension
in Africa
Healthy Heart Africa
Since launching in Kenya in
October 2014 and in Ethiopia in 2016,
Healthy Heart Africa (HHA) has:
> Conducted 5.7 million blood pressure
screenings in the community and in
healthcare facilities.
> Trained over 5,000 healthcare
workers, including doctors, nurses,
community health volunteers and
pharmacists to provide education
and awareness, screening and
treatment services for hypertension.
> Activated 675 healthcare facilities
in Africa to provide hypertension
services, including the establishment
of a secure supply chain for low-cost,
high-quality antihypertensive
medicines.
> Identified over one million people
living with high blood pressure.
Following the announcement of our
innovative public-private partnership
with the US President’s Emergency Plan
for AIDS Relief (PEPFAR) in September
2016, we are working to optimise the
HIV/hypertension integration and have
extended our relationship with our
implementing partner for a further
12 months. Together, we screened
some 300,000 people over the year
and observed an indicative growth
in male engagement. In Ethiopia,
we moved beyond the pilot phase
and screened some 470,000 people
in the course of 2017.
Science
2. Ethics and transparency
Code of Ethics and policy framework
We are committed to employing high ethical
standards when carrying out all aspects of
our business globally. In 2017, we launched
a Code of Ethics (the Code) which replaced
our Code of Conduct. The Code is based on
our company Values, expected behaviours
and key policy principles. It empowers
employees to make decisions in the best
interests of the Group and the people we
serve, now and in the long term, by outlining
our commitments in simple terms and
focusing on why these commitments matter.
The Code also guides employees on how
to make the best day-to-day choices and
how to act in a consistent, responsible way,
worldwide. There are two mandatory training
courses dedicated to the Code: one is for new
starters; the second is the annual training for
all employees, reminding them of the key
commitments. In 2017, 100% of all active
employees completed the annual training
on the new Code of Ethics.
The new Code includes four high-level
Global Policies covering Science, Interactions,
Workplace and Sustainability. During 2018,
these new, high-level Global Policies will
continue to be complemented by underlying
Standards and will replace the current suite of
12 existing global policies which are published
on our website, www.astrazeneca.com.
Our policy framework also includes additional
requirements at the global, local and business
unit level to support employees in their
daily work.
Ethical sales and marketing
We are committed to employing high ethical
standards of sales and marketing practice
worldwide, in line with our policy framework.
We maintain a robust compliance programme
in our efforts to ensure compliance with all
applicable laws, regulations and adopted
industry codes. As outlined in Global
Compliance and Internal Audit Services
on page 97, our compliance programme
is delivered by dedicated compliance
professionals who advise on and monitor
adherence to our policy framework.
These professionals also support our line
managers locally in ensuring that their staff
meet our standards. A network of nominated
signatories reviews our promotional materials
and activities against applicable requirements,
and audit professionals in Internal Audit
Services, in partnership with external audit
experts, also conduct compliance audits on
selected marketing companies. Our reporting
in this area is assured by Bureau Veritas.
For more information, please see page 227.
40
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategic Report Approximately 34,600 employees are
engaged in our Commercial activities and,
in 2017, we identified six confirmed breaches
of external sales and marketing regulations or
codes (2016: six). There were 1,431 instances,
most of them minor, of non-compliance with
the Code or supporting requirements in our
Commercial Regions, including instances
by employees and third parties (2016: 1,729).
We removed a total of 176 employees and
third parties from their roles as a result of
these breaches (a single breach may involve
more than one person). We also formally
warned 477 others and provided further
guidance or coaching on our policies to 1,157
more. The most serious breaches were raised
with the Audit Committee.
Anti-bribery/anti-corruption
Anti-bribery/anti-corruption is a key element
of our policy framework, with principles
and requirements underpinning the Code
commitment that we do not tolerate
bribery or any other form of corruption.
This commitment was conveyed in the
2017 annual Code training and is reinforced
through anti-bribery/anti-corruption training
materials made available to employees and
relevant third parties.
Bribery and corruption remains a business
risk as we launch new medicines in markets
across the globe and enter into partnerships
and collaborations. When working with third
parties, we are committed to working with
only those who embrace high standards of
ethical behaviour consistent with our own.
Bribery and corruption risk is a focus of our
third-party risk management process, as well
as our Business Development due diligence
procedures. It is also a focus of our monitoring
and audit programmes. Global Compliance
monitors a range of Commercial activities
associated with bribery and corruption risk,
and the majority of marketing company
audits include anti-bribery/anti-corruption
work programmes.
Transparency reporting
AstraZeneca is committed to the highest
standards of conduct in all our operations,
including transparency in how we partner
with physicians and medical institutions.
In the US, Europe, Australia and Japan our
external transparency reporting meets the
requirements of the Physician Payments
Sunshine Act (Open Payments), European
Federation of Pharmaceutical Industries
and Associations (EFPIA) Disclosure Code,
Medicines Australia (MA) Code of Practice,
and the Japanese Pharmaceutical
Manufacturers Association (JPMA) Disclosure
Code, as well as applicable local and state
transparency requirements.
Bioethics and responsible research
Our commitment to working in a transparent
and ethical manner is essential to achieving
scientific leadership and delivering life-
changing medicines. ‘Bioethics’ refers
to the range of ethical issues that arise from
the study and practice of biological and
medical science, and our current Global
Bioethics Policy sets out our global standards
in key areas. These standards apply to all
our research activity, whether conducted
by us or by third parties acting on our behalf.
The following sections summarise our
activities in these areas, and our Bioethics
Policy is available on our website,
www.astrazeneca.com/sustainability.
Our Bioethics Advisory Group (BAG) is
sponsored by the Chief Medical Officer,
and exists to oversee the operation of the
Bioethics Policy. It acts as a source of
bioethical advice to the business, bringing
together the subject matter leads for each of
the key bioethical areas, supported by other
experts and specialists. BAG receives reports
on governance and practice from subject
matter leads, including reports of non-
compliance with the Bioethics Policy, and
advises on whatever actions are necessary.
BAG met five times in 2017 and, in this period,
there were no cases of non-compliance with
the Bioethics Policy. BAG also considers
emerging trends and scientific advances
that may have an impact, supporting the
development of policy in relevant areas.
Ethical discussions in 2017 included the
potential impacts of advances in precision
genome editing, consenting and privacy
issues arising from the use of human
biological samples, and the implications
of research into human-animal chimaeras.
Clinical trials
We believe that transparency enhances
the understanding of how our
medicines work and benefit patients.
At www.AstraZenecaClinicalTrials.com,
we publish information about our clinical
research, as well as the registration and
results of our clinical trials – regardless of
whether they are favourable – for all products
and all phases, including marketed medicines,
drugs in development and drugs where
development has been discontinued.
In 2017, we conducted a range of clinical
trials across regions as shown in the charts
to the right. This broad span helps ensure
that study participants reflect the diversity
of patients for whom our medicines are
intended and identifies the patients for
whom the medicine may be most beneficial.
Our global governance process provides
the framework for ensuring a consistent,
high-quality approach worldwide. Protecting
participants throughout the trial process is
a priority and we have strict procedures to
help ensure participants are not exposed to
unnecessary risks.
All our clinical studies are designed and
finally interpreted in-house. Some are
conducted by CROs on our behalf and
we require these organisations to comply
with our global standards.
As of 15 December 2017, we shared
anonymised individual patient-level data
from 149 studies with 25 research teams
and responded to 74 requests from
external researchers using our portal,
http://astrazenecagroup-dt.pharmacm.com
to request our clinical data and reports
to support additional research. In 2017,
we continued our commitment to be more
transparent by expanding patient access
to trial results summaries. We therefore
participated in the launch of a new industry-
wide portal at www.trialsummaries.com
where we provide lay summaries in
easy-to-understand language and translate
these to the local language for all sites where
a study is conducted. In 2017, we published
trial results summaries for 34 AstraZeneca
studies. This initiative led to the Clinical
Trial Transparency Office receiving the
2017 Communication Award from TOPRA,
a membership organisation for individuals
working in healthcare regulatory affairs,
for our patient-focused approach to delivering
against the new EU Clinical Trial Regulations
several years earlier than required.
For more information, please see our website,
www.astrazeneca.com, or our clinical trials website,
www.astrazenecaclinicaltrials.com.
Clinical trials by region (%)
Small molecule studies (50%)
Biologics studies (35%)
Europe 13%
US/Canada 32%
Asia Pacific 15%
Central/Eastern
Europe 25%
Japan 2%
Latin America 10%
Middle East
and Africa 3%
Europe 21%
US/Canada 24%
Asia Pacific 14%
Central/Eastern
Europe 24%
Japan 5%
Latin America 11%
Middle East
and Africa 1%
AstraZeneca Annual Report & Form 20-F Information 2017 / Business Review
41
Strategic Report Business Review
Be a Great Place to Work
continued
Patient safety
One of our core values is to put patients first
and, by detecting, assessing, understanding
and preventing adverse effects or any other
drug-related problems not identified during the
development process, our pharmacovigilance
processes and systems seek to minimise
the risks and maximise the benefits of our
medicines for patients.
For all our medicines, under development
as well as on the market, we have systems in
place for identifying and evaluating possible
adverse drug effects. Information concerning
the safety profile of our medicines is provided
to regulators, healthcare professionals and,
where appropriate, patients. Each medicine
has a dedicated safety team, which includes a
responsible global safety physician and one or
more pharmacovigilance scientists. Marketing
companies have assigned patient safety
managers in place.
Our Chief Medical Officer is accountable for
the benefit and risk profiles of our products,
providing medical oversight and enforcing risk
assessment processes that help us make
efficient and informed decisions about patient
safety. As part of our commitment to patient
safety, in 2017, we developed a new safety
signal management platform to provide
consolidated risk oversight for all our products
in use. The platform supports comprehensive
awareness of the signals, intelligent analysis
of their impact, and enables appropriate
measures to reduce risks to patients.
Research use of human biological samples
The use of human biological samples,
such as solid tissue, biofluids and their
derivatives, plays a vital role in developing
a deeper understanding of human diseases
and their underlying mechanisms, which
helps us develop effective, new and
personalised medicines.
When we conduct this important research,
we maintain policies and processes to ensure
that we comply with the law, meet regulatory
concerns and maintain ethical standards.
We place an emphasis on informed consent
that protects the rights and expectations of
donors and families throughout the process of
our acquisition, use, storage and disposal of
the samples. Protecting the confidentiality of
a donor’s identity is of the utmost importance,
and a key part of our process includes the
coding of biological samples and associated
data (including genetic data).
42
In rare circumstances, we may use human
fetal tissue (hFT) or human embryonic stem
cells (hESC). In these circumstances, an
internal review of the scientific validity of the
research proposal will be conducted and
permission to use the tissue will be granted
only when no other scientifically reasonable
alternative is available. We also insist our
third party vendors adopt the highest ethical
standards and we rigorously assess the ability
of tissue suppliers to meet our quality and
ethical expectations. We are committed to
minimising the use of fetal tissue by exploring
technological alternatives.
In 2017, one research proposal that includes
use of cells derived from hFT has been
approved, resulting in two projects being
in progress as at 31 December. In addition,
three projects using three different hESC
lines or derived cells have been approved.
Animal research
We are committed to helping the public
understand the continuing need for animals
in research, and our approach to replacing,
reducing, and refining our use of animals
(the 3Rs).
We share our 3Rs advances externally
through presentations at international
conferences and workshops, and contribute
to the work of organisations and societies
supporting the 3Rs around the world.
Internally, our Council for Science and Animal
Welfare (C-SAW) leads initiatives on the 3Rs,
openness about our use of animals, and
builds a culture of care in the way we conduct
our research. For example, C-SAW runs a
global awards scheme and also promotes
global learning and continuing professional
development opportunities for employees
working with animals. C-SAW acts as the
governance and oversight body for the
use of animals in research and development,
providing assurance to senior leaders on our
responsible use of animals.
Animal research use varies depending on
many interrelated factors, including our
amount of pre-clinical research, the nature
and complexity of the diseases under
investigation and regulatory requirements.
We believe that without our active
commitment to the 3Rs, our animal use would
be much greater. In 2017, animals were used
for in-house studies 131,615 times (2016:
193,451). In addition, animals were used
on our behalf for CRO studies 28,545 times,
(2016: 25,651). In total, over 97% were
rodents or fish.
Technology has not yet advanced to the
stage where animal use can be eliminated and
animal studies therefore remain a small, but
necessary, part of the process of developing
new drugs. We are alert to the issues around
the use of animals, and are working constantly
to improve the quality of our animal studies.
Supply chain management
Every employee and contractor who sources
goods and services on behalf of AstraZeneca
is expected to follow responsible business
processes, which are embedded into
our newly updated Global Standard for
the Procurement of Goods and Services.
All our procurement professionals receive
detailed training on responsible procurement.
With most of our API manufacturing
outsourced, we need an uninterrupted
supply of high-quality raw materials.
We therefore place great importance on our
global procurement policies and integrated
risk management processes. We purchase
materials from a wide range of suppliers
and work to mitigate supply risks, such as
natural or man-made disasters that disrupt
supply chains or the unavailability of raw
materials. Contingency plans include using
dual or multiple suppliers where appropriate,
maintaining adequate stock levels and
working to mitigate the effect of pricing
fluctuations in raw materials.
We also seek to manage reputational risk.
Our ethical standards are integral to our
procurement and partnering activities and
we continuously monitor compliance through
assessments and improvement programmes.
We work only with those suppliers whose
standards of ethical behaviour are consistent
with our own. We will not use suppliers who
are unable to meet our standards. Our Global
Standard Expectation of Third Parties is
published on our website, www.astrazeneca.
com/sustainability.
To achieve this, we have an established process
for third party risk management. This process
assesses risk based upon defined criteria.
These include risks related to bribery and
corruption, data privacy, the environment and
wages. Each step of the process provides
an additional level of assessment, and we
conduct more detailed assessments on those
relationships identified as higher risk. Through
this risk-mitigation process, we seek to better
understand the partner’s risk approach and
seek to ensure the partner understands and
can meet our standards. We conducted a
total of 7,198 assessments in 2017, taking our
total number of assessments to 25,493 since
we established this process in May 2014.
Of the 2017 assessments, 1,888 were in the
Asia Pacific region, 2,227 in Europe and
2,038 in the Americas. The remaining 1,045
assessments relate to global suppliers and
those based in the Middle East and Africa.
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategic Report S
t
r
a
t
e
g
i
c
R
e
p
o
r
t
Science
In 2017, we conducted 41 audits on high-risk
suppliers, seeking to ensure that they
employ appropriate practices and controls.
Ten percent of these suppliers met our
expectations, with a further 90% implementing
improvement plans to address minor instances
of non-compliance. Through our due diligence
process, we rejected 12 suppliers because of
reputational concerns.
3. Protecting the environment
We follow the science to protect the planet
by managing our impact on the environment
across all our operations. Our current
Global Safety, Health and Environment (SHE)
Policy is the overarching document for our
environmental management system. It applies
to all functions and locations and is supported
by global standards and procedures that
establish mandatory requirements in key risk
areas. We monitor and manage performance
through comprehensive assurance
programmes that include performance
reporting, internal auditing and an annual
management review. We are on track to
deliver our 2016 to 2025 environment targets.
Managing our impact on natural resources
Our 2017 natural resource targets (against a
2015 baseline) included:
> reducing operational greenhouse
gas footprint as approved by the Science
Based Target initiative
> reducing energy consumption by 2%
to 1,761,081 MWh
> reducing waste generation by 4% to
29,328 tonnes
> reducing water use by 4% to 4.16 million m3.
The table overleaf provides data on our global
greenhouse gas emissions, energy use, waste
production and water consumption for 2017.
The data coverage includes 100% of our
owned and controlled sites globally. Regular
review of the data is carried out to ensure
accuracy and consistency. This has led
to changes in the data for previous years.
The data quoted in this Annual Report are
generated from the revised data. To support
the achievement of our targets, a resource
efficiency capital fund has been in place since
2015 to invest in projects at sites. In 2017,
approximately $19 million (2016: $25 million)
was committed to resource efficiency
projects at our manufacturing and R&D
sites, and a further $20 million has been
committed for 2018.
can
heat with
100% renewable
electricity
Renewable energy
In 2017, we began using sustainable heat
pump technology at our Gothenburg,
Sweden site. This technology is highly
efficient and electrifies some of the
site’s heat demand, with the estimated
potential to replace up to 60% of
the site’s natural gas consumption,
thereby reducing the site’s CO2
footprint. Coupled with the site
transitioning to renewable electricity
in 2016, the investment is estimated to
save approximately 2,500 tonnes of CO2
equivalent per year.
100%
100% of all active employees
completed training on new Code
of Ethics
AstraZeneca Annual Report & Form 20-F Information 2017 / Business Review
43
Business Review
Be a Great Place to Work
continued
Greenhouse gas reduction
We are working to reduce our greenhouse
gas emissions by, among other things,
investment in improving energy and fuel
efficiency and pursuing lower-carbon
alternatives to fossil fuels, utilising a hierarchy
approach of Avoid-Reduce-Substitute.
During 2017, we made progress towards our
verified science-based targets for Scope 1
and Scope 2 emissions through increased
fuel efficiency of our commercial sales fleet,
reduced energy consumption at our sites,
and procurement of electricity from certified
renewable sources increasing to represent
63% of total electricity imports. Our total
Scope 1 and Scope 2 emissions have been
reduced by 29% from our 2015 baseline.
We have continued to make progress on our
science-based targets for Scope 3 emission
sources through continued achievement in
switching freighting of goods from air to sea,
reduced business air travel, and improved
accounting of our Scope 3 footprint that will
lead to future efficiency improvements.
Our pMDI inhaler therapies rely on
hydrofluoroalkane (HFA) propellants, which
affects our Scope 3 greenhouse gas footprint.
While HFAs have no ozone depletion potential
and a third or less of the global warming
potential than the chlorofluorocarbons they
replace, they are still potent greenhouse
gases. During 2017, we continued to explore
practical opportunities to reduce the climate
impact of these devices during production
and use while continuing to fulfil patient needs,
including the launch of a new pMDI device
that uses an HFA propellant with less than
half the global warming impact of our legacy
portfolio. Including emissions from patient
use of our inhaler therapies, our operational
greenhouse gas footprint totalled 1,658,548
metric tonnes in 2017, a reduction of 7% from
our 2015 baseline.
For more information on carbon reporting, please see
Sustainability: supplementary information on page 227.
Energy use
We recognise the need to reduce our demand
for energy in the first instance, maximise
the efficiency of the energy we do use, and
where feasible substitute our energy use with
renewable sources. In 2017, we targeted a 3%
reduction in total energy consumption from
our 2015 baseline. In 2017, our energy use
was 1,742 GWh, a reduction of 3%. We have
made further progress on our target to source
100% renewable power by 2025. In 2017,
we procured certified zero emission power
equivalent to 63% of total consumption and
generated a further 11,874 MWh of renewable
energy on our sites.
44
Waste management
Waste management is another key aspect of
our commitment to minimise environmental
impact. In 2017, we targeted a 4% reduction
in waste generation from our 2015 baseline.
In 2017, our total waste was 31,222 metric
tonnes, a 2% increase on 2015. Although
large waste reduction projects came online in
2017, bringing savings of equivalent to 2.5% of
our total waste footprint, our waste reduction
target has been missed due to increasing
activity across our site network. While waste
prevention is an essential goal, we seek to
maximise treatment by material recycling
and avoiding landfill disposal when prevention
is impractical.
Water use reduction
We recognise the need to use water
responsibly and, where possible, to minimise
water use in our facilities. In 2017, we targeted
a 4% reduction from our 2015 water use.
In 2017, our water footprint was 3.89 million m3,
a 10% reduction. Water reduction and reuse
projects throughout our site network have
improved the efficiency of water use across
our operations. During 2017, our major sites
and those in water-stressed areas maintained
or completed Water Conservation Plans to
ensure we are managing our water risks and
to facilitate sharing of best practice in water
stewardship around our site network.
Ensuring the environmental safety
of our products
We are committed to ensuring effective
environmental management of our products
from pre-launch through to product
end-of-life. We work at all stages of a
medicine’s life-cycle from the design of active
pharmaceutical ingredient (API) production
and formulation processes, devices and
packaging through distribution, patient use
and final disposal. We aim to lead our industry
in understanding and mitigating the effects of
pharmaceuticals in the environment (PIE).
As part of our progress towards our 2025
environmental targets, our 2017 product
environmental safety targets included:
> Safe API discharges for AstraZeneca
sites (100%) and globally managed
first tier suppliers (>90%). Target met
– safe API discharges confirmed.
> Management of PIE through our
‘ecopharmacovigilance’ programme.
Target met – programme delivered.
Pharmaceuticals in the environment
An estimated 98% of pharmaceuticals
get into the environment as a result of
patient use (excretion or improper disposal).
While API discharge from production is only a
small proportion of the environmental burden,
it is the part we as an industry can deal
with directly. We manage the manufacturing
Operational greenhouse gas
footprint emissions (tonnes COe)
2017
2016
2015
1,658,548
1,659,071
1,777,190
1,658,548 tonnes COe
Energy consumption (MWh)
2017
2016
2015
1,742,325
1,785,250
1,805,071
1,742,325 MWh
% certified renewable
2017 27%
2016 25%
2015 6%
Waste production (tonnes)
2017
2016
2015
31,222 tonnes
Water use (million m³)
2017
2016
2015
3.89 million m³
31,222
31,571
30,550
3.89
4.01
4.34
discharge of our APIs in a responsible
manner to ensure that we do not exceed
the safe discharge standards set for our
own manufacturing sites and those of key
suppliers. We review compliance with
these safe discharge standards annually.
Using a concept called ‘ecopharmacovigilance’,
we review emerging science and literature for
new information that might change the way we
assess and manage any environmental risks
associated with our products through patient
use and API production.
We also conduct collaborative research to
understand the fate, behaviour and impact of
pharmaceuticals on the environment. In 2017,
we co-authored 14 peer-reviewed publications
to enhance our knowledge of the risks
associated with this emerging issue.
Further information on our efforts in this area, including
environmental risk assessment data for our medicines,
is available on our website, www.astrazeneca.com/
sustainability/environmental-sustainability.
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategic Report
S
t
r
a
t
e
g
i
c
R
e
p
o
r
t
Non-Financial Reporting Regulations
Under sections 414CA and 414CB of the
Companies Act 2006, as introduced by
the Companies, Partnerships and Groups
(Accounts and Non-Financial Reporting)
Regulations 2016, AstraZeneca is
required to include, in its Strategic Report,
a non-financial statement containing certain
information. Information required by these
Regulations is included in Business model
and life-cycle of a medicine from page 14,
Strategy and Key Performance Indicators
from page 17, and the Business Review
from page 34.
can
Science
excite children
Community investment
Wherever we work in the world, we aim to
make a positive impact on our communities.
Our Community Investment Contributions
Standard outlines our global areas of focus
and provides guidance to ensure a consistent,
transparent and ethical approach around
the world, based on local need. Our global
community investment activities are focused
on healthcare in the community and
supporting science education. They include
financial and non-financial community
sponsorships, partnerships and charitable
donations. In 2017, we gave more than
$25 million (2016: $39 million) through our
community investment activities to more than
900 non-profit organisations in 61 countries,
which includes more than $4 million (2016:
$20 million) for product donations that were
given in support of public health needs and
disaster relief. In addition to these community
investments, we also donated more than
$401 million (2016: $468 million) of medicines
in connection with patient assistance
programmes around the world, the largest
of which is our AZ&Me programme in the US.
For more information on our patient
assistance programmes, please see
from page 28, and on our Young Health
Programme, a global disease prevention
programme with a focus on youth, please
see pages 39 and 201.
STEM learning and careers
Bahija Jallal, President, MedImmune
and Executive Vice-President,
AstraZeneca, works with a student
on the MDBio Mobile eXploration lab,
America’s largest, most advanced
mobile laboratory. MXLab is
custom-designed to expand new
technology and laboratory science
experiences to pique students’ interest
in science, technology, engineering
and mathematics (STEM) learning
and careers.
Dr Jallal was the Healthcare
Businesswomen’s Association (HBA)
2017 Woman of the Year.
Our global disaster relief partners are the
British Red Cross, Americares, Direct Relief
International and Health Partners International
of Canada. In 2017, we funded the deployment
of the British Red Cross Mass Sanitation Unit
to Northern Uganda where it provided more
than 13,000 refugees with access to a safe
latrine and reached more than 19,000
refugees with hygiene promotion activities.
We also responded to appeals for the South
Asian Floods and support for the Atlantic
Hurricane Season.
In 2017, we donated products across multiple
therapeutic areas to 17 countries to respond
to public health needs and disaster relief.
This includes pre-positioning products
in partner warehouses to allow for quick
deployment which was a critical part of our
partner’s response efforts during the Atlantic
Hurricane Season.
Making a positive impact on our communities
is also about volunteering. We encourage
our employees to volunteer and support their
efforts with one day’s leave for volunteering.
In 2017, our employees volunteered more
than 29,000 hours on community projects
in countries around the world.
AstraZeneca Annual Report & Form 20-F Information 2017 / Business Review
45
Therapy Area Review
46
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategic Report can
Science
Expand treatment options
Oncology | From page 48
Understand disease
Cardiovascular & Metabolic Diseases | From page 52
Transform outcomes
Respiratory | From page 56
Develop best-in-class therapies
Other Disease Areas | From page 60
Smarter, faster and cheaper drug discovery
The world’s most advanced drug discovery robot
is working alongside our scientists to help make
drug discovery smarter, faster and cheaper.
Designed to work three times more quickly than
previous drug discovery robots, NiCoLA-B can
test up to 300,000 compounds a day and is also
more scientist-friendly, flexible and responsive.
For more information, see
www.astrazeneca.com/meet-NiCoLA-B.
Our products
While this Therapy Area Review
concentrates on our key marketed products,
many of our other products are crucial
to our business in certain countries
in Emerging Markets.
For more information on our potential
new products and product life-cycle
developments, please see the Therapy
Area pipeline tables on pages 49, 53,
57 and 61 and the Development Pipeline
table from page 202. For information
on Patent Expiries of our Key Marketed
Products, please see from page 208.
Indications for each product described
in this Therapy Area Review may
vary among countries. Please see
local prescribing information for
country-specific indications for any
particular product.
For those of our products subject to
litigation, information about material
legal proceedings can be found in
Note 28 to the Financial Statements
from page 182.
Details of relevant risks are set out
in Risk from page 210.
AstraZeneca Annual Report & Form 20-F Information 2017 / Therapy Area Review
47
Strategic Report
Therapy Area Review
continued
Oncology
Our ambition is to eliminate cancer as a
cause of death through scientific discovery
and collaborations. We seek to achieve
this by means of exploiting the power
of four scientific platforms.
Cancer is the second leading cause of death
globally, claiming more than eight million lives
every year. R&D continues to push boundaries
in how we understand and fight cancer,
but there is still more to do. At AstraZeneca,
we are committed to advancing the science
of oncology to deliver life-changing medicines
to people most in need.
Our strategic priorities
In Oncology, our vision is to push the
boundaries of science to respond to unmet
medical need and ultimately redefine the
cancer treatment paradigm. We are doing
this through scientific innovation, accelerated
clinical programmes and collaboration.
We have a deep-rooted heritage in Oncology
and offer a growing line of new medicines
that has the potential to transform patients’
lives and AstraZeneca’s future. At least six
oncology medicines are expected to be
launched between 2014 and 2020, of which
Lynparza, Tagrisso, Imfinzi and Calquence
are already benefiting patients.
In 2015, we decided that all new Oncology
launches would form a new Growth Platform,
under the designation of New Oncology.
Our broad pipeline of next-generation
medicines is aimed at expanding our
treatment options for solid tumours and
haematological cancers, using four key
scientific platforms:
> Immuno-oncology (IO): IO is a promising
therapeutic approach that harnesses the
patient’s own immune system to help
fight cancer. We aim to become scientific
leaders in IO by identifying novel approaches
that enhance the immune system’s ability
to fight cancer, both with IO medicines on
their own, and in conjunction with other
medicines. Example: Imfinzi.
> Tumour drivers and resistance
mechanisms: Potent inhibition of genetic
disease drivers is a clinically validated
approach to shrink tumours and improve
progression-free survival and overall
survival. Tumours, however, eventually
develop resistance to these therapies.
Our programmes seek to develop therapies
that target resistance mechanisms and
the mutations that cause cancer cells to
proliferate. Examples: Tagrisso, Calquence.
Antibody that blocks inhibitory signals from the tumour
to cells of the immune system resulting in enhanced
anti-tumour immunity.
> DNA damage response: Exploiting
mechanisms that selectively damage
tumour cell DNA is another clinically
validated approach to shrink tumours
and improve progression-free and overall
survival. Our market-leading programmes in
DNA Damage Response focus on multiple
ways to identify and exploit vulnerabilities
to kill the tumour cells, while minimising
toxicity to the patient. Example: Lynparza.
> Antibody-drug conjugates (ADC):
The use of ADCs is a clinically validated,
highly potent approach that selectively
targets cancer cells. We seek to combine
innovative antibody engineering capabilities
with cytotoxic drug molecules to attack
and kill the tumour while minimising toxicity
to the patient. Example: moxetumomab.
At the heart of our Oncology strategy is
a powerful combinations portfolio that
leverages our four scientific platforms to
simultaneously attack multiple mechanisms
of tumour progression. In a very competitive
and fast-moving environment, AstraZeneca
has a broad development programme
focused on first-in-class or best-in-disease
opportunities across multiple tumour types.
Our 2017 commercial focus
In total, our marketed oncology medicines
generated Product Sales of $4 billion
worldwide in 2017. Sales from our New
Oncology Growth Platform, totalled $1.3 billion
in 2017, an increase of 98% at actual rate of
exchange (98% at CER) over 2016 ($0.7 billion).
Faslodex 500mg is approved in more than
80 countries, including the EU, the US and
Japan. In 2017, Faslodex received 1st line label
48
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategic Report
Oncology – pipeline progressions
Regional
approvals
> Imfinzi 2nd line bladder cancer (US)
> Calquence 2nd line mantle cell lymphoma (US)
> Faslodex 1st line breast cancer (FALCON) (US, JP, EU)
> Lynparza 2nd line ovarian cancer + (SOLO-2) (US, JP*); breast cancer (OlympiAD) (US*)
> Tagrisso 2nd line lung cancer + (AURA3) (US, EU)
> Tagrisso 2nd line lung cancer + (AURA17) (CN)
Expedited review
> Breakthrough Therapy Designation: Calquence blood cancers (US); Imfinzi 1st line lung
cancer stage 3 (PACIFIC) (US); Tagrisso 1st line lung cancer (FLAURA) (US)
> Orphan Drug Designation: Lynparza breast cancer (OlympiAD) (JP); Lynparza ovarian
cancer (JP)
> Priority Review Designation: Calquence blood cancers (US); Imfinzi lung cancer stage 3
(PACIFIC) (EU, JP); Lynparza 2nd line ovarian cancer (US); Lynparza breast cancer
(OlympiAD) (US, JP); Tagrisso 1st line lung cancer (FLAURA) (US)
> Accelerated approval: Calquence non-hodgkin’s lymphoma (US); Imfinzi 2nd line bladder
cancer (US)
Regulatory
submissions
Phase III
investment
decisions
Phase II starts/
progressions
Strategic
transactions
completed
Setbacks and
terminated
projects
> Calquence mantle cell lymphoma (US)
> Imfinzi lung cancer stage 3 (PACIFIC) (EU, US, JP)
> Lynparza 2nd line ovarian cancer + (SOLO-2) (EU, US, JP)
> Lynparza breast cancer (OlympiAD) (JP, US)
> Tagrisso 1st line lung cancer (FLAURA) (US, EU, JP)
> Imfinzi non-muscle invasive bladder cancer
> Imfinzi + tremelimumab + chemotherapy 1st line lung cancer
> Imfinzi + chemo-radiation therapy lung cancer stage III
> Imfinzi + epacadostat + chemo-radiation therapy lung cancer
> Lynparza + Imfinzi + Avastin ovarian cancer
> Tagrisso lung cancer stage 3
> Forxiga HF with a preserved ejection fraction*
AZD4635 + Imfinzi lung cancer; AZD8186 + abiraterone for castration-resistant prostate cancer;
Imfinzi + AZD9150 head and neck squamous-cell carcinoma; Imfinzi + oleclumab (MEDI9447)
solid tumours; Imfinzi + monalizumab solid tumours; Imfinzi + Darzalex for relapsed refractory
multiple myeloma; Imfinzi + MEDI0457 head and neck squamous-cell carcinoma
A global strategic oncology collaboration was established with MSD to co-develop and
co-commercialise Lynparza for multiple cancer types. We will also jointly seek to develop
and commercialise selumetinib, an oral, potent, selective inhibitor of MEK, part of the
mitogen-activated protein kinase (MAPK) pathway, currently being developed for multiple
indications, including thyroid cancer. Licensing agreement for rights to Zoladex in the US
and Canada with TerSera
The MYSTIC trial did not meet its primary endpoint of improving PFS compared to standard
of care (SoC) in PD-L1 >25% in patients with 1st line NSCLC. In addition, Imfinzi monotherapy
would not have met a pre-specified threshold of PFS benefit over SoC. With respect to safety,
the Imfinzi plus tremelimumab profile was consistent with expectations based on prior clinical
data. The MYSTIC trial continues as planned to assess the additional primary endpoints of
overall survival for Imfinzi monotherapy and for the Imfinzi + tremelimumab combination.
Discontinued: MEDI-573 for IGF metastatic breast cancer
Our marketed products
> Arimidex (anastrozole)
> Casodex/Cosudex (bicalutamide)
> Calquence (acalabrutinib)
> Faslodex (fulvestrant)
> Imfinzi (durvalumab)
> Iressa (gefitinib)
> Lynparza (olaparib)
> Nolvadex (tamoxifen citrate)
> Tagrisso (osimertinib)
> Zoladex (goserelin acetate implant)
Full product information on page 208.
* ApprovedinJanuary2018.
Lynparza is an oral poly ADP ribose polymerase
(PARP) inhibitor available in more than 30
countries for the treatment of adult patients
with BRCA-mutated high-grade serous
epithelial ovarian, fallopian tube or primary
peritoneal cancer. In August 2017, the FDA
granted approval for new use of the tablet
formulation of Lynparza as a maintenance
treatment for patients with recurrent, epithelial
ovarian, fallopian tube or primary peritoneal
adult cancer who are in response to platinum-
based chemotherapy, regardless of BRCA
status based on results from two randomised
trials, SOLO-2 and Study 19.
On 12 January 2018, based on data from the
randomised, open-label, Phase III OlympiAD
trial, the FDA approved Lynparza for use
in patients with deleterious or suspected
deleterious germline BRCA-mutated (gBRCAm),
HER2- metastatic breast cancer who have
been previously treated with chemotherapy
in the neoadjuvant, adjuvant or metastatic
Therapy area world market
(MAT/Q3/17)
$96.2bn
Annual worldwide market value
Chemotherapy $19.2bn
Hormonal therapies $12.0bn
Monoclonal antibodies (mAbs) $27.5bn
Small molecule tyrosine
kinase inhibitors (TKIs) $27.8bn
Immune checkpoint inhibitors $9.7bn
Other Oncology Therapies $0.05bn
AstraZenecafocusesonspecificsegmentswithin
thisoveralltherapyareamarket.
extension for use as the treatment of oestrogen
receptor positive, locally advanced or
metastatic breast cancer in postmenopausal
women not previously treated with endocrine
therapy in Japan, Russia, the EU and the US.
The approvals were based on positive results
from the Phase III FALCON clinical trial
comparing the efficacy and safety of Faslodex
with Arimidex in the 1st line advanced breast
cancer setting (hormone-naïve patients),
which was presented in 2016.
In November 2017, the FDA approved a
new indication for Faslodex, expanding the
indication to include use with abemaciclib
for the treatment of hormone receptor-positive
(HR+), human epidermal growth factor
receptor 2 negative (HER2-) advanced or
metastatic breast cancer in women with
disease progression. This approval, based
upon the MONARCH2 study, further expands
the growing body of evidence for using
Faslodex in combination as a treatment for
advanced breast cancer, as illustrated by the
FDA-approved combination with palbociclib
in March 2016. Iressa was the first epidermal
growth factor receptor tyrosine kinase
inhibitor (EGFR-TKI) to be approved for the
treatment of advanced epidermal growth
factor receptor (EGFR) mutation non-small cell
lung cancer (NSCLC) and, as of 31 December
2017, had been approved in 90 countries.
Iressa received approval in the US in July 2015.
Zoladex continues to be a significant asset
in our on-market portfolio and a driver of our
prostate cancer and breast cancer portfolios.
AstraZeneca Annual Report & Form 20-F Information 2017 / Therapy Area Review
49
Strategic Report
Therapy Area Review
Oncology continued
$4bn
Product Sales of $4,024 million,
up 19% (19% at CER)
setting. This new approval for Lynparza
makes it the first and only PARP inhibitor
approved in metastatic breast cancer,
and the only PARP inhibitor approved
beyond ovarian cancer. Tagrisso is the first
approved EGFR-TKI indicated for patients
with metastatic EGFR T790M mutation-
positive NSCLC. After receiving accelerated
approval in several countries in 2015-2016,
Tagrisso was granted full approval based on
the Phase III AURA3 confirmatory trial in the
US and EU in early 2017, and is now approved
in more than 60 countries worldwide,
including the US, EU, Japan and China,
for patients with EGFR T790M mutation-
positive advanced NSCLC. Imfinzi is a human
mAb directed against PD-L1 and our first
IO product on market. In May 2017, Imfinzi
received its first accelerated approval in
the US in previously treated patients with
advanced bladder cancer.
Calquence is a selective inhibitor of Bruton
tyrosine kinase (BTK). In October 2017,
the medicine was granted accelerated
approval by the FDA for the treatment of adult
patients with mantle cell lymphoma (MCL)
who have received at least one prior therapy.
Details of material patent litigation relating
to Calquence, Faslodex, Imfinzi and Tagrisso
are included in Note 28 to the Financial
Statements from page 182.
In the pipeline
Our Oncology pipeline continues to progress.
It now includes 32 NMEs in development.
In October 2017, AstraZeneca received a
sixth Breakthrough Therapy Designation for
an oncology medicine from the FDA since
2014. During the year, we also expanded
several of our projects to incorporate novel
combinations and various types of cancer.
Some of our key projects from each of our
platforms are outlined below.
50
Immuno-oncology franchise
> Imfinzi is also being explored as a
monotherapy and in combination
with tremelimumab, an anti-cytotoxic
T-lymphocyte-associated protein 4 antibody,
across multiple tumour types and lines of
therapy. This includes Phase III registrational
trials in various stages of NSCLC, small-cell
lung cancer, metastatic urothelial cancer,
head and neck squamous cell carcinoma
(HNSCC), and hepatocellular carcinoma
(HCC). Our IO development programme
also includes additional Phase I/II studies
in a broad range of haematologic and solid
tumours and an extensive range of
combinations, including with small molecules,
other biologics and chemotherapies.
> In May 2017, Imfinzi met a primary endpoint
of statistically-significant and clinically-
meaningful progression-free survival
(PFS) in ‘all-comer’ patients with locally-
advanced, unresectable (Stage 3) NSCLC
whose disease has not progressed
following chemo-radiation therapy in a
planned interim analysis of the PACIFIC
Phase III trial. The full data were presented
at the European Society for Medical
Oncology congress in September 2017.
Imfinzi is the first medicine to show
superior PFS in this setting. In July 2017,
Breakthrough Therapy Designation
was granted by the FDA for Imfinzi in this
indication and it included Priority Review
status in the US. The therapy is currently
under regulatory review in the EU and US.
> In June 2017, the first patient was dosed
with Imfinzi in POSEIDON, a Phase III 1st
line NSCLC study of Imfinzi and Imfinzi +
tremelimumab combined with chemotherapy.
In November 2017, the first patient was also
dosed in HIMALAYA, a Phase III study
designed to assess Imfinzi and Imfinzi +
tremelimumab in the treatment of patients
with no prior systemic therapy for
unresectable HCC.
> In July 2017, the Phase III MYSTIC trial, a
1st line NSCLC study of Imfinzi and Imfinzi
+ tremelimumab, failed to meet one of its
primary endpoints – improving PFS – when
comparing against the standard of care
in patients whose tumours express PD-L1
on 25% or more of their cancer cells.
The study is ongoing for its two other
primary endpoints, overall survival (OS)
in each of the monotherapy arm and the
combination therapy arm.
> Other IO agents in early development
include: MEDI9447, targeting ecto-5’-
nucleotidase (CD73); AZD9150, an antisense
oligonucleotide that downregulates STAT3
expression in the tumour microenvironment;
AZD5069, a chemokine receptor 2 inhibitor;
MEDI9197, a small molecule agonist
targeting toll-like receptor 7/8; MEDI0562,
a humanised agonistic mAb that targets
OX40; MEDI1873, targeting glucocorticoid-
induced tumour necrosis factor receptor-
ligand; MEDI0457, a DNA vaccine against
human papilloma virus 16/18; NKG2A,
a checkpoint receptor inhibiting the
anti-cancer functions of NK and cytotoxic
T-cells; MEDI0680, an anti-programmed
cell death protein 1 (PD1) mAb blocking
interactions with PD1 and its ligands;
and AZD4635, an adenosine 2A receptor
inhibitor. These agents are in Phase I/II
development for a range of solid tumours
and have the potential for combination
with other molecules in the portfolio,
including Imfinzi.
Tumour drivers and resistance
mechanisms franchise
> Tagrisso is a highly selective, irreversible
inhibitor of the activating sensitising EGFR
mutation and the resistance mutation
T790M. The product is being investigated
in Phase III studies in the adjuvant setting
for the treatment of patients with EGFRm
NSCLC and in the advanced setting as
a 1st line treatment of EGFRm NSCLC
and as a ≥2nd line treatment of EGFRm
T790M NSCLC. Additionally, studies in
combination with other small molecules
are under investigation.
> In July 2017, AstraZeneca announced
positive results from the Phase III FLAURA
trial comparing the efficacy and safety of
Tagrisso with current 1st line EGFR-TKIs in
previously untreated patients with EGFRm
NSCLC. The results were subsequently
presented at the European Society for
Medical Oncology congress in September
2017. In October 2017, the FDA granted
Breakthrough Therapy Designation for
Tagrisso for the 1st line treatment of
patients with metastatic EGFRm NSCLC.
The therapy is currently under regulatory
review in the US, EU and Japan.
> Calquence is a BTK inhibitor in Phase III
development in B-cell malignancies and
solid tumours. In August 2017, the FDA
granted Breakthrough Therapy Designation
for Calquence for the treatment of patients
with MCL who have received at least one
prior therapy.
> Selumetinib is a mitogen-activated protein
kinase inhibitor in Phase III development
for adjuvant differentiated thyroid cancer.
Selumetinib’s development programme
also includes trials in neurofibromatosis
type 1 and solid tumours.
> Savolitinib is a selective inhibitor of c-MET
(mesenchymal epithelial transition factor)
receptor tyrosine kinase, an enzyme which
has been shown to function abnormally in
many types of solid tumours. It is in Phase III
trials in papillary renal cell cancer in patients
with a genetic aberration in the c-MET
pathway and in Phase II trials in combination
with Tagrisso and Iressa in EGFR mutated
lung cancer with c-MET amplification.
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategic Report can
Science
bring benefits to
more patients
OlympiAD
With over three years’ experience
in ovarian cancer, Lynparza, the first
poly-ADP ribose polymerase (PARP)
inhibitor, represents the proof that
targeting the DNA Damage Response
pathway works beyond the laboratory.
Following the initial approval of this
new class of medicine, in June 2017,
we presented the full results from the
Phase III OlympiAD trial, the first
positive randomised trial to evaluate
the efficacy and safety of a PARP
inhibitor beyond ovarian cancer.
The OlympiAD results also marked
the first time a targeted therapy showed
benefit over the current standard
of care for patients with germline
BRCA-mutated HER2- metastatic breast
cancer. On 12 January 2018, the FDA
granted approval to Lynparza in this
indication. Lynparza has the broadest
clinical trial programme of any
PARP inhibitor, and this milestone
demonstrates how AstraZeneca
followed the science to expand the
potential of Lynparza to benefit many
patients in multiple settings.
> AZD1775 is a Wee1 inhibitor in Phase II
development for ovarian and other solid
tumours in combination with Lynparza.
It is also being evaluated in combination
with chemotherapy and as monotherapy.
> AZD6738 is an ATR inhibitor in Phase II
development in combination with
Lynparza in triple negative breast cancer,
gastric cancer and other solid tumours.
It is also being investigated in combination
with Calquence in chronic lymphocytic
leukaemia and in combination with
radiation therapy and chemotherapy
as well as a monotherapy.
> Phase I clinical studies are progressing
for the ATM inhibitor, AZD0156 (for the
treatment of gastric and colorectal cancers)
and the aurora B kinase inhibitor, AZD2811 in
acute myeloid leukaemia and solid tumours.
An ATM inhibitor designed to cross the blood
brain barrier, AZD1390 is in Phase I
development for the treatment of gliobastoma
multiforme in combination with radiation.
> Cediranib is an orally administered
multi-vascular endothelial growth factor
receptor (VEGFR) inhibitor which is currently
being tested in combination with Lynparza
in Phase III trials in patients with platinum-
sensitive relapsed ovarian cancer and
platinum-resistant/refractory ovarian cancer.
> AZD5363 is a protein kinase B inhibitor
in Phase II development for breast and
prostate cancer.
> Vistusertib is an inhibitor of the mammalian
target of rapamycin serine/threonine kinase
(TORC1, TORC2) and is in Phase II
development for the treatment of solid
and haematological tumours.
> AZD9496 is a selective oestrogen receptor
down-regulator in Phase I development for
the treatment of breast cancer.
> Other agents in early development include:
AZD5991, an MCL1 inhibitor; AZD4753,
a CDK9 inhibitor; AZD5153, a bromodomain
4 inhibitor; AZD4785, an antisense
oligonucleotide targeting KRas; and
AZD8186 an inhibitor of PI3 kinase β and δ.
DNA damage response franchise
> Lynparza is being evaluated in a broad
range of Phase III trials, including BRCAm
adjuvant and metastatic breast cancer,
gBRCAm pancreatic cancer, gBRCAm
ovarian cancer and prostate cancer.
> In February 2017, AstraZeneca announced
positive results of OlympiAD, a Phase
III randomised, open-label, multicentre
study assessing the efficacy and safety of
Lynparza tablets compared to ‘physician’s
choice’ chemotherapy in patients with
HER2- metastatic breast cancer with
germline BRCA1 or BRCA2 mutations,
which are predicted or suspected to be
deleterious. The results were subsequently
presented at the American Society of
Clinical Oncology congress in June 2017
and submitted to Health Authorities for
regulatory review in the US, EU and Japan.
Antibody-drug conjugates franchise
> Moxetumomab pasudotox, an anti-CD22
recombinant immunotoxin, is being
investigated in a Phase III study for adult
patients with hairy cell leukaemia who
have relapsed after, or not responded
to, standard therapy. In November 2017,
AstraZeneca announced moxetumomab
had met the primary endpoint of this study.
> MEDI4276 is an HER2 bispecific ADC,
which entered clinical development for
a range of solid tumours.
> MEDI3726 is a PSMA ADC and MEDI7247
is an ADC against an undisclosed target.
Key Oncology collaborations
and transactions
In 2017, collaborations between AstraZeneca
and various partners have continued to
mature, with new data presented at medical
congresses. We also concluded three new
major agreements.
In February 2017, AstraZeneca entered into an
agreement with TerSera for the commercial
rights to Zoladex in the US and Canada.
Zoladex is an injectable luteinising hormone-
releasing hormone agonist, used to treat
prostate cancer, breast cancer and certain
benign gynaecological disorders.
In July 2017, AstraZeneca and MSD
announced that they had entered into a
global strategic oncology collaboration to
co-develop and co-commercialise Lynparza
for multiple cancer types. The companies will
develop and commercialise Lynparza jointly,
both as monotherapy and in combination
with other potential medicines. Independently,
the companies will develop and commercialise
Lynparza in combination with their respective
PD-L1 and PD-1 medicines, Imfinzi and
pembrolizumab. The companies will
also jointly develop and commercialise
AstraZeneca’s selumetinib, an oral, potent,
selective inhibitor of MEK, part of the
mitogen-activated protein kinase pathway,
currently being developed for multiple
indications, including thyroid cancer.
On 31 October 2017, AstraZeneca and
Incyte announced the expansion of their
clinical collaboration. As part of the
agreement, the companies will evaluate
the efficacy and safety of epacadostat,
Incyte’s investigational selective IDO1
enzyme inhibitor, in combination with
Imfinzi, a human mAb directed against
PD-L1, compared to Imfinzi alone. The
exclusive collaboration for the study
population allows for the two companies
to conduct a Phase III trial in patients with
locally-advanced (Stage 3), unresectable
NSCLC whose disease has not progressed
following platinum-based chemotherapy
concurrent with radiation therapy.
AstraZeneca Annual Report & Form 20-F Information 2017 / Therapy Area Review
51
Strategic Report Therapy Area Review
continued
Cardiovascular&
Metabolic Diseases
AstraZeneca is following the science
to transform how cardiovascular, renal
and metabolic diseases are understood,
interact and impact one another.
Our strategic priorities
Cardiovascular (CV) disease remains the
number one cause of death globally and
constitutes a burden on patients’ overall
health and wellbeing, as well as on society
and healthcare systems. However, science
is now uncovering commonalities between
CV, renal and metabolic diseases (CVMD),
explaining why reducing CV risk is so
complex. We know there is clinical overlap
between these diseases and their associated
complications, yet, in many cases,
each condition is managed in isolation.
Recognising that these conditions often
co-exist, we are seeking to address unmet
medical need by better understanding how our
portfolio of medicines might be used to help
tackle multiple risk factors or co-morbidities
across CVMD, and whether combinations
of these medicines might offer benefits for
patients. As we begin to recognise the
common underlying mechanisms behind CV,
renal and metabolic diseases, we can use this
knowledge to redefine the way these diseases
are understood, how patients are treated,
and how we can ultimately reduce CV risk.
A distinctive strategy
To address this ‘extended’ CVMD risk,
we are focusing our efforts on the
commonalities between diseases and
their underlying mechanisms. We have
a three-pronged science-driven strategy:
1. Today, we are delivering life-changing results
in the core CV disease areas as we know them
and their complications, with medicines already
being used or in late-stage development:
> Metabolic disease: Forxiga, Bydureon,
Onglyza
> Heart failure (HF): Forxiga
> Renal: ZS-9, roxadustat, Forxiga
> Atherosclerosis: Brilinta, Epanova, Crestor.
Messenger RNA being read by a ribosome to produce
signalling proteins.
2. We are investing in science to demonstrate
CV and mortality benefits by slowing the
underlying progression of CV-related disease
and protecting the organs of the CV system.
3. Ultimately, we are looking to do more
than slow CV-related disease. We want to
modify or even halt the natural course of
the disease itself and regenerate organs.
We have more than 25 potential medicines
and medicine combinations in our pipeline,
including small molecules and biologics,
to address cardiac regeneration and
conditions such as chronic kidney disease
(CKD), acute coronary syndromes (ACS),
HF and nonalcoholic steatohepatitis (NASH).
Our approach
We believe this strategy makes us different.
For example, we are pioneering a new
approach in the field of cardiac regeneration,
while investing in rigorous clinical
programmes evaluating the use of our
medicines in large patient populations in
both Established and Emerging Markets.
These include global randomised clinical
trials that are as close as possible to
clinical practice, as well as real-world
evidence research.
52
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategic Report Cardiovascular & Metabolic Diseases – pipeline progressions
Regional
approvals
> Bydureon Type 2 diabetes (DURATION-8) (US, EU)
> Bydureon BCise Type 2 diabetes (US)
> Bydureon Type 2 diabetes (DURATION-7) (EU)
> Forxiga Type 2 diabetes (CN)
> Qtern (saxagliptin + dapagliflozin FDC) Type 2 diabetes (US)
Expedited review
> Priority Review Designation: roxadustat CKD (CN)
Regulatory
submissions
Phase III
investment
decisions
> Bydureon Type 2 diabetes (DURATION-7) (US, EU)
> Bydureon weekly autoinjector Type 2 diabetes (EU)
> roxadustat anaemia in CKD (CN)
> Brilinta paediatric programme
Phase II starts/
progressions
verinurad for CKD; AZD5718 FLAP coronary artery disease; MEDI0382 GLP-1/glucagon dual
agonist Type 2 diabetes; MEDI5884 cholesterol modulation
Strategic
transactions
completed
Setbacks and
terminated
projects
Licensing agreement for rights to Seloken in Europe with Recordati
Discontinued: MEDI4166 (PCSK9/GLP-1) for diabetes/CV; AZD4076 (miR103/107) for NASH;
MEDI8111 for trauma/bleeding
In its indication for the long-term prevention
of CV death, heart attack and stroke
for patients with a history of heart attack,
Brilinta 60mg is approved in over 60 countries.
In May 2017, a new formulation of Brilique
90mg, an orally-dispersable tablet (ODT),
was approved by the EMA, making Brilique
the first and only P2Y12 receptor inhibitor to
be made available in ODT form in Europe.
In June 2017, the CFDA in China approved
Brilinta 60mg tablets for patients with a history
of heart attack. Subsequently, in July 2017,
the Ministry of Human Resources and Social
Security agreed to add Brilinta 90mg to the
National Reimbursable Drugs List (NRDL),
following which provincial reimbursement
listing (PRDL) was achieved in all 31 provinces
by the end of 2017.
In August 2017, a new sub-analysis of Phase III
trial data (PEGASUS-TIMI 54) was presented
at the Annual Congress of the European
Society of Cardiology (ESC) in Barcelona, Spain,
demonstrating a 29% risk reduction in CV death
from treatment with Brilinta 60mg twice daily,
versus placebo, in patients taking low-dose
aspirin but still at high risk of an atherothrombotic
event – the specific patient population defined
in the European label for Brilinta.
At the same congress, the ESC published two
major new Guidelines – for the management
of ST-segment elevation patients, and for
dual antiplatelet therapy (DAPT). These were
significant not only for their recommendation of
Brilinta 90mg as the preferred oral antiplatelet
therapy over clopidogrel for 12 months
DAPT post-ACS, but also for the first time,
preferentially recommending Brilinta 60mg
for >12 months DAPT in high-risk post-heart
attack patients.
Our marketed products:
Cardiovascular disease
> Atacand1/Atacand HCT/Atacand
Plus (candesartan cilexetil)
> Brilinta/Brilique (ticagrelor)
> Crestor2 (rosuvastatin calcium)
> Plendil3 (felodipine)
> Seloken/Toprol-XL4 (metoprolol succinate)
> Tenormin5 (atenolol)
> Zestril6 (lisinopril dihydrate)
Metabolic diseases
> Bydureon
(exenatide XR injectable suspension)
> Byetta (exenatide injection)
> Farxiga/Forxiga (dapagliflozin)
> Kombiglyze XR (saxagliptin
and metformin HCI)
> Komboglyze (saxagliptin and
metformin HCI)
> Onglyza (saxagliptin)
> Qtern (saxagliptin/dapagliflozin)
> Symlin (pramlintide acetate)
> Xigduo (dapagliflozin and
metformin HCI)
> Xigduo XR (dapagliflozin and
metformin HCI)
Full product information on page 208.
1
2
3
4
5
6
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IndustriesLtd.
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ofthegloballicenceagreementwith
ShionogiforCrestorandthemodification
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1January2014.
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SystemsHoldingsLtdeffective
29February2016.
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PharmaceuticalsTradingDACeffective
4October2016.
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effective9January2015.
Therapy area world market
(MAT/Q3/17)
$186.4bn
Annual worldwide market value
High blood pressure $36.2bn
Abnormal levels of blood
cholesterol $21.3bn
Diabetes $76.2bn
Thrombosis $8.5bn
Other $44.1bn
AstraZenecafocusesonspecificsegmentswithin
thisoveralltherapyareamarket.
We continue to strengthen our commitment
to following the science through strategic
partnerships, collaborations and new
clinical studies.
We also develop programmes that seek to
improve access to healthcare by providing
education about these diseases. For example,
Early Action in Diabetes is collecting and
sharing better practices in policymaking
from more than 35 countries, outlining how
policymakers, payers and other decision-
makers can best prevent, diagnose and
control diabetes. Our Healthy Heart Africa
Programme seeks to tackle hypertension
and the increasing burden of CV disease
in Africa. For more information on Healthy
Heart Africa, see pages 29 and 40.
Cardiovascular disease
Our 2017 focus
Brilinta/Brilique is an oral antiplatelet
treatment for ACS, an umbrella term for
sudden chest pain and other symptoms due
to ischaemia (insufficient blood supply) to the
heart, and for the long-term prevention of CV
death, heart attack and stroke for patients
with a history of heart attack.
In its ACS indication, Brilinta 90mg is approved
in over 100 countries, and is included in
12 major ACS treatment guidelines globally.
AstraZeneca Annual Report & Form 20-F Information 2017 / Therapy Area Review
53
Strategic Report Therapy Area Review
Cardiovascular&
Metabolic Diseases
continued
In December 2017, we announced investment
in THALES, a new randomised, placebo-
controlled Phase III DAPT trial in stroke.
This study forms part of PARTHENON,
AstraZeneca’s largest ever CV outcomes
programme involving nearly 80,000 patients,
within which THEMIS is the next major
trial due to read out, studying the benefit
of ticagrelor for the prevention of CV
events among Type 2 diabetes patients.
Crestor is approved in over 115 countries
for the treatment of dyslipidaemia and
hypercholesterolaemia (elevated cholesterol).
Crestor faces competition from generic
products. The substance patent protecting
Crestor in Japan expired in May 2017 followed
by the launch of an authorised generic in
September 2017 and subsequent generic
entrants. The substance patent protecting
Crestor in Europe expired on 30 June 2017
and the paediatric extension expired in
December 2017.
In the pipeline
RhLCAT (MEDI6012) is an enzyme essential
to high-density lipoproteins (HDL) maturation
that is in Phase II development for reduction
of CV events.
AZD8601 is an investigational modified
mRNA-based therapy that encodes for
vascular endothelial growth factor-A
(VEGF-A) and is currently in Phase II
for HF treatment.
AZD5718 is a target based on a genome-
wide association study linking halotypes
of FLAP gene. It is currently in Phase II
with the first launch indication in ACS
patients with treatment initiation within
the first month from myocardial infarction.
Clinical studies
With Epanova (omega-3-carboxylic acids),
we are evaluating patient groups where
there is high unmet medical need. Therefore,
AstraZeneca continues to advance its
large-scale CV outcomes trial (STRENGTH)
to evaluate the safety and efficacy of Epanova
on CV outcomes in combination with statin
therapy for the treatment of patients with
mixed dyslipidaemia who are at increased
risk of CV disease. STRENGTH is the
largest CV outcomes trial of any prescription
omega-3 and completed enrolment in April
2017, with approximately 13,000 patients.
Results are anticipated in 2019.
Renal diseases
In the pipeline
We continue to develop roxadustat, a potential
first-in-class oral hypoxia-inducible factor
prolyl hydroxylase inhibitor (HIF-PHI). We
are collaborating on the development and
commercialisation of roxadustat in the US,
China and other markets not covered by an
agreement between FibroGen and Astellas.
In October 2017, our partner FibroGen
announced that the CFDA had accepted the
NDA for roxadustat, based on positive top-line
China results announced in January 2017.
We continue to progress ZS-9 (sodium
zirconium cyclosilicate), a treatment for
hyperkalaemia. In March 2017, the FDA issued
a second Complete Response Letter (CRL).
The CRL was related to an inspection by
the FDA of the dedicated manufacturing
facility in Texas, US and did not require the
generation of new clinical data. Subsequently,
AstraZeneca completed the manufacturing
process validation and submitted an NDA
for ZS-9, with a decision expected in the
first half of 2018. In the EU, we announced
in February 2017 that the CHMP of the EMA
had issued a positive opinion recommending
the approval of ZS-9 for the treatment of
hyperkalaemia. After a pause in advancing
the opinion, in light of the CRL, the CHMP
re-adopted its positive opinion in January
2018 with a decision expected in the first half
of 2018. The CRL and the CHMP pause have
extended our originally-anticipated timelines
for launch, but the long-term potential of the
therapy has not been impacted by these
short-term delays.
Verinurad (RDEA3170) is a potent selective
uric acid reabsorption inhibitor that has been
in Phase II development as a urate-lowering
therapy. A Phase II trial was initiated in June
2017 and will now progress the development
of verinurad for CKD.
Clinical studies
Roxadustat is in Phase III development for the
treatment of anemia in patients with CKD, on
dialysis and not on dialysis with a programme
consisting of 15 studies which are expected
to enrol more than 10,000 patients worldwide.
The initial data read-out for our sponsored
trials, ROCKIES and OLYMPUS, is anticipated
to align with the availability of pooled safety
data in co-ordination with our partners,
expected in 2018, and we expect to present
data read-outs from both trials in 2018.
$7.3bn
Product Sales of $7,266 million,
down 10% (10% at CER)
$1bn
Annual sales of Brilinta/Brilique
and Farxiga/Forxiga each
exceeded $1 billion
Metabolic diseases
Our 2017 focus
We are focused on redefining the approach
to treating Type 2 diabetes and harnessing
complementary mechanisms of action by
refining our R&D efforts to include diverse
populations and patients with significant
co-morbidities, such as CV disease, obesity,
NASH, and CKD. Our global clinical research
programmes seek to advance understanding
of the treatment effects of our diabetes
medicines in broad patient populations,
as well as explore combination products to
help more patients achieve treatment success
earlier in their disease.
In February 2017, the FDA approved once-
daily Qtern tablets (Forxiga 10mg and Onglyza
5mg fixed-dose combination) as an adjunct to
diet and exercise to improve glycaemic control
in adults with Type 2 diabetes who have
inadequate control with Forxiga (10mg) or who
are already treated with Forxiga and Onglyza.
We are committed to making Qtern available
to patients and, after securing the appropriate
access, Qtern was launched in the US at the
beginning of January 2018.
In March 2017, we received marketing
authorisation from the CFDA for Forxiga 5mg
and 10mg once-daily oral tablets. Forxiga
was the first SGLT2 inhibitor to be approved
in China. This is an important milestone for
patients with Type 2 diabetes in China given
its prevalence – it now impacts some 114
million patients in China, representing almost
one third of diabetes cases worldwide.
54
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategic Report can
Science
improve patient
outcomes
The DapaCare programme
We have initiated the extensive
DapaCare clinical programme aimed at
better understanding the CV and renal
profile of Forxiga across a spectrum of
people with established CV disease, CV
risk factors and varying stages of renal
disease, both with and without Type 2
diabetes. We aim to provide healthcare
providers with evidence needed to
improve patient outcomes. The DapaCare
programme will enrol nearly 30,000
patients in randomised clinical trials,
supported by a multinational real-world
evidence study. The DapaCare clinical
programme currently comprises:
> DECLARE, DAPA-HF, DAPA-CKD:
Three large outcomes trials.
> DELIGHT: An exploratory Phase II/
III study evaluating efficacy,
safety and pharmacodynamics
of dapagliflozin alone and in
combination with saxagliptin in
CKD patients with Type 2 diabetes
and albuminuria.
> DAPA-MECH: Series set of
mechanistic studies of the SGLT2
inhibitor class.
> CVD-REAL: The first wave
primary study evaluated the risk
of hospitalisation for HF and
mortality in patients with Type 2
diabetes and assessed data from
more than 300,000 patients across
six countries, 87% of whom did
not have a history of CV disease.
Clinical studies
The DECLARE study, a large CV outcomes
trial to assess the impact of Forxiga on
CV risk/benefit, when added to a patient’s
current diabetes therapy, continued in 2017.
The trial was fully enrolled in 2015 with
approximately 17,000 adult patients with
Type 2 diabetes and is expected to be
completed in the second half of 2018.
Two further international, multicentre, parallel
group, event-driven, randomised, double-
blind, placebo-controlled Forxiga studies
are underway. One, DAPA-HF, is evaluating
its effect on the incidence of worsening HF
or CV death for patients with chronic HF
while the second, DAPA-CKD, is evaluating
its effect on renal outcomes and CV mortality
in patients with CKD.
Also in March, we shared results of the landmark
CVD-REAL study. This first large real-world
evidence study of its kind showed that treatment
with SGLT2 inhibitors, versus other Type 2
diabetes medicines, significantly reduced rates
of hospitalisation due to HF and mortality.
At the annual American Diabetes Association
scientific sessions in June 2017, we presented
updated safety data on the risk-benefit profile
of Forxiga and data from the DURATION-8 trial
evaluating the efficacy and safety of Forxiga
in combination with Bydureon, supporting
the established clinical profiles of these
medicines. In the updated safety analysis
of Forxiga, data pooled from 30 Phase IIb/III
clinical trials showed no new safety signals
and the incidence of adverse events was
generally similar to that in the control groups.
In August 2017, the EMA approved the
incorporation of DURATION-8 data into
the Bydureon and Forxiga European label.
In September 2017, during the annual meeting
of the European Association for the Study of
Diabetes, we presented the full results from the
EXSCEL (EXenatide Study of Cardiovascular
Event Lowering) trial. The trial demonstrated
CV safety with Bydureon in patients with
Type 2 diabetes at a wide range of CV risk.
Bydureon did not increase the incidence
of major adverse CV events, a composite
endpoint of CV death, non-fatal heart attack
(myocardial infarction) or non-fatal stroke,
compared to placebo. While there were fewer
CV events observed in the Bydureon arm of
the trial, the primary efficacy objective did not
meet statistical significance.
The 24-week data from the DEPICT-1 trial
showed that Forxiga, when given as an oral
adjunct to adjustable insulin in patients with
inadequately-controlled Type 1 diabetes,
demonstrated significant and clinically-
relevant reductions from baseline in HbA1c,
weight reductions, and lowered total daily
insulin dose at 24 weeks compared to
placebo at both the 5mg and 10mg dose.
In October 2017, the FDA approved
Bydureon BCise injectable suspension,
a new formulation of Bydureon in an improved
once-weekly, single-dose autoinjector
device for adults with Type 2 diabetes whose
blood sugar remains uncontrolled on one
or more oral medicines in addition to diet
and exercise to improve glycaemic control.
A regulatory application for the new
autoinjector device was accepted by
the EMA. Also in October 2017, in a separate
sNDA, the FDA approved the inclusion of
data from the DURATION-8 clinical trial
into the Farxiga and Bydureon labels.
In the pipeline
MEDI0382 is a novel dual GLP1-glucagon
peptide, which was discovered in our
MedImmune laboratories and which was
inspired by our scientists studying the
molecular mechanisms that drive the
beneficial effects of bariatric surgery.
The molecule completed a first Phase II
study earlier in the year and we have seen
promising data. We are currently evaluating
MEDI0382 in a larger global Phase II study
to understand dose-response and in a
number of clinical pharmacology studies.
AstraZeneca Annual Report & Form 20-F Information 2017 / Therapy Area Review
55
Strategic Report Therapy Area Review
continued
Respiratory
We aim to transform the treatment of
respiratory disease for patients with our
growing portfolio of inhaled and biologic
medicines along with scientific research
targeting the underlying causes of disease.
Breaking new ground with
respiratory biologics
Building on our 40-year heritage in inhaled
respiratory medicines, AstraZeneca is now
positioned for leadership in respiratory
biologics. The approval of Fasenra in the US,
Europe and Japan is a positive step towards
our ambition to transform care for severe
asthma patients whose disease is driven
by eosinophilic inflammation. Fasenra is
a new anti-eosinophilic mAb which has
demonstrated efficacy versus placebo in
pivotal clinical trials and is the first approved
respiratory biologic with an 8-week
maintenance dosing regimen. Looking further
ahead, the Phase IIb results for tezepelumab,
published in the New England Journal of
Medicine in September 2017, signalled its
potential as ‘the broadest and most promising
biologic for the treatment of persistent
uncontrolled asthma seen to date’*.
* ElisabethH.Bel.MovingUpstream–Anti-TSLPin
PersistentUncontrolledAsthma.NewEnglandJournal
ofMedicine.2017;377:10.
Our strategic priorities
Today, more than 600 million individuals
have asthma or chronic obstructive pulmonary
disease (COPD) and significant opportunities
remain to expand care. About 250 million
of asthma and COPD patients are in
AstraZeneca’s top 12 commercial markets
(US, Australia, Brazil, Canada, China, France,
Germany, Italy, Japan, Russia, Spain
and the UK), but more than 175 million of
those patients today do not receive any
maintenance treatment. Despite currently-
available treatments, therapeutic advances
are needed to reduce the morbidity and
mortality of these chronic diseases.
AstraZeneca estimates that these advances
will help to drive 8% growth in the global
respiratory medicine market over the next
decade, reaching $52 billion by 2027.
Esonophil prior to apoptosis. Natural killer cell being
recruited by a biologic.
Respiratory is one of AstraZeneca’s main
therapy areas, and our medicines reached
more than 18 million patients in 2017.
We have a strong pipeline with more than
33,000 patients participating in Phase I-IV
respiratory clinical trials across the world.
Our ambition is to transform outcomes for
patients with respiratory diseases through:
> our strength in inhaled combination
medicines including Symbicort,
AstraZeneca’s number one medicine
in 2017 by Product Sales
> a leading biologics portfolio, initially for
patients with severe respiratory disease
> a robust early pipeline where our goal
is to achieve disease modification,
early intervention and cure.
Asthma is one of the most common and chronic
lung diseases worldwide and a serious global
health problem, affecting airways in the lung.
Inflammation and narrowing of the airways may
cause wheezing, breathlessness, chest tightness
and coughing. Combination therapy, given in a
single-inhaler of an inhaled corticosteroid (ICS)
with a long-acting beta2-agonist (LABA) such
as Symbicort, is a cornerstone of treatment,
helping to treat moderate-to-severe asthma.
For patients with mild asthma, we are
investigating the use of Symbicort Turbuhaler
56
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategic Report Therapy area world market
(MAT/Q3/17)
$67.3bn
Annual worldwide market value
Respiratory – pipeline progressions
Regional
approvals
> Fasenra (CALIMA, SIROCCO) severe asthma (US, EU*, JP*)
Expedited review
> None
Regulatory
submissions
Phase III
investment
decisions
Phase II starts/
progressions
Strategic
transactions
completed
Setbacks and
terminated
projects
> Fasenra – severe asthma (JP)
> Bevespi Aerosphere – COPD (EU)
> tezepelumab – asthma
> Phase III investment decision
AZD8871 (MABA) for COPD; AZD7986 DPP1 COPD**; Phase II mild asthma study
None
tralokinumab STRATOS 1 and STRATOS 2 (asthma) trials failed to meet their primary
endpoints, and the programme for asthma has been terminated.
Also discontinued: Symbicort breath actuated inhaler development for asthma/COPD;
AZD9412 (Inhaled βIFN) for asthma/COPD; AZD9898 for LTC4S asthma
Our marketed products:
> Accolate (zafirlukast)
> Bevespi Aerosphere (glycopyrrolate
and formoterol fumarate)1
> Bricanyl Respules (terbutaline)2
> Bricanyl Turbuhaler (terbutaline)3
> Daliresp/Daxas (roflumilast)
> Duaklir Genuair (aclidinium/formoterol)3
> Eklira Genuair/Tudorza Pressair
(aclidinium)3
> Fasenra (benralizumab)4
> Oxis Turbuhaler (formoterol)3
> Pulmicort Turbuhaler/Pulmicort Flexhaler
(budesonide)3
> Pulmicort Respules (budesonide)2
> Symbicort pMDI (budesonide/formoterol)5
> Symbicort Turbuhaler
(budesonide/formoterol)3
> Tudorza Pressair (aclidinium)3
Full product information on page 208.
1 Inhalationaerosol.
2 Inhalationsolution.
3 Inadrypowderinhaler.
4 Subcutaneousinjection.
5 Inhalationsuspension.
Asthma $20.2bn
COPD $16.0bn
Other $31.2bn
* ApprovedinJanuary2018.
**PartneredwithInsmed.
AstraZenecafocusesonspecificsegmentswithin
thisoveralltherapyareamarket.
prescribed as an anti-inflammatory reliever
as needed, recognising the variability and
inflammatory nature of disease in these patients.
This programme will demonstrate the impact
of Symbicort as-needed on exacerbations
and asthma control compared to standard of
care in patients with mild asthma. Up to 10%
of asthma patients have severe, uncontrolled
asthma despite standard of care asthma
controller medications. Such patients
experience debilitating symptoms and face
increased risk of hospitalisations, emergency
room visits and even death, despite current
treatments. Severe, uncontrolled asthma can
lead to a dependence on oral corticosteroids
(OCS), with systemic steroid exposure
potentially leading to serious short- and
long-term adverse effects, including weight
gain, diabetes, osteoporosis, glaucoma,
anxiety, depression, CV disease and immuno-
suppression. There is also a significant physical
and socioeconomic burden associated
with severe, uncontrolled asthma with these
patients accounting for 50% of asthma-related
costs. For these difficult to treat patients, we
are developing biologic medicines that address
the underlying causes of their disease.
COPD is a chronic, progressive disease
characterised by obstruction of airflow in
the lungs that can result in debilitating bouts
of breathlessness. Improving lung function,
managing daily symptoms such as
breathlessness, and reducing exacerbations
are important to the management of COPD.
Exacerbations are associated with mortality
in COPD, with one study reporting that 50%
of COPD patients will die within four years
of their first hospital admission for a severe
exacerbation. COPD is associated with
significant economic burden, accounting
for $32 billion of direct costs and $20 billion
of indirect costs in the US, while in Europe,
COPD accounts for 56% of the €39 billion
cost of respiratory diseases. COPD remains
underdiagnosed and often under-treated.
AstraZeneca’s current inhaled portfolio includes
both ICS in combination with a long-acting
bronchodilator and non-ICS-containing dual
bronchodilator combinations to address patients
with different needs across the spectrum of
disease severity. AstraZeneca’s current pipeline
includes a triple combination of PT010
(budesonide/glycopyrronium/formoterol
fumarate) in development for COPD patients.
Our 2017 focus
Inhaled combination medicines
We continue to invest in Symbicort which,
in addition to being AstraZeneca’s number
one medicine in Product Sales in 2017,
was also the number one ICS/LABA
combination globally in volume terms in
2017. Pricing pressure was in line with
expectations as prices rebase ahead of
anticipated generic entries. This trend will
continue to be offset by Emerging Market
growth, led by demand for acute and
maintenance care in China.
In January 2017, the FDA approved Symbicort
Inhalation Aerosol 80/4.5 micrograms for the
treatment of asthma in paediatric patients
aged six to 12 years. The FDA approval was
based on the CHASE (ChildHood Asthma
Safety and Efficacy) clinical trial programme,
which included the CHASE 3 Phase III trial.
In addition, in January 2017, the FDA granted
six months of paediatric exclusivity for
Symbicort Inhalation Aerosol. Symbicort
was already approved in the US to treat
asthma in patients 12 years and older and
for the maintenance treatment of airflow
obstruction in COPD in adults.
AstraZeneca Annual Report & Form 20-F Information 2017 / Therapy Area Review
57
Strategic Report Therapy Area Review
Respiratory continued
$4.7bn
Product Sales of $4,706 million,
down 1% (1% at CER)
18m
Respiratory medicines reached
18 million patients in 2017
In September 2017, the FDA approved
Symbicort for the reduction of exacerbations
in patients with COPD. The approval was
based on data that evaluated COPD
exacerbations as the primary endpoint in
two Phase IIIb trials (RISE and Study 003),
supported by data from two legacy Phase
IIIa trials (SUN and SHINE). The RISE data
was published in Respiratory Medicine.
In November 2017, we announced clinical
data from the Phase III SYGMA trials, which
examined Symbicort Turbuhaler prescribed
as an anti-inflammatory reliever as needed
in patients with mild asthma. The primary
objectives in severe-asthma exacerbation
rates and asthma control were met.
In 2017, AstraZeneca launched the Turbu+
programme in eight countries. Turbu+ is
our digital Integrated Patient Solution for
Symbicort Turbuhaler, which helps patients
with asthma and/or COPD to better manage
their disease using a Bluetooth-enabled
monitoring device and smartphone app.
AstraZeneca is advancing its portfolio of
next-generation inhaled medicines which
utilise Aerosphere Delivery Technology.
In 2017, we launched Bevespi Aerosphere, our
dual combination of glycopyrrolate/formoterol
fumarate, in the US for the maintenance
treatment of adults with COPD, and our
regulatory submission for Bevespi Aerosphere
in the EU was accepted. Our Aerosphere
Delivery Technology provides consistent drug
delivery in a pressurised metered-dose inhaler.
In April 2017, AstraZeneca entered a
strategic collaboration with Circassia for the
development and commercialisation in the
US of two inhaled medicines, Tudorza (LAMA)
and Duaklir (LAMA/LABA), for the treatment
of COPD. Under the terms of the collaboration,
Circassia was granted the rights to Duaklir in
the US. Circassia is also leading the promotion
of Tudorza in the US, with the option to gain full
commercial rights in the future. In September
2017, we announced positive top-line results
from the Phase III AMPLIFY trial for Duaklir,
which met its primary endpoints and
demonstrated a statistically-significant
improvement in lung function in patients
with moderate to very severe stable COPD,
compared to each individual component
(either aclidinium bromide or formoterol).
We anticipate the US submission of an NDA
in the first half of 2018.
on results from the WINDWARD clinical trial
programme, including two pivotal Phase III
exacerbation trials, SIROCCO and CALIMA,
reported in the Lancet in September 2016.
The approvals were also based on the Phase
III OCS-sparing trial, ZONDA, which was
published in the New England Journal of
Medicine in May 2017. ZONDA demonstrated
a statistically-significant and clinically-
meaningful reduction in daily maintenance,
OCS use from baseline for patients with
severe, uncontrolled OCS-dependent
eosinophilic asthma receiving benralizumab
compared with placebo.
In December 2017, we also announced positive
top-line results from the Phase III ASCENT trial
for Tudorza, which met its primary efficacy
endpoint of demonstrating a statistically
significant reduction in the annual rate of
moderate or severe COPD exacerbations
compared to placebo. The ASCENT
trial also met the primary safety endpoint,
demonstrating an increase in time to first
major adverse cardiovascular event (MACE)
compared to placebo. We plan to submit an
sNDA for an expanded Tudorza label following
these positive results.
Biologic medicines
AstraZeneca’s first respiratory biologic, Fasenra,
was approved for severe, eosinophilic asthma
by the FDA in November 2017, as well as by
the EC and the Japanese Ministry of Health,
Labour and Welfare in January 2018. Fasenra
distinctively targets and depletes eosinophils,
the biological effector cells in approximately
50% of asthma patients that lead to frequent
exacerbations, impaired lung function
and asthma symptoms. Fasenra is the
first respiratory biologic with an 8-week
maintenance dosing regimen. The approval of
Fasenra, in the US and EU respectively, is based
In the pipeline
Inhaled combination medicines
AstraZeneca has made significant progress
in delivering the ATHENA programme, our
Phase III clinical trial programme for PT010,
which includes more than 11 trials and
15,500 patients. The four key ATHENA trials
are ETHOS, KRONOS, TELOS and SOPHOS.
In January 2018, we announced top-line
results from the KRONOS trial that PT010
demonstrated a statistically-significant
improvement compared with dual
combination therapies in six out of seven
lung function primary endpoints, based on
forced expiratory volume in one second
(FEV1) assessments in patients with moderate
to very severe COPD. In total, eight of the nine
primary endpoints in the KRONOS trial were
met, including two non-inferiority endpoints
to qualify PT009 (budesonide/formoterol
fumarate) as one of the comparators.
In February 2018, we announced results of
the Phase III TELOS trial, which compared
two doses of PT009 (budesonide/formoterol
fumarate) to its individual components, PT005
(formoterol fumarate) and PT008 (budesonide),
and to Symbicort Turbuhaler to assess lung
58
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategic Report can
help us understand
how targeted
therapies work in
respiratory diseases
Cell imaging technology
As scientists in the field of respiratory
research, we use cell imaging
technology to illuminate what happens
when a specific pathway is activated
with an investigational medicine.
The illustration shows two different
immune cell types, one red and one
green. The red cells are eosinophils,
which play a key pathogenic role in
inflammation in asthma. The green cells
are natural killer cells. The eosinophils
have been treated such that they are
now recognisable to the natural killer
cells. The natural killer cells target
the eosinophils which results in cell
death (blue).
Severe asthma is a heterogeneous
disease with complex biology.
Cell imaging helps us to visualise the
effects of our investigational drugs on
inflammation and follow the science
to develop medicines targeted to a
particular inflammatory phenotype.
For more information, please see
our website, www.astrazeneca.com/
our-focus-areas/respiratory, Down
the microscope.
The ALLEVIAD Phase IIa trial data showed
that tezepelumab did not meet statistical
significance on the primary endpoint (EASI 50)
of the 12-week exploratory trial that evaluated
tezepelumab in moderate to severe atopic
dermatitis (AD) as add-on treatment to
regular medium-to-high strength topical
glucocorticosteroids. Numeric differences
in favour of tezepelumab, however, were
observed across a number of disease activity
endpoints (EASI, IGA and SCORAD response)
compared to placebo.
Science
function in patients with moderate to very
severe COPD to qualify PT009 as active
comparator in PT010 clinical programme.
All primary endpoints were met, with the
exception of the lung function primary endpoint
comparing low dose PT009 to PT005.
Biologic medicines
In addition to AstraZeneca’s progress with
Fasenra in severe asthma, AstraZeneca is
investigating Fasenra for at-home use in an
autoinjector device as well as for indications
in other diseases. In the first half of 2018,
we expect the results of our Phase III COPD
trials, TERRANOVA and GALATHEA.
AstraZeneca and our partner Amgen
published landmark data in the New England
Journal of Medicine from the PATHWAY
Phase IIb trial of tezepelumab in patients with
severe, uncontrolled asthma. Tezepelumab
is a first-in-class anti-thymic stromal
lymphopoietin (TSLP) mAb that blocks TSLP,
an upstream driver of multiple downstream
inflammatory pathways. Tezepelumab met its
primary efficacy endpoint in PATHWAY with
the data demonstrating significant annual
asthma exacerbation rate reductions of
61%, 71% and 66% in the tezepelumab
arms receiving either 70mg or 210mg every
four weeks or 280mg every two weeks,
respectively. Significant and clinically-
meaningful reductions in exacerbation rates
were observed independent of baseline
blood eosinophil count or other type 2
(T2) inflammatory biomarkers. Due to its
activity early in the inflammatory cascade,
tezepelumab may be suitable for patients
with both T2 and non-T2 driven asthma,
including those ineligible for current biologic
therapies which only target the T2 pathway.
A pivotal Phase III trial (NAVIGATOR) for
tezepelumab in severe asthma was initiated
in November 2017.
During the year, we announced the results of
Phase III trials for tralokinumab, an investigational
anti-IL-13 human immunoglobulin-G4 mAb
that blocks binding and signalling of IL-13 to
IL-3 receptors, a potential target in severe,
uncontrolled asthma patients. STRATOS 1
and STRATOS 2 were Phase III trials
designed to evaluate the efficacy and safety
of tralokinumab in patients with severe,
uncontrolled asthma, despite treatment
with ICS plus LABA. In the STRATOS 1
trial, tralokinumab did not meet its primary
endpoint of a significant reduction in the
annual asthma exacerbation rate (AAER),
although a clinically-relevant reduction in
AAER was observed in a sub-population
of patients with elevated FeNO (Fractional
exhaled Nitric Oxide), a biomarker
associated with increased IL-13 activity.
The primary analysis population specified
in the STRATOS 2 trial was subjects with
elevated FeNO, but tralokinumab did not
achieve a statistically-significant reduction
in AAER. In the OCS-sparing trial, TROPOS,
tralokinumab did not achieve a statistically-
significant reduction in OCS use when added
to the standard of care in patients dependent
on OCS. AstraZeneca has discontinued the
development of tralokinumab in severe asthma.
Through a licence agreement signed in 2016,
LEO Pharma is developing tralokinumab
in adults with moderate-to-severe atopic
dermatitis and Phase III trials are ongoing.
AstraZeneca Annual Report & Form 20-F Information 2017 / Therapy Area Review
59
Strategic Report Therapy Area Review
continued
OtherDisease
Areas
In addition to our focus on the treatment
of diseases in our three main therapy areas,
we are also selectively active in the areas
of autoimmunity, infection, neuroscience
and gastroenterology, where we aim to
develop best-in-class therapies and follow
an opportunity-driven approach.
Our approach in these other disease
areas looks to maximise revenue through
externalisation and on-market products;
advance the novel product pipeline with
partnerships where appropriate; and
preserve a company stake in the most
promising assets.
Autoimmunity
Systemic lupus erythematosus (SLE),
or lupus, is an autoimmune disease that
occurs when the immune system produces
antibodies that attack healthy tissue, including
skin, joints, kidney, the brain and blood
vessels. SLE can cause a wide range of
symptoms. Among these are pain, rashes,
fatigue, swelling in joints, and fevers. SLE is
associated with a greater risk of death from
causes such as infection, nephritis and
cardiovascular disease. Inflammation of the
kidneys caused by SLE – known as lupus
nephritis – can lead to significant morbidity
and even death. Current treatment of SLE
focuses on suppressing symptoms and
controlling disease flares and, in the case
of lupus nephritis, preventing renal failure.
Neuromyelitis optica spectrum disorder
(NMOSD) is a rare, life-threatening
autoimmune disease of the central nervous
system in which the body’s immune system
attacks healthy cells, most commonly in the
optic nerves and spinal cord, resulting in
severe damage. NMOSD may cause severe
muscle weakness and paralysis, loss of vision,
respiratory failure, problems with bowel
and bladder function and neuropathic pain.
There is currently no cure or approved
medicine for this rare disease.
Psoriasis is a chronic disease in which the
immune system causes skin cells to grow
rapidly. Instead of being shed, the skin cells
pile up, causing painful and itchy, red, scaly
patches that can bleed. Approximately 100
million people worldwide suffer from psoriasis.
Despite available treatment options for
moderate-to-severe plaque psoriasis,
many patients do not experience a resolution
of underlying inflammation, clearing of
symptoms or an improved quality of life.
In the pipeline
We are making important progress in
advancing our pipeline and improving
treatment options and clinical outcomes for
patients with inflammatory and autoimmune
diseases. Common molecular pathways are
often shared across multiple autoimmune
diseases, which provides opportunities to
identify and work with approaches that could
become treatments for more than one disease.
Anifrolumab is a developmental mAb that
inhibits the activity of all type I interferons
(IFN), which play a central role in lupus.
A majority of patients with SLE show a
high interferon gene signature, and increased
levels of type I IFN have been shown to
correlate with SLE disease activity and
severity. During 2017, we completed
enrolment in two Phase III trials, TULIP-SLE1
and TULIP-SLE2, of anifrolumab in patients
with moderate-to-severe SLE. We also
completed enrolment in a Phase II SLE
study evaluating a subcutaneous
route of administration of anifrolumab.
Anifrolumab is also in Phase II development
for lupus nephritis.
60
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategic Report Other Disease Areas – pipeline progressions
Regional
approvals
> Duzallo gout (US)
> Kyntheum (brodalumab) psoriasis (EU; by partner)
> Siliq (brodalumab) psoriasis (US; by partner)
> Nexium paeds and sachet GERD (JP*)
Expedited review
> Orphan Drug Designation: inebilizumab (MEDI-551) – neuromyelitis optica (EU)
Regulatory
submissions
Phase III
investment
decisions
Phase II starts/
progressions
Strategic
transactions
completed
Setbacks and
terminated
projects
> None
> None
None
Partnership with Sanofi for development and commercialisation of MEDI8897
(RSV antibody). Divestment to Aspen of the remaining rights in the anaesthetics
portfolio and to Grünenthal of the rights to Zomig outside Japan
Discontinued: verinurad for hyperuricemia/gout; AZD3241 (MPO) for multiple
system atrophy
* ApprovedinJanuary2018.
Infection
Seasonal influenza is a serious public health
problem that causes severe illness and death
in high-risk populations. In 2017, the US
Advisory Committee on Immunization
Practices, under the Centers for Disease
Control and Prevention (CDC), continued its
recommendation (issued in 2016) that FluMist
Quadrivalent (LAIV) should not be used in the
US for the 2017 to 2018 influenza season until
further data is available. This recommendation
was based on concerns regarding low
effectiveness of the vaccine in the US in
previous seasons. The vaccine remains
licensed in the US, Canada and the EU and
we remain committed to supporting FluMist
Quadrivalent/Fluenz Tetra in the US and in
the rest of the world. Our investigation into
findings of lower than expected vaccine
effectiveness informed our selection of a
new A/H1N1 LAIV strain for the 2017 to 2018
flu season. The new A/H1N1 LAIV strain
has demonstrated improved performance
in laboratory assays and we are currently
conducting a clinical study to further
evaluate this strain. We continue to keep
the US CDC updated on our progress.
Our marketed products:
Infection
> Fluenz FluMist/ Tetra Quadrivalent1,2
(live attenuated influenza vaccine)
> Synagis3 (palivizumab)
Neuroscience
> Movantik/Moventig (naloxegol)
> Seroquel IR (quetiapine fumarate)
> Seroquel XR (quetiapine fumarate)
> Vimovo4 (naproxen and
esomeprazole magnesium)
Gastrointestinal
> Losec/Prilosec (omeprazole)
> Nexium (esomeprazole magnesium)
Full product information on page 208.
1 Intra-nasal.
2 DaiichiSankyoholdsrightstoFluenz
Tetra/FluMistQuadrivalentinJapan.
3 USrightsonly.AbbVieholdsrights
to SynagisoutsidetheUS.
4 LicensedfromPozen.DivestedUS
rightstoHorizonPharmaUSA,Inc.
effective22November2013.
In March 2017, the EMA granted Orphan
Drug Designation to inebilizumab (MEDI-551)
for the treatment of NMOSD. Inebilizumab is
currently in Phase II/III clinical development
for NMOSD.
Brodalumab is a human mAb that targets the
interleukin-17 (IL-17) receptor. During 2017,
brodalumab (Siliq in the US and Kyntheum
in Europe) received both FDA and EMA
approvals for the treatment of adult patients
with moderate-to-severe plaque psoriasis
who are candidates for systemic therapy or
phototherapy and have failed to respond or no
longer respond to other systemic therapies.
Through collaboration agreements, Valeant
holds the exclusive licence to develop and
commercialise brodalumab globally, except
in Japan and certain other Asian countries
where rights are held by Kyowa Hakko Kirin
through an agreement with Amgen, and in
Europe, where LEO Pharma holds exclusive
rights to develop and commercialise
Kyntheum for psoriasis.
FluMist Quadrivalent/Fluenz Tetra continues
to be recommended for use in many countries
outside the US based on their respective
public health authorities’ review of existing
and recent vaccine effectiveness data. We
also have an ongoing agreement with the
WHO to donate and supply at reduced prices
a portion of vaccine production in the event
of an influenza pandemic.
AstraZeneca Annual Report & Form 20-F Information 2017 / Therapy Area Review
61
Strategic Report Therapy Area Review
OtherDiseaseAreas
continued
$4.2bn
Product Sales of $4,156 million,
down 18% (17% at CER)
62
MEDI8852, an investigational human mAb
for the treatment of patients hospitalised with
Type A strain influenza, received Fast Track
Designation from the FDA in March 2016.
The programme is on hold while a government
or industry partner is sought to share late-stage
development costs and commercialisation
activities. Discussions with potential partners
are ongoing.
Respiratory Synctial Virus (RSV) is a common
seasonal virus and the most prevalent cause
of lower respiratory tract infections among
infants and young children. It is the leading
cause of hospitalisations and admissions to
paediatric intensive care units and leads to
nearly 200,000 deaths globally in children
under five years of age, with the majority
of deaths occurring in developing countries.
Since its initial approval in 1998, Synagis has
become the global standard of care for RSV
prevention and helps protect at risk babies
globally against RSV. Synagis is approved
in more than 80 countries and we continue
to work with our worldwide partner, AbbVie,
to protect vulnerable infants.
MEDI8897 is a novel extended half-life mAb for
the prevention of serious respiratory disease
caused by RSV in infants. It is designed to
require dosing only once per RSV season –
a potential breakthrough in RSV prophylaxis.
In March 2017, we formed an alliance
with Sanofi to develop and commercialise
MEDI8897 jointly. MEDI8897 is currently in a
Phase IIb clinical trial in preterm infants who
are ineligible for Synagis, the current standard
of care medicine.
Neuroscience
Alzheimer’s disease (AD) is the most common
form of dementia worldwide and is a major
health challenge facing the world today.
We are progressing lanabecestat (AZD3293),
our BACE inhibitor, in collaboration with Lilly
for the potential treatment of AD. A second
interim analysis in the Phase III AMARANTH
trial was completed in July 2017, and the
independent data monitoring committee
recommended the trial proceed with no
modifications. In addition, we initiated a
new extension trial of the AMARANTH study
to further evaluate the benefit of earlier
intervention in the course of the disease.
Building on the current partnership for
lanabecestat, we are also now co-developing
with Lilly MEDI1814, an antibody selective for
amyloid-beta 42 (Aβ42), which is currently in
Phase I development as a potential disease-
modifying treatment for AD.
Current commercialised AstraZeneca
neuroscience brands include Seroquel
IR and XR (atypical antipsychotics), which
have lost exclusivity in all major markets.
The largest market for Seroquel XR was the
US, where we lost exclusivity in November
2016. Two licensed generics were launched
at that time followed by four additional generic
entrants in May 2017 and another two in
November 2017. Three additional generics
received final FDA approval but have not
yet entered the US market.
In June 2017, AstraZeneca announced
an agreement with Grünenthal for the
global rights to Zomig (zolmitriptan)
outside Japan, including the US, where
the rights were previously licensed to
Impax Pharmaceuticals. In October 2017,
we entered into an agreement with Sawai
Pharmaceuticals Company Ltd for the
rights to Zomig in Japan.
In September 2017, AstraZeneca announced
an agreement with Aspen, under which
Aspen acquired the residual rights to
our remaining anaesthetic medicines.
This builds on the agreement with Aspen
in June 2016, under which they gained
the exclusive commercialisation rights to
the medicines in markets outside the US.
The agreement covered seven established
medicines – Diprivan (general anaesthesia),
EMLA (topical anaesthetic) and five local
anaesthetics (Xylocaine/Xylocard/Xyloproct,
Marcaine, Naropin, Carbocaine and Citanest).
In the pain space, we are continuing to
explore ways of bringing Movantik/Moventig
to patients who need to manage the side
effect of opioid induced constipation.
In August 2017, the FDA updated the
indication of Movantik to include adult
patients with chronic pain related to prior
cancer or its treatment who do not require
frequent opioid dosage escalation.
Gastrointestinal
In 2017, use of Nexium continued to grow in a
limited number of markets such as China and
Japan. Demand for Nexium in China is expected
to continue to grow over the next several years,
based on broader geographic expansion as well
as anticipated label expansions, and has the
potential to become a top-selling medicine in
its class, as in Japan. Patent protection for
Nexium remains in Japan. For the rest of the
world, Nexium is subject to generic competition.
Nexium sales continue to decline under
generic pressure in the US and EU.
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategic Report Risk Overview
We face a diverse range of risks and uncertainties.
The Board defines those risks which have a potential
to have a material impact on our business or results
of operations as our Principal Risks.
The Board has carried out a robust
assessment of the Principal Risks facing
the Group, including those that threaten its
business model, future performance, solvency
or liquidity. The table overleaf provides insight
into the Principal Risks, outlining why effective
management of these risks is important and
relevant to the business, how we are managing
them and which risks are rising, falling or have
remained static during the past 12 months.
Our approach to risk management is designed
to encourage clear decision making on
which risks we take and how we manage
these risks. Fundamental to this process is a
sound understanding of every risk’s potential
strategic, commercial, financial, compliance,
legal and reputational implications.
Further information on our key risk
management and assurance processes can
be found in Risk from pages 210 to 220 which
also includes a description of circumstances
under which principal and other risks and
uncertainties might arise in the course of
our business and their potential impact.
Managing risk
We work to ensure that we have effective risk
management processes in place to support the
delivery of our strategic priorities. This enables
us to meet the expectations of our stakeholders
and upholds our Values. We monitor our
business activities and external and internal
environments for new, emerging and changing
risks to ensure that these are managed
appropriately. The Board believes that existing
processes provide it with adequate information
on the risks and uncertainties we face. Details of
these risks and the potential impacts on our
business are contained on pages 210 to 220.
Risk management embedded
in business processes
We strive to embed sound risk management
in our strategy, planning, budgeting and
performance management processes.
The Board defines the Group’s risk appetite,
enabling the Group, in both quantitative and
qualitative terms, to judge the level of risk
it is prepared to take in achieving its overall
objectives. The Board expresses the acceptable
levels of risk for the Group using three key
dimensions. These are: (i) earnings and cash
flow; (ii) return on investment; and (iii) ethics and
reputation. Annually, the Group develops a
detailed three-year bottom-up business plan
and 10-year long-range projection to support
the delivery of its strategy. The Board considers
these in the context of the Group’s risk appetite.
Adjustments are made to the plan or risk
appetite to ensure they remain aligned.
Our risk management approach is aligned
to our strategy and business planning
processes. We cross-check financial risks
and opportunities identified through the
business planning process and integrate
our findings into the overall risk management
reporting. Line managers are accountable
for identifying and managing risks and for
delivering business objectives in accordance
with the Group’s risk appetite.
The SET is required by the Board to oversee
and monitor the effectiveness of the risk
management processes implemented by
management. Within each SET function,
leadership teams discuss the risks the business
faces. Every year, we map these risks to
AstraZeneca’s risk ‘taxonomy’. This process
provides a Group-wide assessment for the
Board, Audit Committee and SET. Quarterly,
each SET function assesses changes to these
risks, new and emerging risks, and mitigation
plans. These are assimilated into a Group Risk
Report for the Board, Audit Committee and SET.
Supporting tools are in place to assist risk
leaders and managers in managing, monitoring
and planning for risk and we continue to work
on developing our risk management standards
and guidelines. Global Compliance, Finance and
Internal Audit Services support SET by advising
on policy and standard setting, monitoring and
auditing, communication and training, as well as
reporting on the adequacy of line management
processes as they apply to risk management.
We have a business resilience framework which
governs our ability to prevent or quickly adapt to
situations while maintaining continuous business
operations and safeguarding our people,
processes and reputation. Within this we have
business continuity plans to address situations
in which specific risks have the potential to
severely impact our business. These plans
include training and crisis simulation activities
for business managers.
More information about our Global Compliance
function and the Code of Ethics can be found in
the Corporate Governance Report page 97.
Viability statement
In accordance with provision C.2.2 of the
2014 UK Corporate Governance Code,
the Board has determined that a three-year
period to 31 December 2020 constitutes an
appropriate period over which to provide its
viability statement.
The Board considers annually and on a rolling
basis, a three-year bottom-up detailed business
plan. The Board also considers a 10-year
long-range projection but, given the inherent
uncertainty involved, believes that the three-year
statement presents readers of the Annual
Report with a reasonable degree of assurance
while still providing a longer-term perspective.
The three-year detailed business plan captures
risks to the sales and cost forecasts at a market
and SET function level. The plan is used to
perform central net debt and headroom profile
analysis. This analysis contemplates a severe
downside scenario reflecting the Principal
Risks including market pricing and access,
delivery of pipeline, unexpected loss of patent
protection and the need to meet pension fund
obligations. The Board has considered more
stressed scenarios including restrictions
on debt factoring and no access to capital
markets to raise new debt. In each scenario the
Group is able to rely on its committed credit
facilities, leverage its cost base, reduce capital
expenditure and take other cash management
measures to mitigate the impacts and still have
residual capacity to absorb further shocks.
Based on the results of this analysis, the
Directors have a reasonable expectation that the
Company will be able to continue in operation
and meet its liabilities as they fall due over
the three-year period of their assessment.
Brexit
On 23 June 2016, the UK held a referendum
on the UK’s continuing membership of the EU,
the outcome of which was a decision for the
UK to leave the EU (Brexit). The progress
of current negotiations between the UK
Government and the EU will likely determine
the future terms of the UK’s relationship with
the EU, as well as to what extent the UK will
be able to continue to benefit from the EU’s
single market and other arrangements. Until
the Brexit negotiation process is completed,
it is difficult to anticipate the potential
impact on AstraZeneca’s market share,
sales, profitability and results of operations.
The Group operates from a global footprint
and retains flexibility to adapt to changing
circumstances. The uncertainty during and
after the period of negotiation is also expected
to increase volatility and may have an
economic impact, particularly in the UK
and Eurozone. The Group has responded
by engaging proactively with key external
stakeholders and establishing a cross-
functional internal steering committee to
understand, assess, plan and implement
operational actions that may be required.
Some of these actions are being implemented
based on assumptions rather than defined
positions so that the Company is able to
mitigate the risks arising from variable external
outcomes. Currently, a number of areas
for action have been identified including
duplication of release testing and procedures
for products based in the EU27 and the UK,
transfer of regulatory licences, customs and
duties set up for introduction or amendment
of existing tariffs or processes and associated
IT systems upgrades. The Board reviews the
potential impact of Brexit as an integral part
of its Principal Risks (as outlined overleaf)
rather than as a stand-alone risk. As the
process of Brexit evolves, the Board will
continue to assess its impact.
AstraZeneca Annual Report & Form 20-F Information 2017 / Risk Overview
63
Strategic Report Risk Overview
continued
Principal Risks
Strategy key
Trend key
Achieve Scientific Leadership
Increasing risk
Return to Growth
Decreasing risk
Be a Great Place to Work
Unchanged
Achieve Group Financial Targets
Risk category and Principal Risks
Context/potential impact
Management actions
Trend versus prior year
Product pipeline and intellectual property
Delivery of
pipeline and
new products
Meet quality,
regulatory and
ethical drug
approval and
disclosure
requirements
Secure
and protect
product IP
The development of any pharmaceutical product
candidate is a complex, risky and lengthy process
involving significant financial, R&D and other resources.
A project may fail or be delayed at any stage of the
process due to a number of factors, which could
reduce our long-term growth, revenue and profit
> Prioritise and accelerate our pipeline
> Strengthen pipeline through acquisitions,
licensing and collaborations
> Focus on innovative science in
three main therapy areas
> Quality management systems incorporating
monitoring, training and assurance activities
> Collaborating with regulatory bodies and
advocacy groups to monitor and respond
to changes in the regulatory environment,
including revised process, timelines
and guidance
> Active management of IP rights and IP litigation
Delays in regulatory reviews and approvals impact
patients and market access, and can materially affect
our business or financial results
Discovering and developing medicines requires a
significant investment of resources. For this to be a viable
investment, new medicines must be safeguarded from
being copied for a reasonable amount of time. If we are
not successful in obtaining, maintaining, defending or
enforcing our IP rights, our revenues could be materially
adversely affected
Third parties may allege infringement of their IP,
and may seek injunctions and/or damages, which,
if ultimately awarded, could adversely impact our
commercial and financial performance
Commercialisation
Externally
driven demand,
pricing, access
and competitive
pressures
Quality and
execution of
commercial
strategies
Operating in over 100 countries, we are subject to political,
socioeconomic and financial factors both globally and in
individual countries. There can be additional pressure from
governments and other healthcare payers on medicine
prices and sales in response to recessionary pressures,
reducing our revenue, profits and cash flow
> Focus on Growth Platforms
> Demonstrating value of
medicines/health economics
> Global footprint
> Diversified portfolio
If commercialisation of a product does not succeed
as anticipated, or its rate of sales growth is slower than
anticipated, there is a risk that we may not be able to
fully recoup the costs in launching it
> Focus on Growth Platforms
> Accelerate and risk share through business
development and strategic collaborations
and alliances
Supply chain and business execution
Maintain supply
of compliant,
quality product
Delays or interruptions in supply can lead to recalls,
product shortages, regulatory action, reputational
harm and lost sales
> Establishment of new manufacturing
facilities, creating capacity and technical
capability to support new product launches,
particularly biologics
> Business continuity and resilience initiatives,
disaster and data recovery and emergency
response plans
> Contingency plans including dual sourcing,
multiple suppliers and stock levels
> Quality management systems
Increased number of patent
litigation suits alleging
patent infringement filed
against AstraZeneca
by research-based
pharmaceutical competitors.
Details of material patent
litigation matters can be
found in Note 28 to the
Financial Statements
from page 182
Global economic and
political conditions placing
downwards pressure on
healthcare pricing and
spending, and therefore
on revenue
The number of new product
launches is increasing.
Maximising the commercial
potential of these new
products underpins the
success of our strategy and
the delivery of our short-
and medium-term targets
64
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategic Report
Risk category and Principal Risks
Context/potential impact
Management actions
Trend versus prior year
Supply chain and business execution continued
Information
technology and
data security
and privacy
Delivery of gains
from productivity
initiatives
Attract, develop,
engage and
retain talented
and capable
employees at
all levels
Significant disruption to our IT systems, cyber security
incidents including breaches of data security, or failure to
prepare for emerging EU Global Data Privacy Regulations
(GDPR), could harm our reputation and materially affect
our financial condition or results of operations. This could
lead to regulatory penalties or non-compliance with laws
and regulations
> Cyber security framework and dashboard
> Privacy office established to oversee
compliance with EU GDPR legislation
> Disaster and data recovery plans
> Strategies to secure critical systems
and processes
> Regular cybersecurity and privacy training
for employees
Inappropriately managed initiatives could lead to low
employee engagement and reduced productivity, increased
absence and attrition levels, or even industrial action.
All could adversely impact the value of the initiative
> Appropriate project governance structure
and oversight
> Regular review of strategic initiatives by
appropriate senior executive and Board
level committees
Failure to attract and retain highly-skilled personnel may
weaken our succession plans for critical positions in the
medium term. Failure to engage our employees could
impact productivity and turnover. Both could adversely
affect the achievement of our strategic objectives
> Targeted recruitment and retention
strategies deployed
> Support of staff impacted by Brexit
> Development of our employees
> Evolve our culture
> Focus on simplification
Legal, regulatory and compliance
Patient safety is very important to us and we strive to
minimise the risks and maximise the benefits of our
medicines. Failure to do this could adversely impact our
reputation, our business and the results of operations,
and could lead to product liability claims
> Robust processes and systems in place to
manage patient safety and efficacy trends
as well as externally reported risks through
regulatory agencies and other parties. This
includes a comprehensive pharmacovigilance
programme supplemented by close monitoring
and review of adverse events
Growing multi-faceted cyber
threat and introduction of
new EU GDPR regulation
effective May 2018
Increasingly competitive
labour markets, with
particular focus in specific
locations and capability sets,
and in the UK the added
uncertainty created by Brexit,
could impact the hiring and
retention of staff in some
business-critical areas
The number of new products
in our marketed portfolio is
growing and is anticipated
to increase further as our
pipeline develops. Our ability
to accurately assess the
safety and efficacy of new
products is inherently limited
due to relatively short
periods of product testing
and relatively small clinical
study patient samples
Investigations or legal proceedings could be costly,
divert management attention or damage our reputation
and demand for our products. Unfavourable resolutions
could subject us to criminal liability, fines, penalties or
other monetary or non-monetary remedies, adversely
affecting our financial results
> Combined internal and external
counsel management
Any failure to comply with applicable laws, rules
and regulations, including bribery and corruption
legislation, may result in civil and/or criminal legal
proceedings and/or regulatory sanctions, fines or
penalties, impacting financial results
> Strong ethical and compliance culture
> Established compliance framework in place
including annual Code of Ethics training for
all employees
> Focus on due diligence and oversight of
third-party engagements
Increasing government
and regulatory scrutiny
and evolving compliance
challenges as complexity
of business relationships
increases
Failure to successfully implement our business strategy
may frustrate the achievement of our financial or other
targets or expectations. This failure could, in turn,
damage our reputation and materially affect our business,
financial position or results of operations
> Focus on Growth Platforms and innovative
science in three main therapy areas
> Strengthen pipeline through acquisitions,
licensing and collaborations
> Appropriate capital structure and balance sheet
> Portfolio-driven decision making process
governed by senior executive-led committees
Increasing challenge
to balance long- and
short-term investments as
we navigate a period of loss
of exclusivity on key brands
while seeking to maximise
the commercial potential
of new product launches
AstraZeneca Annual Report & Form 20-F Information 2017 / Risk Overview
65
Safety and
efficacy of
marketed
products
Defence of
product, pricing
and practices
litigation
Meet regulatory
and ethical
expectations
on commercial
practices,
including bribery
and corruption,
and scientific
exchanges
Economic and financial
Achieve strategic
plans and meet
targets and
expectations
Strategic Report
Financial
Review
In 2017, our financial performance reflected the
launch of several new medicines, the strong
performance of our Growth Platforms and the
continued impact from patent expiries; most
notably for Crestor and Seroquel XR in the US.
The Reported tax rate of (29)% benefited from
a favourable net adjustment of $0.6 billion to
deferred tax, reflecting the recently reduced
US Federal Income tax rate and non-taxable
remeasurement of acquistion-related
liabilities. Additionally, there was a $0.5 billion
benefit to the Reported and Core tax rates
resulting from a number of factors, including
the reduction in tax provisions. The Core tax
rate for the year was 14%.
Reported operating profit declined by 25%
(CER: 28%) to $3.7 billion and Core operating
profit increased by 2% (CER: stable) to
$6.9 billion in the year. Reported EPS
was $2.37 and Core EPS was $4.28.
We generated a net cash inflow from
operating activities of $3.6 billion in the year
and we maintain a strong, investment-grade
credit rating. During the year, we issued
new bonds totalling $2 billion and repaid
$1.75 billion of bonds maturing. We ended
the year with total long-term debt of
$15.6 billion and net debt of $12.7 billion.
Marc Dunoyer
Chief Financial Officer
Overall, Total Revenue declined by 2%
(CER: 2%) to $22.5 billion. Strong acceleration
in our New Oncology medicines (driven
by Tagrisso), supported by continued good
growth in Emerging Markets, particularly in
China, resulted in a 5% increase (CER: 6%)
in our Growth Platform sales. Within Growth
Platforms, New CVMD grew by 9% to
$3.6 billion, with both Farxiga and Brilinta
each exceeding annual Product Sales of
$1 billion. In 2017, we realised $2.3 billion in
Externalisation Revenue, including $1.2 billion
received as part of our collaboration with MSD
on Lynparza and selumetinib, and $0.6 billion
in additional Ongoing Externalisation
Revenue. However, the continued effect of
patent expiries, including those impacting
Crestor and Seroquel XR in the US and
Symbicort in Europe, and pricing pressures,
resulted in a decline in Total Revenue.
Our continued focus on cost discipline
delivered a decrease of 2% (CER: 1%) in
Reported R&D costs and a decrease of 4%
(CER: 3%) in Core R&D costs, despite the
rapid progression of the pipeline. Reported
SG&A costs increased by 9% (CER: 10%)
reflecting the impact of favourable fair value
adjustments to long-term liabilities in the
comparative period, and Core SG&A costs
declined by 4% (CER: 3%) with the benefit of
efficiency savings being only partially offset
by the selective investment in launches of
new products.
Reported other operating income was
$1.8 billion in the year and included income
from various disposal transactions, including
the sale of the remaining rights to the
anaesthetics portfolio to Aspen and the sale
of rights to Seloken in Europe to Recordati.
Next-generation DNA
sequencing:
Specifically, the process
in which the polymerase
creates a complementary
strand of the hybridised
fragments at the beginning
of cluster generation
66
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategic Report Contents
Introduction 66
Business background
and results overview 67
Measuring performance 68
Results of operations –
summary analysis of year
ended 31 December 2017 69
Cash flow and liquidity 74
Financial position 75
Capitalisation and
shareholder return 78
Future prospects 78
Financial risk
management 79
Critical accounting
policies and estimates 79
Sarbanes-Oxley Act
Section 404 83
S
t
r
a
t
e
g
i
c
R
e
p
o
r
t
The purpose of this Financial Review is to
provide a balanced and comprehensive analysis
of the financial performance of the business
during 2017, the cash flow and liquidity position
of the business, 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.
Business background and
results overview
The business background is covered in
the Marketplace section from page 8,
the Therapy Area Review from page 46
and the Geographical Review from page 221,
and describes in detail the developments
in both our products and the geographical
regions in which we operate.
> Macro factors such as greater demand
from an ageing population and increasing
requirements of Emerging Markets.
Further details of the risks faced by the
business are given in Risk Overview from
page 63 and Risk from page 210.
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 are expected to 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 2017 are:
As described earlier in this Annual Report,
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, such as:
> The risk of competition from generics
following loss of patent protection or patent
expiry of one of our products, or an ‘at risk’
launch by a competitor, or the launch of a
competitive product in the same class as
one of our products, with potential adverse
effects on sales volumes and prices. Details
of patent expiries for our key marketed
products are included in Patent Expiries
of Key Marketed Products from page 208.
> The adverse impact on pharmaceutical
prices as a result of the macroeconomic
and regulatory environment. For instance,
in the US, political leadership has continued
to consider drug pricing controls and
transparency measures at national and
local levels. In other parts of the world,
governments have continued to implement
and expand price control measures,
including reference pricing.
> The timings of new product launches, which
can be influenced by national regulators,
the speed to market relative to competitor
products 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, Chinese renminbi
and Swedish krona.
> Total Revenue down 2% to $22,465 million
(CER: 2%). Product Sales were down 5%
(CER: 5%) reflecting the continued impact
of generic versions of Crestor in the US
and pricing pressure in the US on Symbicort.
Product Sales of Crestor and Symbicort in the
US declined by 70% and 12% respectively.
> Revenues from our Growth Platforms
increased by 5% (CER: 6%) and constituted
68% of our Total Revenue, with
– Emerging Markets up 6% (CER: 8%)
supported by China, up by 12% (CER: 15%).
– Japan up 1% (CER: 4%) to $2,208 million
reflecting growth of Tagrisso and Forxiga.
– Respiratory down 1% (CER: 1%)
reflecting a 12% fall in US Product
Sales of Symbicort.
– New Oncology Product Sales of
$1,313 million, up 98% (CER: 98%)
primarily due to the growth of Tagrisso,
which reached sales of $955 million.
– New CVMD grew by 9% (CER: 9%)
following strong performances by Farxiga
and Brilinta, which both exceeded
$1 billion of sales in the year.
> Reported operating profit was down 25%
(CER: 28%) to $3,677 million (2016: $4,902
million), including a $109 million charge
in 2017, with 2016 having benefited from
a $1,158 million credit, on revaluation of
contingent consideration arising from
business acquisitions.
> Core operating profit was up 2% (stable at
CER) to $6,855 million (2016: $6,721 million).
> Reported operating margin of 16.4% of
Total Revenue was down 4.9 percentage
points (CER: 5.8 percentage points).
Core operating margin was 30.5% of
Total Revenue (2016: 29.2%).
> Reported EPS was down 14% (CER: 15%)
to $2.37. Core EPS was $4.28, down 1%
(CER: 2%).
> Dividends paid amounted to $3,519 million
(2016: $3,561 million).
AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Review
67
Financial Review
continued
Measuring performance
The following measures are referred to in
this Financial Review when reporting on our
performance both in absolute terms, but
more often in comparison to earlier years:
> Reported performance: Reported
performance takes into account all the
factors (including those which we cannot
influence, such as currency exchange
rates) that have affected the results of
our business, as reflected in our Group
Financial Statements prepared in
accordance with IFRSs as adopted by
the EU and as issued by the IASB (IFRS).
> Non-GAAP financial measures: Core
financial measures, EBITDA, Net Debt,
Ongoing Externalisation Revenue and Initial
Externalisation Revenue are non-GAAP
financial measures because they cannot be
derived directly from the Group Consolidated
Financial Statements. Management believes
that these non-GAAP financial measures,
when provided in combination with Reported
results, will provide investors with helpful
supplementary information to better
understand the financial performance and
position of the Group on a comparable basis
from period to period. These non-GAAP
financial measures are not a substitute for,
or superior to, financial measures prepared
in accordance with GAAP.
> Core financial measures are adjusted to
exclude certain significant items, such as:
– amortisation and impairment of intangible
assets, including impairment reversals but
excluding any charges relating to IT assets
– charges and provisions related to
our global restructuring programmes,
which include charges that relate to
the impact of our global restructuring
programmes on our capitalised IT assets
– other specified items, principally
comprising acquisition-related costs
and credits, which include fair value
adjustments and the imputed finance
charge relating to contingent
consideration on business combinations,
legal settlements and foreign-exchange
gains and losses on certain non-structural
intra-group loans. In determining the
adjustments to arrive at the Core result,
we use a set of established principles
relating to the nature and materiality
of individual items or groups of items,
excluding, for example, events which (i)
are outside the normal course of business,
(ii) are incurred in a pattern that is
unrelated to the trends in the underlying
financial performance of our ongoing
business, or (iii) are related to major
acquisitions, to ensure that investors’
ability to evaluate and analyse the
underlying financial performance of our
ongoing business is enhanced. See the
2017 Reconciliation of Reported results to
Core results table on the opposite page
for a reconciliation of Reported to Core
performance, as well as further details
of the adjustments.
> EBITDA is defined as Reported Profit
Before Tax plus Net Finance Expense,
results from Joint Ventures and Associates
and charges for depreciation, amortisation
and impairment. Reference should be made
to the Reconciliation of Reported Profit
Before Tax to EBITDA included on page 70
of this Annual Report.
> Net Debt is defined as interest-bearing
loans and borrowings net of cash and
cash equivalents, other investments
and net derivative financial instruments.
Reference should be made to the Net
Debt reconciliation table included on
page 74 of this Annual Report.
> Ongoing Externalisation Revenue is defined
as Externalisation Revenue excluding Initial
Externalisation Revenue (which is defined as
Externalisation Revenue that is recognised
at the date of completion of an agreement
or transaction). Ongoing Externalisation
Revenue comprises, among other items,
royalties, milestones and profit sharing
income. Reference should be made to the
reconciliation of Externalisation Revenue to
Ongoing Externalisation Revenue included
on page 70 of this Annual Report.
> 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 average 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 2017 Reported
operating profit table on the page opposite.
> Gross and operating margin percentages:
These measures set out the progression
of key performance margins and illustrate
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.
We strongly encourage readers of the
Annual Report not to rely on any single
financial measure but to review our financial
statements, including the notes thereto,
and our other publicly filed reports,
carefully and in their entirety.
CER measures allow us to focus on the
changes in revenues and expenses driven
by volume, prices and cost levels relative to
the prior period. Revenues and cost growth
expressed in CER allows management to
understand the true local movement in
revenues and costs, in order to compare
recent trends and relative return on
investment. CER growth rates can be
used to analyse revenues in a number of
ways but, most often, we consider CER
growth by products and groups of products,
and by countries and regions. CER revenue
growth can be further analysed into the
impact of revenue 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 non-GAAP
financial and growth measures, in addition to
our Reported financial information, enhances
investors’ ability to evaluate and analyse
the financial performance of our ongoing
business and the related key business drivers.
The adjustments are made to our Reported
financial information in order to show
non-GAAP financial measures that illustrate
clearly, on a year-on-year or period-by-period
basis, the impact on our performance caused
by factors such as changes in revenues and
expenses driven by volume, prices and cost
levels relative to such prior years or periods.
Readers of the Annual Report should note
that Core results cannot be achieved without
incurring the costs that the Core measures
exclude such as:
> Amortisation of intangible assets which
generally arise from business combinations
and individual licence acquisitions. We adjust
for these charges because their pattern of
recognition is largely uncorrelated with the
underlying performance of the business.
However, a significant part of our revenues
could not be generated without owning the
associated acquired intangible assets.
> Charges and provisions related to our
global restructuring programmes which can
take place over a significant period of time,
given the long life-cycle of our business.
We adjust for these charges and provisions
because they primarily reflect the financial
impact of change to legacy arrangements,
rather than the underlying performance of
our ongoing business. However, our Core
results do reflect the benefits of such
restructuring initiatives.
68
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategic Report It should also be noted that other costs
excluded from our Core results, such as
finance charges related to contingent
consideration will recur in future years and
other excluded items such as impairments
and legal settlement costs, along with
other acquisition-related costs, may recur
in the future.
As shown in the 2017 Reconciliation of
Reported results to Core results table to
the right, 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 by specific
line item as such items are reflected in our
Reported income statement. This illustrates
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. As a result,
Core financial measures merely allow
investors to differentiate between different
kinds of costs and they should not be used
in isolation. You should also refer to our
Reported financial information in the
2017 Reported operating profit table and
our reconciliation of Core financial measures
to Reported financial information in the
Reconciliation of Reported results to Core
results table, both to the right, for our
discussion of comparative Actual growth
measures that reflect all factors that affect
our business.
Our determination of non-GAAP measures,
and 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.
Results of operations – summary analysis of year ended 31 December 2017
2017 Reported operating profit
2017
Growth
due to
exchange
effects
$m
Reported
$m
CER
growth
$m
2016
Percentage of
Total Revenue
Reported 2017
compared
with Reported 2016
Reported
$m
Reported
2017
%
Reported
2016
%
Actual
growth
%
CER
growth¹
%
Product Sales
20,152
(1,053)
(114)
21,319
Externalisation Revenue
2,313
Total Revenue
Cost of sales
Gross profit
Distribution costs
Research and
development expense
Selling, general and
administrative costs
Other operating
income and expense
Operating profit
22,465
(4,318)
18,147
(310)
(5,757)
639
(414)
(277)
(691)
10
68
(9)
1,683
(123)
23,002
85
(38)
6
(4,126)
(19.2)
18,876
(326)
80.8
(1.4)
(17.9)
82.1
(1.5)
65
(5,890)
(25.6)
(25.6)
(10,233)
(964)
144
(9,413)
(45.5)
(40.9)
1,830
177
3,677
(1,400)
(2)
175
(5)
37
(2)
5
(4)
(5)
(2)
9
(5)
38
(2)
7
(4)
(3)
(1)
10
Net finance expense
(1,395)
Share of after tax
losses of joint ventures
and associates
Profit before tax
Taxation
Profit for the period
Basic earnings
per share ($)
(55)
2,227
641
2,868
2.37
8.1
16.4
7.2
21.3
11
(25)
11
(28)
1,655
4,902
(1,317)
(33)
3,552
(146)
3,406
2.77
1 As detailed on page 68, CER growth is calculated using prior year actual results adjusted for certain exchange effects
including hedging.
2017 Reconciliation of Reported results to Core results
2017
Reported
$m
Restructuring
costs
$m
Intangible
amortisation
and
impairments
$m
Core 2017
compared with
Core 2016¹
Diabetes
Alliance
$m
Other3
$m
2017
Core¹
$m
Actual
growth
%
CER
growth
%
Gross profit
18,147
181
149
– 18,477
(3)
(3)
–
–
–
–
144
81.2
82.2
(310)
(5,412)
–
–
1,469
641
(77)
(7,853)
45
1,807
–
641
–
1,953
(77)
6,855
–
201
347
78
807
(5)
(4)
(4)
14
2
(3)
(3)
(3)
14
–
Product Sales
gross margin %2
Total Revenue
gross margin %
Distribution costs
Research and
development expense
Selling, general and
administrative costs
Other operating
income and expense
Operating profit
Operating margin as
a % of Total Revenue
79.6
80.8
(310)
(5,757)
(10,233)
1,830
3,677
16.4
Net finance expense
(1,395)
Taxation
Basic earnings
per share ($)
–
(169)
–
313
(453)
(198)
432
(681)
30.5
(650)
(860)
641
2.37
0.50
1.07
0.60
(0.26)
4.28
1 Each of the measures in the Core column in the above table is a non-GAAP measure.
2 Gross margin as a % of Product Sales reflects gross profit derived from Product Sales, divided by Product Sales.
3 See page 72 for further details of other adjustments.
AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Review
69
Strategic Report Reconciliation of Reported Profit Before Tax to EBITDA
Reported Profit Before Tax
Net Finance Expense
Share of after tax losses of joint ventures
and associates
Depreciation, Amortisation and Impairment
EBITDA
2017
$m
2,227
1,395
55
3,036
6,713
2016
$m
3,552
1,317
33
2,357
7,259
Actual
growth
%
CER
growth
%
(37)
6
66
29
(8)
(38)
(4)
66
29
(10)
Growth Platforms
Emerging Markets
Respiratory
New CVMD1
Japan
New Oncology2
2017
Product Sales
$m
2016
Product Sales
$m
Actual
growth
%
CER
growth
%
6,149
4,706
3,567
2,208
1,313
5,794
4,753
3,266
2,184
664
6
(1)
9
1
98
5
8
(1)
9
4
98
6
Total Growth Platform Product Sales3
15,231
14,491
1 New Cardiovascular & Metabolic Diseases, incorporating Brilinta and Diabetes.
2 New Oncology comprises Lynparza, Iressa (US), Tagrisso, Imfinzi and Calquence.
3 Certain Product Sales are included in more than one Growth Platform. Total Growth Platform sales represents the net total
sales for all Growth Platforms.
Externalisation Revenue
Externalisation Revenue – Initial
Lynparza/selumetinib (MSD)
Zoladex (TerSera)
MEDI8897 (Sanofi)
Global non-US anaesthetics portfolio (Aspen)
Plendil (CMS)
Toprol-XL (Aralez)
tralokinumab (LEO Pharma)
Other
Total Initial Externalisation Revenue
Ongoing Externalisation Revenue
Lynparza/selumetinib (MSD) – option exercised
Global non-US anaesthetics portfolio (Aspen) – milestone
brodalumab (Valeant) – milestone
AZD3293 (Lilly) – milestone
Royalties
Other
Total Ongoing Externalisation Revenue
Total Externalisation Revenue
2017
$m
997
250
127
–
–
–
–
118
1,492
250
150
130
50
108
133
821
2016
$m
–
–
–
520
298
175
115
219
1,327
–
–
–
100
119
137
356
2,313
1,683
Financial Review
continued
Total Revenue
Total Revenue for the year was down 2% (CER:
2%) to $22,465 million, comprising Product
Sales of $20,152 million, down 5% (CER: 5%)
and Externalisation Revenue of $2,313 million,
an increase of 37% (CER: 38%).
By Geography
US Product Sales were down 16% to $6,169
million, reflecting continued competition
from multiple generic Crestor medicines
that entered the US market in 2016 as well
as lower Product Sales of Nexium and
Symbicort. In Europe, Product Sales declined
by 6% (CER: 7%) to $4,753 million, partly
driven by pricing pressures on Symbicort and
the initial impact from generic competition on
Crestor. Established Markets remained stable
(CER: up 1%) to $3,081 million including an
increase of 1% in Japan (CER: 4%) to $2,208
million. Crestor Product Sales in Japan
declined 6% (CER: 4%) to $489 million as
generic competition entered the market in
the year. Product Sales in Emerging Markets
increased by 6% (CER: 8%) to $6,149 million
in 2017, with growth in China of 12% (CER:
15%) to $2,955 million.
By Product
Our largest selling products in 2017 were
Symbicort ($2,803 million), Crestor ($2,365
million), Nexium ($1,952 million) and Pulmicort
($1,176 million). Global Product Sales of
Crestor declined in the year by 30% (CER:
30%), which primarily reflected the impact
of generic competition. Symbicort global
Product Sales declined by 6% (CER: 6%)
including a reduction of 12% in the US due to
the impact of a competitive environment on
net pricing. Nexium Product Sales were down
4% (CER: 3%), including a 10% decrease in
the US, reflecting continued lower demand
and inventory de-stocking as a result of
the loss of exclusivity from 2015. Strong
underlying volume growth in Emerging
Markets drove an 11% global Product Sales
increase in Pulmicort (CER: 12%), with 71%
of Product Sales of the medicine coming from
that region in the year. There were also strong
performances from Farxiga and Brilinta each
exceeding $1 billion of sales in the year.
70
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategic Report Growth Platforms
In the periods under review, our Growth
Platforms included products in our three main
therapy areas, and a focus on the Emerging
Markets and Japan. Our Growth Platforms
grew by 5% (CER: 6%), representing 68% of
Total Revenue after removing the effect of
certain Product Sales which are included in
more than one Growth Platform.
Product Sales in Emerging Markets grew
by 6% compared to 2016 (CER: 8%).
Product Sales in China increased by 12%
in 2017 (CER: 15%), representing 48% of
Emerging Markets Product Sales in the year.
Product Sales of our Respiratory medicines
declined by 1% (CER: 1%), reflecting pricing
pressure in the US for Symbicort.
New CVMD grew by 9% with revenue of
$3,567 million (2016: $3,266 million). Within
New CVMD, sales of Brilinta in the year were
$1,079 million, an increase of 29%. Brilinta
sales in the US were up 46% to $509 million,
as it remained the branded oral anti-platelet
market leader.
Our Diabetes Product Sales were 3% higher
than in 2016 (CER: 2%), driven primarily by
growth of 29% (CER: 28%) on Farxiga with
global sales of $1,074 million as it continued
to be our largest-selling Diabetes medicine
and SGLT2-class growth was supported by
growing evidence around cardiovascular
benefits, including data from the CVD-REAL
study that was published in March 2017.
Japan Product Sales increased by 1% (CER:
4%) underpinned by the growth of Tagrisso
and Forxiga, partly mitigated by the impact of
the entry of generic competition to Crestor in
the year.
Product Sales of New Oncology medicines
were up to $1,313 million in 2017 (2016:
$664 million), $955 million of which came from
Tagrisso (2016: $423 million) which continues
to be our leading medicine for the treatment
of lung cancer and received regulatory
approval in more than 60 countries by the
end of 2017.
Externalisation Revenue
Details of our significant business
development transactions which give rise to
Externalisation Revenue are given below:
> In July 2017, the Group announced a global
strategic oncology collaboration with MSD
to co-develop and co-commercialise
AstraZeneca’s Lynparza for multiple
cancer types. Under the collaboration, the
companies will develop and commercialise
Lynparza jointly, both as monotherapy and
in combination with other potential
medicines. AstraZeneca and MSD will
also jointly develop and commercialise
AstraZeneca’s selumetinib, an oral, potent,
selective inhibitor of MEK, part of the
mitogen-activated protein kinase (MAPK)
pathway, currently being developed for
multiple indications including thyroid
cancer. Independently, AstraZeneca and
MSD will develop and commercialise
Lynparza in combination with their
respective PD-L1 and PD-1 medicines,
Imfinzi and Keytruda. Under the terms of the
agreement, the two companies will share
the development and commercialisation
costs for Lynparza and selumetinib
monotherapy and non-PD-L1/PD-1
combination therapy opportunities. Gross
profits from Lynparza and selumetinib
Product Sales generated through
monotherapies or combination therapies
will be shared equally. MSD will fund all
development and commercialisation costs
of Keytruda in combination with Lynparza
or selumetinib. AstraZeneca will fund all
development and commercialisation costs
of Imfinzi in combination with Lynparza or
selumetinib. AstraZeneca will continue to
manufacture Lynparza and selumetinib.
As part of the agreement, MSD will pay
AstraZeneca up to $8.5 billion in total
consideration, including $1.6 billion upfront,
$750 million for certain licence options
and up to $6.2 billion contingent upon
successful achievement of future regulatory
and sales milestones. Of the upfront
payment of $1.6 billion, $1.0 billion was
recognised as Externalisation Revenue
on deal completion, with the remaining
$0.6 billion deferred to the balance sheet.
AstraZeneca will book all Product Sales
of Lynparza and selumetinib; gross profits
due to MSD under the collaboration will be
recorded under Cost of Sales. Subsequent
to deal completion, MSD exercised the first
licence option resulting in additional
Externalisation Revenue of $250 million.
> In March 2017, AstraZeneca announced an
agreement to develop and commercialise
MEDI8897 jointly with Sanofi. Under the
terms of the global agreement, Sanofi made
an upfront payment of €120 million and will
pay up to €495 million upon achievement
of certain development and sales-related
milestones. All costs and profits are
shared equally.
> In March 2017, AstraZeneca entered into an
agreement with TerSera for the commercial
rights to Zoladex in the US and Canada.
TerSera paid $250 million upon completion
of the transaction. The Group will also
receive sales-related income through
milestones totalling up to $70 million, as
well as recurring quarterly sales-based
payments at mid-teen percent of Product
Sales. AstraZeneca will also manufacture
and supply Zoladex to TerSera, providing
a further source of ongoing income from
Zoladex in the US and Canada.
> In October 2016, the Group announced an
agreement with Aralez for the rights to the
branded and authorised generic (marketed
by Par Pharmaceuticals) for Toprol-XL
(metoprolol succinate) in the US. Aralez
paid $175 million upon completion of the
transaction. Aralez will also pay up to
$48 million in milestone and sales-related
payments, as well as mid-teen percentage
royalties on Product Sales. AstraZeneca
continues to manufacture and supply
Toprol-XL and the authorised generic
medicine to Aralez.
> In June 2016, AstraZeneca entered into a
licence agreement with LEO Pharma for the
global development and commercialisation
of tralokinumab in dermatology indications.
AstraZeneca will manufacture and supply
tralokinumab to LEO Pharma. LEO Pharma
has been granted an exclusive licence
to the global dermatology rights to
tralokinumab, which has completed
Phase IIb for atopic dermatitis. LEO Pharma
paid an upfront payment of $115 million for
the exclusive licence. LEO Pharma will also
pay up to $1 billion in commercially-related
milestones and up to mid-teen tiered
percentage royalties on Product Sales.
> In June 2016, AstraZeneca announced
that it had entered into a commercialisation
agreement with Aspen for rights to its global
anaesthetics portfolio outside the US.
The agreement covers seven established
medicines – Diprivan, EMLA and five local
anaesthetics (Xylocaine, Marcaine, Naropin,
Carbocaine and Citanest). Under the terms
of the agreement, Aspen acquired the
commercialisation rights for an upfront
consideration of $520 million. In July 2017,
Aspen achieved the first Product Sales
related payment milestone triggering a
payment to AstraZeneca of $150 million.
In September 2017, AstraZeneca announced
that it had entered into an agreement with
Aspen, under which Aspen acquired the
residual rights to the seven established
anaesthetics medicines. This new
agreement completed in October 2017.
Further details of the new arrangement
are included on page 72.
AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Review
71
Strategic Report Financial Review
continued
> In February 2016, the Group entered
into a licensing agreement with CMS for
the commercialisation rights in China to
Plendil (felodipine). Under the terms of
the agreement, CMS paid AstraZeneca
$310 million for the licence ($155 million
in 2016 and a further $155 million in 2017).
> In September 2015, AstraZeneca
announced that the Group had entered
into a collaboration agreement with Valeant
under which AstraZeneca granted an
exclusive licence to Valeant to develop
and commercialise brodalumab, except
in Japan and certain other Asian countries.
Valeant assumed all development costs
associated with the regulatory approval
for brodalumab. Under the terms of the
agreement, Valeant made an upfront
payment to AstraZeneca of $100 million
in 2015. The agreement also included
pre-launch milestones of up to $170 million
and further sales related milestone
payments of up to $175 million. After
approval, profits would be shared between
Valeant and AstraZeneca. In February 2017,
the FDA approved brodalumab injection
for the treatment of adult patients with
moderate-to-severe plaque psoriasis
who are candidates for systemic therapy
or phototherapy and have failed to
respond or lost response to other
systemic therapies, triggering a milestone
payment of $130 million to AstraZeneca.
> In April 2015, the Group signed a
Collaboration and License Agreement with
Celgene, a global leader in haematological
cancers, to develop and commercialise
Imfinzi across a range of blood cancers
including non-hodgkin’s lymphoma,
myelodysplastic syndromes and multiple
myeloma. Under the terms of the
agreement, Celgene made an upfront
payment of $450 million to AstraZeneca
in relation to Imfinzi, which was recorded
within Externalisation Revenue in 2015.
Celgene lead on development across all
clinical trials within the collaboration and
took on all R&D costs until the end of 2015,
after which they now take on 75% of these
costs. Celgene will also be responsible
for global commercialisation of approved
treatments. AstraZeneca will manufacture
and record all sales of Imfinzi and will pay
a royalty to Celgene on worldwide sales
in haematological indications. The royalty
rate will start at 70% and will decrease to
approximately half of the sales of Imfinzi in
haematological indications over a period of
four years.
> In March 2015, AstraZeneca announced
a co-commercialisation agreement with
Daiichi Sankyo, for Movantik in the US.
The drug was launched on 31 March 2015.
Under the agreement, Daiichi Sankyo paid
a $200 million upfront fee, recognised as
Externalisation Revenue in 2015, and will
pay sales-related payments of up to $625
million. AstraZeneca will be responsible for
manufacturing, will record all sales and will
make sales-related commission payments
to Daiichi Sankyo. Both companies will be
jointly responsible for commercial activities.
As detailed in Risk from page 210, the
development of any pharmaceutical product
candidate is a complex and risky process
that may fail at any stage in the development
process due to a number of factors (including
items such as failure to obtain regulatory
approval, unfavourable data from key studies,
adverse reaction to the product candidate
or indications of other safety concerns).
The potential future milestones quoted
above are subject to these risks.
Gross margin, operating margin and
earnings per share
Reported gross profit declined by 4% to
$18,147 million. Core gross profit declined
by 3% to $18,477 million. Externalisation
Revenue of $2,313 million included $1,247
million received as part of the Lynparza
and selumetinib collaboration with MSD.
This was outweighed by the adverse
impact of product mix, the increase of the
manufacturing capacity for new medicines
and the inclusion of the profit share on the
aforementioned collaboration.
Reported R&D expense in the year declined
by 2% (CER: 1%) to $5,757 million, as the
Group continued to focus on resource
prioritisation and cost discipline. Core R&D
costs declined by 4% (CER: 3%) to $5,412
million. The movement compared to prior
year was in line with indications made in 2017.
Reported SG&A costs increased by 9%
(CER: 10%) to $10,233 million. The large
movement in Reported SG&A is influenced by
a favourable $999 million fair value adjustment
recorded in 2016 related to the acquisition of
BMS’s share of the Global Diabetes Alliance,
based on revised milestone probabilities,
and revenue and royalty forecasts. Core
SG&A decreased by 4% (CER: 3%) to
$7,853 million. The decrease in Core SG&A
reflects the indications made in 2017 and
incorporated the necessity to invest in the
launch programme, given the productivity
and success of the pipeline.
Reported other operating income and
expense in the year was up 11% at $1,830
million which includes $555 million from
the sale of the remaining rights to the
anaesthetics portfolio to Aspen, $301 million
from the sale of rights to Seloken in Europe to
Recordati, milestone receipts of $175 million
from the disposal of Zavicefta to Pfizer,
$165 million on the sale of the global rights
to Zomig outside Japan to Grünenthal and
$161 million of gains from the sale of short-
term investments. As these elements of
our income arose from product divestments,
where we no longer retain a significant
element of continued interest, in accordance
with our Externalisation Revenue definition
and the requirements of IFRS, proceeds
from these divestments are recorded as
other operating income.
Reported operating profit declined by 25%
(CER: 28%) to $3,677 million in the year.
The Reported operating margin declined
by 4.9 percentage points (CER: 5.8
percentage points) to 16.4% of Total Revenue.
The decrease was primarily driven by the
movement in Reported SG&A costs as
detailed above.
Core operating profit increased by 2%
(stable at CER) in the year to $6,855 million.
The Core operating profit margin increased
by 1% to 31% of Total Revenue.
Reported net finance expense increased
by 6% (CER: decreased 4%) in the year to
$1,395 million (2016: $1,317 million) primarily
reflecting a foreign exchange impact relating
to the classification of certain non-structural
intra-group loans. Reported net finance
expense declined by 4% at CER, reflecting
reduced levels of discount unwind on
acquisition-related liabilities resulting from
the diabetes alliance with BMS. Excluding
the discount unwind on acquisition-related
liabilities and adverse foreign exchange
impact, Core net finance expense declined
by 2% (CER: 4%) in the year to $650 million.
Profit before tax amounted to $2,227 million
in 2017 (2016: $3,552 million). Pre-tax
adjustments to arrive at Core profit before
tax amounted to $3,923 million in 2017 (2016:
$2,475 million), comprising $3,178 million
adjustments to operating profit (2016:
$1,819 million) and $745 million to net finance
expense (2016: $656 million). EBITDA declined
by 8% (CER: 10%) to $6,713 million.
Excluded from Core results were:
> Restructuring costs totalling $807 million
(2016: $1,107 million), incurred as we
continued to enhance productivity
through the implementation of our
restructuring initiatives.
> Amortisation totalling $1,319 million (2016:
$1,247 million) relating to intangible assets,
except those related to IT and to our
acquisition of BMS’s share of our Global
Diabetes Alliance (which are separately
detailed below). Further information on our
intangible assets is contained in Note 9 to
the Financial Statements from page 155.
72
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategic Report > Intangible impairment charges of $488
million (2016: $44 million) excluding those
related to IT. Further details relating to
intangible asset impairments are included
in Note 9 to the Financial Statements from
page 155.
> Costs associated with our acquisition of
BMS’s share of our Global Diabetes Alliance
in February 2014 amounting to $954 million
(2016: credit of $238 million). As noted
above, the 2016 net credit included a
contingent consideration fair value
decrease of $999 million reflecting lower
than expected Diabetes portfolio revenues.
The 2017 costs of $954 million included
$426 million of amortisation charges,
$313 million of interest charges relating
to a discount unwind on contingent
consideration arising on the acquisition
and a fair value increase of $208 million.
> Net legal provisions and other charges of
$355 million (2016: $315 million) include
$305 million (2016: $267 million) discount
unwind charges offset by $309 million
(2016: $199 million) of net fair value
adjustments relating to contingent
consideration arising on our other business
combinations as detailed in Note 18 to
the Financial Statements from page 163.
The net charge of $355 million also included
legal charges relating to the Texas Attorney
General and Pulmicort Respules
proceedings. Further details of legal
proceedings in which we are currently
involved are contained within Note 28 to
the Financial Statements from page 182.
> Also included in other charges are foreign
exchange gains and losses of $125 million
relating to the classification of certain
non-structural intra-group loans and a
one-off adjustment of $617 million reflecting
adjustments to deferred tax in line with the
recently reduced US federal income tax rate.
Reported EPS of $2.37 in the year
represented a decline of 14% (CER: 15%).
The performance was driven by a decline
in Total Revenue and increased Reported
SG&A costs, partly offset by a net tax benefit,
continued progress on Reported R&D cost
control and an increase in other operating
income and expense. Core EPS in the year
declined by 1% (CER: 2%) to $4.28.
The Reported tax credit for the year of $641
million (2016: charge of $146 million) consisted
of a current tax charge of $378 million (2016:
$370 million) and a credit arising from
movements on deferred tax of $1,019 million
(2016: $224 million). The current tax charge
included a prior period current tax credit of
$287 million (2016: $14 million).
The Reported tax rate for the year was (29)%
(2016: 4%).
The Reported tax rate of (29)% in the year
benefited from a favourable net adjustment
of $617 million to deferred tax, reflecting
the recently reduced US federal income tax
rate and non-taxable remeasurements of
acquisition-related liabilities. Additionally,
there was a $472 million benefit to the
Reported tax rate reflecting the favourable
impact of UK Patent box profits, the
recognition of previously unrecognised tax
losses, and reductions in net tax provisions
and provision to return adjustments arising
on the expiry of statute of limitations or
favourable progress of discussion with
tax authorities. Absent these benefits,
the Reported tax rate for the year would
have been 22%.
The Core tax rate for the year was 14%.
Excluding the $472 million benefit above,
the Core tax rate would have been 22%.
The tax paid for the year was $454 million
(20% of Reported profit before tax). The cash
tax paid for the year was $1,095 million higher
than the tax charge for the year as a result of
certain items with no cash impact including
$617 million deferred tax credit reflecting
the reduction in US federal income tax rate,
$402 million of other deferred tax credits,
other net reductions in provisions for tax
contingencies partially offset by refunds
following a previously disclosed agreement of
inter-government transfer pricing arrangements
and other cash tax timing differences.
Total comprehensive income increased by
$1,879 million from the prior year, resulting
in a net income of $3,507 million for 2017.
The decrease in profit for the year of
$538 million was more than offset by
an increase of $2,417 million in other
comprehensive income. The increase in
other comprehensive income arose principally
from foreign exchange gains arising on
consolidation of $536 million (2016: losses
of $1,050 million) and foreign exchange
gains arising on designating borrowings in
net investment hedges of $505 million (2016:
loss of $591 million), partially offset by losses
recorded on the remeasurement of our
defined benefit pension liability of $242 million
(2016: loss of $575 million), due to a decrease
in the discount rate applied to our pension
liabilities reflecting an increase in corporate
bond yields and other reference interest
rate instruments.
Restructuring
Since 2007, we have undertaken significant
efforts to restructure and reshape our
business to improve our long-term
competitiveness. The first phases of this
restructuring, involving the integration of
MedImmune, efficiencies within the R&D
function and a reduction in SG&A costs,
were completed in 2011. The targeted
commercial restructuring announced in
2015 has also been successfully completed
with a total cost of $151 million.
In 2016, we announced plans to advance
our strategy through sharper focus by
streamlining operations, primarily in
Commercial and Manufacturing, to redeploy
investment to key therapy areas, particularly
Oncology. Restructuring costs associated
with this programme were initially forecast to
be $1.5 billion by the end of 2017 and generate
net annualised benefits of $1.1 billion by 2018.
The total cost estimate remains at $1.5 billion
but this will be incurred by 2019, with benefits
expected to be $1.3 billion in 2018 and
$1.4 billion in 2019.
In addition to the 2016 plan, there are two
further active programmes. The first is the
continuation of the Phase 3 restructuring
that was announced in 2012, superseded
by Phase 4 in 2013 and subsequently
expanded in 2014. This initiative consists of
centralisation of our global R&D footprint into
three strategic centres, transformation of
the IT organisation, closure of a number of
manufacturing facilities and other activities
to simplify and streamline the organisation.
At the time of the announcement, the Phase 4
programme was estimated to incur $3.2 billion
of costs and deliver $1.1 billion of annualised
benefits by 2016. By the end of 2017, the
Phase 4 programme had incurred costs
of $3.5 billion, creating headroom for
investment in our pipeline and launch
capability. The Phase 4 programme is now
expected to complete in 2020 with total
programme costs estimated to be $3.7 billion
and annualised benefits of $1.2 billion.
The second step was initiated in 2016
and relates to multi-year transformation
programmes within our G&A functions
(principally Finance and HR) with anticipated
costs by the end of 2018 of $270 million. We
expect these transformation programmes to
deliver annualised benefits of $100 million by
2018. By the end of 2017, these programmes
had incurred costs of $225 million with total
expected costs rising to $300 million.
AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Review
73
Strategic Report Financial Review
continued
The aggregate restructuring charge
incurred in 2017 across all our restructuring
programmes was $807 million (2016:
$1,107 million), including the ongoing
integration of BMS and other acquired
assets. Final estimates for programme costs,
benefits and headcount impact in all functions
are subject to completion of the requisite
consultation in the various areas.
Our priority as we undertake these
restructuring initiatives is to work with
our affected employees on the proposed
changes, acting in accordance with
relevant local consultation requirements
and employment law.
Brexit planning
Following the UK referendum outcome of
a decision in June 2016 for the UK to leave
the EU, the progress of current negotiations
between the UK Government and the EU will
likely determine the future terms of the UK’s
relationship with the EU, as well as to what
extent the UK will be able to continue to
benefit from the EU’s single market and
its regulatory frameworks.
In response to this, the Company has taken
the decision to implement certain actions
to mitigate potential risk of disruption to
the supply of medicines including, but not
limited to, duplication of release testing and
procedures for products based in the EU27
and the UK, transfer of regulatory licences,
customs and duties set up for introduction
or amendment of existing tariffs or processes
and associated IT systems upgrades. The
costs associated with this and certain
other actions directly related to Brexit will
be charged as restructuring with the majority
of such costs expected to be cash costs.
However, until the Brexit negotiation process
is completed, it is difficult to anticipate the
overall potential impact on AstraZeneca’s
operations and hence the final expected
costs to be incurred.
74
Cash flow and liquidity – for the year ended 31 December 2017
Summary cash flows
Net debt brought forward at 1 January
Profit before tax
Sum of changes in interest, depreciation, amortisation, impairment,
and share of after tax losses on joint ventures and associates
Movement in working capital and short-term provisions
Tax paid
Interest paid
Gains on disposal of intangible assets
Fair value movements on contingent consideration arising
from business combinations
Non-cash and other movements
Net cash available from operating activities
Disposal/(purchase) of intangibles (net)
Non-contingent payments on business combinations
Payment of contingent consideration from business combinations
Other capital expenditure (net)
Investments
Dividends
Share proceeds
Distributions
Other movements
Net debt carried forward at 31 December
Net debt reconciliation
Cash and cash equivalents
Other investments1
Net derivative financial instruments
Cash, investments and derivatives
Overdraft and short-term borrowings
Finance leases
Current instalments of loans
Loans due after one year
Loans and borrowings
Net debt
2017
$m
(10,657)
2,227
2016
$m
(7,762)
3,552
4,486
3,707
(50)
(454)
(698)
926
(412)
(677)
(1,518)
(1,301)
109
(524)
3,578
1,082
(1,450)
(434)
(1,319)
(2,121)
(3,519)
43
(1,158)
(492)
4,145
559
(2,564)
(293)
(1,405)
(3,703)
(3,561)
47
2015
$m
(3,223)
3,069
3,897
(49)
(1,354)
(496)
(961)
(432)
(350)
3,324
(330)
(2,446)
(579)
(1,326)
(4,681)
(3,486)
43
(3,476)
(3,514)
(3,443)
(3)
177
261
(12,679)
(10,657)
(7,762)
2017
$m
3,324
1,300
504
5,128
(845)
(5)
2016
$m
5,018
898
235
6,151
(451)
(93)
(1,397)
(1,769)
2015
$m
6,240
613
438
7,291
(849)
(95)
–
(15,560)
(14,495)
(14,109)
(17,807)
(16,808)
(15,053)
(12,679)
(10,657)
(7,762)
1 Other investments in 2017 includes $70 million (2016: $14 million) of non-current Treasury investments.
Bonds issued in 2017 and 2016
Bonds issued in 2017:
2.375% USD bond
Floating rate USD notes
3.125% USD bond
Total 2017
Bonds issued in 2016:
0.25% Euro bond
0.75% Euro bond
1.25% Euro bond
Total 2016
Net book value
of bond at
31 December
2017
$m
Face value
of bond
$m
Repayment
dates
2022
2022
2027
2021
2024
2028
1,000
250
750
992
249
742
2,000
1,983
566
1,016
897
2,479
594
1,067
941
2,602
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategic Report Net cash generated from operating activities
was $3,578 million in the year ended 31
December 2017, compared with $4,145 million
in 2016. The 2016 operating cash inflows
benefited from a $926 million improvement
in working capital and short-term provisions
that reflected improved cash management
performance compared to prior years.
Net investment cash outflows were
$2,121 million (2016: $3,703 million).
2017 investment cash outflows included a
$1,450 million payment to the shareholders
of Acerta Pharma, a contractual obligation
triggered by the first regulatory approval for
Calquence, following on from our majority
investment in Acerta Pharma in 2016. 2016
cash outflows included $2,383 million relating
to the majority investment in Acerta Pharma.
Investment cash outflows also include
$434 million (2016: $293 million) of payments
against contingent consideration arising
on business combinations and $294 million
(2016: $868 million) for the purchase of other
intangible assets. The comparative period in
2016 included $561 million on the purchase
of respiratory assets from Takeda.
Investment cash inflows include $1,376 million
(2016: $1,427 million) from the sale of
intangible assets, including $300 million
from the disposal of EU rights for Seloken,
$200 million from the divestment of Zomig
rights outside Japan, $200 million relating
to the sale of our remaining anaesthetic
portfolio to Aspen and $175 million regarding
the Zavicefta divestment. The comparative
period in 2016 included $552 million for the
disposal of our late-stage antibiotics assets,
$330 million for the sale of our rights to
Rhinocort Aqua outside the US and $250
million on the out-licence of MEDI-2070.
Net cash distributions to shareholders were
$3,476 million (2016: $3,514 million), including
dividends of $3,519 million (2016: $3,561
million). Proceeds from the issue of shares
on the exercise of share options amounted
to $43 million (2016: $47 million).
In June 2017, we issued $2.0 billion of bonds
in the dollar debt capital markets with
maturities of 5 and 10 years. We also repaid
a $1.75 billion 5.9% bond, which matured in
September 2017.
At 31 December 2017, outstanding gross
debt (interest-bearing loans and borrowings)
was $17,807 million (2016: $16,808 million).
Of the gross debt outstanding at 31 December
2017, $2,247 million is due within one year
(2016: $2,307 million). Net debt at 31 December
2017 was $12,679 million, compared to $10,657
million at the beginning of the year, as a
result of the cash flows as described above.
Financial position – 31 December 2017
All data in this section is on a Reported basis.
Summary statement of financial position
Property, plant and equipment
2017
$m
7,615
Movement
$m
767
Goodwill and intangible assets
38,013
(1,231)
Inventories
Trade and other receivables
Trade and other payables
Provisions
Net income tax payable
Net deferred tax liabilities
Retirement benefit obligations
Non-current other investments
(excluding Treasury investments
of $70m in 2017 (2016: $14m))
Investment in associates
and joint ventures
Net debt
Net assets
2016
$m
Movement
$m
3,035
5,856
(19,481)
(1,468)
(826)
(1,806)
(2,583)
701
382
493
(50)
128
1,048
(397)
6,848
39,244
2,334
5,474
(19,974)
(1,418)
(954)
(2,854)
(2,186)
863
150
103
4
713
99
435
4,798
191
(2,055)
(854)
(176)
142
(1,483)
(212)
255
14
2015
$m
6,413
34,446
2,143
7,529
(19,120)
(1,242)
(1,096)
(1,371)
(1,974)
458
85
(12,679)
(2,022)
(10,657)
16,642
(27)
16,669
(2,895)
(1,840)
(7,762)
18,509
Business combinations
In 2016, we acquired a majority equity stake
in Acerta Pharma. In 2015, we completed
the acquisition of ZS Pharma. No business
acquisitions were made in 2017. Further
details of our business combinations are
contained in Note 25 to the Financial
Statements from page 173.
Property, plant and equipment
Property, plant and equipment increased by
$767 million to $7,615 million. Additions of
$1,311 million (2016: $1,449 million) were offset
by depreciation of $624 million (2016: $609
million), impairments of $78 million (2016: $2
million), exchange adjustments of $352 million
(2016: $329 million) and disposals and other
movements of $194 million (2016: $74 million).
Goodwill and intangible assets
Our goodwill of $11,825 million (2016: $11,658
million) principally arose on the acquisition of
MedImmune in 2007, the restructuring of our
US joint venture with MSD in 1998 and the
acquisition of BMS’s share of the Global
Diabetes Alliance.
Intangible assets amounted to $26,188 million
at 31 December 2017 (2016: $27,586 million).
Intangible asset additions were $441 million
in 2017 (2016: $8,205 million). 2016 additions
included product rights acquired from the
majority equity investment of Acerta Pharma
of $7,307 million. Amortisation in the year
was $1,829 million (2016: $1,701 million).
Impairment charges in the year amounted
to $491 million (2016: $45 million) including
impairments on launched products Byetta,
FluMist and Movantik as a consequence
of revised market share assumptions and,
for FluMist, the expected timing of renewed
recommendation in the US market. Disposals
of intangible assets totalled $307 million in the
year (2016: $331 million).
Further details of our additions to intangible
assets, and impairments recorded, are
included in Note 9 to the Financial Statements
from page 155.
AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Review
75
Strategic Report Financial Review
continued
Receivables, payables and provisions
Trade and other receivables increased by
$382 million with trade receivables increasing
by $219 million to $2,802 million principally
as a result of higher invoiced sales in China.
Non-current other receivables decreased by
$54 million to $847 million.
Trade and other payables decreased by
$493 million in 2017 to $19,481 million. The
movement included a $1,450 million payment
of deferred consideration on the majority
investment in Acerta Pharma, partially offset
by amounts deferred from the upfront receipt
of $1.6 billion from MSD on the Lynparza
and selumetinib collaboration to reflect future
commitments and the effects of foreign
exchange retranslation.
The increase in provisions of $50 million
in 2017 included a $281 million increase to
charges on legal provisions and reductions
to severance provisions of $129 million.
Further details of the charges made against
provisions are contained in Notes 19 and 28
to the Financial Statements on page 164,
and 182 to 188, respectively.
Contingent consideration
The majority of our business acquisitions in
recent years have included elements of
consideration that are contingent on future
development and/or sales milestones, with
both the Diabetes and Respiratory acquisitions
in 2014 also including royalty payments linked
to future revenues. The acquisitions of ZS
Pharma in 2015 and Acerta Pharma in 2016
had no contingent consideration element and
there were no relevant acquisitions in 2017.
Our agreement with BMS provides for $0.6
billion in milestones and various sales-related
royalty payments up until 2025. Our transaction
with Almirall includes further payments of up
to $0.9 billion for future development, launch,
and sales-related milestones and various
other sales-related milestone payments, and
sales-related royalty payments as detailed in
Note 18 to the Financial Statements on page
163. All these future payments are treated as
contingent consideration liabilities, and are
fair valued using decision-tree analyses,
with key assumptions, including the probability
of success, the potential for delays and the
expected levels of future revenues. The fair
value is updated at each reporting date to
reflect our latest estimate of the probabilities
of these key assumptions. Given the long-term
nature of the liabilities, the fair value calculation
includes the discounting of future potential
76
Tax payable and receivable
Net income tax payable has decreased by
$128 million to $826 million, principally due
to the revision to the presentation of interest on
tax contingencies, as described in the Group
Accounting Policies section of the Financial
Statements on page 139. The tax receivable
balance of $524 million (2016: $426 million)
comprises tax owing to us from certain
governments expected to be received on
settlements of transfer pricing audits and
disputes of $275 million (see Note 28 to the
Financial Statements from page 182) and
cash tax timing differences of $249 million.
Net deferred tax liabilities decreased
by $1,048 million in the year reflecting
adjustments to deferred taxes in line with
the recently reduced US federal income tax
rate from 35% to 21% and recognition of
previously unrecognised deferred tax assets.
Additional information on the movement in
deferred tax balances is contained in Note 4
to the Financial Statements from page 148.
payments to their present value using discount
rates appropriate to the period over which
payments are likely to be made. Over time,
as the target date of a consideration payment
approaches, the discount in absolute terms
of such future potential payment to its present
value decreases. Therefore, in each period we
take a corresponding charge reflecting the
passage of time. We refer to this charge as
‘discount unwind’.
Both the discount unwind and any movements
of the fair value of the underlying future
payments can result in significant income
statement movements. As detailed in the
Results of operations section above, these
movements are treated as non-Core items in our
income statement analysis. In 2017, we recorded
an interest charge of $402 million on the
discount unwind on contingent consideration
arising on our business combinations,
and a net fair value increase on contingent
consideration of $109 million (which resulted
in a charge to our income statement for
the same amount) driven, principally, by
revised forecasts for revenues for our
Diabetes franchise. At 31 December 2017,
our contingent consideration liability was
$5,534 million (2016: $5,457 million) with
the movements of the balance detailed in
the table below.
Contingent consideration arising on business combinations
Acquisition of
BMS’s share
of Diabetes
Alliance
$m
Other
business
combinations
$m
4,240
(284)
208
313
1,217
(150)
(99)
89
2017
Total
2017
$m
5,457
(434)
109
402
Acquisition of
BMS’s share
of Diabetes
Alliance
$m
Other
business
combinations
$m
5,092
1,319
(242)
(999)
389
(51)
(159)
108
4,477
1,057
5,534
4,240
1,217
2016
Total
2016
$m
6,411
(293)
(1,158)
497
5,457
At 1 January
Settlements
Fair value adjustments
Discount unwind
At 31 December
Payments due by period
Bank loans and
other borrowings1
Finance leases
Operating leases
Contracted capital
expenditure
Total
Less than
1 year
$m
1-3 years
$m
3-5 years
$m
Over
5 years
$m
2017
Total
$m
2016
Total
$m
2,844
3,708
3,752
15,575
25,879
24,889
5
112
570
3,531
–
178
–
–
126
–
–
107
–
5
523
570
95
441
629
3,886
3,878
15,682
26,977
26,054
1 Bank loans and other borrowings include interest charges payable in the period, as detailed in Note 26 to the Financial
Statements on page 175.
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategic Report Retirement benefit obligations
Approximately 92% of our total retirement
benefit obligations (or around 79% of net
obligations) are concentrated in the UK,
the US and Sweden. Net retirement benefit
obligations increased by $397 million in 2017
(2016: increase of $212 million) to $2,583
million. Net re-measurement adjustments of
$242 million primarily in the UK, Sweden and
Germany arose principally from reductions in
discount rate assumptions driven by falls in
long-term bond yields. A negative $219 million
impact of exchange rate movements also
arose in the year as the US dollar weakened
against pound sterling, euro and Swedish
krona increasing liability obligations in US
dollar terms. These adverse movements were
mitigated by employer contributions to the
pension scheme of $157 million. Benefits paid
amounted to $581 million (2016: $500 million).
Over the course of 2017, the UK Actuarial
Valuation (as at 31 March 2016) was finalised
with the UK Trustee and was accepted by the
pensions regulator. In recent years, we have
undertaken several initiatives to reduce our
net pension obligation exposure. For the UK
defined benefit pension scheme, which is our
largest defined benefit scheme, these initiatives
have included agreeing funding principles
for cash contributions to be paid into the UK
pension scheme to target a level of assets
in excess of the current expected cost of
providing benefits, and, in 2010, amendments
to the scheme to freeze pensionable pay at
30 June 2010 levels. Furthermore, liability
management exercises have been carried
out including the completion of a Pensions
Increase Exchange exercise in 2017 and other
exercises are planned.
In the US we realised a credit of $92 million
from the closure of both the qualified and non-
qualified US pension plans to future accrual in
December 2017 and from a change in eligibility
criteria for the US post-retirement welfare
plan. The legacy defined benefit pension plan
participants are eligible for defined contribution
benefits from January 2018.
From January 2017, for the defined benefit
plans in the UK, the US, Sweden and
Germany, the Group moved to a multiple
discount rate approach. This has resulted in
separate discount rates being utilised to value
defined benefit obligations, service cost and
interest cost. The change has impacted on the
measurement of the service and interest cost
items in 2017.
Further details of our pension schemes are
included in Note 20 to the Financial Statements
from page 164.
Commitments and contingencies
We have commitments and contingencies
which are accounted for in accordance with
the accounting policies described in the
Financial Statements in the Group Accounting
Policies section from page 139. We also have
taxation contingencies. These are described
in the Taxation section in the Critical
accounting policies and estimates section
on page 82 and in Note 28 to the Financial
Statements from page 182.
Off-balance sheet transactions and
commitments
We have no off-balance sheet arrangements
and our derivative activities are non-speculative.
The table on page 76 sets out our minimum
contractual obligations at the year end.
Research and development
collaboration payments
Details of future potential R&D collaboration
payments are also included in Note 28 to the
Financial Statements on page 182. As detailed
in Note 28, payments to our collaboration
partners may not become payable due to
the inherent uncertainty in achieving the
development and revenue milestones linked to
the future payments. We may enter into further
collaboration projects in the future that may
include milestone payments and, therefore, as
certain milestone payments fail to crystallise due
to, for example, development not proceeding,
they may be replaced by potential payments
under new collaborations.
Investments, divestments and capital
expenditure
We have completed over 250 major or
strategically important business development
transactions over the past three years, two
of which were accounted for as business
acquisitions under IFRS 3 ‘Business
Combinations’, being the majority investment
in Acerta Pharma in 2016 and the acquisition
of ZS Pharma in 2015.
In addition to the business development
transactions detailed under Externalisation
Revenue from page 71 of this Financial Review,
the following significant collaborations remain
in the development phase:
> In April 2015, we entered into two oncology
agreements with Innate Pharma: firstly, a
licence which provides us with exclusive
global rights to co-develop and
commercialise IPH2201 in combination with
Imfinzi and, secondly, an option to license
exclusive global rights to co-develop and
commercialise IPH2201 in monotherapy
and other combinations in certain treatment
areas. Under the terms of the combination
licence, we assumed exclusive global rights
to research, develop and commercialise
IPH2201 in combination with Imfinzi.
We jointly fund Phase II studies with Innate
Pharma and we lead the execution of these
studies. Under the terms of the agreements,
we made an initial payment to Innate
Pharma of $250 million, which included the
consideration for exclusive global rights to
co-develop and commercialise IPH2201 in
combination with Imfinzi, as well as access
to IPH2201 in monotherapy and other
combinations in certain treatment areas.
The agreement includes a Phase III initiation
milestone of $100 million, as well as
additional regulatory and sales-related
milestones. We record all sales and will pay
Innate Pharma double digit royalties on net
sales. The arrangement includes the right
for Innate Pharma to co-promote in Europe
for a 50% profit share in the territory.
> In July 2013, we entered into a strategic
collaboration with FibroGen to develop
and commercialise roxadustat (FG-4592),
a first-in-class oral compound in late-stage
development for the treatment of anaemia
associated with chronic kidney disease and
end-stage renal disease (ESRD). This broad
collaboration focuses on the US, China and
all major markets excluding Japan, Europe,
the CIS, the Middle East and South Africa,
which are covered by an existing agreement
between FibroGen and Astellas. Under the
arrangement, we agreed to pay FibroGen
upfront and subsequent non-contingent
payments totalling $350 million, as well as
potential development-related milestone
payments of up to $465 million, and
potential future sales-related milestone
payments, in addition to tiered royalty
payments on future sales of roxadustat in
the low 20% range. Additional development
milestones will be payable for any subsequent
indications which the companies choose to
pursue. We will be responsible for the US
commercialisation of roxadustat, with
FibroGen undertaking specified promotional
activities in the ESRD segment in this market.
The companies will also co-commercialise
roxadustat in China where FibroGen will
be responsible for clinical trials, regulatory
matters, manufacturing and medical affairs,
and we will oversee promotional activities
and commercial distribution.
> In March 2013, we signed an exclusive
agreement with Moderna to discover, develop
and commercialise pioneering medicines
based on messenger RNA Therapeutics
for the treatment of serious cardiovascular,
metabolic and renal diseases, as well as
cancer. Under the terms of the agreement,
we made an upfront payment of $240 million.
We will have exclusive access to select any
AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Review
77
Strategic Report Financial Review
continued
target of our choice in cardiometabolic and
renal diseases, as well as selected targets
in oncology, over a period of up to five years
for subsequent development of messenger
RNA Therapeutics. In addition, Moderna is
entitled to an additional $180 million for the
achievement of three technical milestones.
Through this agreement, we have the option
to select up to 40 drug products for clinical
development and Moderna will be entitled
to development and commercial milestone
payments as well as royalties on drug sales.
We will lead the pre-clinical, clinical
development and commercialisation of
therapeutics resulting from the agreement
and Moderna will be responsible for
designing and manufacturing the
messenger RNA Therapeutics against
selected targets. We are currently
progressing 19 projects across CVMD
and Oncology. Utilising both companies’
expertise, significant progress has also
been made to the technology platform,
with the focus on formulation, safety, and
drug metabolism and pharmacokinetics.
We determine the above business development
transactions to be significant using a range of
factors. We look at the specific circumstances
of the individual arrangement and apply
several quantitative and qualitative criteria.
Because we consider business development
transactions to be an extension of our
R&D strategy, the expected total value of
development payments under the transaction
and its proportion of our annual R&D spend,
both of which are proxies for overall R&D
effort and cost, are important elements of the
significance determination. Other quantitative
criteria we apply include, without limitation,
expected levels of future sales, the possible
value of milestone payments and the resources
used for commercialisation activities (for
example, the number of staff). Qualitative
factors we consider include, without limitation,
new market developments, new territories, new
areas of research and strategic implications.
78
Capitalisation and shareholder return
Dividends for 2017
First interim dividend
Second interim dividend
Total
$
0.90
1.90
2.80
Pence
68.9
133.6
202.5
SEK
7.40
14.97
22.37
Payment date
11 September 2017
19 March 2018
Capitalisation
The total number of shares in issue at 31
December 2017 was 1,266 million (2016:
1,265 million). 1.0 million Ordinary Shares
were issued upon share option exercises for
a total of $43 million. Shareholders’ equity
increased by $106 million to $14,960 million
at the year end. Non-controlling interests
were $1,682 million (2016: $1,815 million),
with the decrease in the year as a result of
the losses attributable to shareholders of
the non-controlling interest in Acerta Pharma.
Dividend and share repurchases
The Board has recommended a second
interim dividend of $1.90 (133.6 pence,
14.97 SEK) to be paid on 19 March 2018.
This brings the full-year dividend to $2.80
(202.5 pence, 22.37 SEK). Against Core
earnings per share the Group had a
dividend cover ratio of 1.5 in 2017 (2016:1.5).
This dividend is consistent with the progressive
dividend policy, by which the Board intends to
maintain or grow the dividend each year.
The Board regularly reviews its distribution
policy and its overall financial strategy to
continue to strike a balance between the
interests of the business, our financial creditors
and our shareholders. Having regard for
business investment, funding the progressive
dividend policy and meeting our debt service
obligations, the Board currently believes it
is appropriate to continue the suspension of
the share repurchase programme which was
announced in October 2012.
Future prospects
As outlined earlier in this Annual Report, our
strategy is focused on innovation, returning
to growth and building a sustainable, durable
and more profitable business. In support of
this, we made certain choices around our
three strategic priorities.
As we experience a period of patent expiries:
> Our immediate priorities are to continue
to drive Product Sales of our on-market
medicines through investment in our
Growth Platforms and our portfolio of
legacy medicines outside of the Growth
Platforms. The Growth Platforms include
products in our three main therapy areas,
and a focus on the Emerging Markets and
Japan. We are also pursuing business
development and investment in R&D.
We have already accelerated a number
of projects and progressed them into
Phase III development.
> Our late-stage pipeline is progressing
ahead of plans. Our science-driven,
collaborative culture is driving increased
R&D productivity.
> Our long-term aspiration, in line with our
strategic ambition, is to achieve scientific
leadership and sustainable growth.
Full Year 2018: additional commentary
In 2018, the sum of Externalisation Revenue
and Other operating income and expense is
anticipated to reduce versus 2017. Core R&D
costs in 2018 are expected to be in the range
of a low single-digit percentage decline
to stable. This expectation includes the
favourable impact of development costs from
the MSD collaboration. The Group maintains
its focus on reducing operational and
infrastructure costs. Total Core SG&A costs
in 2018, however, are expected to increase by
a low to mid single-digit percentage, wholly
reflecting targeted support for launches
and potential launches, including Fasenra
in severe, uncontrolled asthma and Imfinzi
in locally, unresectable lung cancer. A Core
tax rate of 16 to 20% is expected for 2018.
These targets represent management’s
current estimates and are subject to change.
Please see the Cautionary statement regarding
forward-looking statements from page 240.
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategic Report Financial risk management
Financial risk management policies
Insurance
Our risk management processes are described
in Risk Overview from page 63. These
processes enable us to identify risks that can
be partly or entirely mitigated through the use
of insurance. We negotiate the best available
premium rates with insurance providers on
the basis of our extensive risk management
procedures. 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. In order to contain insurance
costs, as of February 2006, we adjusted our
product liability coverage profile, accepting
uninsured exposure above $100 million.
Taxation
Our approach to managing tax risk is
integrated with our broader business risk
management and compliance framework.
Our approach is to manage tax risks and tax
costs in a manner consistent with applicable
regulatory requirements and with shareholders’
best long-term interests, taking into account
operational, economic and reputational factors.
We manage tax risks in the context of
substantive business transactions.
Treasury
The principal financial risks to which we are
exposed are those arising from liquidity,
interest rate, foreign currency and credit. We
have 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, our
net interest charge is not significantly affected
by movements in floating rates of interest. We
monitor the impact of currency on a portfolio
basis (to recognise correlation effect), and may
hedge to protect against significant adverse
impacts on cash flow over the short to medium
term. We hedge the currency exposure that
arises between the booking and settlement
dates on non-local currency purchases and
sales by subsidiaries and the external dividend.
Significant intra-group loans that give rise to
foreign exchange movements are also hedged.
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 26 to the Financial Statements from
page 175 and in Risk Overview from page 63.
Sensitivity analysis of the Group’s exposure
to exchange rate and interest rate movements
is also detailed in Note 26 to the Financial
Statements from page 175.
Critical accounting policies and estimates
Our Financial Statements are prepared in
accordance with IFRSs as adopted by the EU
(adopted IFRS) and as issued by the IASB,
and the accounting policies employed are set
out in the Group Accounting Policies section
in the Financial Statements from page 139.
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
> business combinations and contingent
consideration
> impairment testing of goodwill and
intangible assets
> litigation
> post-retirement benefits
> taxation.
Revenue recognition
Product Sales are 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. 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 when the significant risks and
rewards of ownership have been transferred
to a third party, 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.
Rebates, chargebacks and returns in the US
When invoicing Product Sales in the US, we
estimate the rebates and chargebacks that we
expect to pay. 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
contracts, supplemental rebates etc). They can
be classified as follows:
> Chargebacks, where we enter into
arrangements under which certain parties,
typically hospitals, long-term care facilities,
group purchasing organisations, the
Department of Veterans Affairs, Public
Health Service Covered Entities 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 to the other party. Chargebacks
are credited directly to the wholesalers.
> Regulatory, including Medicaid and other
federal and state programmes, where we
pay rebates based on the specific terms
of agreements with the US Department
of Health and Human Services and with
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 are
entitled to rebates depending on specified
performance provisions, which vary from
contract to contract.
The effects of these deductions on our US
pharmaceuticals revenue and the movements
on US pharmaceuticals revenue provisions
are set out overleaf.
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 an as needed 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 made
reasonable 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 customers’
contractual performance.
Overall adjustments between gross and net US
Product Sales amounted to $8,468 million in
2017 (2016: $12,275 million) with the decrease
driven by an overall reduction in our US
Product Sales and changes in product mix.
Cash discounts are offered to customers to
encourage prompt payment. Accruals are
calculated based on historical experience
and are adjusted to reflect actual experience.
AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Review
79
Strategic Report Financial Review
continued
Gross to net Product Sales
US pharmaceuticals
Gross Product Sales
Chargebacks
Regulatory – Medicaid and state programmes
Contractual – Managed-care and Medicare
Cash and other discounts
Customer returns
US Branded Pharmaceutical Fee
Other
Net Product Sales
Movement in provisions
US pharmaceuticals
2017
$m
14,637
(2,299)
(1,462)
(3,598)
(30)
(37)
3
(1,045)
6,169
2016
$m
2015
$m
19,640
23,641
(3,449)
(1,903)
(5,219)
(358)
(130)
(145)
(1,071)
7,365
(2,985)
(1,714)
(7,543)
(472)
(333)
(174)
(946)
9,474
Brought
forward at
1 January
2017
$m
562
807
Provision for
current year
$m
Adjustment in
respect of
prior years
$m
Returns and
payments
$m
2,432
(133)
(2,655)
1,568
(106)
(1,520)
Carried
forward at
31 December
2017
$m
206
749
1,443
3,815
(217)
(3,774)
1,267
6
473
260
161
3,712
Brought
forward at
1 January
2016
$m
324
777
29
36
105
1,030
9,015
1
1
(108)
15
(547)
(32)
(124)
(194)
(1,055)
(9,354)
4
386
63
151
2,826
Provision for
current year
$m
Adjustment in
respect of
prior years
$m
Returns and
payments
$m
3,470
(21)
(3,211)
1,976
(73)
(1,873)
Carried
forward at
31 December
2016
$m
562
807
2,206
5,517
(298)
(5,982)
1,443
44
467
264
186
4,268
358
130
195
1,071
12,717
–
–
(50)
–
(396)
(124)
(149)
(1,096)
6
473
260
161
(442)
(12,831)
3,712
Brought
forward at
1 January
2015
$m
457
707
Provision for
current year
$m
Adjustment in
respect of
prior years
$m
Returns and
payments
$m
3,019
(34)
(3,118)
1,809
(95)
(1,644)
Carried
forward at
31 December
2015
$m
324
777
2,366
7,666
(123)
(7,703)
2,206
33
318
245
163
464
349
206
947
8
(16)
(32)
(1)
(461)
(184)
(155)
(923)
44
467
264
186
4,289
14,460
(293)
(14,188)
4,268
Chargebacks
Regulatory – Medicaid
and state programmes
Contractual – Managed-care
and Medicare
Cash and other discounts
Customer returns
US Branded Pharmaceutical Fee
Other
Total
Chargebacks
Regulatory – Medicaid
and state programmes
Contractual – Managed-care
and Medicare
Cash and other discounts
Customer returns
US Branded Pharmaceutical Fee
Other
Total
Chargebacks
Regulatory – Medicaid
and state programmes
Contractual – Managed-care
and Medicare
Cash and other discounts
Customer returns
US Branded Pharmaceutical Fee
Other
Total
80
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 products
are not exchanged for products 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 products are
destroyed. At the point of sale in the US,
we estimate the quantity and value of
products which may ultimately be returned.
Our returns accruals in the US are based on
actual experience. Our estimate is based on
the historical sales and returns information for
established products together with market-
related information, such as estimated shelf
life, product recalls, and 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.
For products facing generic competition,
we may 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 may have limited or no insight
into a number of areas: the actual timing of
the generic launch (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
only 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 adjustment in respect of prior years
increased 2017 net US pharmaceuticals
revenue by 8.9% (2016: 6.0%; 2015: 3.1%).
However, taking into account the adjustments
affecting both the current and the prior year,
2016 revenue would have been increased
by 1.4% and 2015 revenue would have
been increased by 1.6%, by adjustments
between years.
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategic Report 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.
Component revenue accounting
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 Statement of Financial
Position. We also own acquired intangible
assets which are included on the Statement
of Financial Position. As detailed on page 14,
our business model means that, 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) while 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 model includes investment
in targeted business developments to
strengthen our portfolio, pipeline and
capabilities. These business development
transactions include collaborations, asset
in-licences and business acquisitions.
Impairment testing of goodwill
and intangible assets
As detailed above, 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.
Details of the estimates and assumptions
we make in our annual impairment testing
of goodwill are included in Note 8 to the
Financial Statements on page 154. The Group,
including acquisitions, is considered a single
operating segment for impairment purposes.
No impairment of goodwill was identified.
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 and all
intangible assets that have had indications
of impairment during the year. Recoverable
amount is determined on a fair value less
cost to sell basis using discounted cash flow
calculations. Sales forecasts and specific
allocated costs (which have both been subject
to appropriate senior management sign-off) are
risk-adjusted and discounted using appropriate
rates based on our post-tax weighted average
cost of capital. Our weighted average cost of
capital reflects factors such as our capital
structure and our costs of debt and equity.
A significant portion of our investments in
intangible assets and goodwill arose from
the restructuring of the joint venture with
MSD which commenced in 1998, the
acquisition of MedImmune in 2007 and our
2014 acquisition of BMS’s interest in the
Group’s Diabetes Alliance. In addition, our
recent business combinations, as detailed
in Note 25 to the Financial Statements from
page 173, have added significant product,
marketing and distribution intangible rights to
our intangible asset portfolio. We are satisfied
that the carrying values of our intangible
assets as at 31 December 2017 are fully
justified by estimated future cash flows.
The accounting for our intangible assets is
fully explained in Note 9 to the Financial
Statements from page 155, including details
of the estimates and assumptions we make
in impairment testing of intangible assets.
Each transaction is considered to establish
whether it qualifies as a business combination
by applying the criteria assessment detailed
in IFRS 3 ‘Business Combinations’.
On the acquisition of a business, fair values
are attributed to the identifiable assets and
liabilities and contingent liabilities unless the
fair value cannot be measured reliably, in which
case the value is subsumed into goodwill.
Goodwill is the difference between the fair
value of the consideration and the fair value of
net assets acquired. Fair value is the price that
would be received to sell an asset or pay for
a liability in an orderly transaction at the date
of acquisition. The price may be directly
observable but, in most cases, is estimated
using valuation techniques which normally
involve predicting future cash flows and
applying a market participant discount rate.
Further details of our recent business
acquisitions are included in Note 25 to
the Financial Statements from page 173.
Future contingent elements of consideration,
which may include development and launch
milestones, revenue threshold milestones and
revenue-based royalties, are fair valued at the
date of acquisition using decision-tree analysis
with key inputs including probability of
success, consideration of potential delays
and revenue projections based on the Group’s
internal forecasts. Unsettled amounts of
consideration are held at fair value within
payables with changes in fair value
recognised immediately in profit. Several
of our recent business combinations have
included significant amounts of contingent
consideration. Details of the movements in the
fair value of the contingent consideration in
the year, and the range of possible contingent
consideration amounts that may eventually
become payable are contained in Note 18
to the Financial Statements on page 163.
Where not all the equity of a subsidiary is
acquired, the non-controlling interest is
recognised either at fair value or at the
non-controlling interest’s proportionate
share of the net assets of the subsidiary,
on a case-by-case basis. Put options over
non-controlling interests are recognised as a
financial liability measured at amortised cost,
with a corresponding entry in either retained
earnings or against non-controlling interest
reserves on a case-by-case basis.
AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Review
81
Strategic Report Financial Review
continued
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 where we are
unable to make a reasonable estimate of the
liability, we treat them as contingent liabilities.
These are not provided for but are disclosed
in Note 28 to the Financial Statements from
page 182.
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 (more than 50%
assessed probability) and we are able to make
a reasonable estimate of the loss, we indicate
the loss absorbed or the amount of the
provision accrued.
Where it is considered that the Group is
more likely than not to prevail, or in the rare
circumstances where the amount of the legal
liability cannot be estimated reliably, legal
costs involved in defending the claim are
charged to profit as they are incurred. Where
it is considered that we have 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 and
we consider recovery to be virtually certain,
then the best estimate of the amount expected
to be received is recognised as an asset.
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. We believe 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 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. 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 Other Comprehensive
Income. 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 local fiduciary bodies which govern
the investment of pension fund assets will
invest across a broad range of asset classes
and employ specialist investment managers
with different investment styles. This will
ensure that the investment strategy is
diversified across a broad range of return
drivers. In addition, local fiduciary bodies
will also seek to hedge liability risks (interest
rate and inflation risk where applicable)
inherent in the measurement of the liabilities
and therefore reduce volatility in the funding
level, where this is practical and cost effective
to do so. The Group plays an active role in
providing input into these decisions.
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, except
in Sweden where we have used rates on
mortgage bonds as the market in high quality
corporate bonds is insufficiently deep.
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 long-term price inflation,
and future salary and pension increases.
Further details of our accounting for post-
retirement benefit plans are included in Note 28
to the Financial Statements from page 182.
Taxation
Accruals for tax contingencies require
management to make judgements and
estimates of exposures in relation to tax audit
issues. Tax benefits are not recognised unless
the tax positions will probably be sustained
based upon management’s interpretation
of applicable laws and regulations and the
likelihood of settlement. 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. Accruals
for tax contingencies are measured using the
single best estimate of likely outcome approach.
We face a number of audits in jurisdictions
around the world and, in some cases, are in
dispute with the tax authorities. The issues
under discussion are often complex and can
require many years to resolve.
Further details of the estimates and
assumptions we make in determining
our recorded liability for transfer pricing
contingencies and other tax contingencies
are included in the Tax section of Note 28
to the Financial Statements from page 182.
82
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategic Report Strategic Report
The following sections make up the
Strategic Report, which has been prepared
in accordance with the requirements of
the Companies Act 2006:
> AstraZeneca at a glance
> Chairman’s Statement
> Chief Executive Officer’s Review
> Marketplace
> Business model and life-cycle
of a medicine
> Strategy and Key Performance Indicators
> Business Review
> Therapy Area Review
> Risk Overview
> Financial Review
and has been approved and signed
on behalf of the Board.
A C N Kemp
Company Secretary
2 February 2018
Sarbanes-Oxley Act Section 404
As a consequence of our NYSE listing, we
are 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. As regards Sarbanes-Oxley
Act Section 404, our approach is based on
the Committee of Sponsoring Organizations
(COSO) 2013 framework.
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 (eg financial
consolidation and reporting, treasury
operations and taxation etc), so that, in
aggregate, we have covered a significant
proportion of the key lines 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 2017 and the assessment is set
out in the Directors’ Annual Report on Internal
Controls over Financial Reporting on page 128.
PwC has audited the effectiveness of our
internal control over financial reporting at 31
December 2017 and their report is unqualified.
AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Review
83
Strategic Report Science
can
accelerate the development
of new chemical entities to
bring potential new medicines
to patients
The Cryo-electron Microscope, Cryo-EM,
allows us to determine near atomic resolution
models of complex protein molecules at a
tenth of a millionth of a millimetre in scale.
We can directly image individual molecules,
using a focused electron beam and, from the
2D projections obtained, build a 3D object
so that we know what the molecule looks
like and can understand how it functions.
This is revolutionising structural biology,
allowing us to resolve the structures of
complex macromolecular machines for
the first time, investigate the biological
mechanisms underlying disease states and
design potential new drugs based on this
knowledge. For example, in collaboration
with the MRC Laboratory of Molecular
Biology, we have applied this technology to
define the world’s first protein structures for
human ataxia telangiectasia mutated (ATM).
ATM is a key trigger protein in the DNA
damage response and a prime therapeutic
target in cancer.
For more information, please see our website,
www.astrazeneca.com, Cryo-electron microscopy.
84
AstraZeneca Annual Report & Form 20-F Information 2017 / Corporate Governance
Corporate Governance
Chairman’s Introduction 86
Corporate
Governance Overview 87
Board of Directors 88
Senior Executive Team 90
Corporate
Governance Report 92
Audit Committee Report 100
Directors’
Remuneration Report 105
AstraZeneca Annual Report & Form 20-F Information 2017 / Corporate Governance
85
Corporate Governance Chairman’s
Introduction
AstraZeneca’s return to sustainable growth
can only be achieved if it is underpinned by
sound corporate governance.
“ We are always
mindful of the trust
shareholders place
in us.”
Governance in support of our strategy
I am also grateful to those Directors who
chair and are members of the Committees of
the Board, which are shown on the opposite
page. The diligent way in which they carry
out their Committee duties enables us to
discharge our responsibilities efficiently
and effectively.
We are always mindful of the trust shareholders
place in us as your elected Directors and of our
wider responsibilities to all of AstraZeneca’s
stakeholders. We seek to apply governance
best practice in our work for you and those
other stakeholders, which you can read about
in this Governance Report.
In all our deliberations, we never lose sight
of the fact that our ultimate success will
be measured in our ability to deliver life-
changing medicines. In this way we can
add value to patients, shareholders and
society more generally.
Leif Johansson
Chairman
Leadership
The strength and quality of a Board begin
with the calibre of its Directors. AstraZeneca
is privileged to have a diverse, skilled and
experienced Board and 2017 saw some
changes to its composition. After three years’
service, Ann Cairns retired at the AGM in
April. At the same meeting, Philip Broadley
was elected to the Board and appointed to the
Audit Committee. His significant international
business and financial experience are already
proving valuable.
Later, in August, Bruce Burlington retired
as a Non-Executive Director and member
of the Audit Committee, the Nomination and
Governance Committee, and from his role
as Chairman of the Science Committee.
We particularly valued his insightful and frank
participation during a period of innovation-led
transformation at AstraZeneca.
We are very fortunate to have had three
exceptional women join the Board as
Non-Executive Directors during 2017.
Nazneen Rahman is a renowned medical
scientist and joined us in June. Sheri McCoy
was appointed in October and brings several
decades of pharmaceutical industry
experience from her time at Johnson
& Johnson. Finally, Deborah DiSanzo,
global General Manager for IBM Watson
Health, joined us in December.
I welcome the new Board members
and thank all Board members for their
continuing commitment and contribution
to our discussions.
Minute pieces of tumour DNA
circulating in the bloodstream
86
AstraZeneca Annual Report & Form 20-F Information 2017 / Corporate Governance Delivery
Governance structure
Corporate
Governance
Overview
How our governance supports the delivery of our strategy
All Directors are collectively responsible for the success of the Group. The Non-Executive Directors
exercise independent, objective judgement in respect of Board decisions, and scrutinise and challenge
management. They also have various responsibilities concerning the integrity of financial information,
internal controls and risk management.
The Board is responsible for setting our strategy
and policies, overseeing risk and corporate
governance, and monitoring progress towards
meeting our objectives and annual plans. It is
accountable to our shareholders for the proper
conduct of the business and our long-term success,
and represents the interests of all stakeholders.
The Board conducts an annual review of the Group’s
overall strategy. The CEO, CFO and Senior Executive
Team (SET) take the lead in developing our strategy,
which is then reviewed, constructively challenged
and approved by the Board.
The Board has delegated some of its powers to the CEO and operates with the assistance of four Committees:
Board
Corporate Governance Report from page 92
Audit
Committee
Report from page 100
Remuneration
Committee
Report from page 105
Nomination &
Governance Committee
page 96
Science
Committee
page 97
In addition to the SET, we have two senior level governance bodies:
Senior Executive Team (SET)
Details of our SET on page 90
Early Stage Product Committees
page 90
Late Stage Product Committee
page 90
Attendance in 2017
Board or Committee Chairman
Name
Board
Audit Remuneration
Nomination &
Governance
Board Committee membership and meeting attendance in 2017
Geneviève Berger
Philip Broadley – elected 27 April 2017
Bruce Burlington – retired 31 August 2017
Ann Cairns – retired 27 April 2017
Graham Chipchase
Deborah DiSanzo – appointed 1 December 2017
Marc Dunoyer
Leif Johansson
Rudy Markham
Sheri McCoy – appointed 1 October 2017
Nazneen Rahman – appointed 1 June 2017
Pascal Soriot
Shriti Vadera
Marcus Wallenberg
5(6)
4(4)
3(3)
2(2)
5(6)
1(1)
6(6)
6(6)
6(6)
2(2)
4(4)
6(6)
6(6)
4(6)
3(3)
3(3)
2(2)
5(5)
2(2)
3(3)
4(5)
5(5)
5(5)
5(5)
4(5)
5(5)
5(5)
5(5)
Note: number in brackets denotes number of meetings during the year that Board members were entitled to attend.
Science
3(3)
2(2)
1(1)
3(3)
AstraZeneca Annual Report & Form 20-F Information 2017 / Corporate Governance Overview
87
Corporate Governance Board of Directors
as at 31 December 2017
Board composition
Committee
Membership Key
Committee
Chairman
Gender split of Directors as at 31 December 2017
A Audit
Male 7
Female 5
R Remuneration
NG
Nomination
& Governance
S Science
* Date of first
appointment
or election to
the Board.
Directors’ nationalities as at 31 December 2017
British 5
French 3
American 2
Swedish 2
Length of tenure of Non-Executive Directors
<3 years
3-6 years
4
Philip Broadley
Deborah DiSanzo
Sheri McCoy
Nazneen Rahman
6-9 years
1
Shriti Vadera
3
Leif Johansson
Geneviève Berger
Graham Chipchase
>9 years
2
Rudy Markham
Marcus Wallenberg
Changes to the composition
of the Board and its
Committees for the year
ended 31 December 2017
Philip Broadley
Elected to the Board on
27 April 2017 and became
a member of the Audit
Committee on the same date.
Nazneen Rahman
Appointed to the Board and
became a member of the
Science Committee with
effect from 1 June 2017.
Sheri McCoy
Appointed to the Board
and became a member of
the Audit Committee with
effect from 1 October 2017.
Deborah DiSanzo
Appointed to the Board with
effect from 1 December 2017.
Ann Cairns
Retired from the Board and
as a member of the Audit
Committee with effect from
27 April 2017, after three
years’ service.
Bruce Burlington
Retired from the Board and
those Board Committees
on which he served on
31 August 2017, after
seven years’ service.
88
Leif Johansson NG R
Non-Executive Chairman of the Board
(April 2012*)
Pascal Soriot
Executive Director and CEO
(October 2012*)
Skills and experience: From 1997 to 2011,
Leif was Chief Executive Officer of AB Volvo.
Prior to that, he served at AB Electrolux, latterly
as Chief Executive Officer from 1994 to 1997.
He was a Non-Executive Director of BMS
from 1998 to September 2011, serving on the
Board’s Audit Committee, and Compensation
and Management Development Committee.
He holds an MSc in engineering from Chalmers
University of Technology, Gothenburg.
Other appointments: Leif is Chairman of
global telecommunications company, LM
Ericsson. He holds board positions at Autoliv,
Inc and Ecolean AB. He has been a member
of the Royal Swedish Academy of Engineering
Sciences since 1994. Leif is also a member of
the European Round Table of Industrialists.
Skills and experience: Pascal brings a passion
for science and medicine as well as significant
experience in established and emerging
markets, strength of strategic thinking,
a successful track record of managing change
and executing strategy, and the ability to lead
a diverse organisation. He served as Chief
Operating Officer of Roche’s pharmaceuticals
division from 2010 to September 2012 and,
prior to that, Chief Executive Officer of
Genentech, a biologics business, where he
led its successful merger with Roche. Pascal
joined the pharmaceutical industry in 1986
and has worked in senior management roles
in numerous major companies around the
world. He is a doctor of veterinary medicine
(École Nationale Vétérinaire d’Alfort,
Maisons-Alfort) and holds an MBA
from HEC, Paris.
Marc Dunoyer
Executive Director and CFO
(November 2013*)
Skills and experience: Marc’s career in
pharmaceuticals, which has included periods
with Roussel Uclaf, Hoechst Marion Roussel
and GSK, has given him extensive industry
experience, including finance and accounting;
corporate strategy and planning; research and
development; sales and marketing; business
reorganisation; and business development.
Marc is a qualified accountant and joined
AstraZeneca in 2013, serving as Executive
Vice-President, GPPS from June to October
2013. Prior to that, he served as Global Head
of Rare Diseases at GSK and (concurrently)
Chairman, GSK Japan. He holds an MBA from
HEC, Paris and a Bachelor of Law degree from
Paris University.
Rudy Markham
Senior independent Non-Executive Director
(September 2008*)
NG
R
A
Skills and experience: Rudy has significant
international business and financial
experience, having formerly held various
senior commercial and financial positions
with Unilever, culminating in his appointment
as its Chief Financial Officer. He has also
served as a Non-Executive Director of the
UK Financial Reporting Council from 2007
to 2012, as Chairman and a Non-Executive
Director of Moorfields Eye Hospital NHS
Foundation Trust, and as a Non-Executive
Director of Legal & General Group plc.
Other appointments: Rudy is a non-executive
member of the Board of United Parcel
Services Inc. He is also Vice Chairman of the
Supervisory Board of Corbion NV (formerly
CSM NV), a Fellow of the Chartered Institute
of Management Accountants and a Fellow
of the Association of Corporate Treasurers.
AstraZeneca Annual Report & Form 20-F Information 2017 / Corporate Governance Geneviève Berger S
Non-Executive Director
(April 2012*)
Philip Broadley A
Non-Executive Director
(April 2017*)
Graham Chipchase
Non-Executive Director
(April 2012*)
R
NG
Deborah DiSanzo
Non-Executive Director
(December 2017*)
Skills and experience: Geneviève was Chief
Science Officer at Unilever PLC & NV, and a
member of the Unilever Leadership Executive
from 2008 to April 2014. She holds three
doctorates – in physics, human biology and
medicine – and was appointed Professor of
Medicine at l’Université Pierre et Marie Curie,
Paris in 2006. Her previous positions include
Professor and Hospital Practitioner at
l’Hôpital de la Pitié-Salpêtrière in Paris;
Director General at the Centre National de la
Recherche Scientifique; Chairman of the Health
Advisory Board of the EU Commission; and
Non-Executive Director of Smith & Nephew plc.
Other appointments: In May 2015, Geneviève
was appointed as a Director of Air Liquide
S.A. for a term of four years. She is currently
Chief Research Officer at Firmenich SA,
Geneva, Switzerland.
Skills and experience: Philip has significant
financial and international business experience,
having previously been Group Finance Director
of Prudential plc for eight years and Old Mutual
plc for six years. He started his career at
Arthur Andersen where he was a partner for
seven years. He is a past Chairman of the
100 Group of Finance Directors in the UK.
He is a Fellow of the Institute of Chartered
Accountants in England and Wales.
He graduated in Philosophy, Politics and
Economics from St Edmund Hall, Oxford
and has a MSc in Behavioural Science from
the London School of Economics.
Other appointments: Philip chairs the Audit
Committee of Legal & General Group plc.
He is a member of the Code Committee of
The Takeover Panel and of the Oxford
University Audit Committee. He is Treasurer of
the London Library and Chairman of the Board
of Governors of Eastbourne College.
Skills and experience: Graham is Chief
Executive Officer and a Director of Brambles
Limited, the global supply-chain logistics
company listed on the Australian Securities
Exchange. Brambles operates in over
60 countries, primarily through the CHEP
and IFCO brands. Graham served as
Chief Executive Officer of global consumer
packaging company, Rexam PLC from 2010
to 2016 after serving at Rexam as Group
Director, Plastic Packaging and Group Finance
Director. Previously, he was Finance Director
of Aerospace Services at the global engineering
group GKN PLC from 2001 to 2003. After
starting his career with Coopers & Lybrand
Deloitte, he held various finance roles in the
industrial gases company The BOC Group
PLC (now part of The Linde Group). He is a
Fellow of the Institute of Chartered Accountants
in England and Wales and holds an MA (Hons)
in chemistry from Oriel College, Oxford.
Other appointments: Chief Executive Officer
of Brambles Limited.
Skills and experience: Deborah is the global
General Manager for IBM Watson Health,
the business unit founded to achieve IBM’s
next ‘moonshot’. Deborah is widely recognised
by multiple organisations as a top health
influencer, including publications Health
Data Management and Modern Healthcare,
and is a sought-after speaker at healthcare
and women in technology venues, including
the Forbes Healthcare Summit and Aspen
Ideas Festival. Deborah has a distinguished
career working at the intersection of healthcare
and technology. Prior to joining IBM, she was
CEO of Philips Healthcare. Previously, she held
management roles at Agilent, Hewlett-Packard
and Apollo Computer.
Other appointments: Director of ReWalk
Robotics, Inc.
Sheri McCoy A
Non-Executive Director
(October 2017*)
Nazneen Rahman S
Non-Executive Director
(June 2017*)
Shriti Vadera A
Non-Executive Director
(January 2011*)
R
Marcus Wallenberg S
Non-Executive Director
(April 1999*)
Skills and experience: Marcus has international
business experience across various industry
sectors, including the pharmaceutical industry
from his directorship with Astra prior to 1999.
Other appointments: Marcus is Chairman of
Skandinaviska Enskilda Banken AB, Saab AB
and FAM AB. He is a member of the boards
of Investor AB, Temasek Holdings Limited,
and the Knut and Alice Wallenberg Foundation.
Skills and experience: Sheri is Chief Executive
Officer and a Director of Avon Products, Inc.
Prior to joining them in 2012, she had a
distinguished 30-year career at Johnson &
Johnson, latterly serving as Vice Chairman
of the Executive Committee, responsible for
the Pharmaceuticals and Consumer business
segments that represented more than 60% of
the company’s revenues. Sheri joined Johnson
& Johnson as a scientist in research and
development and subsequently managed
businesses in every major product sector,
including consumer, prescription medicines
and medical devices, holding positions including
Worldwide Chairman, Surgical Care Group
and Division President, Consumer. She holds
a Bachelor of Science degree in textile
chemistry from the University of Massachusetts
Dartmouth, a Master’s degree in chemical
engineering from Princeton University and
an MBA from Rutgers University, both in
New Jersey, US.
Other appointments: In addition to Avon
Products, Inc., Sheri serves on the boards of
New Avon LLC; Catalyst, a global non-profit that
helps build workplaces that work for women;
and Stonehill College, Easton, Massachusetts.
Skills and experience: Nazneen is Head of the
Division of Genetics and Epidemiology at the
Institute of Cancer Research (ICR), London;
Head of the Cancer Genetics Unit at the Royal
Marsden NHS Foundation Trust; and Director
of the TGL clinical gene testing laboratory at
the ICR. Her research harnesses her scientific
and clinical expertise to identify and clinically
implement human disease genes. She has a
strong focus on cancer predisposition genes,
in which she is an internationally-recognised
expert and has discovered many such genes
during her career, particularly for breast, ovarian
and childhood cancers. Nazneen qualified in
medicine from Oxford University in 1991, gained
her Certificate of Completion of Specialist
Training in medical genetics in 2001 and
completed a PhD in molecular genetics in 1999.
She has a strong commitment to open science
and science communication and has garnered
numerous awards, including a CBE in the 2016
Queen’s birthday honours in recognition of her
contribution to medical sciences.
Other appointments: Nazneen is a member
of the scientific advisory board of Genomics
plc and the advisory board of Wellcome
Open Research.
Skills and experience: Shriti has significant
knowledge of global finance, emerging
markets and public policy. She has advised
governments, banks and investors on the
Eurozone crisis, the banking sector, debt
restructuring and markets. She is a member
of the G20 CEO Advisory Group and of the
International Advisory Council of Asia House.
Shriti is also Chairman of the European
Financial Services Chairman’s Advisory
Committee, TheCityUK. She has served as a
Minister in the UK Cabinet Office, and Business
and International Development Departments.
She has also served on the Council of
Economic Advisers, HM Treasury, where
she focused on business and international
economic issues. Prior to that, Shriti spent
14 years in investment banking with
SG Warburg/UBS.
Other appointments: Shriti is Chairman of
Santander UK plc and Senior Independent
Director of BHP Billiton.
AstraZeneca Annual Report & Form 20-F Information 2017 / Board of Directors
89
Corporate Governance
Senior Executive Team (SET)
as at 31 December 2017
Pascal Soriot
CEO
Marc Dunoyer
CFO
See page 88.
See page 88.
In addition to the SET,
we have two senior level
governance bodies
accountable for making
key decisions regarding
our portfolio and pipeline.
Early Stage Product
Committees (ESPCs)
The ESPCs are senior
level, cross-functional
governance bodies with
accountability for oversight
of our early-stage small
molecule and biologics
portfolio to Proof of Concept
stage. The EVPs of our
two science units, IMED
and MedImmune, chair
our ESPCs.
The ESPCs seek to deliver
a flow of products to GMD
for Phase III development
through to launch. The
ESPCs also seek to maximise
the value of our internal and
external R&D investments
through robust, transparent
and well-informed decision
making that drives
business performance
and accountability.
Specifically, the ESPCs
have responsibility for
the following:
> approving early-stage
investment decisions
> prioritising the
respective portfolios
> licensing activity for
products in
Phase I and earlier
> delivering internal and
external opportunities
> reviewing allocation
of R&D resources.
90
Late Stage Product
Committee (LSPC)
The LSPC is also a senior
level governance body,
accountable for the quality
of the portfolio post-Phase III
investment decision. Jointly
chaired by the EVPs of GMD
and GPPS, members include,
as appropriate, members of
the SET, including the CEO
and CFO, and members
of the GMD and GPPS
leadership teams.
The LSPC seeks to maximise
the value of our investments
in the late-stage portfolio,
also ensuring well-informed
and robust decision making.
Specific accountabilities
include:
> approval of the criteria
supporting Proof
of Concept
> decision to invest in
Phase III development
based on agreement of
commercial opportunity
and our plans to develop
the medicine
> evaluation of the
outcome of the
development programme
and decision to proceed
to regulatory filing
> decision to invest in
life-cycle management
activities for the
late-stage assets
> decision to invest in
late-stage business
development
opportunities.
Katarina Ageborg
Executive Vice-President Sustainability
and Chief Compliance Officer
Dr Sean Bohen
Executive Vice-President, Global Medicines
Development and Chief Medical Officer
Katarina currently serves as Executive
Vice-President Sustainability and Chief
Compliance Officer. In 2015, she assumed
responsibility for the Company’s sustainability
programme, with oversight for the Access to
Healthcare, Environmental Protection and
Ethics & Transparency strategic priority areas.
Prior to her broadened role in sustainability, she
focused on delivery, design and implementation
of the Company’s compliance programme
as well as streamlining the Safety, Health &
Environment function. She has been a member
of the SET since 2011. Katarina led the Global
Intellectual Property function from 2008 to
2011, during which time she streamlined the
organisation and launched a new patent filing
strategy. After joining Astra AB in 1998, she
held a series of senior legal roles supporting
Commercial, Regulatory and Intellectual Property.
Prior to AstraZeneca, Katarina established her
own law firm and worked as a lawyer on both
civil and criminal cases. Katarina holds a
Master of Law Degree from Uppsala University
School of Law in Sweden.
Sean was appointed Executive Vice-President,
GMD in September 2015 and leads our global
late-stage development organisation for both
small molecules and biologics, driving a
medicines pipeline which features novel and
groundbreaking science across three main
therapy areas – Oncology, Cardiovascular
& Metabolic diseases and Respiratory –
as well as the selective areas of autoimmunity,
neuroscience and infection. He is also the
Company’s Chief Medical Officer and is
responsible for patient safety across the
entire AstraZeneca and MedImmune portfolio.
He joined AstraZeneca from Genentech,
where he held a number of senior leadership
roles across various therapy areas and within
early development. Before joining Genentech,
Sean was a Clinical Instructor in Oncology
at Stanford University School of Medicine,
a research associate at the Howard Hughes
Medical Institute and a postdoctoral fellow
at the National Cancer Institute. He is a
graduate of the University of Wisconsin and
later earned his doctorate in biochemistry
and his medical degree at the University
of California, San Francisco.
Pam Cheng
Executive Vice-President,
Operations & Information Technology
Fiona Cicconi
Executive Vice-President,
Human Resources
Pam joined AstraZeneca in June 2015 after
having spent 14 years in Global Manufacturing
and Supply Chain roles at Merck/MSD.
Pam was the Head of Global Supply Chain
Management & Logistics for Merck from 2006
to 2011 and led the transformation of Merck
supply chains across the global supply network.
More recently, Pam was President of MSD
China, responsible for MSD’s entire business in
China. Prior to joining Merck, Pam held various
engineering and project management positions
at Universal Oil Products, Union Carbide
Corporation and GAF Chemicals. Pam holds
Bachelor’s and Master’s degrees in chemical
engineering from Stevens Institute of
Technology in New Jersey and an MBA in
marketing from Pace University in New York.
She has been a member of the Board of
Directors for Codexis Inc. (CDXS) since 2014.
Fiona joined AstraZeneca in September 2014 as
Executive Vice-President, Human Resources
and is responsible for the overall design and
delivery of the Company’s people strategy,
impacting over 60,000 employees in more
than 100 countries. She started her career at
General Electric, where she held various human
resources roles within the oil and gas business,
which included experience in major global
acquisitions and driving change. Subsequently,
Fiona spent a number of years at Cisco,
overseeing human resources in seven countries
in Europe and latterly handling employee
relations in Europe, Middle East and Africa,
before joining Roche in 2006. There, she was
most recently responsible for global human
resources for Pharma Technical Operations,
where her primary focus was to identify and
develop a sustainable supply of leadership
and talent from within the organisation.
Note: Jamie Freedman was Executive
Vice-President, Oncology from April 2017
to October 2017
AstraZeneca Annual Report & Form 20-F Information 2017 / Corporate Governance Dr Ruud Dobber
Executive Vice-President,
North America
David Fredrickson
Executive Vice-President,
Global Head Oncology Business Unit
Dr Bahija Jallal
Executive Vice-President,
MedImmune
Ruud was appointed Executive Vice-President,
North America in August 2016 and is
responsible for driving growth and maximising
the contribution of the commercial operations in
North America to AstraZeneca’s global business.
Ruud joined Zeneca in 1997 and has held
various senior commercial and leadership roles.
Most recently, Ruud was Executive Vice-
President, Europe and oversaw business
functions in the 28 EU member states. Ruud was
also responsible for the development of our
late-stage, small molecule antibiotic pipeline
as well as its global commercialisation. Prior
to that, Ruud was Regional Vice-President
of AstraZeneca’s European, Middle East and
African division, Regional Vice-President for
the Asia Pacific region and Interim Executive
Vice-President, GPPS. Ruud was a member
of the Board and Executive Committee of
the European Federation of Pharmaceutical
Industries and Associations (EFPIA) and was
previously Chairman of the Asia division of
Pharmaceutical Research and Manufacturers
of America. Holding a doctorate in immunology
from the University of Leiden in the Netherlands,
Ruud began his career as a scientist, researching
in the field of immunology and ageing.
Dave was appointed Executive Vice-President,
Global Head Oncology Business Unit in
October 2017 and is responsible for
driving growth and maximising commercial
performance of the global oncology and
haematology portfolio within AstraZeneca.
In addition, he plays a critical leadership role
in setting the Oncology portfolio and product
strategy for the organisation. Prior to this role,
Dave served as President of AstraZeneca K.K.
in Japan, and Vice-President, Specialty Care
for AstraZeneca in the US, spanning oncology,
infectious disease, and neuroscience
medicines. Dave joined AstraZeneca from
Roche/Genentech in 2014, where he was
Business Unit Manager, Oncology in Spain
and held growing commercial responsibilities
in strategy, marketing and sales in the US.
He also served for nine years at the Monitor
Group, LLC (now Monitor Deloitte Group, LLC),
a global strategy consultancy. He has served
as Vice Chairman of the European Federation
of Pharmaceutical Industries and Associations
(EFPIA) Japan and was a member of the Board
of the Japan Pharmaceutical Manufacturers
Association (JPMA). He is a graduate of
Georgetown University (DC) in Government.
Bahija was appointed Executive Vice-
President, MedImmune in January 2013
and is responsible for biologics research
and development activities. Bahija is tasked
with advancing the biologics pipeline of
medicines. She joined MedImmune in 2006
as Vice-President, Translational Sciences and
has held roles of increasing responsibility at
AstraZeneca. Prior to joining AstraZeneca,
Bahija worked with Chiron Corporation,
where she served as Vice-President, Drug
Assessment and Development. Bahija received
a Master’s degree in biology from l’Université
de Paris VII and her doctorate in physiology
from l’Université Pierre et Marie Curie, Paris VI.
She conducted her postdoctoral research at
the Max-Planck Institute of Biochemistry in
Martinsried, Germany. She is the President
of the Board of Directors of the Association
for Women in Science and she is also
on the Board of Trustees of the Johns
Hopkins University.
Mark Mallon
Executive Vice-President, Global Product
and Portfolio Strategy, Global Medical
Affairs & Corporate Affairs
Mark was appointed Executive Vice-President,
GPPS, GMA & Corporate Affairs in August
2016, leading AstraZeneca’s global marketing
and commercial portfolio strategy as well as the
medical affairs and corporate affairs functions.
These functions integrate corporate, therapy
area and product strategies to bridge scientific
development and commercial excellence in the
core areas of cardiovascular and respiratory
diseases. Prior to this, Mark was EVP for the
International region, responsible for the growth
and performance of AstraZeneca’s commercial
businesses in this region. Since joining Zeneca,
Mark has held many senior sales and marketing
roles, including Regional Vice-President for
Asia Pacific, President of our Chinese and
Italian subsidiaries, Chief Operating Officer of
our Japanese subsidiary and Vice-President
of our US gastrointestinal and respiratory
businesses. Mark began his career in the
pharmaceutical industry in management
consulting. He holds a degree in chemical
engineering from the University of Pennsylvania
and an MBA in marketing and finance from the
Wharton School of Business.
Jeff Pott
General Counsel
Jeff was appointed General Counsel in January
2009 and has overall responsibility for all
aspects of AstraZeneca’s Legal and IP function.
He joined AstraZeneca in 1995 and has worked
in various litigation roles, where he has had
responsibility for IP, anti-trust and product
liability litigation. Before joining AstraZeneca,
he spent five years at the US legal firm Drinker
Biddle and Reath LLP, where he specialised in
pharmaceutical product liability litigation and
anti-trust advice and litigation. He received
his bachelor’s degree in political science from
Wheaton College and his Juris Doctor Degree
from Villanova University School of Law.
Dr Menelas Pangalos
Executive Vice-President, IMED Biotech
Unit and Global Business Development
Menelas (Mene) was appointed Executive
Vice-President, IMED Biotech Unit in January
2013 and leads AstraZeneca’s small molecule
research and early development activities.
Since joining AstraZeneca in 2010, Mene has
been instrumental in driving the Company’s
commitment to science and led the
transformation of R&D productivity through
the development and implementation of our
‘5R’ framework. Mene has previously held
senior R&D roles at Pfizer, Wyeth and GSK.
He completed his undergraduate degree in
biochemistry at Imperial College London with
a first class honours and earned a doctorate
in neurochemistry from University College
London. He is a Fellow of the Academy of
Medical Sciences, Royal Society of Biology
and Clare Hall at the University of Cambridge,
a visiting Professor of Neuroscience at King’s
College London and recently gained an
Honorary PhD from the University of Glasgow.
In the UK, Mene serves on the Medical
Research Council and is on the Board of
the British Pharmaceutical Group.
Iskra Reic
Executive Vice-President,
Europe
Iskra was appointed Executive Vice-President,
Europe in April 2017 and is responsible for
sales, marketing and commercial operations
across our businesses in 30 European
countries, with the exception of Oncology
teams in those which report to the Oncology
Business Unit. Iskra trained as a Doctor of
dental surgery at the Medical University of
Zagreb, Croatia. She joined AstraZeneca
in 2001 and has held a variety of in-market,
regional sales and marketing and general
management roles, including in Europe as
Head of Commercial Operations for Croatia
and Head of Specialty Care Central & Eastern
Europe and Middle East & Africa. In 2012,
she joined AstraZeneca Russia as Marketing &
Strategy Director. She was appointed General
Manager Russia in 2014 and, under her
leadership, AstraZeneca achieved a leading
share in its three main therapy areas and
became a top-three prescription medicine
pharmaceutical company. Iskra’s responsibilities
were expanded in 2016 to cover both Russia
and the Eurasia Area, where she drove strong
performance from a 1,500-strong team in
a complex and dynamic region. Iskra has
an International Executive MBA from the
IEDC-Bled School of Management, Slovenia.
Leon Wang
Executive Vice-President,
International and China President
Leon Wang is Executive Vice-President,
International and China President. He is
responsible for the overall strategy and for
driving sustainable growth across the region.
Leon joined AstraZeneca China in March 2013
and was promoted to President of AstraZeneca
China in 2014. Under Leon’s leadership,
China has become AstraZeneca’s second
largest market worldwide, and AstraZeneca
has become the second largest and the fastest
growing multinational pharmaceutical company
in China. In January 2017, Leon was promoted
to Executive Vice-President, Asia Pacific
Region. Prior to joining AstraZeneca, Leon
held positions of increasing responsibility in
marketing and business leadership at Roche,
where he was a Business Unit Vice-President.
In addition, Leon holds several positions in
local trade associations and other prominent
organisations in China. Leon holds an EMBA
from China Europe International Business
School, and a Bachelor of Arts from Shanghai
International Studies University.
AstraZeneca Annual Report & Form 20-F Information 2017 / Senior Executive Team
91
Corporate Governance Corporate Governance
Report
All Directors are collectively responsible
for the success of the Group.
Leadership and responsibilities
The roles of Chairman and CEO are split.
Leif Johansson, our Non-Executive Chairman,
is responsible for leadership of the Board.
Our CEO, Pascal Soriot, leads the SET
and has executive responsibility for running
our business. The Board comprises 10
Non-Executive Directors, including the
Chairman, and two Executive Directors –
the CEO, Pascal Soriot, and the CFO, Marc
Dunoyer. Its responsibilities are set out in the
Corporate Governance Overview on page 87.
Rudy Markham, who joined the Board
as a Non-Executive Director in 2008,
was appointed as our senior independent
Non-Executive Director in April 2015.
The role of the senior independent
Non-Executive Director is to serve as
a sounding board for the Chairman and
as an intermediary for the other Directors
when necessary. The senior independent
Non-Executive Director is also available
to shareholders if they have concerns
that contact through the normal channels
of Chairman or Executive Directors has
failed to resolve, or for which such contact
is inappropriate.
As shown in the Corporate Governance
Overview, there are four principal Board
Committees. The membership and work
of these Committees is described on the
following pages. In addition, there may from
time to time be constituted ad hoc Board
Committees for specific projects or tasks.
In these cases, the scope and responsibilities
of the Committee are documented. The Board
provides adequate resources to enable each
Committee to undertake its duties.
Reserved matters and delegation
of authority
The Board maintains and periodically
reviews a list of matters that are reserved
to, and can only be approved by, the Board.
These include: the appointment, termination
and remuneration of any Director; approval
of the annual budget; approval of any item
of fixed capital expenditure or any proposal
for the acquisition or disposal of an
investment or business which exceeds
$150 million; the raising of capital or loans
by the Company (subject to certain
exceptions); the giving of any guarantee
in respect of any borrowing of the Company;
and allotting shares of the Company.
The matters that have not been expressly
reserved to the Board are delegated by
the Board to its Committees or the CEO.
The CEO is responsible to the Board for the
management, development and performance
of our business for those matters for which he
has been delegated authority from the Board.
Although the CEO retains full responsibility for
the authority delegated to him by the Board,
he has established, and chairs, the SET, which
is the vehicle through which he exercises that
authority in respect of our business.
The roles of the Board, Board Committees,
Chairman and CEO are documented,
as are the Board’s reserved powers and
delegated authorities.
Operation of the Board
The Board discharges its responsibilities
as set out in the Corporate Governance
Overview on page 87 through a programme
of meetings that includes regular reviews of
financial performance and critical business
issues, and the formal annual strategy review
day. The Board also aims to ensure that
a good dialogue with our shareholders
is maintained and that their issues and
concerns are understood and considered.
The Board held six meetings in 2017, including
its usual annual strategy review. Five took
place in London, UK and one at AstraZeneca
facilities in Sweden. The Board is currently
scheduled to meet six times in 2018 and
will meet at such other times as may be
required to conduct business.
As part of the business of each Board
meeting, the CEO typically submits a
progress report, giving details of business
performance and progress against the goals
the Board has approved. To ensure that the
Board has good visibility of the key operating
decisions of the business, members of the
SET attend Board meetings regularly and
Board members meet other senior executives
throughout the year. The Board also
receives accounting and other management
information about our resources, and
presentations from internal and external
speakers on legal, governance and regulatory
developments. At the end of Board meetings,
the Non-Executive Directors meet without
the Executive Directors present to review
and discuss any matters that have arisen
during the meeting and/or such other matters
as may appear to the Non-Executive Directors
to be relevant in properly discharging their
duty to act independently.
Corporate governance
We have prepared this Annual Report
with reference to the UK Corporate
Governance Code published by the
UK Financial Reporting Council (FRC)
in April 2016. This Corporate Governance
Report (together with other sections
of this Annual Report) describes how
we apply the main principles of good
governance in the UK Corporate
Governance Code. We have complied
throughout the accounting period with
the provisions of the UK Corporate
Governance Code, which is available
on the FRC’s website, www.frc.org.uk.
The membership of the Board at
31 December 2017 and information
about individual Directors is
contained in the Board of Directors
section on pages 88 and 89.
92
AstraZeneca Annual Report & Form 20-F Information 2017 / Corporate Governance Principal matters considered by the Board in 2017
Area of focus
Strategic priority
Strategic matters
> The Group’s overall strategy, including its long-range plan
and annual budget
> The Group’s capital structure, including financing needs
and strategy
> Requests for approval of business development transactions
of a size requiring Board approval
> Dividend decisions
Operational
matters
> Executive management reports, including business performance
reports, R&D pipeline updates and the results of key clinical trials
> Quarterly results announcements
> Progress with construction of the Group’s new strategic
R&D centre and global corporate headquarters at Cambridge
Biomedical Campus in the UK
Stakeholders
> Employee gender data
> Sustainability matters
> Visits to R&D and Operations sites in Sweden and a review of
the Company’s Nordic Baltic business
Governance,
assurance and
risk management
> Reports from Board Committees
> Routine succession planning for SET and Board-level roles
> Risks arising from Brexit and mitigation plans
> Year-end governance and assurance reports
> The Group’s viability and risk appetite statements
> The annual review of the performance of the Board,
its Committees and individual Directors
> Private discussion time for Non-Executive Directors only
Key
Achieve Scientific Leadership
Return to Growth
Be a Great Place to Work
Achieve Group Financial Targets
Board effectiveness
Appointments to the Board, succession
planning and diversity
The Nomination and Governance Committee
and, where appropriate, the full Board,
regularly review the composition of the
Board and the status of succession to both
senior executive management and Board-level
positions. Directors have regular contact with,
and access to, succession candidates for
senior executive management positions.
The Nomination and Governance Committee
section on page 96 provides information
about the appointment process for new
Directors. Newly appointed Directors are
provided with comprehensive information
about the Group and their role as Non-
Executive Directors. They also typically
participate in tailored induction programmes
that take account of their individual skills
and experience.
Diversity
Diversity is integrated across our new Code
of Ethics and associated workforce policy,
and we promote a culture of diversity, respect,
and equal opportunity, where individual
success depends only on personal ability
and contribution. We strive to treat our
employees with fairness, integrity, honesty,
courtesy, consideration, respect, and dignity,
regardless of gender, race, nationality, age,
sexual orientation, or other forms of diversity.
The Board is provided each year with a
comprehensive overview of the AstraZeneca
workforce, covering a wide range of metrics
and measures (including trends around
gender diversity, leadership ethnic diversity
and age profile).
More specifically, the Board views gender,
nationality and cultural diversity among
Board members as important considerations
when reviewing its composition. The Board
recognises, in particular, the importance
of gender diversity. Currently, 50% of the
Company’s Non-Executive Directors are
women and women make up 42% of the
full Board.
Considering diversity in a wider sense, the
Board aims to maintain a balance in terms of
the range of experience and skills of individual
Board members, which includes relevant
international business, pharmaceutical
industry and financial experience, as well
as appropriate scientific and regulatory
knowledge. The biographies of Board
members set out on pages 88 and 89 give
more information about current Directors
in this respect.
AstraZeneca Annual Report & Form 20-F Information 2017 / Corporate Governance Report
93
Corporate Governance
However, the Board believes that he has
brought, and continues to bring, considerable
business experience and makes a valuable
contribution to the work of the Board. In April
2010, he was appointed as a member of the
Science Committee, reflecting his interest
in innovation and R&D, knowledge of the
history of the Company and its scientific
heritage and culture, and his broad
experience of other industries and
businesses in which innovation and R&D
are important determinants of success.
Conflicts of interest
The Articles enable the Directors to authorise
any situation in which a Director has an
interest that conflicts or has the potential to
conflict with the Company’s interests and
which would otherwise be a breach of the
Director’s duty, under Section 175 of the
Companies Act 2006. The Board has a formal
system in place for Directors to declare such
situations to be considered for authorisation
by those Directors who have no interest in the
matter being considered. In deciding whether
to authorise a situation, the non-conflicted
Directors must act in the way they consider,
in good faith, would be most likely to promote
the success of the Company, and they may
impose limits or conditions when giving the
authorisation, or subsequently, if they think
this is appropriate. Situations considered
by the Board and authorisations given are
recorded in the Board minutes and in a
register of conflicts maintained by the
Company Secretary, and are reviewed
annually by the Board. The Board believes
that this system operates effectively.
Time commitment
Our expectation is that Non-Executive
Directors should be prepared to commit
15 days a year, as an absolute minimum,
to the Group’s business. In practice, Board
members’ time commitment exceeds this
minimum expectation when all the work that
they undertake for the Group is considered,
particularly in the case of the Chairman of
the Board and the Chairmen of the Board
Committees. As well as their work in relation
to formal Board and Board Committee
meetings, the Non-Executive Directors
also commit time throughout the year to
meetings and telephone calls with various
levels of executive management, visits
to AstraZeneca’s sites throughout the
world and, for new Non-Executive Directors,
induction sessions and site visits.
On occasions when a Director is unavoidably
absent from a Board or Board Committee
meeting, for example where a meeting clashes
with their other commitments, they still receive
and review the papers for the meeting and
typically provide verbal or written input ahead
of the meeting, usually through the Chairman
of the Board or the Chairman of the relevant
Board Committee, so that their views are
made known and considered at the meeting.
Given the nature of the business to be
conducted, some Board meetings are
convened at short notice, which can make it
difficult for some Directors to attend due to
prior commitments.
Information and support
The Company Secretary is responsible to
the Chairman for ensuring that all Board
and Board Committee meetings are properly
conducted, that the Directors receive
appropriate information prior to meetings to
enable them to make an effective contribution,
and that governance requirements are
considered and implemented.
The Company maintained Directors’ and
Officers’ Liability Insurance cover throughout
2017. The Directors are also able to obtain
independent legal advice at the expense
of the Company, as necessary, in their
capacity as Directors.
The Company has entered into a deed of
indemnity in favour of each Board member
since 2006. These deeds of indemnity are still
in force and provide that the Company shall
indemnify the Directors to the fullest extent
permitted by law and the Articles, in respect
of all losses arising out of, or in connection
with, the execution of their powers, duties and
responsibilities as Directors of the Company
or any of its subsidiaries. This is in line with
current market practice and helps us attract
and retain high quality, skilled Directors.
Re-election of Directors
In accordance with Article 66 of the Articles,
all Directors retire at each AGM and may offer
themselves for re-election by shareholders.
Accordingly, all of the Directors will retire at
the AGM in May 2018. The Notice of AGM
will give details of those Directors seeking
re-election.
Corporate Governance
Report continued
Although it has not set any objectives applying
specifically to the composition of the Board
within a formal policy, the Board intends to
continue with its current approach to diversity
in all its aspects, while at the same time
seeking Board members of the highest
calibre, and with the necessary experience
and skills to meet the needs of the Company
and its shareholders. Rather than adopting
quotas or other similar objectives, the Board
prefers to adopt a more flexible approach
focused on appointing on merit while having
due regard to the benefits that can be gained
from diversity. This approach has yielded
successful results – women make up 42% of
the Board, which comfortably exceeds the
target of 33% set out in the report from Lord
Davies published in October 2015. Information
about our approach to diversity in the
organisation below Board level can be
found in Employees from page 35.
Independence of the Non-Executive Directors
During 2017, the Board considered the
independence of each Non-Executive
Director for the purposes of the UK Corporate
Governance Code and the corporate
governance listing standards of the NYSE
(Listing Standards). With the exception of
Marcus Wallenberg, the Board considers
that all of the Non-Executive Directors are
independent. The Board noted that, as of
September 2017, Rudy Markham had served
on the Board for nine years but determined
that he remains independent in character and
judgement, as evidenced by the way in which
he discharges his duties as a Board and
Board Committee member, and as senior
independent Non-Executive Director.
Leif Johansson was considered by the Board
to be independent upon his appointment
as Chairman. In accordance with the UK
Corporate Governance Code, the test of
independence is not appropriate in relation
to the Chairman after his appointment.
Marcus Wallenberg was appointed as a
Director of Astra in May 1989 and subsequently
became a Director of the Company in 1999.
He is a Non-Executive Director of Investor AB,
which has a 4.07% interest in the issued share
capital of the Company as at 2 February 2018.
Mr Wallenberg, Investor AB and a number
of Wallenberg charitable foundations are
connected. For these reasons, the Board
does not believe that he can be determined
independent under the UK Corporate
Governance Code.
94
AstraZeneca Annual Report & Form 20-F Information 2017 / Corporate Governance
Board performance evaluation
2017 Overview
During the year, the Board conducted the
annual evaluation of its own performance
and that of its Committees and individual
Directors. The 2017 evaluation was
facilitated by Lintstock Ltd (Lintstock),
a London-based corporate advisory firm
that provides objective and independent
counsel to leading European companies.
Lintstock supplies software and services
to the Company Secretary’s team for Board
evaluation questionnaires and for the
management of insider lists but has no other
commercial relationship with the Company.
Based on Board members’ responses to a
web-based questionnaire covering a wide
range of topics and on interviews carried
out by Linstock with each Board member,
Lintstock prepared a report, which was
discussed by the Board at its meeting in
February 2018 and was also used by the
Chairman as the basis for individual
conversations with each Board member
prior to the full Board discussion.
The Board intends to continue to comply
with the UK Corporate Governance Code
guidance that the evaluation should be
externally facilitated at least every three
years and expects to commission the next
externally facilitated review in 2020.
Director training
As part of each Director’s individual
discussion with the Chairman, his or
her contribution to the work of the Board
and personal development needs were
considered. Directors’ training needs are met
by a combination of internal presentations
and updates and external speaker
presentations as part of Board and Board
Committee meetings; specific training
sessions on particular topics, where
required; and the opportunity for Directors
to attend external courses at the Company’s
cost, should they wish to do so.
2017 Outcomes
Main areas covered:
> Board composition
and dynamics
> Board meeting
management
and support
> Board Committees
> Board oversight
> Risk management
and internal control
> Succession planning
and human resource
management
> Priorities for 2018
Overall conclusion
> The reviews of the
Board’s Committees
did not raise any
significant problems
and concluded that
the Committees are
operating effectively.
> In respect of the 2017
annual performance
evaluation it was
concluded that each
Director continues
to perform effectively
and to demonstrate
commitment to his or
her role.
Main conclusions and recommendations:
> The Board operates effectively and in
a manner that encourages open and
frank discussion.
> The Board valued the positive
contributions of the new members that
had been appointed during the year and
noted the importance of sharing, and so
retaining, corporate memory through
the period of change.
> The Board identified certain areas that
could be enhanced, including provision
of further opportunities to visit and
learn from different AstraZeneca teams
and sites to help build a balanced
understanding of the business,
the use of informal meetings between
Board members to focus on talent
management, and ensuring succession
planning activities for business critical
roles were undertaken proactively
with opportunities for all Board
members to input.
Chairman evaluation
The 2017 evaluation also included a review of the performance of the Chairman by the other Directors,
led by the senior independent Non-Executive Director and absent the Chairman.
No significant issues needed to be addressed. The excellent quality of the Chairman’s leadership
of the Board was noted, as were the good relationships between him and key stakeholders.
Actions against prior year recommendations
2016 evaluation
2017 actions taken
Maintain and further
improve the diversity
of the Board
The recruitment of four new Non-Executive Directors in 2017 – Philip
Broadley, Nazneen Rahman, Sheri McCoy and Deborah DiSanzo –
has improved the diversity of the Board in several aspects.
Maintain and further
improve full Board
oversight of succession
planning for
Board-level roles
Provide more opportunities
for Board members to meet
senior employees having
the potential to progress to
the most senior executive
roles in the Company
Reports back to the full Board from the Nomination and Governance
Committee have been given greater prominence on Board meeting agendas
and the practice of inviting all Board members to attend meetings of the
Committee, should they wish to do so, has been continued during 2017.
Progress has been made by using presentations in Board meetings,
site visits and Board lunches and dinners as opportunities to expose Board
members to potential succession candidates. For example, the Board
visited two of the Company’s main sites in Sweden during 2017 and held
small-group meetings with ‘high-potential’ employees there, and members
of the Audit Committee met employees during their visits to the Company’s
sites in the UK, Germany and Brazil.
Maintain the right balance
of Board time for R&D
matters on the one hand,
and commercial and
operations matters on
the other
As the Company’s pipeline of new medicines has matured and several
new drugs have achieved regulatory approval and been launched,
with others in the pre-launch phase, the balance of Board time has
naturally evolved to include a better balance between R&D and commercial
matters. The Board is due to review Operations (manufacturing and supply)
at a Board meeting in 2018.
AstraZeneca Annual Report & Form 20-F Information 2017 / Corporate Governance Report
95
Corporate Governance
Corporate Governance
Report continued
Accountability
Risk management and internal control
The Board has overall responsibility for
our system of internal controls and risk
management policies and has an ongoing
responsibility for reviewing their effectiveness.
During 2017, the Directors continued to review
the effectiveness of our system of controls,
risk management and high level internal
control processes. These reviews included
an assessment of internal controls and, in
particular, financial, operational and compliance
controls, and risk management and their
effectiveness, supported by management
assurance of the maintenance of controls
reports from Internal Audit Services, as well as
the external auditor on matters identified in the
course of its statutory audit work. During the
year, a number of internal control weaknesses
were reported relating to a new IT system
implemented in January 2017 (used to
manage customer deduction programmes in
the US) and over the completeness of reports
used to validate the adequacy of supporting
documentation and approval of manual journals.
These were remediated in-year with validation
testing performed to ensure operational
effectiveness. Across the wider internal
control environment, a large number of design
improvements have been implemented to
further strengthen, enhance and de-risk
our internal control over financial reporting.
The system of controls is designed to manage
rather than eliminate the risk of failure to
achieve business objectives and can only
provide reasonable (not necessarily absolute)
assurance of effective operation and
compliance with laws and regulations.
The Directors believe that the Group maintains
an effective, embedded system of internal
controls and complies with the FRC’s
guidance entitled ‘Guidance on Risk
Management, Internal Control and Related
Financial and Business Reporting’.
More information about the ways in which we
manage our business risks and describe our
principal risks and uncertainties is set out
in the Risk Overview from page 63 and Risk
from page 210.
Remuneration
Information about our approach to remuneration
and the role and work of the Remuneration
Committee, is set out in the Directors’
Remuneration Report from page 105.
Policy on external appointments and
retention of fees
Subject to specific Board approval in each
case, Executive Directors and other SET
members may accept external appointments
as non-executive directors of other companies,
and retain any related fees paid to them,
provided that such appointments are not
considered by the Board to prevent or reduce
the ability of the executive to perform his or her
role within the Group to the required standard.
96
the UK Corporate Governance Code, details
of proxy voting by shareholders, including
votes withheld, are given at the AGM and are
posted on our website following the AGM.
Nomination and Governance Committee
The Nomination and Governance Committee’s
role is to recommend to the Board any new
Board appointments and to consider, more
broadly, succession plans at Board level.
It reviews the composition of the Board using
a matrix that records the skills and experience
of current Board members, comparing this
with the skills and experience it believes are
appropriate to the Company’s overall business
and strategic needs, both now and in
the future. Any decisions relating to the
appointment of Directors are made by the
entire Board based on the merits of the
candidates and the relevance of their
background and experience, measured
against objective criteria, with care taken
to ensure that appointees have enough time
to devote to our business.
The Nomination and Governance Committee
also advises the Board periodically on
significant developments in corporate
governance and the Company’s compliance
with the UK Corporate Governance Code.
During 2017, the members of the Nomination
and Governance Committee were Leif
Johansson (Chairman of the Committee),
Rudy Markham, Bruce Burlington (until his
retirement from the Board on 31 August 2017)
and Graham Chipchase. Each member is a
Non-Executive Director and considered
independent by the Board. The Company
Secretary acts as secretary to the Nomination
and Governance Committee.
The Nomination and Governance Committee
considers both planned and unplanned
(unanticipated) succession scenarios and
met five times in 2017, spending the majority
of its time on succession planning for
Non-Executive Directors with the assistance
of the search firms MWM Consulting, Spencer
Stuart and Korn Ferry and continued routine
succession planning (internal and external) for
the roles of CEO and CFO, with the assistance
of Spencer Stuart. Korn Ferry and Spencer
Stuart periodically undertake executive search
assignments for the Company.
The attendance record of the Nomination and
Governance Committee’s members is set out
on page 87.
The Nomination and Governance Committee’s
terms of reference are available on our
website, www.astrazeneca.com.
Relations with shareholders
In our quarterly, half-yearly and annual financial
and business reporting to shareholders and
other interested parties, we aim to present a
balanced and understandable assessment of
our strategy, financial position and prospects.
We make information about the Group
available to shareholders through a range
of media, including our corporate website,
www.astrazeneca.com, which contains a
wide range of data of interest to institutional
and private investors. We consider our website
to be an important means of communication
with our shareholders.
The Company has been authorised
by shareholders to place shareholder
communications (such as the Notice of AGM
and this Annual Report) on the corporate
website in lieu of sending paper copies to
shareholders (unless specifically requested).
While recognising and respecting that some
shareholders may have different preferences
about how they receive information from
us, we will continue to promote the benefits
of electronic communication given the
advantages that this has over traditional
paper-based communications, both in terms
of the configurability and accessibility of the
information provided and the consequent cost
savings and reduction in environmental impact.
Our Investor Relations team acts as the main
point of contact for investors throughout
the year. We have frequent discussions with
current and potential shareholders on a range
of issues, including in response to individual
ad hoc requests from shareholders and
analysts. We also hold meetings to seek
shareholders’ views. Board members are
kept informed of any issues, and receive
regular reports and presentations from
executive management and our brokers to
assist them to develop an understanding of
major shareholders’ views about the Group.
From time to time, we conduct perception
studies with institutional shareholders and a
limited number of analysts to ensure that we
are communicating clearly with them and that
a high-quality dialogue is being maintained.
The results of these studies are reported to,
and discussed by, the full Board. As discussed
above, the Senior independent Non-Executive
Director, Rudy Markham, is available to
shareholders if they have concerns that
contact through the normal channels of
Chairman, CEO and/or CFO has failed to
resolve, or in relation to which such contact
is inappropriate.
All shareholders, including private investors,
have an opportunity at the AGM to put
questions to members of the Board about
our operation and performance. Formal
notification of the AGM is sent to shareholders
at least one month in advance. All Board
members ordinarily attend the AGM to answer
questions raised by shareholders. In line with
AstraZeneca Annual Report & Form 20-F Information 2017 / Corporate Governance Science Committee
The Science Committee’s core role is to provide
assurance to the Board regarding the quality,
competitiveness and integrity of the Group’s
R&D activities by way of meetings and dialogue
with our R&D leaders and other scientist
employees; visits to our R&D sites throughout
the world; and review and assessment of:
> the approaches we adopt in respect
of our chosen therapy areas
> the scientific technology and R&D
capabilities we deploy
> the decision-making processes for
R&D projects and programmes
> the quality of our scientists and their career
opportunities and talent development
> benchmarking against industry and
scientific best practice, where appropriate.
The Science Committee periodically reviews
important bioethical issues that we face, and
assists in the formulation of, and agrees on
behalf of the Board, appropriate policies in
relation to such issues. It may also consider,
from time to time, future trends in medical
science and technology. The Science
Committee does not review individual R&D
projects but does review, on behalf of the
Board, the R&D aspects of specific business
development or acquisition proposals and
advises the Board on its conclusions.
During 2017, the members of the Science
Committee, all of whom have a knowledge
of, or an interest in, life sciences, were Bruce
Burlington (Chairman of the Committee)
until his retirement from the Board on
31 August 2017, Geneviève Berger, Nazneen
Rahman from her appointment as a Non-
Executive Director on 1 June 2017 and
Marcus Wallenberg. As usual, the EVP, GMD;
the EVP, IMED; and the EVP, MedImmune,
participated in meetings of the Science
Committee as co-opted members in 2017.
The Vice-President, IMED Operations acts
as secretary to the Science Committee.
The appointment of a new Chairman of
the Science Committee is pending.
The Science Committee met twice in person in
2017, in London, UK and Cambridge, UK, and
held one other meeting by telephone to review
aspects of the Group scorecard in relation
to ‘Achieve Scientific Leadership’ targets.
The Science Committee’s terms of
reference are available on our website,
www.astrazeneca.com.
US corporate governance requirements
Our ADSs are traded on the NYSE and,
accordingly, we are subject to the reporting
and other requirements of the SEC applicable
to foreign private issuers. Section 404 of the
Sarbanes-Oxley Act requires companies to
include in their annual report on Form 20-F
filed with the SEC, a report by management
stating its responsibility for establishing
internal control over financial reporting and
to assess annually the effectiveness of such
internal control. We have complied with
those provisions of the Sarbanes-Oxley
Act applicable to foreign private issuers.
The Board continues to believe that the
Group has a sound corporate governance
framework, good processes for the accurate
and timely reporting of its financial position
and results of operations, and an effective
and robust system of internal controls.
We have established a Disclosure Committee,
further details of which can be found in
the Disclosure Committee section below.
The Directors’ assessment of the effectiveness
of internal control over financial reporting
is set out in the Directors’ Annual Report
on Internal Controls over Financial Reporting
on page 128.
We are required to disclose any significant
ways in which our corporate governance
practices differ from those followed by US
companies under the Listing Standards.
In addition, we must comply fully with the
provisions of the Listing Standards relating
to the composition, responsibilities and
operation of audit committees, applicable
to foreign private issuers. These provisions
incorporate the rules concerning audit
committees implemented by the SEC under
the Sarbanes-Oxley Act. We have reviewed
the corporate governance practices required
to be followed by US companies under
the Listing Standards and our corporate
governance practices are generally consistent
with those standards.
Business organisation
Disclosure Committee
Our disclosure policy provides a framework
for the handling and disclosure of inside
information and other information of interest
to shareholders and the investment
community. It also defines the role of the
Disclosure Committee. The members of the
Disclosure Committee in 2017 were: the CFO,
who chaired the Disclosure Committee; the
EVP, GMD (who is also the Company’s Chief
Medical Officer); the EVP, GPPS, Global
Medical Affairs and Corporate Affairs;
the General Counsel; the Vice-President,
Corporate Affairs; the Head of Investor
Relations; and the Vice-President Finance,
Group Controller. Other senior executives
attend its meetings on an agenda-driven
basis. The Deputy Company Secretary acted
as secretary to the Disclosure Committee.
The Disclosure Committee meets regularly
to assist and inform the decisions of the
CEO concerning inside information and
its disclosure. Periodically, it reviews our
disclosure controls and procedures and its
own operation as part of work carried out to
enable management and the Board to assure
themselves that appropriate processes are
operating for both our planned disclosures,
such as our quarterly results announcements
and scheduled investor relations events,
and our unplanned disclosures in response
to unforeseen events or circumstances.
Disclosure of information to auditors
The Directors who held office at the date of
approval of this Annual Report confirm that,
so far as they are each aware, there is no
relevant audit information of which the
Company’s auditors are unaware; and each
Director has taken all the steps that he
or she ought to have taken as a Director
to make himself or herself aware of any
relevant audit information and to establish
that the Company’s auditors are aware of
that information.
Global Compliance and Internal Audit
Services (IA)
The role of the Global Compliance function is
to help the Group achieve its strategic priorities
by doing business the right way, with integrity
and high ethical standards. Global Compliance
continues to focus on ensuring the delivery
of an aligned approach to compliance that
addresses key risk areas across the business,
including risks relating to external parties and
anti-bribery/anti-corruption. Our priorities
include improving compliance behaviours
through effective training and communication;
monitoring compliance with our Code of Ethics
and supporting requirements; providing
assurance that we are conducting appropriate
risk assessments and due diligence on third
parties whom we engage for services; and
ensuring that employees and external parties
can raise any concerns. Global Compliance
and IA work with various specialist compliance
functions throughout our organisation to
co-ordinate compliance activities.
We take all alleged compliance breaches and
concerns extremely seriously, and investigate
them and report the outcome of such
investigations to the Audit Committee,
as appropriate. Internal investigations
are undertaken by staff from our Global
Compliance, Human Resources and/or
Legal functions. When necessary, external
advisers are engaged to conduct and/or
advise on investigations.
Serious breaches are raised with the Audit
Committee. Where a significant breach has
occurred, management, in consultation with our
Legal function, will consider whether the Group
needs to disclose and/or report the findings
to a regulatory or governmental authority.
Global Compliance provides direct assurance
to the Audit Committee on matters concerning
compliance issues, including an analysis of
compliance breaches. Complementing this,
IA carries out a range of audits that include
compliance-related audits and reviews of the
assurance activities of other Group assurance
functions. The results from these activities are
reported to the Audit Committee.
AstraZeneca Annual Report & Form 20-F Information 2017 / Corporate Governance Report
97
Corporate Governance Corporate Governance
Report continued
IA is established by the Audit Committee
on behalf of the Board and acts as an
independent and objective assurance function
guided by a philosophy of adding value to
improve the operations of the Group. The
scope of IA’s responsibilities encompasses,
but is not limited to, the examination and
evaluation of the adequacy and effectiveness
of the Group’s governance, risk management,
and internal control processes in relation to
the Group’s defined goals and objectives.
Internal control objectives considered by
IA include:
> consistency of operations or programmes
with established objectives and goals and
effective performance
> effectiveness and efficiency of operations
and employment of resources
> compliance with significant policies,
plans, procedures, laws and regulations
> reliability and integrity of management and
financial information processes, including
the means to identify, measure, classify,
and report such information
> safeguarding of assets.
Based on its activity, IA is responsible for
reporting significant risk exposures and
control issues identified to the Board and
to senior management, including fraud risks,
governance issues, and other matters
needed or requested by the Audit Committee.
It may also evaluate specific operations
at the request of the Audit Committee or
management, as appropriate.
Code of Ethics
Our Code of Ethics (the Code), which is
available on our website, www.astrazeneca.
com, applies to all full-time and part-time
Directors, officers, employees and temporary
staff, in all companies within our Group
worldwide. A Finance Code complements
the Code and applies to the CEO, the CFO,
the Group’s principal accounting officers
(including key Finance staff in major overseas
subsidiaries) and all Finance function
employees. This reinforces the importance
of the integrity of the Group’s Financial
Statements, the reliability of the accounting
records on which they are based and
the robustness of the relevant controls
and processes.
The Code is at the core of our compliance
programme. It has been translated into
approximately 40 languages and outlines
how our commitments to ethics, honesty,
integrity and responsibility are to be realised
through consistent actions across all areas
of the business.
98
Compliance with the Code is mandatory
and every employee receives annual training
on it which they are required to complete.
The Code was updated in 2017 to strengthen
employee understanding and adherence by
outlining our commitments in simple terms
and focusing on why these commitments
matter. The updated Code is comprised of
our Company Values, expected behaviours
and Global Policies, and is further supported
by requirements at the global, local and
business-unit level, to provide clear guidance
and direction to employees in carrying out
their daily work. The Code is also reviewed
periodically and updated to take account of
changing legal and regulatory obligations.
The Code recommends that employees
report possible violations to their line
managers or to their local Human Resources,
Legal, or Compliance partners. The Code
also contains information on how to report
possible violations through our Helpline,
which includes the AZethics telephone
lines, the AZethics website, and the Global
Compliance email and postal addresses. The
externally-operated website is available in 38
languages, and the phone lines are operable
in 96 countries, to facilitate reporting. The
Helpline is available to both employees and
to external parties to report any concerns.
Reports can be made anonymously where
desired and where permitted by local law.
Anyone who raises a potential breach in
good faith is fully supported by management.
The majority of cases come to our attention
through management and self-reporting,
which can be seen as an indication that
employees are comfortable in raising their
concerns with line managers or local
Human Resources, Legal or Compliance,
as recommended in the Code and reinforced
in the 2017 Code training. In addition, in 2017,
359 reports of alleged compliance breaches
or other ethical concerns were made through
the Helpline, including reports made by any
anonymous route that could be considered
whistleblowing; in 2016 there were 320 reports.
Other matters
Corporate governance statement under the
UK Disclosure Guidance and Transparency
Rules (DTR)
The disclosures that fulfil the requirements of
a corporate governance statement under the
DTR can be found in this section and in other
parts of this Annual Report as listed below,
each of which is incorporated into this section
by reference:
> major shareholdings
> Articles.
Shareholder Information from page 228.
Subsidiaries and principal activities
The Company is the holding company for a group
of subsidiaries whose principal activities are
described in this Annual Report. The Group’s
principal subsidiaries and their locations are
given in Group Subsidiaries and Holdings in
the Financial Statements from page 190.
Branches and countries in which the Group
conducts business
In accordance with the Companies Act 2006,
we disclose below our subsidiary companies
that have representative or scientific
branches/offices outside the UK:
> AstraZeneca UK Limited: Algeria (scientific
office), Angola, Belarus, Chile, Costa Rica,
Croatia, Cuba, Dubai (branch office), Georgia,
Ghana (scientific office), Jordan, Kazakhstan,
Romania, Russia, Saudi Arabia (scientific
office), Serbia, Slovenia (branch office),
Syria, Ukraine and Yemen (scientific office)
> AstraZeneca AB: Egypt (scientific office)
and Slovakia (branch office)
> AstraZeneca Singapore Pte Limited:
Vietnam
> Astra Export & Trading AB: United Arab
Emirates (branch office).
Distributions to shareholders –
dividends for 2017
Details of our distribution policy are set out
in the Financial Review from page 66 and
Notes 22 and 23 to the Financial Statements
from page 171.
The Company’s dividend for 2017 of $2.80
(202.5 pence, SEK 22.37) per Ordinary Share
amounts to, in aggregate, a total dividend
payment to shareholders of $3,545 million.
An employee share trust, AstraZeneca Share
Retention Trust, waived its right to a dividend
on the Ordinary Shares that it holds and
instead received a nominal dividend.
A shareholders’ resolution was passed at
the 2017 AGM authorising the Company to
purchase its own shares. The Company did
not purchase any of its own shares in 2017.
On 31 December 2017, the Company did
not hold any shares in treasury.
Going concern accounting basis
Information on the business environment in
which AstraZeneca operates, including the
factors underpinning the industry’s future
growth prospects, is included in the Strategic
Report. Details of the product portfolio of the
Group are contained in both the Strategic
Report (in the Therapy Area Review from page
46) and the Directors’ Report. Information on
patent expiry dates for key marketed products
is included in Patent Expiries of Key Marketed
Products from page 208. Our approach to
product development and our development
pipeline are also covered in detail with
additional information by therapy area in
the Strategic Report.
AstraZeneca Annual Report & Form 20-F Information 2017 / Corporate Governance The financial position of the Group, its cash
flows, liquidity position and borrowing
facilities are described in the Financial
Review from page 66. In addition, Note 26
to the Financial Statements from page 175
includes the Group’s objectives, policies and
processes for managing capital; financial risk
management objectives; details of its financial
instruments and hedging activities; and its
exposures to credit, market and liquidity risk.
Further details of the Group’s cash balances
and borrowings are included in Notes 16 and
17 to the Financial Statements from page 160.
Having assessed the principal risks and other
matters considered in connection with the
viability statement on page 63, the Directors
consider it appropriate to adopt the going
concern basis of accounting in preparing
the Annual Report and Financial Statements.
Changes in share capital
Changes in the Company’s Ordinary Share
capital during 2017, including details of the
allotment of new shares under the Company’s
share plans, are given in Note 22 to the
Financial Statements on page 171.
Directors’ shareholdings
The Articles require each Director to be the
beneficial owner of Ordinary Shares in the
Company with an aggregate nominal value of
$125 (which currently represents at least 500
shares because each Ordinary Share has a
nominal value of $0.25). Such holding must be
obtained within two months of the date of the
Director’s appointment. At 31 December 2017,
all of the Directors complied with this
requirement and full details of each Director’s
interests in shares of the Company are set
out in Directors’ interests in shares on pages
116 and 117, along with information about the
shareholding expectations of the Remuneration
Committee (in respect of Executive Directors
and SET members) and the Board (in respect
of Non-Executive Directors).
Political donations
Neither the Company nor its subsidiaries
made any EU political donations or incurred
any EU political expenditure in 2017 and they
do not intend to do so in the future in respect
of which shareholder authority is required, or
for which disclosure in this Annual Report is
required, under the Companies Act 2006.
However, to enable the Company and its
subsidiaries to continue to support interest
groups or lobbying organisations concerned
with the review of government policy or law
reform without inadvertently breaching the
Companies Act 2006, which defines political
donations and other political expenditure
in broad terms, a resolution will be put to
shareholders at the 2018 AGM, similar to
that passed at the 2017 AGM, to authorise
the Company and its subsidiaries to:
> make donations to political parties or
independent election candidates
> make donations to political organisations
other than political parties
> incur political expenditure, up to an
aggregate limit of $250,000.
Corporate political contributions in the US are
permitted in defined circumstances under the
First Amendment of the US Constitution and
are subject to both federal and state laws and
regulations. In 2017, the Group’s US legal
entities made contributions amounting in
aggregate to $1,282,250 (2016: $1,568,250)
to national political organisations, state-level
political party committees and to campaign
committees of various state candidates. No
corporate donations were made at the federal
level and all contributions were made only
where allowed by US federal and state law.
We publicly disclose details of our corporate
US political contributions, which can be found
on our website, www.astrazeneca-us.com/
sustainability/corporate-transparency.
The annual corporate contributions budget
is reviewed and approved by the US
Vice-President, Corporate Affairs and
the President of our US business to ensure
robust governance and oversight. US
citizens or individuals holding valid green
cards exercised decision making over the
contributions and the funds were not provided
or reimbursed by any non-US legal entity.
Such contributions do not constitute political
donations or political expenditure for the
purposes of the Companies Act 2006
and were made without any involvement
of persons or entities outside the US.
Significant agreements
There are no significant agreements to which
the Company is a party that take effect, alter
or terminate on a change of control of the
Company following a takeover bid. There are
no persons with whom we have contractual
or other arrangements, who are deemed by
the Directors to be essential to our business.
Use of financial instruments
The Notes to the Financial Statements,
including Note 26 from page 175, include
further information on our use of financial
instruments.
Annual General Meeting
The Company’s AGM will be held on 18 May
2018. The meeting place will be in London,
UK. A Notice of AGM will be sent to all
registered holders of Ordinary Shares and,
where requested, to the beneficial holders
of shares.
External auditor
A resolution will be proposed at the AGM
on 18 May 2018 for the re-appointment of
PricewaterhouseCoopers LLP (PwC) as
auditor of the Company. PwC was first
appointed as auditor of the Company in 2017,
in succession to KPMG LLP. During 2017,
KPMG and PwC undertook various non-audit
services. More information about this work
and the audit and non-audit fees that we have
paid are set out in Note 30 to the Financial
Statements on page 189. The external auditor
is not engaged by AstraZeneca to carry out
any non-audit work in respect of which it
might, in the future, be required to express
an audit opinion. As explained more fully in
the Audit Committee Report from page 100,
the Audit Committee has established
pre-approval policies and procedures for
audit and non-audit work permitted to be
carried out by the external auditor and
has carefully monitored the objectivity
and independence of the external auditor
throughout 2017.
Directors’ Report
The Directors’ Report, which has been
prepared in accordance with the requirements
of the Companies Act 2006, comprises the
following sections:
> Chairman’s Statement
> Chief Executive Officer’s Review
> Business Review
> Therapy Area Review
> Financial Review: Financial risk
management
> Corporate Governance: including the
Audit Committee Report and Corporate
Governance Report
> Directors’ Responsibility Statement
> Development Pipeline
> Sustainability: supplementary information
> Shareholder Information
and has been approved by the Board
and signed on its behalf.
The Board considers this Annual Report,
taken as a whole, to be fair, balanced and
understandable, and provides the necessary
information for shareholders to assess
AstraZeneca’s position and performance,
business model and strategy.
On behalf of the Board
A C N Kemp
Company Secretary
2 February 2018
AstraZeneca Annual Report & Form 20-F Information 2017 / Corporate Governance Report
99
Corporate Governance Audit Committee
Report
In this Report, we describe the work of the
Audit Committee (the Committee) and the
significant issues it considered in 2017.
Our main priorities were to receive assurance
on the soundness of financial reporting,
effective risk identification and management,
and compliance with the AstraZeneca Code
of Ethics and relevant legislation.
Financial reporting
The integrity of AstraZeneca’s financial
reporting is underpinned by effective internal
controls, appropriate accounting practices
and policies, and the exercise of good
judgement. The Committee reviewed,
at least quarterly, the Company’s significant
accounting matters, including contingent
liabilities, revenue recognition, and deferred
tax and, where appropriate, challenged
management’s decisions before approving
the accounting policies applied. During 2017,
the Committee reviewed significant
restructuring programmes initiated from
2013 onwards, including accounting for
restructuring charges, control over capital
expenditure and the projection for their
completion. The Committee continued to
monitor the inclusion of Externalisation
Revenue in AstraZeneca’s Statement of
Comprehensive Income. For more information
on Externalisation Revenue, please refer
to the Financial Review from page 66. The
Committee also looked closely at intangible
asset impairment reviews, legal provisions
and other related charges, to ensure that
items are appropriately accounted for in
‘Reported’ and ‘Core’ results.
Following the competitive tender of the
Company’s external audit services in 2015,
PwC were appointed as the Company’s
external auditor for the year commencing
on 1 January 2017 having received shareholder
approval at the Company’s AGM. The Committee
monitored PwC’s review of the Group’s historical
accounting practices, policies and processes
to understand any difference in approach or
interpretation of relevant standards and support
continuous improvement.
Risk identification and management
During the year, the Committee regularly
reviewed the Company’s approach to risk
management, its risk reporting framework
and risk mitigation. When identifying risks,
we consider the total landscape of enduring
risks which are long-standing and business-
as-usual in nature. We then consider more
specific and current risks – key active risks –
which are challenging our business presently.
Finally, in order that we scan the horizon and
identify risks which may challenge us in
the future, we also consider emerging risks.
These deliberations provided a framework for
the Committee’s activities in 2017 and
“ The integrity of
AstraZeneca’s
financial reporting
is underpinned
by effective internal
controls, appropriate
accounting practices
and policies, and
the exercise of
good judgement.”
100
AstraZeneca Annual Report & Form 20-F Information 2017 / Corporate Governance provided the context for the Committee’s
consideration of the Company’s viability
statement and the ‘stress test’ analysis that
underpins the assurance provided by it under
which key profitability, liquidity and funding
metrics are tested against a severe downside
scenario which assumes that the significant
risks modelled in the planning process will
crystallise. For more detail on the viability
statement, please refer to the Risk Overview
from page 63.
The Committee’s consideration of risk
management was supported by ‘deep dive’
reviews of key activities such as:
> cyber defence capability and the
continuous enhancements to safeguard
critical applications, information assets
and business continuity
> supply capability necessary for the
successful delivery of the Company’s
biologics portfolio
> a review of commercial operations in
Middle East and Africa and Latin America
> the approach to pricing, reimbursement and
market access for oncology medicines
> post-acquisition reviews of Acerta Pharma
and ZS Pharma including the circumstances
connected with the two FDA Complete
Response Letters relating to ZS-9.
In addition to these deep dive reviews, during
visits to the Company’s businesses in Brazil,
Germany and the UK, the Committee
increased its understanding of the business,
environment and associated risks in each
location, together with the action taken
to ensure a good compliance culture is
maintained. Further information on the
Company’s Principal Risks can be found
in the Risk Overview from page 63.
Compliance with the Code of Ethics
The Committee’s priorities continue to include
maintaining compliance with the Company’s
Code of Ethics (which replaced our Code
of Conduct in 2017), high ethical standards,
and operating within the law in all countries
where we conduct business or have
interactions. The new Code of Ethics,
the underlying principles for which have
not changed, is written in more simple and
accessible language to empower decision
making that reflects our Company Values,
expected behaviours and key policy
principles. Further information on our
Code of Ethics is set out from page 40.
The Committee monitored and reviewed
compliance with our Code of Ethics, including
the effectiveness of our anti-bribery and
anti-corruption controls, across the Group.
The Committee prioritises its focus on
countries/regions where we have significant
operations and countries in which doing
business is generally considered to pose
higher compliance risks such as Argentina,
China, Germany, Malaysia, Mexico,
Sub-Saharan Africa, the UK and the US.
Engagement with senior leaders
The Committee considers it important to
interact with members of management below
the SET and to have wider engagement with
the Company’s employees. In November,
members of the Committee visited the
Company’s Commercial leadership team
in Cotia, Brazil. The Committee members
discussed the opportunities and challenges
the local marketing company faces, and the
current and emerging risks arising from the
development and successful delivery to patients
of mature medicines, as well as those from our
rapidly evolving pipeline. The Committee also
met informally with senior leaders from the
Operations, IS/IT, Finance, Legal and Oncology
pricing and reimbursement teams. In October,
I visited marketing company sites in Germany
and the UK to discuss risk management,
compliance controls and compliance culture
with the management teams there, and I also
held ‘town hall’ meetings with the employees
at each site.
Changes to the membership
of the Committee
Finally, the membership of the Committee
underwent change during the year. Bruce
Burlington and Ann Cairns retired from the
Board and Committee, and I would like to
offer my sincere thanks to Bruce for his valued
diligence and commitment to the work of
the Committee since 2011 and to Ann for
her contribution over the last three years.
The Committee was also strengthened by
the appointments of Philip Broadley and
Sheri McCoy who between them bring
extensive and relevant international business,
pharmaceutical and accounting experience
to the work of the Committee.
We hope that you find this information helpful
in understanding the work of the Committee.
Our dialogue with our shareholders is valued
greatly and we welcome your feedback on
this Audit Committee Report.
Yours sincerely
Rudy Markham
Chairman of the Audit Committee
AstraZeneca Annual Report & Form 20-F Information 2017 / Audit Committee Report
101
Corporate Governance Audit Committee
Report continued
Committee membership and attendance
All Committee members are Non-Executive
Directors and considered by the Board
to be independent under the UK Corporate
Governance Code. The Committee’s
members are Rudy Markham (Committee
Chairman), Philip Broadley, Sheri McCoy
and Shriti Vadera. Bruce Burlington and Ann
Cairns were members of the Committee until
they retired from the Board and Committee
on 31 August and 27 April 2017, respectively.
In December 2017, the Board determined
that, for the purposes of the UK Corporate
Governance Code, at least one member of the
Committee has recent and relevant financial
experience, and Rudy Markham and Philip
Broadley were determined to be financial
experts for the purposes of the Sarbanes-Oxley
Act. In February 2018, the Board determined
that the members of the Committee as a whole
have competence relevant to the sector in which
the Company operates as Rudy Markham and
Shriti Vadera have served as Non-Executive
Directors of the Company for nine and seven
years respectively, and Sheri McCoy has
had a 30-year career in the pharmaceutical
industry. The Board of Directors’ biographies
on pages 88 and 89 contain details of each
Committee member’s skills and experience.
The Committee held five meetings in 2017 and
Committee members’ attendance is set out in
the table on page 87.
Role and operation of the Committee
The Committee’s terms of reference
are available on our website,
www.astrazeneca.com.
The Committee regularly reports to the Board
on how it discharges its main responsibilities,
which include:
> monitoring the integrity of the Company’s
financial reporting and formal announcements
relating to its financial performance,
and reviewing significant financial reporting
judgements contained within them
> ensuring the Company’s Annual Report
and Accounts present a fair, balanced
and understandable assessment of the
Company’s position and prospects by carrying
out a formal review of the documentation and
receiving a year-end report from management
on the internal controls, governance,
compliance, assurance and risk management
activities that support the assessment
> reviewing the effectiveness of the Company’s
internal financial controls, internal non-
financial controls, risk management
systems (including whistleblowing
procedures) and compliance with laws
and the AstraZeneca Code of Ethics
> monitoring and reviewing the role, resources
and effectiveness of the Company’s IA
function, its Compliance function, the
external audit process and the Company’s
relationship with its external auditor
102
> monitoring and reviewing the external
auditor’s independence and objectivity
> ensuring the provision of non-audit services
by the external auditor are appropriate and
in accordance with the policy approved by
the Committee
> making recommendations to the Board for
seeking shareholder approval relating to the
appointment, reappointment and removal
of the external auditor, and to approve the
remuneration and terms of engagement of
the external auditor
exchange gains and losses relating to
the classification of certain non-structural
intra-Group loans, in each case supported
by papers prepared by management and
the external auditor
> the external auditor’s reports on its audit
of the Group Financial Statements, and
reports from management, IA, Global
Compliance and the external auditor on
the effectiveness of our system of internal
controls and, in particular, our internal
control over financial reporting
> monitoring the Company’s response to
> the going concern assessment and
any external enquiries and investigations
regarding matters within the Committee’s
area of responsibility.
Following each Committee meeting, the
Committee Chairman informs the Board
of the principal matters the Committee
considered and of any significant concerns
it has or that have been reported by the
external auditor, the Vice-President, IA or the
Chief Compliance Officer. The Committee
identifies matters that require action or
improvement and makes recommendations
on the steps to be taken. The Committee’s
meeting minutes are circulated to the Board.
The Committee’s work is supported by valuable
insight gained from its interactions with
other Board Committees, senior executives,
managers and external experts. The Committee
meetings are routinely attended by the CFO;
the General Counsel; the Chief Compliance
Officer; the Vice-President, IA; the Vice-
President, Group Financial Controller;
and the Company’s external auditor.
The CEO attends on an agenda-driven basis.
In addition, the Committee and separately the
Committee Chairman, meet privately with the
CFO; Chief Compliance Officer; General
Counsel; Vice-President, IA; and the Company’s
external auditor on an individual basis to ensure
the effective flow of material information
between the Committee and management.
Activities of the Committee in 2017
During 2017 and in January 2018, the
Committee considered and discussed
the following standing items:
Financial reporting
> key elements of the Financial Statements
and the estimates and judgements
contained in the Company’s financial
disclosures. Accounting matters considered
included the areas described in the Financial
Review under ‘Critical accounting policies
and estimates’ (with a focus on accounting
issues relevant to revenue recognition,
litigation and taxation matters, goodwill
and intangible asset impairment) from page
79 and other important matters such as
monitoring the accounting for Externalisation
Revenue in the Group’s Consolidated
Statement of Comprehensive Income
> the Company’s presentation of deferred tax
assets and collateral balances, and foreign
adoption of the going concern basis in
preparing this Annual Report and the
Financial Statements. More information
on the basis of preparation of Financial
Statements on a going concern basis is set
out in the Financial Statements on page 139
> the preparation of the Directors’ viability
statement and the adequacy of the analysis
supporting the assurance provided by
that statement
> compliance with applicable provisions of the
Sarbanes-Oxley Act. In particular, the status
of compliance with the programme of internal
controls over financial reporting implemented
pursuant to Section 404 of the Sarbanes-
Oxley Act. The Committee continued its
focus on IT controls in the context of the
changes to the Group’s IT environment.
More information about this is set out in the
Sarbanes-Oxley Act Section 404 section of
the Financial Review on page 83.
Risk and Compliance
> the Company’s principal, enduring and
emerging risks, including the Company’s
risk management approach, risk reporting
framework and risk mitigation. More
information about the Principal Risks
faced by the Company is set out in the
Risk Overview section from page 63
> quarterly reports from the General Counsel
on the status of significant litigation matters
and governmental investigations
> quarterly reports of work carried out by
IA and Finance including the status of
follow-up actions with management
> quarterly reports from Global Compliance
regarding key compliance incidents
(both substantiated and unsubstantiated),
trends arising and dispersion of incidents
across the Group’s business functions
including any corrective actions taken
so that the Committee could assess the
effectiveness of controls, and monitor
and ensure the timeliness of remediation
> data from reports made by employees via
the AZethics helpline, online facilities and
other routes regarding potential breaches
of the Code of Ethics, together with the
results of enquiries into those matters
> reports from the Group Treasury function,
in particular, concerning the Company’s
liquidity and cash position, credit risk and
the appropriateness of its investment
management policy in the context of the
current economic situation
AstraZeneca Annual Report & Form 20-F Information 2017 / Corporate Governance > the preparation of the Directors’ Modern
Slavery Act Statement and the adequacy
of the monitoring, review and education
relating to modern slavery risks conducted
across the organisation during the year.
External audit
> audit and non-audit fees of the external
auditor during 2017, including the objectivity
and independence of the external auditor
through the application of the Audit and
Non-Audit Services Pre-Approval Policy as
described further below. Further information
about the audit and non-audit fees for 2017
is disclosed in Note 30 to the Financial
Statements on page 189.
Performance assessment
> effectiveness review of IA by considering
its performance against the internal audit
plan and key activities. The Committee noted
how IA had delivered value to the business
during the year by providing assurance over
compliance with significant policies, plans,
procedures, laws and regulations, as well
as risk-based audits across a broad range
of key business activities, introducing
thematic reporting to the business, and
adapting the audit plan to respond to new
or arising risks over the year
> the Committee conducted the annual
evaluation of its own performance with
each Committee member responding to
a web-based questionnaire prepared by
an external third party. The effectiveness
review of the Committee was assessed
as high, with the Committee continuing to
provide challenge and assurance over key
accounting areas of judgement. A feature
of the Committee’s oversight was said to
be its targeting of ‘deep dive’ sessions to
further its understanding of the challenges
facing parts of the business as well as risk
management and its visibility to different
stakeholders through site visits and informal
discussions with employees.
Matters considered and discussed by the
Committee in addition to its usual business
as described above included:
Business updates
> regular updates from the IT/IS team on
matters including: the alignment of
critical systems and information assets
to the Group’s cyber defence capability;
enhancing segregated networks;
mandatory training on cyber security to
support effective risk identification and
mitigation; and learning from a simulated
global cyber security crisis exercise, and
from high-profile cyber-attacks affecting
other large organisations during 2017
> reviews of the Company’s significant
restructuring programmes initiated from
2013 onwards, including accounting for
restructuring charges, control over
capital expenditure and the projection
for their completion
> supply chain readiness for launching new
products, a review of the Group’s biologics
capability and manufacturing capacity,
and an overview of manufacturing site-
preparedness for an increasingly complex
regulatory environment
> review and mitigation for Brexit scenarios,
in particular, funding sources, cash
management activities, insurance and
derivative contracts in the context of the UK
losing passporting rights for banking services
> key compliance risks arising from our
activities in MEA and Latin America and the
programme of strengthening controls and
processes, streamlining geographical and
organisational structures, and creating a
culture of accountability
> consideration of major trends regarding
pricing, reimbursement and market access in
oncology, and the key external and internal
risks the Company faces in this context
> post-acquisition reviews of Acerta Pharma
and ZS Pharma including the circumstances
connected with the two FDA CRLs relating
to ZS-9
> a review of the arrangements, activities and
operation of the Group’s Global Business
Services unit.
External audit, accounting and
regulatory changes
> monitoring the external audit transition
process to ensure an effective transition
of the Group’s external auditor
> a review of the governance arrangements
for the Pensions Trustee of the AstraZeneca
UK Pension Fund
> preparation and policy changes required
for the implementation of IFRS 9 and IFRS
15 with effect from 1 January 2018
> preparation for compliance with the General
Data Protection Regulation which is due to
come into force on 25 May 2018.
Significant financial reporting issues
considered by the Committee in 2017
Revenue recognition
The US is our largest single market and sales
accounted for 30.6% of our Product Sales in
2017. Revenue recognition, particularly in the
US, is impacted by rebates, chargebacks, cash
discounts and returns (for more information,
please see the Financial Review from page 66).
The Committee pays particular attention
to management’s estimates of these items,
its analysis of any unusual movements and
their impact on revenue recognition informed
by commentary from the external auditor.
Valuation and possible impairment of
intangible assets
The Group carries significant intangible assets
on its balance sheet arising from the acquisition
of businesses and IP rights to medicines in
development and on the market. Each quarter,
the CFO outlines the carrying value of the
Group’s intangible assets and, in respect of
those intangible assets that are identified as at
risk of impairment, the difference between the
carrying value and management’s current
estimate of discounted future cash flows for ‘at
risk’ products (the headroom). Products will be
identified as ‘at risk’ because the headroom is
small or, for example, in the case of a medicine
in development, there is a significant
development milestone such as the publication
of clinical trial results which could significantly
alter management’s forecasts for the product.
In 2017, the Committee considered the annual
impairment reviews of the Group’s intangible
assets, including Byetta, FluMist, Movantik/
Moventig, ZS-9 and tralokinumab. The
considerations of the Byetta and Movantik/
Moventig impairment reviews covered
anticipated generic entry in the US, and a
re-assessment of the market opportunity in
the context of the OIC indication respectively.
The FluMist impairment review included the
impact of the announcement in June 2017
by the Advisory Committee on Immunization
Practices of the Center for Disease Control
and Prevention of an interim recommendation
on the use of FluMist Quadrivalent in the
US during the 2017/2018 influenza season,
which followed a similar announcement in
2016 in respect of the 2016/2017 influenza
season. The Committee also assessed the
impact of the second CRL received from the
FDA for ZS-9.
Impairments were taken on Byetta, FluMist and
Movantik/Moventig, and tralokinumab was fully
impaired following the disappointing clinical
read out for the Phase III programme in
severe, uncontrolled asthma in November.
Litigation and contingent liabilities
The Committee was regularly informed by
the General Counsel and external auditor
about IP litigation, product liability actions and
governmental investigations that might result
in fines or damages against the Company, to
assess whether provisions should be taken and,
if so, when and in what amount. Of the matters
the Committee considered in 2017, the more
significant included: the Texas Attorney General
matters regarding Crestor and Seroquel;
and the Nexium and Prilosec product liability
litigation in the US. The Company has had
success in defending the Nexium substance
patent in the Canadian Supreme Court by
overturning invalidity decisions from lower
courts but it is also managing third party patent
infringement challenges in the US for Calquence
and Imfinzi (products which received FDA
approval during the year). The Company
continues to defend claims by generics
companies for damages relating to the US
Pulmicort patent litigation. Further information
about the Company’s litigation and contingent
liabilities is set out in Note 28 to the Financial
Statements from page 182.
Tax accounting
The Committee reviews the Company’s
approach to tax including governance,
risk management and compliance, tax planning,
AstraZeneca Annual Report & Form 20-F Information 2017 / Audit Committee Report
103
Corporate Governance Audit Committee
Report continued
dealings with tax authorities and the level of tax
risk the Company is prepared to accept. The full
statement, which was published in December
2017, can be found at www.astrazeneca.com.
The Committee also reviewed the impact
of the reduction in US federal tax rates as a
result of tax reform in the US, which resulted
in a reduction of deferred tax balances of
$617 million.
Retirement benefits
Pension accounting continues to be an
important area of focus recognising the level of
pension fund deficit and its sensitivity to small
changes in interest rates, which the Committee
continues to monitor carefully. The Committee
reviewed the Company’s defined benefit
pension global funding objective and
principles, focusing in particular on the
Company’s main defined benefit pensions
obligations in Sweden, the UK and the US.
Internal controls
The Committee receives a report of the matters
considered by the Disclosure Committee during
each quarter. During the year, a number of internal
control weaknesses were reported relating to a
new IT system implemented in January 2017 (used
to manage customer deduction programmes in
the US) and over the completeness of reports
used to validate the adequacy of supporting
documentation and approval of manual journals.
These were remediated in-year with validation
testing performed to ensure operational
effectiveness. Across the wider internal
control environment, a large number of design
improvements have been implemented to
further strengthen, enhance and de-risk our
internal control over financial reporting. At the
January 2018 meeting, the CFO presented
to the Committee the conclusions of the CEO
and the CFO following the evaluation of the
effectiveness of our disclosure controls and
procedures required by Item 15(a) of Form 20-F
at 31 December 2017. Based on their evaluation,
the CEO and the CFO concluded that, as at that
date, we maintained an effective system of
disclosure controls and procedures.
For further information on the Company’s
internal controls, please refer to the
Accountability section in the Corporate
Governance Report on page 96.
External auditor
Following a competitive tender carried out in
2015, a resolution to approve the appointment
of PwC for the financial year ending 31
December 2017 was passed by shareholders
at the Company’s AGM in April 2017.
KPMG LLP (KPMG), who formerly held office,
worked with PwC to ensure an orderly
transition during the first half of the year.
Richard Hughes is the lead partner at PwC.
Non-audit services and safeguards
The Committee maintains a policy (the Audit
and Non-Audit Services Pre-Approval Policy)
for the pre-approval of all audit services and
104
permitted non-audit services undertaken by
the external auditor, the principal purpose of
which is to ensure that the independence of
the external auditor is not impaired. The policy
covers three categories of work: audit services;
audit-related services; and tax services, the
latter of which is significantly restricted such
that no tax services are pre-approved under
the policy. The policy defines the type of work
that falls within each of these categories and
the non-audit services that the external auditor
is prohibited from performing under the rules
of the SEC and other relevant UK and US
professional and regulatory requirements.
The pre-approval procedures permit certain
audit and audit-related services to be performed
by the external auditor during the year, subject
to annual fee limits agreed with the Committee
in advance. Pre-approved audit and audit-
related services below the clearly trivial
threshold (within the overall annual fee limit)
are subject to case-by-case approval by the
Vice-President, Group Financial Controller.
The pre-approved audit services included
services in respect of the annual financial
statement audit (including quarterly and
half-year reviews), attestation opinions
under section 404 of the Sarbanes-Oxley Act,
statutory audits for subsidiary entities, and other
procedures to be performed by the independent
auditor to be able to form an opinion on the
Company’s consolidated financial statements.
The pre-approved audit-related services, which
the Committee believes are services reasonably
related to the performance of the audit or review
of the Company’s financial statements, included
certain services related to acquisitions and
disposals, financial statement audits of
employee benefit plans, and internal controls
reviews. The Committee is mindful of the 70%
non-audit services fee cap under EU regulation,
together with the overall proportion of fees for
audit and non-audit services in determining
whether to pre-approve such services.
The CFO (supported by the Vice-President,
Group Financial Controller), monitors the
status of all services being provided by the
external auditor. Authority to approve work
exceeding the pre-agreed annual fee limits
and for any individual service above the
clearly trivial threshold is delegated to the
Chairman of the Committee together with
one other Committee member in the first
instance. A standing agenda item at
Committee meetings covers the operation
of the pre-approval procedures and regular
reports are provided to the full Committee.
the quarter ended 31 March 2017 and
provision of a comfort letter for the Company’s
capital market debt issuance. Following their
appointment, PwC provided non-audit services
including an interim review of the results of the
Group for the six months ended 30 June 2017.
Fees for non-audit services amounted to 4% of
the fees paid to PwC for audit, audit-related and
other services in 2017. A similar statistic has
not been provided for KPMG for 2017 as this
would not be meaningful given that no Group
audit services were provided during the year.
In each case, KPMG and PwC were
considered better placed than any alternative
audit firm to provide these services in terms of
their familiarity with the Company’s business,
skills, capability and efficiency. All such
services were either within the scope of
the pre-approved services set out in the
Non-Audit Services Policy or were presented
to Committee members for pre-approval.
Further information on the fees paid to PwC
for audit, audit-related and other services is
provided in Note 30 to the Financial Statements
on page 189.
Assessing external audit effectiveness
In accordance with its normal practice, the
Committee considered the performance of
PwC and its compliance with the independence
criteria under the relevant statutory, regulatory
and ethical standards applicable to auditors.
The Committee assessed effectiveness taking
into account the views of senior management
within the finance function and regular
Committee attendees, in particular, against
five key factors namely: judgement; mind-set
& culture; skills, character & knowledge; and
quality control. The Committee felt that the first
full year audit had been comprehensive; that
the change of auditors had, as anticipated,
brought a fresh approach and provided robust
challenge to management proposals, and
had led to improvements being incorporated
throughout the control environment.
Accordingly, the Committee was satisfied that
there had been an effective transition of the
Group’s external auditor and concluded that
the PwC audit was effective for the financial
year commencing 1 January 2017.
In February 2018, the Committee
recommended and the Board agreed to the
reappointment of PwC as the Company’s
auditor for 2018. Accordingly, a resolution
to re-appoint PwC as auditors will be put to
shareholders at the Company’s AGM in 2018.
All non-audit services other than the pre-
approved audit and audit-related services
are approved by the Audit Committee on
a case-by-case basis. In 2017, non-audit
services provided to the Company by KPMG
(prior to their cessation of appointment as
the Group’s auditor in April) included services
provided in respect of the audit transition,
interim review of the results of the Group for
Regulation
The Committee considers that the Company
has complied with the Competition and
Markets Authority’s Statutory Audit Services
for Large Companies Market Investigation
(Mandatory Use of Competitive Tender
Processes and Audit Committee
Responsibilities) Order 2014 in respect of its
financial year commencing 1 January 2017.
AstraZeneca Annual Report & Form 20-F Information 2017 / Corporate Governance Directors’
Remuneration
Report
As AstraZeneca’s pipeline-driven
transformation continues, and the Company
is focused on its return to growth, the
Remuneration Committee has taken care
to ensure that the Company’s remuneration
arrangements remain aligned to its strategy.
Contents
Annual statement from the
Chairman of the Committee 105
Remuneration at a glance (summary) 108
Single total figure of remuneration
> Executive Directors 110
> Non-Executive Directors 115
Payments to former Directors 115
Payments for loss of office 115
Directors’ interests in shares 116
Share interests granted in 2017 118
Other disclosures
> Change in CEO remuneration
compared to other employees 120
> CEO total remuneration table 120
> Total shareholder return 120
> Relative importance of spend
on remuneration 121
> Disclosure of historical
performance targets 121
How we’ll apply the Directors’
Remuneration Policy during 2018 122
Executive Directors’ share plan interests 124
Governance 125
As Chairman of the Remuneration Committee
(the Committee), I am pleased to present
AstraZeneca’s Directors’ Remuneration
Report for the year ended 31 December 2017.
As AstraZeneca’s pipeline-driven transformation
continues and the Company is focused on
its return to growth, the Committee has
taken care to ensure that the Company’s
remuneration arrangements remain aligned
to its strategy with strong links between
long-term performance and our shareholders’
experience. The Committee also considers
the approach to remuneration arrangements
across the business as part of ensuring we
are able to attract, motivate and retain the
talented employees needed to execute the
strategy successfully.
Our Remuneration Policy, which aims to align
the remuneration of Executive Directors with
the long-term strategy of the business and
wider shareholder experience, took effect
from last year’s AGM. The Remuneration
Policy was approved by 96% of our
shareholders, and I would like to thank
shareholders for their support of the
remuneration arrangements in place.
We are not proposing to make any changes
to the Remuneration Policy for 2018.
Our Remuneration Policy can be viewed on our website,
www.astrazeneca.com/remunerationpolicy2017
AstraZeneca Annual Report & Form 20-F Information 2017 / Directors’ Remuneration Report
105
Corporate Governance Directors’ Remuneration
Report continued
Shareholder engagement
The Committee was disappointed with the
level of support received in favour of the
Annual Report on Remuneration for the
year ended 31 December 2016. During 2017,
the Committee Chairman engaged with
shareholders and proxy voting agencies
to set out the Committee’s remuneration
proposals for 2018 and to gather feedback
ahead of this report being published.
In response to this feedback, we have
increased the level of annual bonus
disclosure and are proposing a number
of changes to the bonus operation for 2018,
as follows:
> The operation of the 2017 annual bonus –
we have provided a detailed explanation
of the three stages that the Committee
goes through when determining annual
bonus outcomes.
> The operation of the 2018 annual
bonus – the Committee has reviewed
the operation of the annual bonus plan.
From 2018, performance will be assessed
for each metric in the Group scorecard
on a standalone basis for each
Executive Director.
> Enhanced disclosure of pay-out ranges
– we have disclosed the threshold and
maximum performance hurdles for the
Achieve Group Financial Targets and
Achieve Scientific Leadership metrics
for the 2017 performance year and are
committed to disclosing those hurdles
for Return to Growth metrics in next
year’s report.
> Simplification of measures – we have
reduced the number of measures used for
the 2018 annual bonus, including adopting
a consolidated Return to Growth measure
for which we will disclose the threshold and
maximum performance hurdles immediately
following payment.
We hope these improvements will increase
shareholders’ understanding of how our annual
bonus scheme operates and demonstrate
how actual performance and corresponding
pay-outs align with both Company performance
and the stretching targets set by the Committee.
The Committee also considered the concerns
raised by some shareholders in relation to
the AZIP, which were reflected in the level of
shareholder support for the Annual Report on
Remuneration for the year ended 31 December
2016. These concerns about the proposed
change in operation of AZIP performance
measures were balanced against concerns
raised by other shareholders about the potential
for the AZIP, in its existing form, to incentivise
a focus on short-term performance.
Taking into account the differing shareholder
views and noting that the AZIP is now a legacy
plan under which no further awards will be
106
Principal activities focused on by the Committee during 2017
2016 Directors’
Remuneration Report
and Remuneration Policy
> Preparation, review and approval of the 2016 Directors’ Remuneration Report and
Remuneration Policy
> Consultation with shareholders and shareholder representative bodies on remuneration
proposal ahead of 2017 AGM
> Consideration of the low level of shareholder support received for the 2016 Directors’
Remuneration Report at the AGM and how to address concerns raised
> Consideration of the Committee Chairman’s consultation with shareholders and
shareholder representative bodies following the 2017 AGM
Annual bonus
> Approval of the 2016 Group scorecard outcome and determination of Executive Directors’
annual bonus awards for 2016
> Review of bonuses granted to executives below SET level
> Approval of Group scorecard targets used to assess 2017 annual bonus performance
Share plans
> Approval of 2014 PSP and 2013 AZIP performance outcomes
> Approval of LTI grants
> Approval of performance measures to attached to PSP awards granted in 2017
> Review and simplification of LTI rules
> Review of projected outcomes for outstanding LTI awards
Other matters
> Approval of compensation arrangements for Executive Directors and SET
members for 2017
> Review of AstraZeneca’s compensation strategy
> Review of analysis of key aspects of reward across the wider Group
> Review of Chairman’s fee
> Review of compensation arrangements for companies acquired by AstraZeneca
> Consideration of AstraZeneca’s gender pay gap data and draft disclosure to be made in 2018
> Discussion of remuneration trends and shareholder views
> Review of the Committee’s performance, including comments arising from the annual
Board evaluation
> Review of the Committee’s terms of reference
granted, the Committee determined that
the performance measures attached to extant
AZIP awards should be operated as proposed,
and as set out in the Remuneration Policy,
reflecting the support given by the majority
of those shareholders voting at the 2017 AGM.
2017 performance highlights and
remuneration outcomes
2017 performance
Pipeline delivery in 2017 was strong and
AstraZeneca’s Products Sales performance
improved over the course of the year
reflecting the focus on commercial execution
as we continue to implement our strategy.
We made encouraging progress across the
main therapy areas. Our CVMD medicines
Brilinta and Farxiga reached blockbuster
status, we launched our first Respiratory
biologic medicine, Fasenra, and new cancer
medicines, Imfinzi and Calquence. As well
as bringing five new medicines to patients
in 2017, we continued to find more potential
uses for existing treatments, including
Lynparza and Tagrisso.
During the year, we successfully accelerated
a number of significant opportunities,
not expected to be achieved in 2017.
For example, the accelerated approval for
Calquence, the FDA regulatory submission
for Tagrisso following its Breakthrough
Therapy Designation and Priority Review
status previously granted by the FDA, and the
Breakthrough Therapy Designation granted
by the FDA for Imfinzi on the basis of the
interim results from the Phase III PACIFIC trial.
The progression-free survival results of the
MYSTIC Phase III trial, which showed that
the combination of Imfinzi and tremelimumab
did not meet a primary endpoint in 1st
line Stage 4 NSCLC were disappointing,
as was the delay to our plans for the launch
of ZS-9. However, the number of successes
far outweighed the disappointments, as
we delivered a record number of approvals
in major markets, including first approvals
for Imfinzi, Calquence, Fasenra and Bevespi.
During 2017, we made encouraging progress
on commercial execution and cost discipline.
The Growth Platforms represented 68% of
Total Revenue and grew by 5% (at actual
exchange rates). Total Revenue (Product Sales
and Externalisation Revenue) declined by 2% (at
actual exchange rates), reflecting the impact of
Crestor’s and Seroquel XR’s loss of exclusivity
in the US. Externalisation Revenue grew by
37% (at actual exchange rates). Of particular
significance was our global strategic
collaboration with MSD to co-develop and
co-commercialise Lynparza for multiple cancer
types. This strategic collaboration between
two global oncology leaders, will increase the
possibilities for more treatment options for more
cancers and is expected to provide a significant
amount of income in the years to come, as
well as a favourable impact on development
costs. Our gross margin ratio for the year fell
by one percentage point, impacted by the
decline of sales on medicines where we
have lost exclusivity and the ramp-up of
manufacturing capacity for new medicines.
Core R&D and SG&A costs each reduced
by 4% (at actual exchange rates) in the year
reflecting our continued focus on cost discipline.
AstraZeneca Annual Report & Form 20-F Information 2017 / Corporate Governance Next steps
The Committee continues to monitor
the various developments in corporate
governance relating to remuneration matters.
In particular, the Committee is considering
the proposed changes to the UK Corporate
Governance Code. We are committed to
ensuring that our remuneration processes
and practices support our strategy and deliver
sustainable value to our shareholders, and
the Committee will remain attentive to further
advances in best practice. The Company’s UK
Gender Pay Gap Report will be issued shortly.
I hope that you find this report clear in
explaining the operation of our Remuneration
Policy and that it gives you the information
you need to be able to support the
remuneration resolution that will be put
forward to a shareholder vote at the 2018
AGM on the Annual Report on Remuneration
for the year ending 31 December 2017.
Our ongoing dialogue with shareholders is
valued greatly and, as always, we welcome
your feedback on this Directors’
Remuneration Report.
Yours faithfully
Graham Chipchase
Chairman of the Remuneration Committee
2 February 2018
2017 remuneration outcomes
The performance measures used in our
variable remuneration are closely aligned
with Company strategy, ensuring our Executive
Directors are only rewarded for delivery
of stretching and appropriately balanced
financial, non-financial and individual
performance targets. The Committee’s
evaluation has ensured that executive
reward reflects the overall performance of
the business and shareholder experience.
Valuable insight was provided by the Science
Committee for the assessment of science-
related matters and by the two Committee
members who are also members of the
Audit Committee.
When considering business performance
together with the Executive Directors’
individual performance, annual bonus awards
equivalent to 157% of base salary and 141%
of base salary were awarded to Mr Soriot and
Mr Dunoyer respectively, reflecting the Group
scorecard outcome of 157% of target bonus.
The Committee determined that this outcome
was appropriate having considered the Group
scorecard outcome in the context of overall
business and individual performance over
2017. One third of the bonus is converted
into AstraZeneca shares that are deferred
for three years to ensure further alignment
with shareholders.
The three-year performance period for PSP
awards granted to Executive Directors in 2015
ended on 31 December 2017. Performance
against the targets attached to those awards
will result in the awards vesting at 77% of
maximum. The shares are subject to a further
two-year holding period before vesting and
being released. The two performance tests
(progressive dividend and 1.5 times dividend
cover) attached to AZIP awards granted to
Executive Directors in 2014 were met in all
four years of the performance period which
ended on 31 December 2017, with the result
that 100% of this award will vest. The shares
are subject to a further four-year holding
period and are due to vest and be released
on 1 January 2022.
The resultant single total figures of
remuneration for both Mr Soriot and Mr
Dunoyer are set out on page 110. The following
chart breaks down their single figure totals
into fixed and variable pay with the proportion
attributable to share price appreciation
and dividends highlighted. As can be seen,
the majority of the single total figure comes
from variable pay which is linked to the
performance of the business and shareholder
experience. In the case of the CEO, 12%
of the single figure total is as a direct result
of the growth in value of our shares and
dividends paid since awards were made,
further demonstrating the link between the
remuneration of the Executive Directors
and the experience of our shareholders.
2017 single total figure of remuneration
CEO
CFO
£9.4m
£4.5m
Fixed remuneration
Variable remuneration
Value attributable to share price
appreciation and dividends
Remuneration in 2018
The Committee considers that rewarding the
Executive Directors appropriately is key to the
continued success of the Company and has
reviewed the 2018 remuneration arrangements
for both Executive Directors.
The Committee is mindful of the tension
between the UK executive pay environment
and the highly competitive global market
for talented executives capable of leading
a global innovative biopharmaceutical
company to deliver sustainable value for its
shareholders. In determining the remuneration
packages for Executive Directors, the
Committee aims to find the right balance to
incentivise, reward and retain highly talented
individuals appropriately. Mr Soriot and Mr
Dunoyer will each receive a salary increase
of 2.5%, effective from 1 January 2018.
The average annual increase awarded to the
wider UK employee population is also 2.5%.
The Committee also reviewed the annual
bonus and PSP performance measures for
2018. As mentioned earlier, we are proposing
to change the bonus operation for the 2018
financial year to address a concern that
underperformance in one metric can potentially
be compensated for by overperformance in
another metric. Building on the simplification
of previous years, the Committee has reduced
the number of annual bonus measures for
2018, by reducing the number of Achieve
Scientific Leadership measures from five
to four and by combining the five Return
to Growth metrics into one measure.
The Committee considers that the PSP
measures used in 2017 remain appropriate,
and therefore no changes are proposed
to these for awards to be made in 2018.
With effect from January 2018, in recognition
of the steady increase in the Chairman’s and
the Board’s workload and responsibilities,
the Chairman of the Company’s fee, and
certain other fees for other Non-Executive
Directors have been revised. No Board
member participated in any decision relating
to their own fees. Further detail is provided
on page 123.
AstraZeneca Annual Report & Form 20-F Information 2017 / Directors’ Remuneration Report
107
Corporate Governance Remuneration
at a glance
How pay is aligned to strategy
The annual bonus and long-term
incentive awards support the
delivery of our strategy.
The levels of remuneration
received are dependent on
performance against stretching
targets which are linked to our
strategic priorities and designed
to promote the long-term
success of the Company and
deliver sustainable value to
shareholders.
Achieve Scientific
Leadership
Return to Growth
Achieve Group
Financial Targets
Annual bonus
Long-term
incentives
PSP
–
AZIP
(legacy
LTI)
–
For more information on our
Strategy and Key Performance
Indicators, see page 17.
What our Executive Directors earned in 2017
Performance period and
remuneration summary
’14
’15
’16
’17
’18
’19
’20
’21
2017 remuneration
Pascal
Soriot
£’000
Marc
Dunoyer
£’000
Description
Fixed remuneration
Performance period
Holding period
Fixed remuneration
1,708
987
> Base salary, taxable benefits and
pension allowance
Annual bonus
Long-term
incentives
PSP
AZIP
1,916
1,025
> One third of annual bonus deferred into
shares, to be held for three years
> Subject to a two-year holding period
before vesting
5,718
2,484
> Subject to a four-year holding period
before vesting
Annual bonus outcome
Metric weightings (%)
Group scorecard
outcome
Achieve Scientific Leadership
52.8% of target bonus pays out
> 5 metrics
Return to Growth
> 5 metrics
27.6% of target bonus pays out
Achieve Group Financial Targets
76.9% of target bonus pays out
> Cash flow (10%)
> Core EPS (20%)
> Total Revenue (10%)
Committee
considerations
Overall business and individual
performance assessment
The Committee determined the Group scorecard outcome
appropriately reflects individual and overall business performance
Overall outcome
Pascal Soriot
Marc Dunoyer
87% max
157% salary
94% max
141% salary
Achieve Scientific Leadership 30%
Return to Growth 30%
Achieve Group Financial Targets 40%
For more information on: 2017 annual
bonus award, pages 110, 112 and 113;
Annual bonus measures for 2018,
page 122.
108
AstraZeneca Annual Report & Form 20-F Information 2017 / Corporate Governance
Achieve Scientific Leadership
100% of maximum vests
> 5 metrics
Return to Growth
> 6 metrics
77% of maximum vests
Achieve Group Financial Targets
89% of maximum vests
> Cash flow
Relative TSR
42% of maximum vests
Overall outcome
Pascal Soriot
Marc Dunoyer
77% max
77% max
Achieve Group Financial Targets
100% of maximum vests
> Dividend cover
> Dividend level
Overall outcome
Pascal Soriot
Marc Dunoyer
100% max
100% max
Long-term incentive outcome – PSP (2015-17)
Metric weightings (%)
Achieve Scientific Leadership 25%
Return to Growth 25%
Cash flow 25%
Relative TSR 25%
For more information on: 2015-17 PSP
outcome, pages 111 and 114; PSP award
granted in 2017, page 118; PSP measures
for 2018 grants, page 123.
Long-term incentive outcome – AZIP (2014-17)
Metric weightings (%)
Dividend cover 50%
Dividend level 50%
For more information on 2014-17
AZIP outcome, pages 111 and 114.
How we’ll apply our Remuneration Policy in 2018
Directors’ Remuneration Policy
Our Remuneration Policy for
Directors was approved by 96%
of shareholders at the AGM on
27 April 2017 and took effect on
that date.
Fixed remuneration
Consists of base salary, taxable benefits
and pension allowance
Base salaries:
CEO – £1,251,000
CFO – £743,000
2.5% increase in base salary
No change in provision of taxable
benefits and pension allowance
2018 opportunity
Change from 2017
Annual bonus
Quantum determined by performance
over one year. Two thirds paid as cash
and one third deferred into shares with
a three-year holding period.
CEO – maximum
180% base salary
CFO – maximum
150% base salary
Long-term incentive
Share awards granted under PSP.
Proportion vesting determined by
performance over a three-year period.
Two-year holding period applies after
performance period.
CEO – maximum
500% base salary
CFO – maximum
400% base salary
No change
No change
The full Remuneration Policy
can be viewed on our website,
www.astrazeneca.com/
remunerationpolicy2017.
AstraZeneca Annual Report & Form 20-F Information 2017 / Directors’ Remuneration Report
109
Corporate Governance
Annual Report
on Remuneration
This section of the report sets out how we applied our Remuneration Policy during 2017.
Single total figure of remuneration: Executive Directors (Audited)
The table below sets out all of the elements of remuneration receivable by the Executive Directors in respect of the year ended 31 December 2017,
alongside comparative figures for the prior year. The following notes explain what is included, how values have been calculated and, for annual
bonus and long-term incentives, how the Committee has assessed performance.
£’000
Pascal Soriot
Marc Dunoyer
Base
salary
Taxable
benefits
2017
2016
2017
2016
1,220
1,190
725
707
122
121
88
71
Fixed
Pension
366
357
174
170
Variable (performance related)
Annual
bonus
1,916
1,167
1,025
624
Long-term incentives
Other
Total
Regular
Buy-out
5,718
7,525
2,484
3,134
–
3,961
–
–
93
21
16
–
9,435
14,342
4,512
4,706
Notes to the single total figure of remuneration table
Fixed
Base salary
When awarding salary increases, the
Committee considers, among other factors,
the salary increases applied across
the UK employee population. In 2017,
both Executive Directors received a
salary increase of 2.5%, which was in
line with increases for the UK workforce.
Taxable benefits
The Executive Directors may select
benefits within AstraZeneca’s UK Flexible
Benefits Programme and may choose to take
their allowance, or any proportion remaining
after the selection of benefits, in cash. In 2017,
the Executive Directors selected benefits
including healthcare insurance, death-in-
service provision and advice in relation to tax
and took their remaining allowances in cash.
£’000
Pascal Soriot
Marc Dunoyer
2017 £’000
Pascal Soriot
Marc Dunoyer
Pension
The Executive Directors receive a pension
allowance, calculated as a percentage of base
salary. During 2017, both Executive Directors took
their pension allowance as a cash alternative to
participation in a defined contribution pension
scheme. Neither Executive Director has a
prospective entitlement to a defined benefit
pension by reason of qualifying service.
2017 £’000
Pascal Soriot
Marc Dunoyer
Increase
from 2016
Base salary
2017
2.5%
2.5%
1,220
725
Benefits
17
33
Taken
as cash
105
55
Total
benefits
122
88
Pensionable
salary
Pension
allowance
Cash in lieu
of pension
1,220
725
30%
24%
366
174
Bonus potential
as % of salary
2017
Pascal Soriot
Marc Dunoyer
Target Maximum
100%
90%
180%
150%
% of
salary
% of
maximum
157%
141%
87%
94%
Taken
as cash
1,277
683
Deferred
into shares
639
342
2017 bonus
£’000
Total
1,916
1,025
Annual bonus operation and performance in detail, pages 112–113.
Variable (performance related)
Annual bonus (summary)
Annual bonus targets are set at the beginning
of the year and are closely aligned to our
strategic priorities. Awards are determined
following year-end, using a robust three
stage process. Following feedback from
our shareholders, we have this year included
a more detailed description of the process
for assessing performance and calculating
outcomes to enhance transparency.
One third of each Executive Director’s
pre-tax bonus is deferred into Ordinary
Shares which are released three years from
the date of deferral, subject to continued
employment. Bonuses are not pensionable.
110
AstraZeneca Annual Report & Form 20-F Information 2017 / Corporate Governance Long-term incentives (summary)
For 2017, the figures include Performance Share Plan (PSP) awards granted in 2015 and AstraZeneca Investment Plan (AZIP) awards granted in
2014. Performance periods for both awards ended on 31 December 2017 but shares will not be released and dividend equivalents will not be paid
out to the Directors until the awards vest at the end of their respective holding periods. The award values have been calculated using the average
closing share price over the three-month period ended 31 December 2017 (4999.4 pence).
The long-term incentive figures for 2016 include shares awarded to Mr Soriot in 2013 under the AZIP to compensate him for long-term incentive
awards from previous employment which were forfeited on his recruitment as AstraZeneca’s CEO, in addition to regular AZIP and PSP awards
granted in 2013 and 2014 respectively. Performance periods for these awards ended on 31 December 2016 at which point the PSP awards
vested. Shares under the AZIP awards will not be released and dividend equivalents will not be paid out to the Directors until the awards vest
at the end of the four-year holding period.
The AZIP award values for 2016 have been recalculated using the average closing share price over the three-month period ended 31 December
2017 (4999.4 pence). The PSP award values for 2016 have been recalculated using the closing share price on the date of vesting (4960.0 pence).
Figures disclosed in last year’s Remuneration Report were based on the average closing share price over the three-month period ended
31 December 2016 (4510.6 pence). As the share price used to calculate the value of these awards has increased, the 2016 long-term incentive
award values are higher than those disclosed in last year’s Remuneration Report, as are the single total figures of remuneration for 2016.
The long-term incentive figures also include the value of dividend equivalents accrued during the relevant performance periods.
2015 PSP performance
77% of the PSP awards granted to Mr Soriot and Mr Dunoyer on 27 March 2015 in respect of the 2015-2017 performance period are due to vest
on completion of the holding period on 27 March 2020. Vesting is ordinarily subject to continued employment.
Pascal Soriot
Marc Dunoyer
Ordinary
Shares
granted
104,764
45,880
Performance
outcome
77%
77%
Shares
due to
vest
80,668
35,327
Value of
shares due
to vest
£’000
4,033
1,766
Dividend
equivalent
accrued over
performance
period
£’000
492
215
Total
£’000
4,525
1,982
2014 AZIP performance
100% of the AZIP awards granted to Mr Soriot and Mr Dunoyer on 28 March 2014 in respect of the 2014-2017 performance period are due to vest
on completion of the holding period on 1 January 2022. Vesting is ordinarily subject to continued employment.
Pascal Soriot
Marc Dunoyer
Long-term incentives performance in detail, page 114.
Ordinary
Shares
granted
20,677
8,709
Performance
outcome
100%
100%
Shares
due to
vest
20,677
8,709
Value of
shares due
to vest
£’000
1,034
435
Dividend
equivalent
accrued over
performance
period
£’000
159
67
Total
£’000
1,193
503
Other
Other items in the nature of remuneration
Deferred shares granted to the Executive Directors under the Deferred Bonus Plan (DBP) in respect of the withheld proportion of their annual
bonuses awarded for performance during the year ended 31 December 2013 were released during 2017, on completion of the three-year holding
period. The dividend equivalents accrued on the deferred shares during the holding period and paid to the Executive Directors at the time of
release are included in the Other column.
AstraZeneca Annual Report & Form 20-F Information 2017 / Directors’ Remuneration Report
111
Corporate Governance Annual Report
on Remuneration
continued
Annual bonus (in detail)
Our bonus process explained
Stage 1 – Group scorecard
outcome assessment
Stage 2 – Overall business
and individual performance
assessment
Stage 3 – Final individual
bonus determination
2017 bonus outcome (Audited)
Group scorecard outcome as % of target
bonus
The Committee assesses the Company’s performance against the measures contained in the Group scorecard. The Group scorecard for 2017
contained metrics under three performance measures: Achieve Scientific Leadership, Return to Growth and Achieve Group Financial Targets.
Each Group scorecard metric had a defined payout range, with 100% target bonus pay-out for on-target performance and 200% of target bonus
pay-out for the maximum level of performance. A threshold level of performance is set for each metric and performance at or below threshold
level will result in 0% payout for that metric. Performance against each metric is assessed and the Group scorecard outcome overall is the result
of the combined weighted outcomes for each metric. Information on the operation of the annual bonus scheme in 2018 is provided on page 122.
The Committee assesses the Group scorecard outcome to ensure that it accurately reflects business performance and the experience
of shareholders over the year of assessment. The Committee also carries out an assessment of each Executive Director’s personal performance.
Taking these factors into account, the Committee determines the level of bonus that represents a fair and balanced reflection of the individual
Executive Director’s performance during the year.
Bonuses for Executive Directors will not normally exceed the historical maximum opportunities of 180% of base salary for the CEO and 150%
of base salary for the CFO. Ordinarily, if the assessment at Stage 2 exceeds these amounts, the Executive Director’s bonus is capped at the
relevant historical maximum amount. If the Committee believes it will be in the interests of shareholders to award a bonus in excess of these
historical limits (up to the maximum permitted under our Directors’ Remuneration Policy), major shareholders would be consulted in advance.
Each Executive Director’s annual bonus is determined upon completion of this third stage.
Stage 1 – Group
scorecard
outcome
assessment
Achieve
Scientific
Leadership
Return to
Growth
Achieve Group
Financial
Targets
Total
52.8%
27.6%
76.9%
157%
Stage 2 – Overall
business and
individual
performance
assessment
Stage 3 – Final
individual bonus
determination
Pascal Soriot bonus as % of base salary
52.8%
27.6%
76.9%
Marc Dunoyer bonus as % of base salary
47.5%
24.8%
69.2%
157%
141%
157%
141%
157%
141%
Unchanged
1. Group scorecard outcome assessment
Performance against the 2017 Group scorecard is set out below.
2017 Group scorecard performance measures and metrics
Weighting
Threshold
Target
Maximum
Outcome
Group scorecard
outcome
Achieve Scientific Leadership
NME Phase II starts/progressions
NME and major life-cycle management Phase III investment decisions
NME and major life-cycle management regional submissions
NME and major life-cycle management regional approvals
6% per
measure
5
3
6
9
7
10
6
9
13
10
15
9
11
16
13
14
9
13
19
10*
Met target
Max
Max
Max
Met target
$3,563m Below threshold
6% per
measure
Commercially sensitive:
will be disclosed in our
2018 Annual Report
$4,609m
$1,330m
$5,870m
$2,335m
10%
20%
10%
$2.9bn
$3.51
$3.2bn
$3.90
$3.8bn
$4.29
$3.6bn
$4.47
$21.3bn
$22.0bn
$22.7bn
$22.7bn
Below target
Max
Met target
Met target
Met target
Max
Max
Acquisitions, licensing and divestment deals
Return to Growth
New CVMD (including Brilinta/Brilique)
Respiratory
New Oncology
Emerging Markets
Japan
Achieve Group Financial Targets
Cash flow
Core EPS
Total Revenue
* The Committee determined that following completion of the Lynparza collaboration with MSD the financial basis for which this metric is a proxy had been achieved.
112
AstraZeneca Annual Report & Form 20-F Information 2017 / Corporate Governance Achieve Scientific Leadership
These targets reflect the Company’s ability to deliver innovation to the market. In 2017, we continued to make progress towards achieving
scientific leadership. The AstraZeneca pipeline includes 144 projects, of which 132 are in the clinical phase of development. There are 11 NME
projects currently in late-stage development, either in Phase III/pivotal Phase II studies or under regulatory review. During 2017, across the
portfolio, 80 projects successfully progressed to the next phase. This included eight first approvals in a major market and 12 NME progressions.
In addition, 18 projects have entered Phase I and 10 have been discontinued. The Committee and the Science Committee assessed the
substance of the achievements during the year and concluded that the results disclosed in the 2017 Group scorecard table represent a fair and
balanced outcome. The acquisitions, divestment and licensing target was set to reflect the estimated number of deals required to deliver a given
level of value during the year. Seven significant deals were completed during 2017, however the value delivered by the completion of the Lynparza
collaboration with MSD was significantly ahead of that anticipated at the start of the year when targets were set. The Group scorecard outcome
reflects achievement of the target in respect of this metric.
Return to Growth
These targets are based on quantitative sales targets for 2017 and relate to the Company’s Growth Platforms. The Return to Growth targets are
set at budget exchange rates at the beginning of the performance period and evaluated at those rates at the end of the performance period; they
are not directly comparable year to year. Targets reflect acquisitions and disposals and take into account known events such as the biennial price
reviews in Japan, which impacted 2016. In 2017, the New Oncology therapy area and Emerging Markets region performed well, exceeding target,
and Japan met its target. New CVMD and Respiratory were below target reflecting a number of challenges in meeting these stretching targets.
The target, threshold and maximum performance hurdles for the 2017 individual Growth Platforms are currently deemed to be commercially
sensitive as our competitors may use this detailed information to help predict what our targets and expectations are for growth products for
future performance years and refine their competitive response. We will disclose this information in the 2018 Remuneration Report.
Achieve Group Financial Targets
These targets are based on the Company’s key financial measures. The cash flow measure is evaluated by reference to net cash flow from
operating activities less capital expenditure adding back proceeds from disposal of intangible assets. The Core EPS and Revenue measures
are evaluated by reference to budget exchange rates such that beneficial or adverse movements in currency, which are outside the Company’s
control, do not impact reward outcomes. During 2017, all measures within the Group financial targets exceeded target with a strong performance.
Based on performance against the weighted measures, the Group scorecard outcome for 2017 was 157% of target bonus.
2. Overall business and individual performance assessment
The Committee reviewed the Group scorecard outcome in the context of overall business performance and the Executive Directors’ individual
performance. Over the course of 2017, AstraZeneca made encouraging progress in our main therapy areas, particularly pipeline performance,
as well as in commercial execution and cost discipline. The Committee considered shareholder experience, noting that TSR performance over the
year was ahead of the market (FTSE30/FTSE100) and peers, and that Core Earnings Per Share (EPS) for 2017 was above target. The Committee
was also mindful that the results of the MYSTIC Phase III trial, which showed that the combination of Imfinzi and tremelimumab did not meet a
primary endpoint progression-free survival in 1st line Stage 4 NSCLC were disappointing, as was the delay to our plans for the launch of ZS-9.
However, the Committee determined that the number of successes far outweighed the disappointments.
The assessments of the CEO and CFO’s individual performance over 2017 included measures reinforcing aspects of the Group scorecard,
supporting our Be a Great Place to Work strategic priority and measuring the success of initiatives to drive productivity and innovation within the
business. The assessment of Mr Soriot’s individual performance included progress in increasing diversity in leadership roles across AstraZeneca;
achievement of key sustainability targets, including rankings within the Global 100, FTSE4Good and DJSI indices; and strong scores from quarterly
employee surveys in relation to personal development and growth opportunities and establishing AstraZeneca as a Great Place to Work.
The assessment of Mr Dunoyer’s performance included delivery of Growth Platforms and revenues; performance against financial targets
balancing short-term goals with supporting longer-term R&D investment; ongoing internal productivity programmes; and good progress in
decreasing our operating cost base.
In the context of overall business and individual performance during 2017, the Group scorecard outcome is considered to be an appropriate
reflection of key achievements and the level of bonus awarded to each Executive Director has been set at 157% of target bonus.
3. Final individual bonus assessment
The Executive Directors’ target bonuses for 2017 were 100% of base salary for the CEO and 90% of base salary for the CFO. The level of bonus
determined under Stage 2, the overall business and individual performance assessment, equates to bonus payouts below the historical levels of
maximum opportunity for Executive Directors and therefore the level of bonus awards does not need to be moderated under this final individual
bonus assessment.
AstraZeneca Annual Report & Form 20-F Information 2017 / Directors’ Remuneration Report
113
Corporate Governance Annual Report
on Remuneration
continued
Long-term incentives (in detail)
2015 PSP performance
The TSR and cash flow targets and payout profiles were disclosed at the time of award, on page 111 of the 2015 Annual Report. The Achieve
Scientific Leadership and Return to Growth targets are no longer deemed to be commercially sensitive and are disclosed below.
2015 PSP performance measures and metrics
Achieve Scientific Leadership
NME approvals
Major life-cycle management approvals
Phase III/registration NME volume
Prospective peak-year sales for approvals from
NME & major life-cycle management approvals
Phase II starts
Return to Growth
Brilinta/Brilique
Diabetes franchise
Respiratory
Oncology launch
Emerging Markets
Japan
TSR rank relative to peer group
Weighting
Threshold
(25% vesting)
Maximum
(100% vesting)
Outcome
Vesting (% of
maximum)
5% per
measure
4.16% per
measure
3
4
6
3
13
$0.8bn
$2.7bn
$4.94bn
$0.35bn
$5.7bn
$1.6bn
7
9
11
6
18
$1.2bn
$3.8bn
$5.2bn
$0.5bn
$8.1bn
$2.3bn
25%
Median Above upper quartile (2nd
or above, at the discretion
of the Committee)
9
10
11
9
36
$1.2bn
$2.7bn
$5.2bn
$1.4bn
$7.0bn
$2.2bn
5th
100%
100%
100%
100%
100%
97%
0%
97%
100%
77%
93%
42%
Adjusted cumulative cash flow
25%
$9.0bn
$13.0bn
$12.1bn
89%
The Return to Growth targets are set at budget exchange rates at the beginning of the performance period and evaluated at those rates at the end
of the performance period. The Adjusted cumulative cash flow measure is evaluated by reference to net cash flow before distributions and other
adjustments required by the performance conditions. More information about the TSR performance of the Company is set out on page 120.
The TSR peer group against which performance has been assessed for the 2015 PSP was set at the time of grant and is detailed on page 113
of the 2015 Annual Report.
2014 AZIP performance
The AZIP targets were disclosed at the time of award, on page 109 of the 2014 Annual Report. The operation of the targets was revised in 2017
to address shareholder concerns that the original structure could incentivise too great a focus on short-term earnings. The original cliff vesting
approach was replaced with a sliding-scale, whereby 25% of the award will lapse in respect of any year in the performance period in which either
of the performance targets are not achieved.
2014 AZIP performance measures
Annual dividend per share at or above $2.80
Dividend cover of 1.5 calculated on the basis of Core EPS
2014
$2.80
1.53
2015
$2.80
1.52
2016
$2.80
1.54
2017
$2.80
1.53
114
AstraZeneca Annual Report & Form 20-F Information 2017 / Corporate Governance Single total figure of remuneration: Non-Executive Directors (Audited)
The single total figure table sets out all elements of remuneration receivable by the Non-Executive Directors in respect of the year ended
31 December 2017, alongside comparative figures for the prior year.
Leif Johansson
Geneviève Berger
Philip Broadley – elected 27 April 2017
Graham Chipchase
Deborah DiSanzo – appointed 1 December 2017
Rudy Markham
Sheri McCoy – appointed 1 October 2017
Nazneen Rahman – appointed 1 June 2017
Shriti Vadera
Marcus Wallenberg
Former Non-Executive Directors
Cori Bargmann – retired 1 October 2016
Bruce Burlington – retired 31 August 2017
Ann Cairns – retired 24 April 2017
Jean-Philippe Courtois – retired 1 December 2016
Total
2017
Fees
£’000
575
87
64
115
25
165
43
61
110
87
–
78
31
–
2016
Fees
£’000
575
87
–
115
–
165
–
–
110
87
65
117
95
87
2017
Other
£’000
39
2016
Other
£’000
36
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2017
Total
£’000
614
87
64
115
25
165
43
61
110
87
–
78
31
–
2016
Total
£’000
611
87
–
115
–
165
–
–
110
87
65
117
95
87
1,441
1,503
39
36
1,480
1,539
Notes to the Non-Executive Directors’ single total figure of remuneration table
Board fees and office costs
The Chairman’s single total figure includes office costs (invoiced in Swedish krona) of £39,000 for 2017 and £36,000 for 2016. Further information
on the Non-Executive Directors’ fee structure can be found on page 123.
A new Non-Executive Director receives one third of their annual fee in the first month of service following appointment, to recognise the additional
work and time involved in finalising their appointment, including activities associated with their induction as a Director. The balance of the annual
fee is paid in equal monthly instalments over the remainder of the Director’s first year of service. In the second and subsequent years of service,
the annual fee is paid in equal monthly instalments.
Payments to former Directors (Audited)
During 2017 no payments were made to former Directors.
Payments for loss of office (Audited)
No payments were made for loss of office during 2017.
AstraZeneca Annual Report & Form 20-F Information 2017 / Directors’ Remuneration Report
115
Corporate Governance Annual Report
on Remuneration
continued
Directors’ interests in shares
Directors’ interests as at 31 December 2017 (Audited)
Minimum shareholding requirements apply to the Executive Directors and SET members. The CEO is required to build a shareholding and hold
shares amounting to 300% of base salary and the CFO is required to hold shares amounting to 200% of base salary, each within five years of
their dates of appointment. All other SET members are required to build a shareholding over time and hold 125% of base salary as shares while
in office. As at 31 December 2017, Mr Soriot and Mr Dunoyer had fulfilled the minimum shareholding requirement.
Non-Executive Directors are encouraged to build up, over a period of three years, a shareholding in the Company with a value approximately
equivalent to the basic annual fee for a Non-Executive Director (£75,000 during 2017) or, in the case of the Chairman, approximately equivalent
to his basic annual fee (£575,000 during 2017). All Non-Executive Directors who had served for a period of three years or more as at
31 December 2017 held sufficient shares to fulfil this expectation.
The Company’s Articles of Association require all Directors to acquire a beneficial interest in 500 shares in the Company within two months of
appointment. All Directors met their requirement at the date of this Remuneration Report.
The following tables show the interests of the Directors (including the interests of their connected persons) in Ordinary Shares as at 31 December
2017, as well as details of any Director’s interests in options over the Company’s shares. No Director or senior executive beneficially owns, or has
options over, 1% or more of the issued share capital of the Company, nor do they have different voting rights from other shareholders. None of the
Directors has a beneficial interest in the shares of any of the Company’s subsidiaries. Between 31 December 2017 and 1 February 2018, there was
no change in the interests in Ordinary Shares shown in the following tables.
Executive Directors
Executive Directors’ interests in Ordinary Shares as at 31 December 2017
Share interests not subject to performance conditions
Beneficially held
DBP shares in deferral period1
2015 Award
2016 Award
2017 Award
LTI shares in holding period (performance period completed)1
2013 AZIP Award
Total share interests not subject to performance conditions
Value as at 31 December 2017
Value as a percentage of base salary
Share interests subject to performance conditions1
2015 PSP Award
2016 PSP Award
2017 PSP Award
2014 AZIP Award
2015 AZIP Award
2016 AZIP Award
Share options (unexercisable)
2015 Sharesave Scheme
1 Figures shown are gross values before taxation.
Pascal
Soriot
Marc
Dunoyer
500
127,931
13,482
17,352
7,968
7,111
8,798
4,262
89,960
8,176
129,262
156,278
£6,619,507 £8,002,996
543%
1,104%
104,764
45,880
129,713
54,101
125,009
59,439
20,677
17,460
21,618
8,709
7,646
9,016
419,241
184,791
–
544
In the period between his appointment on 1 October 2012 and 31 December 2017, Mr Soriot acquired 250,100 Ordinary Shares using his
own resources and received 263,099 Ordinary Shares on the vesting of awards granted under the Company’s share plans. Over that period
Mr Soriot has gifted 512,699 beneficially owned Ordinary Shares to family members for nil consideration, the value of that number of shares
being equivalent to 2,152% of Mr Soriot’s 2017 base salary as at 31 December 2017. The family members to whom the shares have been gifted
do not constitute connected persons for the purposes of this disclosure, so are not included within Mr Soriot’s beneficial shareholding figure
in the above table. A detailed breakdown of the Executive Directors’ interests under Company share schemes is set out on page 124.
116
AstraZeneca Annual Report & Form 20-F Information 2017 / Corporate Governance Non-Executive Directors
The Non-Executive Directors are not eligible to receive shares in the Company that are the subject of performance conditions and have acquired
their beneficial interests in the Company’s shares using their own resources.
Non-Executive Director
Leif Johansson
Geneviève Berger
Philip Broadley – elected 27 April 2017
Graham Chipchase
Deborah DiSanzo – appointed 1 December 2017
Rudy Markham
Sheri McCoy – appointed 1 October 2017
Nazneen Rahman – appointed 1 June 2017
Shriti Vadera
Marcus Wallenberg
Former Non-Executive Directors
Bruce Burlington – retired 31 August 2017
Ann Cairns – retired 24 April 2017
Beneficial interest in
Ordinary Shares at
31 December 2017
or (if earlier)
date of retirement
Beneficial interest in
Ordinary Shares at
31 December 2016
or (if later)
appointment date
39,009
2,090
4,800
3,100
500
2,452
500
500
10,000
63,646
3,349
2,325
39,009
2,090
2,500
3,100
500
2,452
500
–
10,000
63,646
3,349
2,325
AstraZeneca Annual Report & Form 20-F Information 2017 / Directors’ Remuneration Report
117
Corporate Governance Annual Report
on Remuneration
continued
Share interests granted in 2017 (Audited)
Deferred Bonus Plan (DBP)
Shares were granted under the DBP following the deferral of one third of the pre-tax annual bonus paid in respect of performance during 2016.
Face value has been calculated using the grant price, being the average share price over the three dealing days preceding grant. No further
performance conditions apply to DBP shares, but release at the end of the three-year holding period is ordinarily subject to continued employment.
Pascal Soriot
Marc Dunoyer
Ordinary
Shares
granted
7,968
4,262
Grant
date
Grant price
(pence per
share)
24 March 2017
24 March 2017
4880
4880
Face value
£’000
389
208
End of
holding period
24 March 2020
24 March 2020
Performance Share Plan (PSP)
Conditional awards of shares were granted under the PSP with face values at grant equivalent to 500% of base salary for Mr Soriot and 400%
base salary for Mr Dunoyer. Face value is calculated using the grant price, being the average share price over the three dealing days preceding
grant. The proportion of each award that vests will depend on performance over a three-year period against the measures set out below.
A holding period applies following the performance period, meaning that vesting will take place on the fifth anniversary of grant, ordinarily
subject to continued employment.
Pascal Soriot
Marc Dunoyer
Ordinary
Shares
granted
125,009
59,439
Grant
date
Grant price
(pence per
share)
Face value
£’000
End of
performance period
End of
holding period
24 March 2017
24 March 2017
4880
4880
6,100
2,901
31 December 2019
24 March 2022
31 December 2019
24 March 2022
The PSP performance measures focus on scientific, commercial and financial performance over the three-year performance period. The five
equally weighted performance measures attached to 2017 PSP awards are detailed below. 20% of the award will vest if the threshold level of
performance is achieved; the maximum level of performance must be achieved under each measure for 100% of the award to vest.
Relative total shareholder return (TSR)
TSR performance of the Company is assessed against a predetermined peer group of global pharmaceutical companies. The rank which
the Company’s TSR achieves over the performance period will determine how many shares will vest under this measure, as detailed below:
TSR ranking of the Company
Below median
Median
Between median and upper quartile
Upper quartile
% of award that vests
0%
20%
Pro rata
100%
More information about the TSR performance of the Company, including the Company’s peer group, is set out on page 120.
EBITDA
Vesting under this measure is based on the achievement of threshold performance against a target of cumulative Reported EBITDA excluding
non-cash movements on fair value of contingent consideration on business combinations and gains on disposals of intangible assets. The level
of award vesting under this measure is based on a scale between a threshold target and an upper target, as detailed below:
% of award that vests
20%
100%
EBITDA
$12.0bn
$18.0bn
118
AstraZeneca Annual Report & Form 20-F Information 2017 / Corporate Governance Cash flow
The cash flow measure is assessed using cumulative net cash flow from operating activities less capital expenditure adding back proceeds
from disposal of intangible assets. The level of award vesting under this measure is based on a sliding scale between a threshold target and
an upper target, as detailed below:
Cash flow
Less than $8.5bn
$8.5bn
Between $8.5bn and $10.5bn
$10.5bn
Between $10.5bn and $12bn
$12bn and above
% of award that vests
0%
20%
Pro rata
75%
Pro rata
100%
Return to Growth: total Product Sales from Growth Platforms
Vesting under this measure is based on the achievement of threshold performance for an aggregate revenue target in the final year of the period
relating to the Company’s Growth Platforms. The level of award vesting under this measure is based on a scale between a threshold target and
an upper target, as detailed below:
Aggregate revenue of Growth Platforms
% of award that vests
$16.5bn
$19.5bn1
20%
100%
1 The hurdle of $19.5bn was agreed by the Committee in January 2017 but incorrectly reported in the 2016 Remuneration Report due to an administrative error.
Achieve Scientific Leadership
The Achieve Scientific Leadership measure covers three areas: NME approvals (reflecting the Company’s ability to deliver innovation to the
market), major life-cycle management approvals (which represent a good proxy for near-to-mid term growth) and the volume of NMEs in
Phase III and their registration. These three metrics are equally weighted. As the PSP performance measures related to Achieve Scientific
Leadership are an indicator of the Company’s longer-term strategic priorities, we believe that the targets and target ranges associated with
them are commercially sensitive. We will make retrospective disclosure when the targets are deemed to be no longer commercially sensitive,
which we currently anticipate to be following the end of the performance period.
More information about the PSP performance measures is set out within the Remuneration Policy available at www.astrazeneca.com/
remunerationpolicy2017.
AstraZeneca Annual Report & Form 20-F Information 2017 / Directors’ Remuneration Report
119
Corporate Governance Annual Report
on Remuneration
continued
Other disclosures
Change in CEO remuneration compared to other employees
Salary
Taxable benefits
Annual bonus
Percentage change for
CEO against 2016
Average percentage change
for employees against 2016
2.5%
0.4%
64.2%
4.1%
4.1%
70%
The employee comparator group comprises employees in the UK, US and Sweden. We consider this to be an appropriate comparator group
because it is representative of the Group’s major science, business and enabling units, and the employee populations are well balanced in terms
of seniority and demographics. To provide a meaningful comparison of salary increases, a consistent employee comparator group is used by
which the same individuals appear in the 2016 and 2017 group.
CEO total remuneration table
Year
2017
2016
2015
2014
2013
2012
2012
2012
2011
2010
2009
CEO
Pascal Soriot
Pascal Soriot
Pascal Soriot
Pascal Soriot
Pascal Soriot
Pascal Soriot4
Simon Lowth6
David Brennan8
David Brennan
David Brennan
David Brennan
CEO single
total figure of
remuneration
£’000
9,4351
14,3422,3
7,963
3,507
3,344
3,6935
3,289
4,1479
7,863
9,690
5,767
Annual bonus
payout against
maximum
opportunity
%
LTI vesting
rates against
maximum
opportunity
%
87
54
97
94
94
68
86
–10
74
90
100
81
95
78
–
–
–
387
38
62
100
62
1 The components of the 2017 single total figure of remuneration are outlined on pages 110 to 114.
2 This figure includes shares awarded to Mr Soriot in 2013 under the AZIP to compensate him for LTIs from previous employment forfeited on his recruitment as the Company’s CEO.
3 This figure has been revised using the average closing share price over the three-month period to 31 December 2017, as explained on page 111.
4 Mr Soriot was appointed CEO with effect from 1 October 2012.
5 This figure includes £991,000 paid to compensate Mr Soriot in respect of his forfeited bonus opportunity for 2012 and an award of £2,000,000 to compensate him for his loss of LTI awards,
both in respect of his previous employment.
6 Mr Lowth acted as Interim CEO from June to September 2012 inclusive.
7 Mr Lowth’s LTI awards which vested during 2012 were not awarded or received in respect of his performance as Interim CEO.
8 Mr Brennan ceased to be a Director on 1 June 2012.
9 This figure includes Mr Brennan’s pay in lieu of notice of £914,000.
10 Mr Brennan informed the Committee that he did not wish to be considered for a bonus in respect of that part of 2012 in which he was CEO. The Committee determined that no such bonus
would be awarded and also that there should be no bonus award relating to his contractual notice period.
Total shareholder return (TSR)
The graph below compares the TSR performance of the Company over the past nine years with the TSR of the FTSE100 Index. This graph is
re-based to 100 at the start of the relevant period. As a constituent of the FTSE100, this index represents an appropriate reference point for
the Company. We have also included a ‘Pharmaceutical peers average’, which reflects the TSR of our current comparator group and provides
shareholders with additional context. This comparator group was adopted in 2017 and is used to assess relative TSR performance for PSP
awards granted from 2017 onwards. The comparator group consists of AbbVie, Amgen, Astellas, BMS, Celgene, Daiichi Sankyo, Lilly, Gilead,
GSK, Johnson & Johnson, MSD, Novo Nordisk, Novartis, Pfizer, Roche, Sanofi, Shire and Takeda.
TSR over a nine-year period
300
250
200
150
100
Jan
09
Jan
10
Jan
11
Jan
12
Jan
13
Jan
14
Jan
15
Jan
16
Jan
17
Jan
18
AstraZeneca
Pharmaceutical peers average
FTSE100
120
AstraZeneca Annual Report & Form 20-F Information 2017 / Corporate Governance Relative importance of spend on remuneration (Audited)
The table below shows the remuneration paid to all employees in the Group and expenditure on shareholder distributions through dividends.
The figures have been calculated in accordance with the Group Accounting Policies and drawn from either the Company’s Consolidated
Statement of Comprehensive Income on page 135, or its Consolidated Statement of Cash Flows on page 138. Further information on the
Group’s Accounting Policies can be found from page 139.
Total employee remuneration
Distributions to shareholders: dividends paid
2017
$m
6,486
3,519
2016
$m
6,284
3,561
Difference
in spend
between years
$m
Difference
in spend
between years
%
202
(42)
3.2
(1.2)
Disclosure of historical performance targets
Annual bonus
In accordance with our commitment to disclosure, the Committee has determined that the 2015 targets relating to the Achieve Scientific
Leadership and Return to Growth elements of the annual bonus are no longer commercially sensitive and can therefore be disclosed.
The Committee has also determined that the 2016 targets relating to Achieve Scientific Leadership and Return to Growth are no longer
commercially sensitive, ahead of the timeline originally anticipated. Targets for the Achieve Group Financial Targets elements of the 2015
and 2016 annual bonus awards were disclosed in the 2015 and 2016 Directors’ Remuneration Reports, respectively.
In response to feedback given in the Committee’s discussions with shareholders and to enhance the transparency of our disclosures, the threshold
and maximum levels of performance are included in the below disclosures in addition to performance targets. For each metric, the threshold level
of performance must be exceeded for bonus to be awarded in respect of that metric.
2015 Group scorecard performance measures and metrics not previously disclosed
Weighting
Threshold
Target
Maximum
Outcome
Achieve Scientific Leadership
NME Phase II starts/progressions
NME and major life-cycle management Phase III investment decisions
NME and major life-cycle management regional submissions
NME and major life-cycle management regional approvals
Acquisitions, licensing and divestment deals
Return to Growth
Deliver Brilinta target
Deliver Diabetes franchise target
Deliver Respiratory growth target
Deliver Oncology growth target
Deliver targeted sales growth in Emerging Markets
Deliver Japan growth target
6% per
measure
5% per
measure
5
2
8
2
0
9
5
11
3
2
13
8
14
4
4
11
6
12
5
10
$615m
$647m
$679m
$668m
$2,152m
$2,265m
$2,378m
$2,323m
$4,336m
$4,564m
$4,792m
$5,014m
$54m
$67m
$80m
$123m
$5,995m
$6,310m
$6,626m
$6,314m
$2,091m
$2,201m
$2,311m
$2,191m
2016 Group scorecard performance measures and metrics not previously disclosed
Weighting
Threshold
Target
Maximum
Outcome
Achieve Scientific Leadership
NME Phase II starts/progressions
NME and major life-cycle management Phase III investment decisions
NME and major life-cycle management regional submissions
NME and major life-cycle management regional approvals
Acquisitions, licensing and divestment deals
Return to Growth
Brilinta target
New CVMD target
Respiratory Therapy Area target
Oncology growth target
Targeted sales growth in Emerging Markets
Japan growth target
6% per
measure
5% per
measure
8
3
10
6
5
15
6
14
9
7
22
8
18
12
9
15
7
13
11
10
$846m
$891m
$935m
$869m
$2,748m
$2,893m
$3,038m
$2,474m
$5,029m
$5,248m
$5,563m
$4,903m
$464m
$516m
$567m
$657m
$6,205m
$6,531m
$6,858m
$6,285m
$1,764m
$1,857m
$1,950m
$1,894m
AstraZeneca Annual Report & Form 20-F Information 2017 / Directors’ Remuneration Report
121
Corporate Governance Annual Report
on Remuneration
continued
How we’ll apply the Directors’ Remuneration Policy during 2018
Summary of potential policy outcomes
The below scenario charts illustrate the Executive Directors’ remuneration potential for 2018 under our Directors’ Remuneration Policy,
for minimum and maximum levels of performance and for performance that is in line with the Company’s expectations. These scenarios
assume a constant share price and do not take into account dividends paid.
Minimum performance
Fixed remuneration has been calculated based on the base salary applicable in 2018, the value of taxable benefits reported in the 2017 single total
figure of remuneration and pension allowances equivalent to 30% of base salary for the CEO and 24% of base salary for the CFO. No annual
bonus or LTI will pay out if threshold levels of performance are not met.
Performance in line with expectations
Annual bonus equivalent to 100% of base salary for the CEO and 90% of base salary for the CFO. LTI award vesting with a value equivalent to
250% of base salary for the CEO and 200% of base salary for the CFO.
Maximum performance
Annual bonus equivalent to 180% of base salary for the CEO and 150% of base salary for the CFO. LTI award vesting with a value equivalent to
500% of base salary for the CEO and 400% of base salary for the CFO.
Pascal Soriot
Minimum
100%
In line
Maximum
29%
17%
20%
51%
22%
61%
£1.7m
£6.1m
£10.3m
Minimum
In line
Maximum
100%
32%
20%
21%
47%
22%
58%
£1.0m
£3.2m
£5.1m
Marc Dunoyer
Fixed remuneration
Annual bonus
Long-term incentive
Executive Directors
Executive Directors’ salaries for 2018 have increased by 2.5%, which is the same as the increase for the UK workforce. Pension provision, target levels
of annual bonus and PSP award levels remain unchanged.
Base salary
Pension provision
Target annual bonus
Face value of PSP award
Pascal Soriot
£1,251,000
30% of base salary
100% of base salary
500% of base salary
Marc Dunoyer
£743,000
24% of base salary
90% of base salary
400% of base salary
The annual bonus measures and weightings for 2018 are set out below. These are broadly consistent with those applicable in 2017, the changes being:
> The Acquisition, licensing and divestment deals metric has been removed from the Achieve Scientific Leadership measure. The impact of
this activity is captured in the Group financial targets which better reflects the results, rather than a separate measure for the number of deals.
> The underlying Growth Platforms for the Return to Growth measure remain the same; however, from 2018, the Committee has determined
that performance should be assessed against one single consolidated measure, simplifying the overall bonus calculation and enabling more
immediate disclosure of targets.
> The Total Revenue measure has been replaced with Total Product Sales, being Group Global Consolidated Product Sales with performance
measured at constant exchange rates. This aligns to the Company’s external guidance and focus on commercial execution to drive product
sales growth.
The measure for the Cash flow target remains as net cash flow from operating activities less capital expenditure adding back proceeds from
disposal of intangible assets.
Annual bonus performance measures
Measure weighting
Underlying metrics (if applicable)
Metric weighting
Achieve Scientific Leadership
30%
NME Phase II starts
Return to Growth
Achieve Group Financial Targets
30%
40%
NME and life-cycle management positive Phase III
investment decisions
NME and life-cycle management regional submissions
NME and life-cycle management regional approvals
Cash flow
Core EPS
Total Product Sales
6%
8%
8%
8%
10%
20%
10%
We intend to disclose the 2018 Group scorecard outcome and details of the performance hurdles and targets in the 2018 Remuneration Report,
following the end of the performance period. Individual performance for each of the Executive Directors will be assessed by reference to
individual objectives in line with the Company’s objectives for the year.
In response to a suggestion that under the type of bonus structure in place up to 2017, underperformance under one metric could potentially
be compensated for by overachievement under another metric, from 2018 this possibility will be removed. Under the 2018 Group scorecard,
the achievement for each Executive Director will be assessed for each metric on a stand-alone basis.
122
AstraZeneca Annual Report & Form 20-F Information 2017 / Corporate Governance
The PSP measures and weightings for 2018 are set out below and are consistent with those applicable to PSP awards granted in 2017.
PSP performance measure
Measure weighting
Underlying metrics (if applicable)
Metric weighting
Threshold
(20%
vesting)
Maximum
(100%
vesting)
Achieve Scientific Leadership
20%
NME approvals
Major life-cycle management approvals
Phase III registration
Return to Growth
Cash flow
EBITDA
Relative TSR
20%
20%
20%
20%
6.67%
6.67%
6.67%
Commercially sensitive:
will be disclosed in our
2018 Annual Report
$8.0bn
$13.0bn
Median
$12.0bn
$18.5bn
Upper
quartile
The Achieve Scientific Leadership metrics are an indicator of the Company’s longer-term strategic priorities. Given the proportion of AstraZeneca’s
revenue that is now represented by our Growth Platforms, disclosing the threshold and maximum hurdles for the Return to Growth measure
could be considered to be guidance, which is not the Company’s intention. Both the Achieve Scientific Leadership metrics and Return to Growth
measure are thus considered to be commercially sensitive and will be disclosed following the end of the performance period.
The Return to Growth and EBITDA measures are evaluated by reference to budget exchange rates such that beneficial or adverse movements
in currency, which are outside the Company’s control, do not impact reward outcomes. The EBITDA measure is assessed using cumulative
Reported EBITDA excluding non-cash movements on fair value of contingent consideration on business combinations and gains on disposals
of intangible assets. The Cash flow measure is evaluated using net cumulative cash flow from operating activities less capital expenditure adding
back proceeds from disposal of intangible assets. The companies in the TSR comparator group are AbbVie, Amgen, Astellas, BMS, Celgene,
Daiichi Sankyo, Lilly, Gilead, GSK, Johnson & Johnson, MSD, Novo Nordisk, Novartis, Pfizer, Roche, Sanofi, Shire and Takeda.
Non-Executive Directors
The Non-Executive Directors’ fee structure for 2018 is set out in the table below, alongside the structure in place during 2017. Further information on
the Non-Executive Directors’ fee structure can be found within the Remuneration Policy, available at www.astrazeneca.com/remunerationpolicy2017.
The Non-Executive Directors’ fees are reviewed, but not necessarily increased, every two years. Certain of the fees were increased with effect
from January 2015 following a review in late 2014. All fees were reviewed in 2016, but no changes were proposed then. The last increase in the
basic Board fee was in 2010. With effect from January 2018, the Chairman’s fee, the basic Board fee for other Non-Executive Directors and
Science Committee fees have been increased to recognise the steady increase in the Chairman’s and the Board’s workload and responsibilities,
and the importance of the Science Committee’s work, which reflects our commitment to science, and ensures that the level of fees do not
hinder the recruitment of Directors of the right experience and calibre in a global market. In addition, a new fee has been introduced for the
Non-Executive Director who oversees sustainability matters on behalf of the Board to reflect the increasing importance of this area for many
stakeholders, including shareholders and employees. No Board member participated in any decision relating to their own fees.
Non-Executive Director fees
Chairman’s fee1
Basic Non-Executive Director’s fee
Senior independent Non-Executive Director
Membership of the Audit Committee
Membership of the Remuneration Committee
Chairman of the Audit Committee or the Remuneration Committee2
Membership of the Science Committee
Chairman of the Science Committee2
Non-Executive Director responsible for overseeing sustainability matters on behalf of the Board
1 The Chairman does not receive any additional fees for chairing, or being a member of, a committee.
2 This fee is in addition to the fee for membership of the relevant committee.
2018
£’000
625
2017
£’000
575
88
30
20
15
25
15
15
7.5
75
30
20
15
25
12
10
–
AstraZeneca Annual Report & Form 20-F Information 2017 / Directors’ Remuneration Report
123
Corporate Governance Annual Report
on Remuneration
continued
Executive Directors’ share plan interests (Audited)
The following tables set out the Executive Directors’ interests in Ordinary Shares under the Company’s share plans in detail.
Pascal Soriot
Share scheme interests
DBP
PSP
AZIP
Marc Dunoyer
Share scheme interests
DBP
PSP
AZIP
Grant date
28/03/2014
27/03/2015
24/03/2016
24/03/2017
28/03/2014
27/03/2015
24/03/2016
24/03/2017
11/06/2013
28/03/2014
27/03/2015
24/03/2016
Grant date
28/03/2014
27/03/2015
24/03/2016
24/03/2017
28/03/2014
27/03/2015
24/03/2016
24/03/2017
01/08/2013
28/03/2014
27/03/2015
24/03/2016
Shares
outstanding at
1 January 2017
Grant
price
(pence)
Shares
granted
in 2017
Shares outstanding at
31 December 2017
Shares
lapsed
in 2017
Shares
subject to
performance
Shares
in holding
period
Performance
period end
Vesting and
release date
3904
4762
3923
4880
3904
4762
3923
4880
3297
3904
4762
3923
–
–
–
7,968
–
–
–
125,009
–
–
–
–
Shares
released
in 2017
15,966
–
–
–
114,140
9,926
–
–
–
–
–
–
–
–
–
–
–
–
–
–
n/a
n/a
n/a
n/a
–
104,764
129,713
125,009
–
n/a 28/03/20171
13,482
17,352
7,968
n/a 27/03/2018
n/a 24/03/2019
n/a 24/03/20202
– 31/12/2016 28/03/20171,3
– 31/12/2017 27/03/2020
– 31/12/2018 24/03/2021
– 31/12/2019 24/03/2022
–
89,960 31/12/2016
01/01/20214
20,677
17,460
21,618
– 31/12/2017
01/01/2022
– 31/12/2018
01/01/2023
– 31/12/2019
01/01/2024
132,977
130,106
9,926
419,241
128,762
15,966
13,482
17,352
–
124,066
104,764
129,713
–
89,960
20,677
17,460
21,618
555,058
Shares
outstanding at
1 January 2017
Grant
price
(pence)
Shares
granted
in 2017
2,679
7,111
8,798
–
52,254
45,880
54,101
–
8,176
8,709
7,646
9,016
3904
4762
3923
4880
3904
4762
3923
4880
3302
3904
4762
3923
–
–
–
4,262
–
–
–
59,439
–
–
–
–
Shares
released
in 2017
2,679
–
–
–
48,073
4,181
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Shares outstanding at
31 December 2017
Shares
lapsed
in 2017
Shares
subject to
performance
Shares
in holding
period
Performance
period end
Vesting and
release date
n/a
n/a
n/a
n/a
–
45,880
54,101
59,439
–
7,111
8,798
4,262
n/a 28/03/20171
n/a 27/03/2018
n/a 24/03/2019
n/a 24/03/20202
– 31/12/2016 28/03/20171,3
– 31/12/2017 27/03/2020
– 31/12/2018 24/03/2021
– 31/12/2019 24/03/2022
–
8,176 31/12/2016
01/01/2021
8,709
7,646
9,016
– 31/12/2017
01/01/2022
– 31/12/2018
01/01/2023
– 31/12/2019
01/01/2024
–
–
–
–
–
–
–
–
204,370
63,701
50,752
4,181
184,791
28,347
Options outstanding at
31 December 2017
Interests over share options
Grant date
SAYE
28/09/2015
Options
outstanding at
1 January 2017
544
544
Exercise
price
(pence)
3307
Options
granted
in 2017
Options
matured
in 2017
–
–
–
–
Options
exercised
in 2017 Unexercisable
–
–
544
544
Available
to exercise
Maturity date
(first date
exercisable)
Last date
exercisable
– 01/12/2018
31/05/2019
–
1 Market price on release date was 4960.0 pence.
2 Award granted following deferral of one third of the annual bonus paid in respect of performance during 2016.
3 Award vested at 92%.
4 Mr Soriot’s 2013 AZIP award comprises 20,852 shares granted as a regular AZIP award and a previously announced buy-out award which replaces that originally made when Mr Soriot
joined the Company in October 2012.
124
AstraZeneca Annual Report & Form 20-F Information 2017 / Corporate Governance Governance
Committee membership
The Committee members are Graham Chipchase (Chairman of the Committee), Leif Johansson, Rudy Markham and Shriti Vadera. The Deputy
Company Secretary acts as the secretary to the Committee.
The Committee met five times in 2017. The individual attendance records of Committee members are set out on page 87. During the year the
Committee was materially assisted, except in relation to their own remuneration, by the CEO; the CFO; the Vice-President, Group Financial
Controller; the EVP, GMD; the EVP, Human Resources; the Human Resources Vice-President, Centre of Excellence; the Company Secretary;
the Deputy Company Secretary and the Non-Executive Directors forming the Science Committee. The Committee’s independent adviser,
Nicki Demby, Deloitte LLP (Deloitte) attended all Committee meetings.
Terms of reference
A copy of the Committee’s terms of reference is available on our website, www.astrazeneca.com. The Committee conducted a review of its
terms of reference during 2017 and recommended minor changes; the Board approved the recommendation. The Committee intends to review
its terms of reference during 2018 with a particular focus on the anticipated changes to the UK Corporate Governance Code.
Independent adviser to the Committee
The Committee reappointed Deloitte as its independent adviser following a tender process undertaken in 2013, which involved interviews with
both the Company’s management and the Chairman of the Committee. The role of independent adviser will be re-tendered no later than the end
of 2018. Deloitte’s service to the Committee was provided on a time-spent basis at a cost to the Company of £72,650 excluding VAT. During the
year, Deloitte also provided taxation advice, internal audit services and other specific non-audit advisory services to the Group. The Committee
reviewed the potential for conflicts of interest and judged that there were no conflicts. Deloitte is a member of the Remuneration Consultants’
Group, which is responsible for the stewardship and development of the voluntary code of conduct in relation to executive remuneration
consulting in the UK. The principles on which the code is based are transparency, integrity, objectivity, competence, due care and confidentiality.
Deloitte adheres to the code.
Shareholder voting at the AGM
At the Company’s AGM held on 27 April 2017, shareholders voted in favour of resolutions to approve the Directors’ Remuneration Policy and the
Annual Report on Remuneration for the year ended 31 December 2016.
Resolution
Votes for
% for Votes against
% against
Total votes
cast
% of Issued
Share
Capital voted
Withheld
votes
Ordinary Resolution to approve the Directors’
Remuneration Policy
Ordinary Resolution to approve the Annual Report
on Remuneration for the year ended 31 December 2016
877,620,302
96.08 35,804,933
3.92 913,425,235
72.17
15,539,511
560,051,300
61.17 355,474,215
38.83 915,525,515
72.34
13,439,230
The level of support for the resolution to approve the Annual Report on Remuneration for the year ended 31 December 2016, and the Committee’s
response, is discussed within the letter from the Chairman of the Committee from page 105.
Directors’ service contracts and letters of appointment
The notice periods and unexpired terms of Executive Directors’ service contracts at 31 December 2017 are shown in the table below.
AstraZeneca or the Executive Director may terminate the service contract on 12 months’ notice.
Executive Director
Pascal Soriot
Marc Dunoyer
Date of service contract
15 December 2016
6 December 2016
Unexpired term at 31 December 2017
Notice period
12 months
12 months
12 months
12 months
None of the Non-Executive Directors has a service contract but each has a letter of appointment. In accordance with the Company’s Articles,
following their appointment all Directors must retire at each AGM and may present themselves for re-election. The Company is mindful of the
director independence provisions of the UK Corporate Governance Code and, in this regard, a Non-Executive Director’s overall tenure will not
normally exceed nine years. The Chairman of the Company may terminate his appointment at any time, on three months’ notice. None of the
other Non-Executive Directors has a notice period or any provision in their letters of appointment giving them a right to compensation upon
early termination of appointment.
Basis of preparation of this Directors’ Remuneration Report
This Directors’ Remuneration Report has been prepared in accordance with the Large and Medium-sized Companies and Groups (Accounts and
Reports) (Amendment) Regulations 2013 (the Regulations) and meets the relevant requirements of the Financial Conduct Authority’s Listing Rules.
As required by the Regulations, a resolution to approve the Annual Report on Remuneration will be proposed at the AGM on 18 May 2018.
On behalf of the Board
A C N Kemp
Company Secretary
2 February 2018
AstraZeneca Annual Report & Form 20-F Information 2017 / Directors’ Remuneration Report
125
Corporate Governance Financial Statements
can
Science
improve the search for novel
drug targets
CRISPR (clustered regularly interspaced
short palindromic repeats) is a genome-
editing tool, which allows scientists to make
changes in specific genes faster and in a more
precise way than before. The technology
has two components – a homing device to
a specific section of DNA (guide-RNA) and
enzymatic ‘scissors’ that cut DNA (Cas9
nuclease). In the cell nucleus, the guide-RNA
sequence directs the Cas9 nuclease to cause
double-stranded breaks in the target DNA
sequence. By harnessing the cell’s own
DNA-repair apparatus, the gene being
targeted can be altered, either by deleting it,
adding nucleotides to it, or by turning its
activity on or off.
CRISPR is a powerful tool that enables us to
manipulate genes of potential importance in
disease pathways and examine the impact of
these modifications in a highly precise way.
Integrating this technology into our research
helps accelerate the discovery of novel
treatments for patients.
For more information, please see our website,
www.astrazeneca.com, CRISPR Cas9.
126
AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements
Financial Statements
Auditors’ Report 129
Consolidated Statements 135
Group Accounting Policies 139
Notes to the Group
Financial Statements 145
Group Subsidiaries
and Holdings 190
Company Statements 194
Company Accounting
Policies 196
Notes to the Company
Financial Statements 197
Group Financial Record 199
AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements
127
Financial Statements Preparation of the Financial Statements and
Directors’ Responsibilities
The Directors are responsible for preparing
this Annual Report and Form 20-F Information
and the Group and Parent Company Financial
Statements in accordance with applicable law
and regulations.
Company law requires the Directors to
prepare Group and Parent Company Financial
Statements for each financial year. Under that
law they are required to prepare the Group
Financial Statements in accordance with
IFRSs as issued by the IASB and adopted by
the EU, and applicable law, and have elected
to prepare the Parent Company Financial
Statements in accordance with UK Accounting
Standards, including FRS 101 ‘Reduced
Disclosure Framework’ and applicable law.
Under company law, the Directors must not
approve the Financial Statements unless they
are satisfied that they give a true and fair view
of the state of affairs of the Group and Parent
Company and of their profit or loss for that
period. In preparing each of the Group and
Parent Company Financial Statements, the
Directors are required to:
> select suitable accounting policies and
then apply them consistently
> make judgements and estimates that
are reasonable and prudent
> for the Group Financial Statements,
state whether they have been prepared in
accordance with IFRSs as adopted by the EU
> for the Parent Company Financial
Statements, state whether FRS 101 has
been followed, subject to any material
departures disclosed and explained in the
Parent Company Financial Statements
> prepare the Financial Statements on the
going concern basis unless it is inappropriate
to presume that the Group and the Parent
Company will continue in business.
The Directors are responsible for keeping
adequate accounting records that are sufficient
to show and explain the Parent Company’s
transactions and disclose with reasonable
accuracy at any time the financial position
of the Parent Company and enable them to
ensure that its Financial Statements comply
with the Companies Act 2006. They have
general responsibility for taking such steps as
are reasonably open to them to safeguard the
assets of the Group and to prevent and detect
fraud and other irregularities.
Under applicable law and regulations, the
Directors are also responsible for preparing a
Directors’ Report, Strategic Report, Directors’
Remuneration Report, Corporate Governance
Report and Audit Committee Report that
comply with that law and those regulations.
The Directors are responsible for the
maintenance and integrity of the corporate
and financial information included on our
website. Legislation in the UK governing the
preparation and dissemination of Financial
Statements may differ from legislation in
other jurisdictions.
Directors’ responsibility statement
pursuant to DTR 4
The Directors confirm that to the best of
our knowledge:
> The Financial Statements, prepared in
accordance with the applicable set of
accounting standards, give a true and fair
view of the assets, liabilities, financial
position and profit or loss of the Company
and the undertakings included in the
consolidation taken as a whole
> The Directors’ Report includes a fair review
of the development and performance of
the business and the position of the issuer
and the undertakings included in the
consolidation taken as a whole, together
with a description of the principal risks and
uncertainties that they face.
On behalf of the Board of Directors on
2 February 2018
Pascal Soriot
Director
Directors’ Annual Report on Internal Controls
over Financial Reporting
The Directors are responsible for establishing
and maintaining adequate internal control over
financial reporting. AstraZeneca’s internal
control over financial reporting is designed
to provide reasonable assurance over the
reliability of financial reporting and the
preparation of consolidated Financial
Statements in accordance with generally
accepted accounting principles.
Due to its inherent limitations, internal control
over financial reporting may not prevent or
detect misstatements. Projections of any
evaluation of effectiveness to future periods
are subject to the risks that controls may
become inadequate because of changes in
conditions or that the degree of compliance
with the policies or procedures may deteriorate.
The Directors assessed the effectiveness of
AstraZeneca’s internal control over financial
reporting as at 31 December 2017 based on
the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway
Commission in Internal Control-Integrated
Framework (2013). Based on this assessment,
the Directors believe that, as at 31 December
2017, the internal control over financial
reporting is effective based on those criteria.
PricewaterhouseCoopers LLP, an independent
registered public accounting firm, has audited
the effectiveness of internal control over
financial reporting as at 31 December 2017
and has issued an unqualified report thereon.
128
AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements
Independent Auditors’ Report to the Members
of AstraZeneca PLC
Report on the audit of the
financial statements
Opinion
In our opinion:
> AstraZeneca PLC’s Group Financial
Statements and Parent Company Financial
Statements (the ‘financial statements’) give a
true and fair view of the state of the Group’s
and of the Parent Company’s affairs as at
31 December 2017 and of the Group’s profit
and cash flows for the year then ended;
> the Group Financial Statements have been
properly prepared in accordance with
IFRSs as adopted by the European Union;
> the Parent Company Financial Statements
have been properly prepared in accordance
with United Kingdom Generally Accepted
Accounting Practice (United Kingdom
Accounting Standards, comprising FRS 101
‘Reduced Disclosure Framework’, and
applicable law); and
> the financial statements have been prepared
in accordance with the requirements of the
Companies Act 2006 and, as regards the
Group Financial Statements, Article 4 of the
IAS Regulation.
We have audited the financial statements,
included within the Annual Report and Form
20-F Information 2017, which comprise: the
Consolidated Statement of Financial Position
as at 31 December 2017, the Consolidated
Statement of Comprehensive Income for
the year ended 31 December 2017, the
Consolidated Statement of Cash Flows
for the year ended 31 December 2017, the
Consolidated Statement of Changes in Equity
for the year ended 31 December 2017, the
Company Balance Sheet as at 31 December
2017, the Company Statement of Changes in
Equity for the year ended 31 December 2017;
and the notes to the financial statements,
which include a description of the significant
accounting policies.
Our opinion is consistent with our reporting
to the Audit Committee.
Separate opinion in relation
to IFRSs as issued by the IASB
As explained in the Group Accounting
Policies to the financial statements, the
Group, in addition to applying IFRSs as
adopted by the European Union, has also
applied IFRSs as issued by the International
Accounting Standards Board (IASB).
In our opinion, the Group Financial Statements
have been properly prepared in accordance
with IFRSs as issued by the IASB.
Basis for opinion
We conducted our audit in accordance with
International Standards on Auditing (UK) (‘ISAs
(UK)’) and applicable law. Our responsibilities
under ISAs (UK) are further described in the
Auditors’ responsibilities for the audit of the
financial statements section of our report.
We believe that the audit evidence we have
obtained is sufficient and appropriate to
provide a basis for our opinion.
Independence
We remained independent of the Group in
accordance with the ethical requirements
that are relevant to our audit of the financial
statements in the UK, which includes the
FRC’s Ethical Standard, as applicable to listed
public interest entities, and we have fulfilled our
other ethical responsibilities in accordance
with these requirements.
To the best of our knowledge and belief, we
declare that non-audit services prohibited by
the FRC’s Ethical Standard were not provided
to the Group or the Parent Company.
Other than those disclosed in Note 30 to the
financial statements, we have provided no
non-audit services to the Group or the Parent
Company in the period from 1 January 2017
to 31 December 2017.
Our audit approach – overview
Materiality
> Overall Group materiality: $160 million,
based on 5% of profit before taxation after
adding back (i) asset impairment charges
and (ii) fair value movements and discount
unwind on contingent consideration, as
disclosed in Notes 9 and 18 respectively.
> Overall Parent Company materiality:
$75 million, based on 1% of net assets.
Audit scope
> We identified eleven reporting components
which required a full scope audit of their
complete financial information, either
due to their size or risk characteristics.
These components are AstraZeneca PLC,
AstraZeneca Treasury Limited as well as
operating units in the US, UK, Sweden,
China, Japan, France, Germany, Russia
and Brazil.
> We also identified a further six reporting
components which had one or more
individual balances that were considered
significant to the Group’s Financial
Statements. For these components our
work was solely focussed on balances
related to revenue, research & development
expense or property, plant and equipment
as appropriate.
> Audit procedures were performed centrally
over certain shared service functions for
transaction processing, IT and in relation to
various Group functions, including taxation,
pensions, goodwill and intangible assets,
treasury and litigation matters, as well as
the consolidation.
> Taken together, the components at which
audit work was performed accounted for
71% of consolidated revenue and, for full
scope audits only, 52% of consolidated
profit before taxation.
Key audit matters
> Revenue recognition – rebates,
chargebacks and returns
> Carrying value of intangible assets
> Externalisation and collaboration
arrangements
> Uncertain tax positions
> Litigation and contingent liabilities
> Impact of finance transformation and
other change programs
The scope of our audit
As part of designing our audit, we determined
materiality and assessed the risks of material
misstatement in the financial statements.
In particular, we looked at where the directors
made subjective judgements, for example in
respect of significant accounting estimates that
involved making assumptions and considering
future events that are inherently uncertain.
As in all of our audits we also addressed the
risk of management override of internal controls,
including evaluating whether there was evidence
of bias by the directors that represented a risk
of material misstatement due to fraud.
We gained an understanding of the legal and
regulatory framework applicable to the Group
and the industry in which it operates, and
considered the risk of acts by the Group which
were contrary to applicable laws and regulations,
including fraud. We designed audit procedures
to respond to the risk, recognising that the risk
of not detecting a material misstatement due
to fraud is higher than the risk of not detecting
one resulting from error, as fraud may involve
deliberate concealment by, for example, forgery
or intentional misrepresentations, or through
collusion. We designed audit procedures that
focused on the risk of non-compliance related
to laws and regulations, particularly focussing
on defence of product, pricing and practices
litigation. Our tests included discussions with
in-house legal counsel, supplemented with
external legal counsel correspondence for
certain legal cases. We also inspected
underlying support and calculations and
assessed and tested the design and operating
effectiveness of controls around this process.
We did not identify any key audit matters
relating to irregularities, including fraud.
AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements
129
Financial Statements Independent Auditors’ Report to the Members
of AstraZeneca PLC continued
Key audit matters
Key audit matters are those matters that, in
the auditors’ professional judgement, were of
most significance in the audit of the financial
statements of the current period and include
the most significant assessed risks of material
misstatement (whether or not due to fraud)
identified by the auditors, including those
which had the greatest effect on: the overall
audit strategy; the allocation of resources
in the audit; and directing the efforts of the
engagement team. These matters, and any
comments we make on the results of our
procedures thereon, were addressed in the
context of our audit of the financial statements
as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on
these matters. This is not a complete list of all
risks identified by our audit.
Key audit matter
How our audit addressed the key audit matter
Revenue recognition – rebates, chargebacks and returns
Refer to page 103 (Audit Committee Report), page 140 (Accounting Policies)
and page 145 (Note 1) in the Group Financial Statements.
In the US the Group sells to customers under various commercial and government
mandated contracts and reimbursement arrangements that include rebates,
chargebacks and provide a right of return for certain products, of which the
most significant are Medicare Part D, Managed Care and Medicaid.
These arrangements lead to large deductions to gross sales in arriving at
revenue to recognise the obligations for the Group to provide customers
with rebates, discounts, allowances and the right of return, for which
unsettled amounts are provided for.
We focused on this area because rebate, discount, allowance and return
arrangements are complex and establishing an appropriate accrual requires
significant estimates by the directors. The directors have determined an accrual
of $2,606 million to be necessary at 31 December 2017 (31 December 2016:
$3,285 million).
Carrying value of intangible assets
Refer to page 103 (Audit Committee Report), page 140 (Accounting Policies)
The Group has $26,188 million of intangible assets at 31 December 2017
(31 December 2016: $27,586 million), comprising significant product, marketing
and distribution rights, licences and software development costs.
The carrying values of intangible assets are contingent on future cash flows
and there is a risk that the assets will be impaired if cash flows are not in line
with expectations. The projections in management’s impairment models contain
a number of significant judgements and estimates including peak year and erosion
sales curves, probability of technical and regulatory success factors and discount
rates. Changes in these assumptions could lead to an impairment to the carrying
value of intangible assets.
As noted in Note 9, assets with minimal headroom are sensitive to relatively small
changes in the assumptions.
We assessed and tested the design and operating effectiveness of the Group’s
controls over the completeness, assessment for recognition and measurement
of rebates, chargebacks and returns and concluded that these operated
effectively at year end.
We obtained management’s calculations for accruals under applicable
schemes and assessed the assumptions used by reference to the Group’s
stated commercial policies, the terms of the applicable contracts, third party
data related to patient enrolment in US government funded benefit schemes
and historical levels of product returns.
We compared the assumptions to contracted prices, historical rebates,
discounts, allowances and returns levels (where relevant) and to current
payment trends.
We also considered the historical accuracy of the Group’s estimates in previous
years and any prior year true-ups. We formed an independent expectation of
the largest elements of the accrual at 31 December 2017 using third party data
(where relevant) and compared this expectation to the actual accrual recognised
by the Group.
Based on the procedures performed, we did not identify any material
misstatements in the rebate, chargebacks or return accruals.
Our work on intangible assets focussed on assets which were individually
significant, had lower levels of headroom or where there have been concerns
over assets in previous periods.
For these assets we obtained the Group’s impairment analyses and tested the
reasonableness of key assumptions including revenue growth or decline, the
impact of probability of technical and regulatory success factors, the expected
loss of drug exclusivity and discount rates applied. We challenged management
to substantiate its assumptions including comparing certain assumptions to
industry and economic forecasts. We also verified the expected performance
of certain assets to the Board approved long range plan.
We assessed the integrity of supporting calculations and used our valuation
specialists to help us assess the valuation methodology applied by management
including the integrity of the underlying models.
We assessed management’s sensitivity analysis and performed our own for
significant assets where headroom was limited, focusing on what we consider
to be reasonably possible changes in the key assumptions.
As a result of our work, we determined that the impairment charge of $491 million
recorded for intangible assets was appropriate. For those intangible assets
where management determined that only partial impairments were required,
the assumptions made were corroborated with certain information including
historical market trends and performance analogues of similar products
already in the market.
We also evaluated the design and tested the operating effectiveness of
management’s controls in assessing the carrying value of goodwill and
intangible assets. We determined that the controls were designed and
operating effectively.
We reviewed the disclosures made in the financial statements, including
sensitivity analysis and the reasonably possible downsides. We are satisfied
that these disclosures are appropriate.
130
AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements Key audit matter
How our audit addressed the key audit matter
Externalisation and collaboration arrangements
Refer to page 102 (Audit Committee Report), page 140 (Accounting Policies) and
page 145 (Note 1) in the Group Financial Statements.
For each material externalisation revenue transaction we reviewed the
underlying contract and management’s accounting analysis to understand
both the formal terms of the agreement and its commercial substance.
The Group routinely enters into development and commercialisation arrangements
and collaborations with pharmaceutical companies. These include in-license and
out-licensing arrangements and other types of complex agreements. The nature
of these arrangements mean that the accounting is often inherently complex and
judgemental, unusual by definition and presents a higher level of risk.
At 31 December 2017, the Group had recognised externalisation revenue of
$2,313 million (31 December 2016: $1,683 million).
We assessed whether components of the transaction were at fair value and
whether the rights transferred under the arrangement qualified for revenue
recognition having regard to the remaining performance obligations under the
arrangement. Where there were ongoing performance obligations we assessed
whether an appropriate proportion of revenue had been deferred, including an
appropriate margin for the work yet to be performed.
Where there was a related intangible asset we assessed whether an
appropriate amount of that intangible asset has been derecognised on transfer
of the relevant rights.
Based on the procedures performed, we consider management judgements
reasonable and did not identify any material misstatements.
Uncertain tax positions
Refer to page 103 (Audit Committee Report), page 141 (Accounting Policies)
and page 188 (Note 28) in the Group Financial Statements.
With the assistance of our local and international tax specialists, we evaluated
management’s judgements in respect of estimates of tax exposures and
contingencies in order to assess the adequacy of the Group’s tax provisions.
The Group operates in a complex multinational tax environment and is subject
to a range of tax risks during the normal course of business including transaction
related tax matters and transfer pricing arrangements.
Where the amount of tax payable is uncertain, the Group establishes provisions
based on management’s judgement of the probable amount of the future liability.
At 31 December 2017, the Group has recorded provisions of $1,166 million in
respect of uncertain tax positions (31 December 2016: $1,166 million).
Litigation and contingent liabilities
Refer to page 103 (Audit Committee Report), page 143 (Accounting Policies)
and page 183 (Note 28) in the Group Financial Statements.
The pharmaceuticals industry is heavily regulated which increases inherent
litigation risk. The Group is engaged in a number of legal actions, including patent
litigation, product liability, anti-trust and related litigation.
At 31 December 2017, the Group held provisions of $654 million in respect of
legal claims (31 December 2016: $438 million).
These provisions are based on judgements and accounting estimates made by
management in determining the likelihood and magnitude of claims. Accordingly,
unexpected adverse outcomes could significantly impact the Group’s reported
profit and balance sheet position.
Finance transformation and other change programmes
During the year the Group’s finance transformation and related change
programmes continued including the implementation of a new gross to net system,
Model N, in the US, the migration of certain management accounting functions to
in-house shared service centres and decentralisation of payroll to local territories.
Each of these changes poses a potential risk to the continued effective operation
of the financial reporting and control environment due to their impact on finance
people, processes and systems.
The transfer of data and operation of new systems needs to be carefully managed
during the transition period to ensure that the integrity and accuracy of data is
maintained and the new system operates as intended. Similarly, the transfer of
established processes to new locations operated by new people has required
close management and control.
In understanding and evaluating management’s judgements, we considered
the status of recent and current tax authority audits and enquiries, judgemental
positions taken in tax returns and current year estimates and developments in
the tax environment.
Where appropriate, we also read appropriate documentation to understand
the positions reached. We noted that the assumptions and judgements that
are required to formulate the provisions mean that there is a broad range of
possible outcomes. However, from the evidence obtained, we considered
the level of provisioning to be acceptable in the context of the Group Financial
Statements taken as a whole.
We assessed and tested the design and operating effectiveness of the Group’s
controls over provisions for uncertain tax positions and concluded that these
operated effectively.
We evaluated the design and tested the operating effectiveness of controls
in respect of the determination of the provisions. We determined that the
operation of the controls provided us with evidence over the completeness,
accuracy and valuation of the provisions.
We read the summary of litigation matters provided by management and held
discussions with the Group’s legal counsel. We requested legal letters from
some of the Group’s external legal advisors with respect to the matters
included in the summary. Where appropriate we examined correspondence
connected with the cases.
For litigation provisions, we tested the calculation of the provisions, assessed
the assumptions against third party data, where available, and assessed the
estimates against historical trends.
We considered management’s judgements on the level of provisioning to be
appropriate. We also evaluated the appropriateness of the disclosures in Note
19 and Note 28 which we considered appropriate.
We centrally managed the work performed by component audit teams at
in-house shared service centres. We performed walkthrough procedures and
controls testing both pre and post transition to ensure the effective transition of
the processes to shared service centres. We also conducted oversight visits to
both in-house and third party shared service centre sites in Group audit scope
(namely Poland and Malaysia).
Component teams performed audit procedures around the payroll in
local territory.
We evaluated the design and tested the operating effectiveness of controls
around Model N and the centralised processing environment, including IT
general controls and controls in respect of data migration between systems.
We also substantively tested the accuracy and completeness of data migration
into the new systems along with the controls over this process.
During the year, a number of internal control weaknesses were identified
related to Model N. These were remediated in-year with validation testing
performed to ensure operational effectiveness.
AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements
131
Financial Statements Independent Auditors’ Report to the Members
of AstraZeneca PLC continued
We determined that there were no key audit
matters applicable to the Parent Company
to communicate in our report.
How we tailored the audit scope
We tailored the scope of our audit to ensure
that we performed enough work to be able
to give an opinion on the financial statements
as a whole, taking into account the structure
of the Group and the Parent Company, the
accounting processes and controls, and the
industry in which they operate.
In establishing the overall approach to the Group
audit, we determined the type of work that
needed to be performed by us, as the Group
engagement team, or component auditors
within PwC UK and other PwC network firms
operating under our instruction. Where the
work was performed by component auditors,
we determined the level of involvement we
needed to have in the audit work in these
territories to be able to conclude whether
sufficient appropriate audit evidence had
been obtained as a basis for our opinion on
the Group Financial Statements as a whole.
The Group operates in over 100 countries and
the size of operations within each territory
varies. We identified eleven reporting
components in scope for Group reporting.
These include AstraZeneca PLC, AstraZeneca
Treasury Limited as well as the US, UK, Sweden,
China, Japan, France, Germany, Russia and
Brazil. These alone represented 71% and 52%
of the Group’s revenue and absolute profit
before tax. We identified these eleven reporting
components as those that, in our view, required
an audit of their complete financial information,
due to their size or risk characteristics.
We also identified a further six reporting
components which had one or more
individual balances that were considered
significant to the Group’s Financial Statements.
For these components our work solely
focussed on balances related to revenue,
research & development expense or property,
plant and equipment as appropriate.
Audit procedures were performed centrally over
certain shared service functions for transaction
processing, IT and in relation to various Group
functions, including taxation, pensions,
goodwill and intangible assets, treasury and
litigation matters, as well as the consolidation.
The procedures performed above increased
the coverage of Group assets to 85%, the
revenue coverage to 83% and the coverage
of profit before tax increased to 70%.
In addition, audits for local statutory purposes
were accelerated to coincide with the Group
reporting timetable at a further three locations
with significant findings reported to the Group
engagement team.
Materiality
The scope of our audit was influenced by
our application of materiality. We set certain
quantitative thresholds for materiality.
These, together with qualitative considerations,
helped us to determine the scope of our
audit and the nature, timing and extent of our
audit procedures on the individual financial
statement line items and disclosures and
in evaluating the effect of misstatements,
both individually and in aggregate on the
financial statements as a whole.
Based on our professional judgement,
we determined materiality for the financial
statements as a whole as follows:
Group Financial Statements
Parent Company Financial Statements
Overall materiality
$160 million
How we determined it
5% of profit before tax, after adding back asset impairment charges, fair value
movements and interest on contingent consideration as disclosed in Notes 9
and 18.
$75 million
1% of net assets
Rationale for
benchmark applied
The reported profit of the Group can fluctuate due to asset impairment charges
and fair value and interest movements on contingent consideration. These
amounts are prone to year on year volatility and are not necessarily reflective of
the operating performance of the Group and as such they have been excluded
from the benchmark amount.
We have considered the nature of the business
in AstraZeneca PLC (investing activities) and have
determine that net assets is most appropriate
as a basis for the calculation of the overall
materiality level.
For each component in the scope of our Group
audit, we allocated a materiality that is less
than our overall Group materiality. The range
of materiality allocated across components
was between $10 million and $100 million.
We agreed with the Audit Committee that we
would report to them misstatements identified
during our audit above $7 million (Group audit)
and $7 million (Parent Company audit) as
well as misstatements below those amounts
that, in our view, warranted reporting for
qualitative reasons.
Going concern
In accordance with ISAs (UK) we report
as follows:
Reporting obligation
Outcome
We are required to report if we have anything material to add or draw attention to in respect of the directors’
statement in the financial statements about whether the directors considered it appropriate to adopt the going
concern basis of accounting in preparing the financial statements and the directors’ identification of any
material uncertainties to the Group’s and the Parent Company’s ability to continue as a going concern over
a period of at least twelve months from the date of approval of the financial statements.
We have nothing material to add or to draw
attention to. However, because not all future events
or conditions can be predicted, this statement
is not a guarantee as to the Group’s and Parent
Company’s ability to continue as a going concern.
We are required to report if the directors’ statement relating to going concern in accordance with
Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit.
We have nothing to report.
132
AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements
Reporting on other information
The other information comprises all of the
information in the Annual Report other than
the financial statements and our auditors’
report thereon. The directors are responsible
for the other information. Our opinion on
the financial statements does not cover the
other information and, accordingly, we do
not express an audit opinion or, except to
the extent otherwise explicitly stated in this
report, any form of assurance thereon.
In connection with our audit of the financial
statements, our responsibility is to read the
other information and, in doing so, consider
whether the other information is materially
inconsistent with the financial statements
or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
If we identify an apparent material inconsistency
or material misstatement, we are required
to perform procedures to conclude whether
there is a material misstatement of the
financial statements or a material misstatement
of the other information. If, based on the work
we have performed, we conclude that there is
a material misstatement of this other information,
we are required to report that fact. We have
nothing to report based on these responsibilities.
With respect to the Strategic Report and
Directors’ Report, we also considered whether
the disclosures required by the UK Companies
Act 2006 have been included.
Based on the responsibilities described
above and our work undertaken in the
course of the audit, the Companies Act 2006,
(CA06), ISAs (UK) and the Listing Rules of the
Financial Conduct Authority (FCA) require us
also to report certain opinions and matters as
described below (required by ISAs (UK) unless
otherwise stated).
Strategic Report and Chairman’s Statement
In our opinion, based on the work undertaken
in the course of the audit, the information
given in the Strategic Report and Chairman’s
Statement for the year ended 31 December
2017 is consistent with the financial statements
and has been prepared in accordance with
applicable legal requirements (CA06).
In light of the knowledge and understanding
of the Group and Parent Company and their
environment obtained in the course of
the audit, we did not identify any material
misstatements in the Strategic Report and
Chairman’s Statement (CA06).
The directors’ assessment of the prospects of
the Group and of the principal risks that would
threaten the solvency or liquidity of the Group
We have nothing material to add or draw
attention to regarding:
> The directors’ confirmation on page 63 of
the Annual Report that they have carried
out a robust assessment of the principal
risks facing the Group, including those
that would threaten its business model,
future performance, solvency or liquidity.
> The disclosures in the Annual Report that
describe those risks and explain how they
are being managed or mitigated.
> The directors’ explanation on page 63
of the Annual Report as to how they have
assessed the prospects of the Group, over
what period they have done so and why
they consider that period to be appropriate,
and their statement as to whether they have
a reasonable expectation that the Group
will be able to continue in operation and
meet its liabilities as they fall due over the
period of their assessment, including any
related disclosures drawing attention to any
necessary qualifications or assumptions.
We have nothing to report having performed
a review of the directors’ statement that they
have carried out a robust assessment of the
principal risks facing the Group and statement
in relation to the longer-term viability of the
Group. Our review was substantially less in
scope than an audit and only consisted of
making inquiries and considering the directors’
process supporting their statements; checking
that the statements are in alignment with
the relevant provisions of the UK Corporate
Governance Code (the ‘Code’); and considering
whether the statements are consistent
with the knowledge and understanding of
the Group and Parent Company and their
environment obtained in the course of the
audit. (Listing Rules).
Other Code Provisions
We have nothing to report in respect of our
responsibility to report when:
> The statement given by the directors, on
page 128, that they consider the Annual
Report taken as a whole to be fair,
balanced and understandable, and
provides the information necessary for the
members to assess the Group’s and Parent
Company’s position and performance,
business model and strategy is materially
inconsistent with our knowledge of the
Group and Parent Company obtained
in the course of performing our audit.
> The section of the Annual Report on
pages 102–104 describing the work of the
Audit Committee does not appropriately
address matters communicated by us to
the Audit Committee.
> The directors’ statement relating to
the Parent Company’s compliance with
the Code does not properly disclose a
departure from a relevant provision of the
Code specified, under the Listing Rules,
for review by the auditors.
Directors’ Remuneration
In our opinion, the part of the Directors’
Remuneration Report to be audited has
been properly prepared in accordance
with the Companies Act 2006 (CA06).
Responsibilities for the financial
statements and the audit
Responsibilities of the directors for
the financial statements
As explained more fully in the Preparation
of the Financial Statements and Directors’
Responsibilities set out on page 128, the
directors are responsible for the preparation
of the financial statements in accordance
with the applicable framework and for being
satisfied that they give a true and fair view.
The directors are also responsible for such
internal control as they determine is necessary
to enable the preparation of financial
statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the
directors are responsible for assessing the
Group’s and the Parent Company’s ability to
continue as a going concern, disclosing as
applicable, matters related to going concern
and using the going concern basis of
accounting unless the directors either intend
to liquidate the Group or the Parent Company
or to cease operations, or have no realistic
alternative but to do so.
Auditors’ responsibilities for the audit of
the financial statements
Our objectives are to obtain reasonable
assurance about whether the financial
statements as a whole are free from material
misstatement, whether due to fraud or error,
and to issue an auditors’ report that includes
our opinion. Reasonable assurance is a high
level of assurance, but is not a guarantee
that an audit conducted in accordance
with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements
can arise from fraud or error and are considered
material if, individually or in the aggregate, they
could reasonably be expected to influence
the economic decisions of users taken on the
basis of these financial statements.
A further description of our responsibilities for
the audit of the financial statements is located
on the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description
forms part of our auditors’ report.
AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements
133
Financial Statements Independent Auditors’ Report to the Members
of AstraZeneca PLC continued
Use of this report
This report, including the opinions, has been
prepared for and only for the Parent Company’s
members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act
2006 and for no other purpose. We do not,
in giving these opinions, accept or assume
responsibility for any other purpose or to any
other person to whom this report is shown or
into whose hands it may come save where
expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are
required to report to you if, in our opinion:
> we have not received all the information and
explanations we require for our audit; or
> adequate accounting records have not been
kept by the Parent Company, or returns
adequate for our audit have not been
received from branches not visited by us; or
> certain disclosures of directors’ remuneration
specified by law are not made; or
> the Parent Company Financial Statements
and the part of the Directors’ Remuneration
Report to be audited are not in agreement
with the accounting records and returns.
We have no exceptions to report arising from
this responsibility.
Appointment
Following the recommendation of the audit
committee, we were appointed by the
shareholders on 27 April 2017 to audit the
financial statements for the year ended
31 December 2017 and subsequent financial
periods. This is therefore our first year of
uninterrupted engagement.
Richard Hughes (Senior Statutory Auditor)
for and on behalf of
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
2 February 2018
134
AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements Consolidated Statement of Comprehensive Income
for the year ended 31 December
Product Sales
Externalisation Revenue
Total Revenue
Cost of sales
Gross profit
Distribution costs
Research and development expense
Selling, general and administrative costs
Other operating income and expense
Operating profit
Finance income
Finance expense
Share of after tax losses in associates and joint ventures
Profit before tax
Taxation
Profit for the period
Other comprehensive income:
Items that will not be reclassified to profit or loss:
Remeasurement of the defined benefit pension liability
Fair value movements related to own credit risk on bonds designated as fair value through profit
and loss
Tax on items that will not be reclassified to profit or loss
Items that may be reclassified subsequently to profit or loss:
Foreign exchange arising on consolidation
Foreign exchange arising on designating borrowings in net investment hedges
Fair value movements on cash flow hedges
Fair value movements on cash flow hedges transferred to profit and loss
Fair value movements on derivatives designated in net investment hedges
Amortisation of loss on cash flow hedge
Net available for sale (losses)/gains taken to equity
Tax on items that may be reclassified subsequently to profit or loss
Other comprehensive income/(loss) for the period, net of tax
Total comprehensive income for the period
Profit attributable to:
Owners of the Parent
Non-controlling interests
Total comprehensive income attributable to:
Owners of the Parent
Non-controlling interests
Basic earnings per $0.25 Ordinary Share
Diluted earnings per $0.25 Ordinary Share
Weighted average number of Ordinary Shares in issue (millions)
Diluted weighted average number of Ordinary Shares in issue (millions)
Notes
1
1
2
2
2
3
3
10
4
20
4
21
21
21
4
24
24
5
5
5
5
2017
$m
20,152
2016
$m
21,319
2,313
22,465
(4,318)
18,147
(310)
(5,757)
(10,233)
1,830
3,677
113
(1,508)
(55)
2,227
641
2,868
(242)
(9)
16
(235)
536
505
311
(315)
(48)
1
(83)
(33)
874
639
3,507
3,001
(133)
3,640
(133)
$2.37
$2.37
1,266
1,267
1,683
23,002
(4,126)
18,876
(326)
(5,890)
(9,413)
1,655
4,902
67
(1,384)
(33)
3,552
(146)
3,406
(575)
–
136
(439)
(1,050)
(591)
(115)
195
(4)
1
139
86
(1,339)
(1,778)
1,628
3,499
(93)
1,722
(94)
$2.77
$2.76
1,265
1,266
2015
$m
23,641
1,067
24,708
(4,646)
20,062
(339)
(5,997)
(11,112)
1,500
4,114
46
(1,075)
(16)
3,069
(243)
2,826
652
–
(199)
453
(528)
(333)
–
–
14
1
(32)
87
(791)
(338)
2,488
2,825
1
2,488
–
$2.23
$2.23
1,264
1,265
i
F
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Dividends declared and paid in the period
23
3,543
3,540
3,537
All activities were in respect of continuing operations.
$m means millions of US dollars.
AstraZeneca Annual Report & Form 20-F Information 2017 / Consolidated Statements 135
Consolidated Statement of Financial Position
at 31 December
Assets
Non-current assets
Property, plant and equipment
Goodwill
Intangible assets
Investments in associates and joint ventures
Other investments
Derivative financial instruments
Other receivables
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Other investments
Derivative financial instruments
Income tax receivable
Cash and cash equivalents
Total assets
Liabilities
Current liabilities
Interest-bearing loans and borrowings
Trade and other payables
Derivative financial instruments
Provisions
Income tax payable
Non-current liabilities
Interest-bearing loans and borrowings
Derivative financial instruments
Deferred tax liabilities
Retirement benefit obligations
Provisions
Other payables
Total liabilities
Net assets
Equity
Capital and reserves attributable to equity holders of the Company
Share capital
Share premium account
Capital redemption reserve
Merger reserve
Other reserves
Retained earnings
Non-controlling interests
Total equity
Notes
2017
$m
2016
$m
2015
$m
7
8
9
10
11
12
13
4
14
15
11
12
16
17
18
12
19
17
12
4
20
19
18
22
21
21
24
7,615
11,825
26,188
103
933
504
847
2,189
50,204
3,035
5,009
1,230
28
524
3,324
13,150
63,354
(2,247)
(11,641)
(24)
(1,121)
(1,350)
6,848
11,658
27,586
99
727
343
901
1,102
49,264
2,334
4,573
884
27
426
5,018
13,262
62,526
(2,307)
(10,486)
(18)
(1,065)
(1,380)
(16,383)
(15,256)
6,413
11,800
22,646
85
458
446
907
1,294
44,049
2,143
6,622
613
2
387
6,240
16,007
60,056
(916)
(11,663)
(9)
(798)
(1,483)
(14,869)
(15,560)
(14,501)
(14,137)
(4)
(3,995)
(2,583)
(347)
(7,840)
(30,329)
(46,712)
16,642
317
4,393
153
448
1,428
8,221
14,960
1,682
16,642
(117)
(3,956)
(2,186)
(353)
(9,488)
(30,601)
(45,857)
16,669
316
4,351
153
448
1,446
8,140
14,854
1,815
16,669
(1)
(2,665)
(1,974)
(444)
(7,457)
(26,678)
(41,547)
18,509
316
4,304
153
448
1,435
11,834
18,490
19
18,509
The Financial Statements from pages 135 to 193 were approved by the Board on 2 February 2018 and were signed on its behalf by
Pascal Soriot
Director
Marc Dunoyer
Director
136 AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements
Consolidated Statement of Changes in Equity
for the year ended 31 December
Share
Capital
Total
Non-
At 1 January 2015
Profit for the period
Other comprehensive income
Transfer to other reserves1
Transactions with owners
Dividends
Issue of Ordinary Shares
Share-based payments charge for the period (Note 27)
Settlement of share plan awards
Net movement
At 31 December 2015
Profit for the period
Other comprehensive income
Transfer to other reserves1
Transactions with owners
Dividends
Dividends paid by subsidiary to non-controlling interest
Acerta put option (Note 24)
Changes in non-controlling interest (Note 25)
Issue of Ordinary Shares
Share-based payments charge for the period (Note 27)
Settlement of share plan awards
Net movement
At 31 December 2016
Profit for the period
Other comprehensive income
Transfer to other reserves1
Transactions with owners
Dividends
Issue of Ordinary Shares
Share-based payments charge for the period (Note 27)
Settlement of share plan awards
Net movement
At 31 December 2017
Share
capital
$m
316
premium
account
$m
4,261
redemption
reserve
$m
153
–
–
–
–
–
–
–
–
–
–
–
–
43
–
–
43
–
–
–
–
–
–
–
–
Merger
reserve
$m
448
–
–
–
–
–
–
–
–
Other
reserves
$m
Retained
earnings
$m
attributable
to owners
$m
1,420
13,029
19,627
controlling
interests
$m
19
–
–
15
2,825
2,825
(337)
(15)
(337)
–
–
–
–
–
(3,537)
(3,537)
–
211
(342)
43
211
(342)
15
(1,195)
(1,137)
1
(1)
–
–
–
–
–
–
Total
equity
$m
19,646
2,826
(338)
–
(3,537)
43
211
(342)
(1,137)
316
4,304
153
448
1,435
11,834
18,490
19
18,509
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
47
–
–
47
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,499
3,499
(93)
3,406
(1,777)
(1,777)
11
(11)
–
(1)
–
(1,778)
–
–
–
–
–
–
–
–
(3,540)
(3,540)
–
(3,540)
–
–
(13)
(13)
(1,825)
(1,825)
–
(1,825)
–
–
241
(281)
–
1,903
1,903
47
241
(281)
–
–
–
47
241
(281)
11
(3,694)
(3,636)
1,796
(1,840)
316
4,351
153
448
1,446
8,140
14,854
1,815
16,669
–
–
–
–
1
–
–
1
–
–
–
–
42
–
–
42
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(18)
–
–
–
–
3,001
3,001
(133)
2,868
639
18
639
–
(3,543)
(3,543)
–
220
(254)
43
220
(254)
–
–
–
–
–
–
639
–
(3,543)
43
220
(254)
(27)
i
F
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
(18)
81
106
(133)
317
4,393
153
448
1,428
8,221
14,960
1,682
16,642
1 Amounts charged or credited to other reserves relate to exchange adjustments arising on goodwill.
AstraZeneca Annual Report & Form 20-F Information 2017 / Consolidated Statements 137
Notes
2017
$m
2016
$m
2015
$m
3
10
2
18
16
18
10
2,227
1,395
55
3,036
83
(548)
415
(1,518)
109
(524)
4,730
(698)
(454)
3,578
(1,450)
(434)
(1,326)
83
(294)
1,376
(96)
70
(345)
(76)
164
–
(2,328)
1,250
43
1,988
(1,750)
(3,519)
(20)
(14)
336
(2,936)
(1,686)
4,924
(66)
3,172
3,552
1,317
33
2,357
1,610
(343)
(341)
(1,301)
(1,158)
(492)
5,234
(677)
(412)
4,145
(2,564)
(293)
(1,446)
82
(868)
1,427
(230)
3
(166)
(41)
140
(13)
(3,969)
176
47
2,491
–
(3,561)
18
(16)
(303)
(1,324)
(1,148)
6,051
21
4,924
3,069
1,029
16
2,852
152
(315)
114
(961)
(432)
(350)
5,174
(496)
(1,354)
3,324
(2,446)
(579)
(1,328)
47
(1,460)
1,130
(57)
93
283
(45)
123
–
(4,239)
(915)
43
5,928
(884)
(3,486)
(51)
(42)
(630)
878
(37)
6,164
(76)
6,051
Consolidated Statement of Cash Flows
for the year ended 31 December
Cash flows from operating activities
Profit before tax
Finance income and expense
Share of after tax losses of associates and joint ventures
Depreciation, amortisation and impairment
Decrease in trade and other receivables
Increase in inventories
Increase/(decrease) in trade and other payables and provisions
Gains on disposal of intangible assets
Fair value movements on contingent consideration arising from business combinations
Non-cash and other movements
Cash generated from operations
Interest paid
Tax paid
Net cash inflow from operating activities
Cash flows from investing activities
Non-contingent payments on business combinations
Payment of contingent consideration from business combinations
Purchase of property, plant and equipment
Disposal of property, plant and equipment
Purchase of intangible assets
Disposal of intangible assets
Purchase of non-current asset investments
Disposal of non-current asset investments
Movement in short-term investments and fixed deposits
Payments to joint ventures
Interest received
Payments made by subsidiaries to non-controlling interests
Net cash outflow from investing activities
Net cash inflow/(outflow) before financing activities
Cash flows from financing activities
Proceeds from issue of share capital
Issue of loans
Repayment of loans
Dividends paid
Hedge contracts relating to dividend payments
Repayment of obligations under finance leases
Movement in short-term borrowings
Net cash (outflow)/inflow from financing activities
Net decrease in cash and cash equivalents in the period
Cash and cash equivalents at the beginning of the period
Exchange rate effects
Cash and cash equivalents at the end of the period
16
138 AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements
Group Accounting Policies
Basis of accounting and preparation of financial information
The Consolidated Financial Statements have been prepared under the historical cost convention, modified to include revaluation to fair value of
certain financial instruments as described below, in accordance with the Companies Act 2006 and International Financial Reporting Standards
(IFRSs) as adopted by the EU (adopted IFRSs) in response to the IAS regulation (EC 1606/2002). The Consolidated Financial Statements also
comply fully with IFRSs as issued by the International Accounting Standards Board (IASB).
During the year, the Group has adopted the amendments to IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses and the
amendments to IAS 7 Disclosure Initiative. In 2017, the Group also early adopted the revised IFRS 9 ‘Financial Instruments’ treatment of impact of
changes in the Group’s own credit risk on the measurement of liabilities held at fair value. The adoptions have not had a significant impact on the
Group’s profit for the period, net assets or cash flows.
In addition to the above standard amendments and new adoptions, the Group has revised the Statement of Financial Position presentation for the
following items:
> With effect from 1 January 2017, the Group has revised the Statement of Financial Position presentation of Deferred tax for one Group entity.
This presentation change has resulted in the Group showing gross, rather than net, Deferred tax assets and Deferred tax liabilities of the
individual entity. The revised presentation has no impact on net Deferred tax, the Group’s Net assets, the Statement of Cash Flows or the
Statement of Comprehensive Income. The change has been made as the Group entity has transactions that are subject to tax by two different
taxation authorities and has the effect of separately disclosing the deferred tax effects for each country. The Group has assessed this
presentational change as not material for revision under IAS 8 ‘Accounting Polices, Changes in Accounting Estimates and Errors’ as the Group
has concluded that the user of the accounts would not be adversely impacted and, therefore, the comparative Statement of Financial Position
has not been revised for this presentational change. If the 31 December 2016 and 31 December 2015 balances were presented in a
comparable way, the Deferred tax assets would have been $2,093m and $1,872m, respectively and the Deferred tax liabilities would have been
$4,947m and $3,243m, respectively.
> As detailed in Note 26 to the Financial Statements, the Group has entered into financial derivative transactions with commercial banks. The
Group has agreements with some bank counterparties whereby the parties agree to post cash collateral, for the benefit of the other, equivalent
to the market valuation of the derivative positions above a predetermined threshold. With effect from the 1 January 2017, the Group has revised
the Statement of Financial Position presentation of these collateral balances, so that the cash collateral is included in Cash and cash
equivalents, with an offsetting liability presented in current Interest-bearing loans and borrowings and the movement presented in movement in
short-term borrowings in the Statement of Cash Flows. This revision has no impact on the Group’s Net assets, or the Statement of
Comprehensive Income. The Group has assessed this presentational change as not material for revision under IAS 8 as the Group has
concluded that the user of the accounts would not be adversely impacted and, therefore, the comparative Statement of Financial Position has
not been revised for this presentational change. If the 31 December 2016 and 31 December 2015 balances were presented in a comparable
way the Cash and cash equivalents balance would have been $5,260m and $6,691m, respectively. Current Interest-bearing loans and
borrowings would have been $2,629m and $1,367m, respectively, and current investments would have been $964m and $613m, respectively.
> Following clarification by the IASB Interpretations Committee in September 2017, the Group has revised its presentation of interest on tax
positions. Interest income and expense, which was previously presented in the tax charge in the Statement of Comprehensive Income, is now
presented in Finance income and expense and corresponding assets and liabilities, which were previously presented as Income tax receivables
and payables in the Statement of Financial Position, are now presented in Trade and other receivables and Trade and other payables. This
revision has no impact on the Group’s Net assets and cash flows or retained profit. The Group has assessed this presentational change as not
material for revision under IAS 8 as the Group has concluded that the user of the accounts would not be adversely impacted and, therefore, the
comparative Statement of Comprehensive Income and Statement of Financial Position have not been revised for this presentational change. If
the 31 December 2016 and 31 December 2015 balances were presented in a comparable way, Finance income and expense would have been
$1,239m and $1,001m, respectively, Tax (credit)/charge would have been $224m and $271m, respectively, Income tax payables would have
been $1,287m and $1,291m, respectively and Trade and other payables would have been $10,579m and $11,855m, respectively.
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The Company has elected to prepare the Company Financial Statements in accordance with UK Accounting Standards, including FRS 101
‘Reduced Disclosure Framework’. These are presented on pages 194 to 198 and the Accounting Policies in respect of Company information is
set out on page 196.
The Consolidated Financial Statements are presented in US dollars, which is the Company’s functional currency.
In preparing their individual financial statements, the accounting policies of some overseas subsidiaries do not conform with IASB issued IFRSs.
Therefore, where appropriate, adjustments are made in order to present the Consolidated Financial Statements on a consistent basis.
Basis for preparation of Financial Statements on a going concern basis
The Group has considerable financial resources available. As at 31 December 2017, the Group has $4.1bn in financial resources (cash balances
of $3.3bn and undrawn committed bank facilities of $3.0bn that are available until April 2022, with only $2.2bn of debt due within one year). The
Group’s revenues are largely derived from sales of products which are covered by patents which provide a relatively high level of resilience and
predictability to cash inflows, although our revenue is expected to continue to be significantly impacted by the expiry of patents over the medium
term. In addition, government price interventions in response to budgetary constraints are expected to continue to adversely affect revenues in
many of our mature markets. However, we anticipate new revenue streams from both recently launched medicines and products in development,
and the Group has a wide diversity of customers and suppliers across different geographic areas. Consequently, the Directors believe that,
overall, the Group is well placed to manage its business risks successfully. Accordingly, they continue to adopt the going concern basis in
preparing the Annual Report and Financial Statements.
Estimates and judgements
The preparation of the Financial Statements in conformity with generally accepted accounting principles requires management to make estimates
and judgements that affect the reported amounts of assets and liabilities at the date of the Financial Statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those estimates.
AstraZeneca Annual Report & Form 20-F Information 2017 / Group Accounting Policies 139
Group Accounting Policies
continued
Judgements include matters such as the determination of operating segments while estimates focus on areas such as carrying values, estimated
useful lives, potential obligations and contingent consideration.
AstraZeneca’s management considers the following to be the most important accounting policies in the context of the Group’s operations.
The accounting policy descriptions set out the areas where judgements and estimates need exercising, the most significant of which are revenue
recognition, research and development (including impairment reviews of associated intangible assets), business combinations and goodwill (and
contingent consideration arising from business combinations), litigation and environmental liabilities, employee benefits and taxation. Financial
risk management policies are detailed in Note 26.
Revenue
Revenues comprise Product Sales and Externalisation Revenue.
Revenues exclude inter-company revenues and value-added taxes.
Product Sales
Product Sales represent net invoice value less estimated rebates, returns and chargebacks. Sales are recognised when the significant risks and
rewards of ownership have been transferred to a third party. This is usually when title passes to the customer, either on shipment or on receipt of
goods by the customer, depending on local trading terms. In markets where returns are significant, estimates of returns are accounted for at the
point revenue is recognised.
For the markets where returns are significant, we estimate the quantity and value of goods which may ultimately be returned at the point of sale.
Our returns accruals are based on actual experience over 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 predetermined percentage.
When a product faces generic competition, particular attention is given to the possible levels of returns and, in cases where the circumstances
are such that the level of returns (and hence revenue) cannot be measured reliably, revenues are only recognised when the right of return expires,
which is generally on ultimate prescription of the product to patients.
Under certain collaboration agreements which include a profit sharing mechanism, our recognition of Product Sales depends on which party acts
as principal in sales to the end customer. In the cases where AstraZeneca acts as principal, we record 100% of sales to the end customer.
Externalisation Revenue
Externalisation Revenue includes income from collaborative arrangements on the Group’s products where the Group has sold certain rights
associated with those products, but retains a significant ongoing economic interest, through for example the ongoing supply of finished goods or
participation in profit share arrangements.
These agreements may include development arrangements, commercialisation arrangements and collaborations. Income may take the form of
upfront fees, milestones, profit sharing and/or sales royalties. Generally, upfront fees are recognised upon transfer of the respective licence or
other similar rights granted under the agreements. Where the Group provides ongoing services, revenue in respect of this element will be
recognised over the duration of those services. Milestones and sales royalties are recognised when highly probable and the amount can be
reliably estimated.
Where externalisation revenue is recorded and there is a related intangible asset, an appropriate amount of that intangible asset is charged to
cost of sales based on an allocation of cost or value to the rights that have been sold.
Cost of sales
Cost of sales are recognised as the associated revenue is recognised. Cost of sales include manufacturing costs, royalties payable on revenues
recognised, movements in provisions for inventories and inventory write offs. Cost of sales also includes partner profit shares arising from
collaborations, and foreign exchange gains and losses arising from business trading activities.
Research and development
Research expenditure is recognised in profit in the year in which it is incurred.
Internal development expenditure is capitalised only if it meets the recognition criteria of IAS 38 ‘Intangible Assets’. Where regulatory and other
uncertainties are such that the criteria are not met, the expenditure is recognised in profit and this is almost invariably the case prior to approval
of the drug by the relevant regulatory authority. Where, however, recognition criteria are met, intangible assets are capitalised and amortised on a
straight-line basis over their useful economic lives from product launch. At 31 December 2017, no amounts have met recognition criteria.
Payments to in-license products and compounds from third parties for new research and development projects (in process research and
development) generally take the form of upfront payments, milestones and royalty payments. Where payments made to third parties represent
future research and development activities, an evaluation is made as to the nature of the payments. Such payments are expensed if they
represent compensation for sub-contracted research and development services not resulting in a transfer of intellectual property. By contrast,
payments are capitalised if they represent compensation for the transfer of identifiable intellectual property developed at the risk of the third party.
Development milestone payments relating to identifiable intellectual property are capitalised as the milestone is triggered. Any upfront or
milestone payments for research activities where there is no associated identifiable intellectual property are expensed. Assets capitalised are
amortised, on a straight-line basis, over their useful economic lives from product launch.
Intangible assets relating to products in development are subject to impairment testing annually. All intangible assets are tested for impairment
when there are indications that the carrying value may not be recoverable. Any impairment losses are recognised immediately in profit. Intangible
assets relating to products which fail during development (or for which development ceases for other reasons) are also tested for impairment and
are written down to their recoverable amount (which is usually nil).
If, subsequent to an impairment loss being recognised, development restarts or other facts and circumstances change indicating that the
impairment is less or no longer exists, the value of the asset is re-estimated and its carrying value is increased to the recoverable amount, but not
exceeding the original value, by recognising an impairment reversal in profit.
140 AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements
Business combinations and goodwill
On the acquisition of a business, fair values are attributed to the identifiable assets and liabilities and contingent liabilities unless the fair value
cannot be measured reliably, in which case the value is subsumed into goodwill. Where the Group fully acquires, through a business combination,
assets that were previously held in joint operations, the Group has elected not to uplift the book value of the existing interest in the asset held in
the joint operation to fair value at the date full control is taken. Where fair values of acquired contingent liabilities cannot be measured reliably, the
assumed contingent liability is not recognised but is disclosed in the same manner as other contingent liabilities.
Where not all of the equity of a subsidiary is acquired, the non-controlling interest is recognised either at fair value or at the non-controlling
interest’s proportionate share of the net assets of the subsidiary, on a case-by-case basis. Put options over non-controlling interests are
recognised as a financial liability, with a corresponding entry in either retained earnings or against non-controlling interest reserves on a case-by-
case basis.
Future contingent elements of consideration, which may include development and launch milestones, revenue threshold milestones and revenue-
based royalties, are fair valued at the date of acquisition using decision-tree analysis with key inputs including probability of success,
consideration of potential delays and revenue projections based on the Group’s internal forecasts. Unsettled amounts of consideration are held at
fair value within payables with changes in fair value recognised immediately in profit.
Goodwill is the difference between the fair value of the consideration and the fair value of net assets acquired.
Goodwill arising on acquisitions is capitalised and subject to an impairment review, both annually and when there is an indication that the carrying
value may not be recoverable.
The Group’s policy up to and including 1997 was to eliminate goodwill arising upon acquisitions against reserves. Under IFRS 1 ‘First-time
Adoption of International Financial Reporting Standards’ and IFRS 3 ‘Business Combinations’, such goodwill will remain eliminated against
reserves.
Joint arrangements and associates
The Group has arrangements over which it has joint control and which qualify as joint operations or joint ventures under IFRS 11 ‘Joint
Arrangements’. For joint operations, the Group recognises its share of revenue that it earns from the joint operations and its share of expenses
incurred. The Group also recognises the assets associated with the joint operations that it controls and the liabilities it incurs under the joint
arrangement. For joint ventures and associates, the Group recognises its interest in the joint venture or associate as an investment and uses the
equity method of accounting.
Employee benefits
The Group accounts for pensions and other employee benefits (principally healthcare) under IAS 19 ‘Employee Benefits’. In respect of defined
benefit plans, obligations are measured at discounted present value while plan assets are measured at fair value. The operating and financing
costs of such plans are recognised separately in profit; current service costs are spread systematically over the lives of employees and financing
costs are recognised in full in the periods in which they arise. Remeasurements of the net defined benefit pension liability, including actuarial
gains and losses, are recognised immediately in other comprehensive income.
Where the calculation results in a surplus to the Group, the recognised asset is limited to the present value of any available future refunds from
the plan or reductions in future contributions to the plan. Payments to defined contribution plans are recognised in profit as they fall due.
Taxation
The current tax payable is based on taxable profit for the year. Taxable profit differs from reported profit because taxable profit excludes items
that are either never taxable or tax deductible or items that are taxable or tax deductible in a different period. The Group’s current tax assets and
liabilities are calculated using tax rates that have been enacted or substantively enacted by the reporting date.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax assets are recognised to the extent that it is
probable that taxable profit will be available against which the asset can be utilised. This requires judgements to be made in respect of the
availability of future taxable income.
No deferred tax asset or liability is recognised in respect of temporary differences associated with investments in subsidiaries and branches
where the Group is able to control the timing of reversal of the temporary differences and it is probable that the temporary differences will not
reverse in the foreseeable future.
The Group’s deferred tax assets and liabilities are calculated using tax rates that are expected to apply in the period when the liability is settled or
the asset realised based on tax rates that have been enacted or substantively enacted by the reporting date.
Accruals for tax contingencies require management to make judgements and estimates of exposures in relation to tax audit issues. Tax benefits
are not recognised unless the tax positions will probably be sustained based upon management's interpretation of applicable laws and
regulations and the likelihood of settlement.
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. Accruals for tax contingencies are measured
using the single best estimate of likely outcome approach.
Further details of the estimates and assumptions made in determining our recorded liability for transfer pricing contingencies and other tax
contingencies are included in Note 28 to the Financial Statements.
Share-based payments
All plans are assessed and have been classified as equity settled. The grant date fair value of employee share plan awards is calculated using a
modified version of the binomial model. In accordance with IFRS 2 ‘Share-based Payment’, the resulting cost is recognised in profit over the
vesting period of the awards, being the period in which the services are received. The value of the charge is adjusted to reflect expected and
actual levels of awards vesting, except where the failure to vest is as a result of not meeting a market condition. Cancellations of equity
instruments are treated as an acceleration of the vesting period and any outstanding charge is recognised in profit immediately.
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AstraZeneca Annual Report & Form 20-F Information 2017 / Group Accounting Policies 141
Group Accounting Policies
continued
Property, plant and equipment
The Group’s policy is to write off the difference between the cost of each item of property, plant and equipment and its residual value over its
estimated useful life on a straight-line basis. Assets under construction are not depreciated.
Reviews are made annually of the estimated remaining lives and residual values of individual productive assets, taking account of commercial and
technological obsolescence as well as normal wear and tear. It is impractical to calculate average asset lives exactly. However, the total lives
range from approximately 10 to 50 years for buildings, and three to 15 years for plant and equipment. All items of property, plant and equipment
are tested for impairment when there are indications that the carrying value may not be recoverable. Any impairment losses are recognised
immediately in profit.
Borrowing costs
The Group has no borrowing costs with respect to the acquisition or construction of qualifying assets. All other borrowing costs are recognised in
profit as incurred and in accordance with the effective interest rate method.
Leases
Leases are classified as finance leases if they transfer substantially all the risks and rewards incidental to ownership, otherwise they are classified
as operating leases. Assets and liabilities arising on finance leases are initially recognised at fair value or, if lower, the present value of the
minimum lease payments. The discount rate used in calculating the present value of the minimum lease payments is the interest rate implicit in
the lease. Finance charges under finance leases are allocated to each reporting period so as to produce a constant periodic rate of interest on the
remaining balance of the finance liability. Rentals under operating leases are charged to profit on a straight-line basis.
Subsidiaries
A subsidiary is an entity controlled, directly or indirectly, by AstraZeneca PLC. Control is regarded as the exposure or rights to the variable returns
of the entity when combined with the power to affect those returns.
The financial results of subsidiaries are consolidated from the date control is obtained until the date that control ceases.
Inventories
Inventories are stated at the lower of cost and net realisable value. The first in, first out or an average method of valuation is used. For finished
goods and work in progress, cost includes directly attributable costs and certain overhead expenses (including depreciation). Selling expenses
and certain other overhead expenses (principally central administration costs) are excluded. Net realisable value is determined as estimated
selling price less all estimated costs of completion and costs to be incurred in selling and distribution.
Write-downs of inventory occur in the general course of business and are recognised in cost of sales.
Trade and other receivables
Financial assets included in Trade and other receivables are recognised initially at fair value. Subsequent to initial recognition they are measured
at amortised cost using the effective interest rate method, less any impairment losses. Trade receivables that are subject to debt factoring
arrangements are derecognised if they meet the conditions for derecognition detailed in IAS 39 ‘Financial Instruments: Recognition and
Measurement’.
Trade and other payables
Financial liabilities included in Trade and other payables are recognised initially at fair value. Subsequent to initial recognition they are measured
at amortised cost using the effective interest rate method.
Financial instruments
The Group’s financial instruments include interests in leases, trade and other receivables and payables, liabilities for contingent consideration and
put options under business combinations, and rights and obligations under employee benefit plans which are dealt with in specific accounting
policies.
The Group’s other financial instruments include:
> cash and cash equivalents
> fixed deposits
> other investments
> bank and other borrowings
> derivatives
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, current balances with banks and similar institutions, and highly liquid investments with
maturities of three months or less when acquired. They are readily convertible into known amounts of cash and are held at amortised cost.
Fixed deposits
Fixed deposits, principally comprising funds held with banks and other financial institutions, are initially measured at fair value, plus direct
transaction costs, and are subsequently measured at amortised cost using the effective interest rate method at each reporting date. Changes in
carrying value are recognised in profit.
Other investments
Where investments have been classified as held for trading, they are measured initially at fair value and subsequently remeasured to fair value at
each reporting date. Changes in fair value are recognised in profit.
142 AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements
In all other circumstances, the investments are classified as ‘available for sale’, initially measured at fair value (including direct transaction costs)
and subsequently remeasured to fair value at each reporting date. Changes in carrying value due to changes in exchange rates on monetary
available for sale investments or impairments are recognised in profit within Other operating income and expense. All other changes in fair value
are recognised in Other comprehensive income.
Impairments are recorded in profit when there is a decline in the value of an investment that is deemed to be other than temporary. On disposal of
the investment, the cumulative amount recognised in Other comprehensive income is recognised in profit as part of the gain or loss on disposal.
Bank and other borrowings
The Group uses derivatives, principally interest rate swaps, to hedge the interest rate exposure inherent in a portion of its fixed interest rate debt.
In such cases the Group will either designate the debt as fair value through profit or loss when certain criteria are met or as the hedged item under
a fair value hedge.
If the debt instrument is designated as fair value through profit or loss, the debt is initially measured at fair value (with direct transaction costs
being included in profit as an expense) and is remeasured to fair value at each reporting date with changes in carrying value being recognised in
profit (along with changes in the fair value of the related derivative), with the exception of changes in the fair value of the debt instrument relating
to own credit risk which are recorded in Other comprehensive income in accordance with IFRS 9. Such a designation has been made where this
significantly reduces an accounting mismatch which would result from recognising gains and losses on different bases.
If the debt is designated as the hedged item under a fair value hedge, the debt is initially measured at fair value (with direct transaction costs
being amortised over the life of the debt) and is remeasured for fair value changes in respect of the hedged risk at each reporting date with
changes in carrying value being recognised in profit (along with changes in the fair value of the related derivative).
If the debt is designated in a cash flow hedge, the debt is measured at amortised cost (with gains or losses taken to profit and direct transaction
costs being amortised over the life of the debt). The related derivative is remeasured for fair value changes at each reporting date with the portion
of the gain or loss on the derivative that is determined to be an effective hedge recognised in Other comprehensive income. The amounts that
have been recognised in Other comprehensive income are reclassified to profit in the same period that the hedged forecast cash flows affect
profit.
Other interest-bearing loans are initially measured at fair value (with direct transaction costs being amortised over the life of the loan) and are
subsequently measured at amortised cost using the effective interest rate method at each reporting date. Changes in carrying value are
recognised in profit.
Derivatives
Derivatives are initially measured at fair value (with direct transaction costs being included in profit as an expense) and are subsequently
remeasured to fair value at each reporting date. Changes in carrying value are recognised in profit.
Foreign currencies
Foreign currency transactions, being transactions denominated in a currency other than an individual Group entity’s functional currency, are
translated into the relevant functional currencies of individual Group entities at average rates for the relevant monthly accounting periods, which
approximate to actual rates.
Monetary assets and liabilities arising from foreign currency transactions are retranslated at exchange rates prevailing at the reporting date.
Exchange gains and losses on loans and on short-term foreign currency borrowings and deposits are included within Finance expense. Exchange
differences on all other foreign currency transactions are recognised in Operating profit in the individual Group entity’s accounting records.
Non-monetary items arising from foreign currency transactions are not retranslated in the individual Group entity’s accounting records.
In the Consolidated Financial Statements, income and expense items for Group entities with a functional currency other than US dollars are
translated into US dollars at average exchange rates, which approximate to actual rates, for the relevant accounting periods. Assets and liabilities
are translated at the US dollar exchange rates prevailing at the reporting date. Exchange differences arising on consolidation are recognised in
Other comprehensive income.
If certain criteria are met, non-US dollar denominated loans or derivatives are designated as net investment hedges of foreign operations.
Exchange differences arising on retranslation of net investments, and of foreign currency loans which are designated in an effective net
investment hedge relationship, are recognised in Other comprehensive income in the Consolidated Financial Statements. Foreign exchange
derivatives hedging net investments in foreign operations are carried at fair value. Effective fair value movements are recognised in
Other comprehensive income, with any ineffectiveness taken to profit. Gains and losses accumulated in the translation reserve will be recycled to
profit when the foreign operation is sold.
Litigation and environmental liabilities
AstraZeneca is involved in legal disputes, the settlement of which may involve cost to the Group. Provision is made where an adverse outcome is
probable and associated costs, including related legal costs, can be estimated reliably. In other cases, appropriate disclosures are included.
Where it is considered that the Group is more likely than not to prevail, or in the rare circumstances where the amount of the legal liability cannot
be estimated reliably, 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, the best estimate of the amount expected to be received is
recognised as an asset only when it is virtually certain.
AstraZeneca is exposed to environmental liabilities relating to its past operations, principally in respect of soil and groundwater remediation costs.
Provisions for these costs are made when there is a present obligation and where it is probable that expenditure on remedial work will be required
and a reliable estimate can be made of the cost. Provisions are discounted where the effect is material.
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AstraZeneca Annual Report & Form 20-F Information 2017 / Group Accounting Policies 143
Group Accounting Policies
continued
Impairment
The carrying values of non-financial assets, other than inventories and deferred tax assets, are reviewed at least annually to determine whether
there is any indication of impairment. For goodwill, intangible assets under development and for any other assets where such indication exists,
the asset’s recoverable amount is estimated based on the greater of its value in use and its fair value less cost to sell. In assessing the
recoverable amount, the estimated future cash flows, adjusted for the risks specific to each asset, are discounted to their present value using a
discount rate that reflects current market assessments of the time value of money, the general risks affecting the pharmaceutical industry and
other risks specific to each asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that
generates cash inflows from continuing use that are largely independent of the cash flows of other assets. Impairment losses are recognised
immediately in profit.
International accounting transition
On transition to using adopted IFRSs in the year ended 31 December 2005, the Group took advantage of several optional exemptions available in
IFRS 1 ‘First-time Adoption of International Financial Reporting Standards’. The major impacts which are of continuing importance are detailed
below:
> Business combinations – IFRS 3 ‘Business Combinations’ has been applied from 1 January 2003, the date of transition, rather than being
applied fully retrospectively. As a result, the combination of Astra and Zeneca is still accounted for as a merger, rather than through purchase
accounting. If purchase accounting had been adopted, Zeneca would have been deemed to have acquired Astra.
> Cumulative exchange differences – the Group chose to set the cumulative exchange difference reserve at 1 January 2003 to nil.
Applicable accounting standards and interpretations issued but not yet adopted
IFRS 9 ‘Financial Instruments’ is effective for accounting periods beginning on or after 1 January 2018 and will replace existing accounting
standards. It is applicable to financial assets and liabilities, and will introduce changes to existing accounting concerning classification and
measurement, impairment (introducing an expected-loss method), hedge accounting, and on the treatment of gains arising from the impact of
own credit risk on the measurement of liabilities held at fair value. The standard was endorsed by the EU on 22 November 2016. The Group early
adopted the treatment of fair value changes arising from changes in own credit risk from 1 January 2017 and will adopt the remainder of the
standard from 1 January 2018. The principal impact will be that equity investments currently classified as available for sale will be re-categorised
on initial application and the Group will elect to record fair value movements on certain non-current equity investments in Other comprehensive
income. Fair value movements on other equity investments will be recorded in profit. The other changes introduced will have an insignificant
impact on the Group. In particular, given the general quality and short-term nature of our trade receivables, there will be no material impact on the
introduction of an expected-loss impairment method and, following a review of our existing hedging arrangements, these have been assessed as
compliant with the new rules.
IFRS 15 ‘Revenue from Contracts with Customers’ is effective for accounting periods beginning on or after 1 January 2018 and will replace
existing accounting standards. It provides enhanced detail on the principle of recognising revenue to reflect the transfer of goods and services to
customers at a value which the Company expects to be entitled to receive. The standard also updates revenue disclosure requirements. The
standard was endorsed by the EU on 22 September 2016. The Group will retrospectively apply the standard from 1 January 2018 recognising the
cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings.
The standard will not have a material impact on our revenue streams from the supply of goods and associated rebates and returns provisions.
The timing of the recognition of product sales and the basis for our estimates of sales deductions under IAS 18 are consistent with those to be
adopted under IFRS 15.
Our present accounting for externalisation transactions under IAS 18 includes an analysis of the performance obligations under the arrangement
and upfront revenue recognition requires the transfer of substantive rights, for example a licence to use our intellectual property and an
appropriate allocation of revenue to the remaining performance obligations. While the basis for such allocation is different in IFRS 15, the impact
of the adoption of the new standard on our historical allocations is not material. The licences we grant are typically rights to use our intellectual
property, which does not change during the period of the licence. Those licences are generally unique and therefore the basis of allocation of
revenue to performance obligations makes use of the residual approach as permitted by IFRS 15. The related sales milestones and royalties to
these licences qualify for the royalty exemption available under IFRS 15 and will continue to be recognised as the underlying sales are made.
Furthermore, there is no material change to the assessment of whether the performance obligations are distinct from applying the new standard.
IFRS 16 ‘Leases’ is effective for accounting periods beginning on or after 1 January 2019 and will replace IAS 17 ‘Leases’. It will eliminate the
classification of leases as either operating leases or finance leases and, instead, introduce a single lessee accounting model. The standard was
endorsed by the EU on 31 October 2017. The adoption of IFRS 16 will result in the Group recognising lease liabilities, and corresponding ‘right to
use’ assets, for agreements that are currently classified as operating leases. See Note 29 for further details on operating leases currently held.
In addition, the following amendments and interpretations have been issued:
> Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture. The IASB has
deferred these amendments until a date to be determined by the IASB.
> Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions, effective for periods beginning on or after 1
January 2018.
> IFRIC 22 ‘Foreign Currency Transactions and Advance Consideration’, effective for periods beginning on or after 1 January 2018.
> IFRIC 23 ‘Uncertainty over Income Tax Treatments’, effective for periods beginning on or after 1 January 2019.
The above amendments and interpretations are not expected to have a significant impact on the Group’s net results, net assets or disclosures
although the impact of IFRIC 23 will be subject to further assessment in 2018. The amendments have yet to be endorsed by the EU.
144 AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements
Notes to the Group Financial Statements
1 Revenue
Product Sales
Oncology:
Tagrisso
Faslodex
Zoladex
Iressa
Lynparza
Arimidex
Casodex
Others
Cardiovascular and Metabolic Diseases:
Crestor
Brilinta
Farxiga
Seloken/Toprol-XL
Onglyza
Bydureon
Atacand
Byetta
Plendil
Others
Respiratory:
Symbicort
Pulmicort
Daliresp/Daxas
Tudorza/Eklira
Others
Other:
Nexium
Synagis
Seroquel XR
Losec/Prilosec
Local Anaesthetics
Seroquel IR
Movantik
FluMist/Fluenz
Diprivan
Merrem
Others
Product Sales
2017
$m
2016
$m
2015
$m
955
941
735
528
297
217
215
136
423
830
816
513
218
232
247
104
19
704
816
543
94
250
267
132
4,024
3,383
2,825
2,365
1,079
1,074
695
611
574
300
176
110
282
3,401
5,017
839
835
737
720
578
315
254
136
301
619
492
710
786
580
358
316
234
377
7,266
8,116
9,489
2,803
1,176
198
150
379
2,989
1,061
154
170
379
3,394
1,014
104
190
285
4,706
4,753
4,987
1,952
2,032
677
735
276
329
231
91
104
143
201
248
687
332
271
228
179
122
78
64
37
206
4,156
20,152
5,067
21,319
6,340
23,641
i
F
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
2,496
662
1,025
340
404
250
29
288
200
241
405
Externalisation Revenue
Externalisation Revenue in 2017 was $2,313m (2016: $1,683m; 2015: $1,067m).
In 2017, Externalisation Revenue includes $1,247m from MSD for the global co-development and commercialisation of Lynparza and selumetinib,
$250m from TerSera for the rights to Zoladex in the US and Canada, $150m milestone income from Aspen for our anaesthetics medicines
portfolio, $150m milestone income on the out-licence of brodalumab to Valeant and LEO Pharma, and $127m from Sanofi for the co-development
and co-commercialisation of MEDI8897.
In 2016, Externalisation Revenue includes $520m from Aspen for our anaesthetics medicines portfolio, $298m from the sale of commercialisation
rights for Plendil in China to CMS, and $175m from Aralez for the US rights to Toprol-XL.
In 2015, Externalisation Revenue includes $450m on entering into a collaboration with Celgene on durvalumab, $200m on entering into a
collaboration with Daiichi Sankyo on Movantik and $100m on entering into a collaboration with Valeant on brodalumab.
Royalty income of $108m (2016: $119m; 2015: $87m) is included in Externalisation Revenue.
AstraZeneca Annual Report & Form 20-F Information 2017 / Notes to the Group Financial Statements 145
Notes to the Group Financial Statements
continued
2 Operating profit
Operating profit includes the following significant items:
Selling, general and administrative costs
In 2017, Selling, general and administrative costs includes a charge of $208m (2016: credit of $999m; 2015: credit of $378m) resulting from
changes in the fair value of contingent consideration arising from the acquisition of the diabetes alliance from BMS. These adjustments reflect
revised estimates for future sales performance for the products acquired and, as a result, revised estimates for future royalties payable.
In 2017, Selling, general and administrative costs also includes a credit of $209m (2016: credit of $41m; 2015: $nil) resulting from changes in
estimates of the cash flows arising from the put option over the non-controlling interest in Acerta Pharma.
In 2017, Selling, general and administrative costs also includes a total of $241m (2016: $223m; 2015: $313m) of legal provisions relating to a
number of legal proceedings in various jurisdictions in relation to several marketed products.
Further details of impairment charges for 2017, 2016 and 2015 are included in Notes 7 and 9.
Other operating income and expense
Royalties
Income
Amortisation
Gains on disposal of intangible assets
Gains on disposal of short-term investments
Net gains on disposal of other non-current assets
Impairment of property, plant and equipment
Impairment of intangible assets
Other income
Other expense
Other operating income and expense
2017
$m
2016
$m
2015
$m
132
(45)
1,518
161
24
(78)
–
286
(168)
1,830
406
(86)
1,301
–
29
–
–
146
(141)
1,655
322
(114)
961
–
85
–
(64)
327
(17)
1,500
Royalty amortisation relates to intangible assets recorded in respect of income streams acquired with MedImmune, and upon the restructuring of
a historical joint venture with MSD.
Gains on disposal of intangible assets in 2017 includes $555m on the disposal of the remaining rights to the global anaesthetics portfolio, $301m
on disposal of Europe rights to Seloken and $193m on disposal of the global rights to Zomig.
Gains on disposal of intangible assets in 2016 includes $368m on the disposal of the small molecule antibiotics assets in most markets outside
the US, $321m on the disposal of Rest of World rights to Rhinocort Aqua, $231m on the disposal of global rights to MEDI2070 and $183m on the
disposal of Rest of World rights to Imdur.
Gains on disposal of intangible assets in 2015 includes $380m on the disposal of US rights to Entocort, $215m on the disposal of Rest of World
rights to Entocort, $193m on the disposal of global rights to Myalept and $165m on the disposal of global rights to Caprelsa.
Restructuring costs
The tables below show the costs that have been charged in respect of restructuring programmes by cost category and type. Severance
provisions are detailed in Note 19.
Cost of sales
Research and development expense
Selling, general and administrative costs
Other operating income and expense
Total charge
Severance costs
Accelerated depreciation and impairment
Relocation costs
Other
Total charge
2017
$m
181
201
347
78
807
2017
$m
176
141
6
484
807
2016
$m
130
178
823
(24)
2015
$m
158
258
618
–
1,107
1,034
2016
$m
505
46
18
538
2015
$m
298
81
34
621
1,107
1,034
Other costs are those incurred in designing and implementing the Group’s various restructuring initiatives, including costs of decommissioning
sites impacted by changes to our global footprint, temporary lease costs during relocation, internal project costs, and external consultancy fees.
146 AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements
2 Operating profit continued
Financial instruments
Included within operating profit are the following net gains and losses on financial instruments:
Losses on forward foreign exchange contracts
(Losses)/gains on receivables and payables
Gains on disposal of short-term investments
Gains on other available for sale investments
Total
2017
$m
(6)
(30)
161
34
159
2016
$m
(216)
132
–
–
(84)
2015
$m
(22)
(36)
–
74
16
Gains and losses on available for sale investments includes gains of $4m (2016: $nil; 2015: gains of $43m) which have been reclassified from
other comprehensive income.
3 Finance income and expense
Finance income
Returns on fixed deposits and equity securities
Returns on short-term deposits
Fair value gains on debt and interest rate swaps
Net exchange gains
Discount unwind on other long-term assets
Interest on tax receivables
Total
Finance expense
Interest on debt and commercial paper
Interest on overdrafts, finance leases and other financing costs
Net interest on post-employment defined benefit plan net liabilities (Note 20)
Net exchange losses
Discount unwind on contingent consideration arising from business combinations (Note 18)
Discount unwind on other long-term liabilities
Fair value losses on debt and interest rate swaps
Total
Net finance expense
Financial instruments
Included within finance income and expense are the following net gains and losses on financial instruments:
Interest and fair value adjustments in respect of debt designated at fair value through profit or loss, net of derivatives
Interest and changes in carrying values of debt designated as hedged items, net of derivatives
Interest and fair value changes on fixed and short-term deposits, equity securities and other derivatives
Interest on debt, overdrafts, finance leases and commercial paper held at amortised cost
2017
$m
2016
$m
2015
$m
8
62
4
–
10
29
113
(612)
(52)
(49)
(148)
(402)
(245)
–
8
35
–
8
16
–
67
(565)
(52)
(63)
–
(497)
(190)
(17)
8
28
10
–
–
–
46
(361)
(31)
(77)
(36)
(524)
(46)
–
(1,508)
(1,395)
(1,384)
(1,317)
(1,075)
(1,029)
2017
$m
8
(35)
52
(559)
2016
$m
(14)
(21)
74
(553)
2015
$m
6
(10)
46
(384)
i
F
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Fair value losses of $9m (2016: $29m fair value losses; 2015: $30m fair value losses) on interest rate fair value hedging instruments and $9m fair
value gains (2016: $30m fair value gains; 2015: $30m fair value gains) on the related hedged items have been included within interest and
changes in carrying values of debt designated as hedged items, net of derivatives. All fair value hedge relationships were effective during the year.
Fair value losses of $10m (2016: $12m fair value losses; 2015: $5m fair value losses) on derivatives related to debt instruments designated at fair
value through profit or loss and $3m fair value gains (2016: $9m fair value gains; 2015: $15m fair value gains) on debt instruments designated at
fair value through profit or loss have been included within interest and fair value adjustments in respect of debt designated at fair value through
profit or loss, net of derivatives. Ineffectiveness on the net investment hedge taken to profit was $nil (2016: $nil; 2015: $nil).
AstraZeneca Annual Report & Form 20-F Information 2017 / Notes to the Group Financial Statements 147
Notes to the Group Financial Statements
continued
4 Taxation
Taxation recognised in the consolidated statement of comprehensive income is as follows:
Current tax expense
Current year
Adjustment to prior years
Total
Deferred tax expense
Origination and reversal of temporary differences
Adjustment to prior years
Total
Taxation recognised in the profit for the period
Taxation relating to components of other comprehensive income is as follows:
Current and deferred tax
Items that will not be reclassified to profit or loss:
Remeasurement of the defined benefit liability
Share-based payments
Deferred tax impact of reduction in US and other tax rates
Total
Items that may be reclassified subsequently to profit or loss:
Foreign exchange arising on consolidation
Foreign exchange arising on designating borrowings in net investment hedges
Net available for sale losses/(gains) recognised in other comprehensive income
Other
Deferred tax impact of reduction in US tax rate
Total
Taxation relating to components of other comprehensive income
2017
$m
2016
$m
2015
$m
665
(287)
378
(1,113)
94
(1,019)
(641)
384
(14)
370
(94)
(130)
(224)
146
1,037
(404)
633
(482)
92
(390)
243
2017
$m
2016
$m
2015
$m
24
9
(17)
16
(79)
14
2
–
30
(33)
(17)
110
51
(25)
136
63
83
(61)
1
–
86
222
(133)
(8)
(58)
(199)
(8)
80
14
1
–
87
(112)
The tax rate of (29)% in the year benefited from a favourable net adjustment of $617m to deferred taxes, reflecting the recently reduced US
Federal Income Tax rate and non-taxable remeasurements of acquisition-related liabilities. Additionally, there was a $472m benefit to the tax rate,
reflecting the favourable impact of UK Patent Box profits; the recognition of previously unrecognised tax losses; and reductions in tax provisions
and provision to return adjustments arising on the expiry of statute of limitations and favourable progress of discussions with tax authorities.
Absent these benefits, the tax rate for the year would have been 22%.
The cash tax paid for the year was $454m which was 20% of profit before tax.
Taxation has been provided at current rates on the profits earned for the periods covered by the Group Financial Statements. The 2017 prior
period current tax adjustment relates mainly to net reductions in provisions for tax contingencies totalling $105m and tax accrual to tax return
adjustments. The 2016 prior period current tax adjustment relates mainly to net reductions in provisions for tax contingencies totalling $67m and
tax accrual to tax return adjustments. The 2015 prior period current tax adjustment relates mainly to a $186m tax benefit following agreement of
US federal tax liabilities of open years to 2008, net reductions in provisions for tax contingencies totalling $259m and tax accrual to tax return
adjustments.
The 2017 prior period deferred tax adjustments relate mainly to tax accrual to return adjustments. The 2016 prior period deferred tax adjustments
relate mainly to tax accrual to return adjustments and releases in provisions for tax contingencies. The 2015 prior period deferred tax adjustments
relate mainly to tax accrual to return adjustments.
To the extent that dividends remitted from overseas subsidiaries, joint ventures and associates are expected to result in additional taxes,
appropriate amounts have been provided for. No deferred tax has been provided for unremitted earnings of Group companies overseas as these
are considered permanently employed in the business of these companies. Unremitted earnings may be liable to overseas taxes and/or UK
taxation (after allowing for double tax relief) if distributed as dividends. The aggregate amount of temporary differences associated with
investments in subsidiaries and branches for which deferred tax liabilities have not been recognised totalled approximately $8,359m at
31 December 2017 (2016: $6,884m; 2015: $6,957m).
Factors affecting future tax charges
As a group with worldwide operations, AstraZeneca is subject to several factors that may affect future tax charges, principally the levels and mix
of profitability in different jurisdictions, transfer pricing regulations, tax rates imposed and tax regime reforms. In December 2017, the US tax
regime was reformed through enactment of the Tax Cuts and Jobs Act. This included a substantial reduction to the federal tax rate from 35% to
21% along with other changes.
Details of the material tax exposures and items currently under audit, negotiation and review are set out in Note 28.
148 AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements
4 Taxation continued
Tax reconciliation to UK statutory rate
The table below reconciles the UK statutory tax charge to the Group’s total tax charge/(credit):
Profit before tax
Notional taxation charge at UK corporation tax rate of 19.25% (2016: 20%; 2015: 20.25%)
Differences in overseas tax rates
Deferred tax credit relating to reduction in US and other tax rates1
Unrecognised deferred tax asset2
Items not deductible for tax purposes
Items not chargeable for tax purposes
Other items3
Adjustments in respect of prior periods4, 5
Total tax (credit)/charge for the year
2017
$m
2,227
2016
$m
3,552
2015
$m
3,069
429
(212)
(616)
(105)
203
(14)
(133)
(193)
(641)
710
(233)
(16)
242
132
(7)
(538)
(144)
146
621
(144)
(25)
149
29
–
(75)
(312)
243
1 The 2017 item relates to the reduction in the US Federal Income Tax rate from 35% to 21% effective from 1 January 2018 (credit of $617m) and other (charge of $1m). The 2016 item relates to
the reduction in the UK Statutory Corporation Tax rate from 18% to 17% effective from 1 April 2020. The 2015 item relates to the reduction in the UK Statutory Corporation Tax rate from 20% to
18% previously announced to be effective from 1 April 2020.
2 Includes an amount of $126m in relation to recognition of previously unrecognised net deferred tax assets.
3 Other items in 2017 relate to the release of tax contingencies following the expiry of the relevant statute of limitations (credit $178m) partially offset by a provision build for transfer pricing and
other contingencies (charge $45m). Other items in 2016 relate to the release of tax contingencies following agreements between the Canadian tax authority and UK and Swedish tax authorities
in respect of transfer pricing arrangements for the 13 year period from 2004 to 2016 (credit $453m) and release of certain tax contingencies following the expiry of the relevant statute of
limitations (credit $280m) partially offset by provision build for transfer pricing contingencies (charge $195m). Other items in 2015 included the impact of internal transfers of intellectual
property (tax charge $181m) and the release of certain tax contingencies following the expiry of the relevant statute of limitations (tax credit $256m).
4 Further details explaining the adjustments in respect of prior periods is set out above on page 148.
5 Includes an adjustment of $17m to a pre-acquisition deferred tax asset following finalisation of relevant tax returns.
AstraZeneca is domiciled in the UK but operates in other countries where the tax rates and laws are different to those in the UK. The impact on
differences in effective overseas tax rates on the Group's overall tax charge is noted above. Profits arising from our manufacturing operation in
Puerto Rico are granted special status and are taxed at a reduced rate compared with the normal rate of tax in that territory under a tax incentive
grant continuing until 2031.
Deferred tax
The movements in the net deferred tax balance during the year are as follows:
Intangibles, Pension and Inter-company
Net deferred tax balance at 1 January 2015
Taxation expense
Other comprehensive income
Additions through business combinations4
Exchange
Net deferred tax balance at 31 December 2015
Taxation expense
Other comprehensive income
Additions through business combinations5
Exchange
Other movements6
Net deferred tax balance at 31 December 2016
Income statement
Other comprehensive income
Exchange
7
Net deferred tax balance at 31 December 2017
property, plant
& equipment1
$m
(2,478)
355
80
(1,206)
(12)
(3,261)
(132)
83
(1,827)
(1)
(11)
(5,149)
1,393
(84)
(12)
(3,852)
post-retirement
benefits
$m
628
30
(198)
–
(33)
427
11
101
–
(74)
–
465
(8)
9
43
509
inventory
transfers
$m
630
156
–
–
(48)
738
314
–
–
(38)
–
1,014
(231)
–
48
831
Untaxed
reserves2
$m
(578)
(156)
–
–
42
(692)
(53)
–
–
48
–
(697)
159
–
(62)
(600)
Losses and
tax credits
carried forward3
$m
525
Accrued
expenses
and other
$m
696
58
–
229
(8)
804
151
–
50
(1)
–
1,004
(128)
–
30
906
(53)
(9)
–
(21)
613
(67)
(24)
–
(13)
–
509
(166)
35
22
400
i
F
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Total
$m
(577)
390
(127)
(977)
(80)
(1,371)
224
160
(1,777)
(79)
(11)
(2,854)
1,019
(40)
69
(1,806)
1 Includes deferred tax on contingent liabilities in respect of intangibles.
2 Untaxed reserves relate to taxable profits where the tax liability is deferred to later periods.
3 Includes losses and tax credits carried forward which will expire within 1 to 20 years.
4 The deferred tax liability of $977m relates to the acquisition of ZS Pharma (see Note 25).
5 The deferred tax liability of $1,777m relates to the acquisition of Acerta Pharma (see Note 25).
6 Arising on the deconsolidation of Entasis as detailed in Note 10.
7 The UK had a net deferred tax asset of $743m as at 31 December 2017, mainly in respect of losses and pensions and post-retirement benefits, which has been recognised on the basis of
sufficient forecast future taxable profits against which the deductible temporary differences can be utilised.
AstraZeneca Annual Report & Form 20-F Information 2017 / Notes to the Group Financial Statements 149
Notes to the Group Financial Statements
continued
4 Taxation continued
The net deferred tax balance, before the offset of balances within countries, consists of:
Intangibles, Pension and Inter-company
Deferred tax assets at 31 December 2015
Deferred tax liabilities at 31 December 2015
Net deferred tax balance at 31 December 2015
Deferred tax assets at 31 December 2016
Deferred tax liabilities at 31 December 2016
Net deferred tax balance at 31 December 2016
Deferred tax assets at 31 December 2017
Deferred tax liabilities at 31 December 2017
Net deferred tax balance at 31 December 2017
property, plant post-retirement
benefits
$m
430
& equipment
$m
1,055
(4,316)
(3,261)
875
(6,024)
(5,149)
1,226
(5,078)
(3,852)
(3)
427
465
–
465
559
(50)
509
inventory
transfers
$m
780
(42)
738
1,014
–
1,014
1,011
(180)
831
Analysed in the statement of financial position, after offset of balances within countries, as:
Deferred tax assets
Deferred tax liabilities
Net deferred tax balance
Losses and
tax credits
Untaxed
reserves carried forward
$m
804
$m
–
Accrued
expenses
and other
$m
732
(692)
(692)
–
(697)
(697)
–
(600)
(600)
–
804
1,004
–
1,004
957
(51)
906
(119)
613
629
(120)
509
885
(485)
400
2017
$m
2,189
(3,995)
(1,806)
2016
$m
1,102
(3,956)
(2,854)
Total
$m
3,801
(5,172)
(1,371)
3,987
(6,841)
(2,854)
4,638
(6,444)
(1,806)
2015
$m
1,294
(2,665)
(1,371)
Unrecognised deferred tax assets
Deferred tax assets of $420m have not been recognised in respect of deductible temporary differences, which include items which will expire
within 1 to 20 years (2016: $542m; 2015: $414m) because it is not probable that future taxable profit will be available against which the Group can
utilise the benefits therefrom.
5 Earnings per $0.25 Ordinary Share
Profit for the year attributable to equity holders ($m)
Basic earnings per Ordinary Share
Diluted earnings per Ordinary Share
Weighted average number of Ordinary Shares in issue for basic earnings (millions)
Dilutive impact of share options outstanding (millions)
Diluted weighted average number of Ordinary Shares in issue (millions)
The earnings figures used in the calculations above are post-tax.
2017
2016
3,001
$2.37
$2.37
1,266
1
1,267
3,499
$2.77
$2.76
1,265
1
1,266
2015
2,825
$2.23
$2.23
1,264
1
1,265
150 AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements
6 Segment information
AstraZeneca is engaged in a single business activity of biopharmaceuticals and the Group does not have multiple operating segments.
AstraZeneca's 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. These individual functional areas are
not managed separately.
The SET, established and chaired by the CEO, is the vehicle through which he exercises the authority delegated to him from the Board for the
management, development and performance of our business. It is considered 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. In addition to the CEO, CFO, the General Counsel and the Chief Compliance Officer, the SET comprises ten Executive
Vice Presidents representing IMED, MedImmune, Global Medicines Development, North America, Europe, International & GPPS, Asia Pacific,
Oncology, Operations & Information Technology, and Human Resources. 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, these 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 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 Early Stage
Product Committees and a single Late Stage Product Committee.
Geographic areas
The following tables show information by geographic area and, for Total Revenue and property, plant and equipment, material countries. The
figures show the Total Revenue, operating profit and profit before tax made by companies located in that area/country, together with segment
assets, segment assets acquired, net operating assets, and property, plant and equipment owned by the same companies; export sales and the
related profit are included in the area/country where the legal entity resides and from which those sales were made.
UK
External
Intra-Group
Continental Europe
France
Germany
Italy
Spain
Sweden
Others
Intra-Group
The Americas
Canada
US
Others
Intra-Group
Asia, Africa & Australasia
Australia
China
Japan
Others
Intra-Group
Continuing operations
Intra-Group eliminations
Total Revenue
i
F
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
2017
$m
2016
$m
Total Revenue
2015
$m
3,240
5,018
8,258
701
541
514
447
842
1,512
3,862
8,419
482
6,666
809
2,446
1,849
7,503
9,352
899
615
529
440
1,522
1,575
4,108
9,688
495
7,828
846
3,487
2,176
6,001
8,177
1,015
608
544
426
645
1,624
4,664
9,526
530
9,949
1,018
2,167
10,403
12,656
13,664
377
2,955
2,172
1,207
41
385
2,650
2,145
1,224
85
6,752
6,489
33,832
38,185
(11,367)
(15,183)
22,465
23,002
435
2,548
1,985
1,205
46
6,219
37,586
(12,878)
24,708
AstraZeneca Annual Report & Form 20-F Information 2017 / Notes to the Group Financial Statements 151
Notes to the Group Financial Statements
continued
6 Segment information continued
Export sales from the UK totalled $5,917m for the year ended 31 December 2017 (2016: $8,421m; 2015: $6,851m).
UK
Continental Europe
The Americas
Asia, Africa & Australasia
Continuing operations
UK
Continental Europe
The Americas
Asia, Africa & Australasia
Continuing operations
UK
Continental Europe
The Americas
Asia, Africa & Australasia
Continuing operations
2017
$m
(694)
2,482
1,242
647
3,677
2017
$m
5,371
16,305
24,811
1,024
Operating (loss)/profit
2016
$m
2015
$m
(526)
3,695
1,259
474
4,902
(743)
3,412
1,101
344
4,114
2017
$m
(1,146)
1,918
822
633
2016
(Loss)/profit before tax
2015
$m
(1,113)
$m
(950)
3,136
3,023
919
447
821
338
2,227
3,552
3,069
2016
$m
Non-current assets1
2015
$m
6,251
5,127
15,731
26,044
917
8,690
26,431
937
Assets acquired2
2015
2016
47,511
47,819
42,309
2017
$m
400
629
585
138
$m
362
8,494
688
129
$m
1,478
653
4,147
172
6,450
2017
$m
12,842
18,962
28,180
3,370
63,354
2017
$m
3,351
10,228
20,339
1,198
2016
$m
12,704
18,174
28,792
2,856
62,526
Total assets
2015
$m
14,712
10,636
31,536
3,172
60,056
2016
Net operating assets3
2015
$m
3,713
$m
3,306
8,479
20,969
1,030
3,704
22,334
1,458
31,209
1,752
9,673
35,116
33,784
1 Non-current assets exclude deferred tax assets and derivative financial instruments.
2 Included in Assets acquired are those assets that are expected to be used during more than one period (property, plant and equipment, goodwill and intangible assets).
3 Net operating assets exclude short-term investments, cash, short-term borrowings, loans, derivative financial instruments, retirement benefit obligations and non-operating receivables and
payables.
UK
Sweden
US
Rest of the world
Continuing operations
Geographic markets
The table below shows Product Sales in each geographic market in which customers are located.
UK
Continental Europe
The Americas
Asia, Africa & Australasia
Continuing operations
2017
$m
1,455
1,508
3,055
1,597
7,615
Property, plant and equipment
2015
$m
1,024
2016
$m
1,026
1,142
3,233
1,447
6,848
1,023
2,986
1,380
6,413
2017
$m
2016
$m
489
4,712
7,467
7,484
487
4,987
8,717
7,128
20,152
21,319
2015
$m
588
5,180
11,031
6,842
23,641
Product Sales are recognised when the significant risks and rewards of ownership have been transferred to a third party. In general this is upon
delivery of the products to wholesalers. No wholesaler (2016: one; 2015: two) individually represented greater than 10% of Product Sales. The
value of these transactions recorded as Product Sales were $nil (2016: $2,851m; 2015: $3,458m and $2,757m).
152 AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements
7 Property, plant and equipment
Cost
At 1 January 2015
Capital expenditure
Additions through business combinations (Note 25)
Transfer of assets into use
Disposals and other movements
Exchange adjustments
At 31 December 2015
Capital expenditure
Transfer of assets into use
Disposals and other movements
Exchange adjustments
At 31 December 2016
Capital expenditure
Transfer of assets into use
Disposals and other movements
Exchange adjustments
At 31 December 2017
Depreciation
At 1 January 2015
Charge for year
Impairment
Disposals and other movements
Exchange adjustments
At 31 December 2015
Charge for year
Impairment
Disposals and other movements
Exchange adjustments
At 31 December 2016
Charge for year
Impairment
Disposals and other movements
Exchange adjustments
At 31 December 2017
Net book value
At 31 December 2015
At 31 December 2016
At 31 December 2017
Land and
buildings
$m
Plant and
equipment
$m
Assets in Total property,
plant and
course of
equipment
construction
$m
$m
4,912
7,712
23
21
269
(239)
(174)
223
–
359
(442)
(384)
4,812
7,468
29
222
(236)
(211)
206
109
(700)
(540)
4,616
6,543
39
525
(367)
210
198
567
(577)
452
1,120
1,155
–
(628)
(3)
(76)
1,568
1,214
(331)
(16)
(143)
2,292
1,074
(1,092)
–
159
13,744
1,401
21
–
(684)
(634)
13,848
1,449
–
(952)
(894)
13,451
1,311
–
(944)
821
5,023
7,183
2,433
14,639
2,351
5,383
198
9
(203)
(102)
479
19
(411)
(288)
2,253
5,182
185
2
(222)
(126)
424
–
(656)
(439)
2,092
4,511
182
78
(249)
128
442
–
(501)
341
2,231
4,793
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,559
2,524
2,792
2,286
2,032
2,390
1,568
2,292
2,433
7,734
677
28
(614)
(390)
7,435
609
2
(878)
(565)
6,603
624
78
(750)
469
7,024
6,413
6,848
7,615
i
F
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Impairment charges in 2017 were recognised in relation to land and buildings in the US which were subsequently sold. These charges have been
recognised in other operating income and expense.
The net book value of land and buildings comprised:
Freeholds
Leaseholds
2017
$m
2016
$m
2015
$m
2,514
278
2,326
198
2,432
127
Included within plant and equipment are Information Technology assets held under finance leases with a net book value of $nil (2016: $43m;
2015: $70m).
AstraZeneca Annual Report & Form 20-F Information 2017 / Notes to the Group Financial Statements 153
Notes to the Group Financial Statements
continued
8 Goodwill
Cost
At 1 January
Additions through business combinations (Note 25)
Exchange and other adjustments
At 31 December
Amortisation and impairment losses
At 1 January
Exchange and other adjustments
At 31 December
Net book value at 31 December
2017
$m
2016
$m
2015
$m
11,969
12,113
11,868
–
174
19
(163)
388
(143)
12,143
11,969
12,113
311
7
318
313
(2)
311
318
(5)
313
11,825
11,658
11,800
Goodwill is tested for impairment at the operating segment level, this being the level at which goodwill is monitored for internal management
purposes. As detailed in Note 6, the Group does not have multiple operating segments and is engaged in a single business activity of
biopharmaceuticals.
Recoverable amount is determined on a fair value less costs to sell basis using the market value of the Company’s outstanding ordinary shares.
Our market capitalisation is compared to the book value of the Group’s net assets and this indicates a significant surplus at 31 December 2017
(and 31 December 2016 and 31 December 2015).
As a further check, we also perform a discounted cash flow calculation whereby we risk adjust projections of the Group’s post-tax cash flows
over 10 years. This length of time is considered by the Board as a reasonable period given the long development and life-cycle of a medicine. 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 populations in our established markets and the expanding patient populations 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 budget and forecast amounts. No terminal value is included as the recoverable amount determined by the cash flows exceed the carrying
value of net assets without inclusion of a terminal value.
AstraZeneca’s post-tax weighted average cost of capital (7.0% for 2017, 2016 and 2015) is used in the calculation to discount the cash flows to
reflect the impact of risks relevant to the Group and the time value of money.
No goodwill impairment was identified.
154 AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements
9 Intangible assets
Cost
At 1 January 2015
Additions through business combinations (Note 25)
Additions – separately acquired
Disposals
Exchange and other adjustments
At 31 December 2015
Additions through business combinations (Note 25)
Additions – separately acquired
Disposals
Exchange and other adjustments
At 31 December 2016
Additions – separately acquired
Disposals
Exchange and other adjustments
At 31 December 2017
Amortisation and impairment losses
At 1 January 2015
Amortisation for year
Impairment
Disposals
Exchange and other adjustments
At 31 December 2015
Amortisation for year
Impairment
Disposals
Exchange and other adjustments
At 31 December 2016
Amortisation for year
Impairment
Disposals
Exchange and other adjustments
At 31 December 2017
Net book value
At 31 December 2015
At 31 December 2016
At 31 December 2017
Other intangibles consist mainly of research and device technologies.
Product,
Software
marketing and
distribution rights
$m
Other
intangibles
$m
development
costs
$m
Total
$m
31,899
2,812
2,026
36,737
3,162
1,341
(198)
(886)
35,318
7,307
789
(339)
(1,472)
41,603
397
(249)
1,162
42,913
12,545
1,718
143
(31)
(271)
14,104
1,454
43
(25)
(481)
15,095
1,627
488
(19)
467
–
60
(4)
(73)
–
77
(14)
(70)
2,795
2,019
–
32
(15)
(232)
2,580
7
(67)
116
–
77
(141)
(127)
1,828
37
(62)
108
3,162
1,478
(216)
(1,029)
40,132
7,307
898
(495)
(1,831)
46,011
441
(378)
1,386
2,636
1,911
47,460
1,653
174
–
(2)
(52)
1,773
162
1
(15)
(85)
1,836
118
–
–
50
1,558
107
5
(14)
(47)
1,609
85
1
(124)
(77)
1,494
84
3
(52)
81
15,756
1,999
148
(47)
(370)
17,486
1,701
45
(164)
(643)
18,425
1,829
491
(71)
598
i
F
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
17,658
2,004
1,610
21,272
21,214
26,508
25,255
1,022
744
632
410
334
301
22,646
27,586
26,188
AstraZeneca Annual Report & Form 20-F Information 2017 / Notes to the Group Financial Statements 155
Notes to the Group Financial Statements
continued
9 Intangible assets continued
Amortisation charges are recognised in profit as follows:
Year ended 31 December 2015
Cost of sales
Research and development expense
Selling, general and administrative costs
Other operating income and expense
Total
Year ended 31 December 2016
Cost of sales
Research and development expense
Selling, general and administrative costs
Other operating income and expense
Total
Year ended 31 December 2017
Cost of sales
Research and development expense
Selling, general and administrative costs
Other operating income and expense
Total
Impairment charges are recognised in profit as follows:
Year ended 31 December 2015
Research and development expense
Selling, general and administrative costs
Other operating income and expense
Total
Year ended 31 December 2016
Research and development expense
Selling, general and administrative costs
Total
Year ended 31 December 2017
Research and development expense
Selling, general and administrative costs
Total
Product,
Software
marketing and
distribution rights
$m
Other
intangibles
$m
development
costs
$m
369
–
1,321
28
1,718
124
–
1,327
3
1,454
149
–
1,478
–
1,627
–
57
31
86
174
–
48
31
83
162
–
43
30
45
118
–
–
107
–
107
–
–
85
–
85
–
–
84
–
84
Product,
Software
marketing and
distribution rights
$m
Other
intangibles
$m
development
costs
$m
79
–
64
143
32
11
43
101
387
488
–
–
–
–
1
–
1
–
–
–
–
5
–
5
–
1
1
–
3
3
Total
$m
369
57
1,459
114
1,999
124
48
1,443
86
1,701
149
43
1,592
45
1,829
Total
$m
79
5
64
148
33
12
45
101
390
491
Impairment charges and reversals
Intangible assets under development and not available for use are tested annually for impairment and other intangible assets are tested when
there is any indication of impairment. Recoverable amount is determined on a fair value less cost to sell basis using a discounted cash flow
calculation (level 3 in the fair value hierarchy) where the products’ expected post-tax cash flows are risk-adjusted over their estimated remaining
useful economic life. The projections are covered by internal budgets and forecasts. The risk-adjusted cash flows are discounted using
AstraZeneca’s post-tax weighted average cost of capital (7.0% for 2017, 2016 and 2015).
The estimates used in calculating the recoverable amount are highly sensitive and depend on assumptions specific to the nature of the Group’s
activities including:
> outcome of R&D activities;
> probability of technical and regulatory success;
> market share and pricing;
> amount and timing of projected future cash flows; and
> sales erosion curves following patent expiry.
At 31 December 2017, the Group recorded an impairment charge of $491m in respect of launched products Byetta ($92m, revised carrying value
of $407m), FluMist ($121m, revised carrying value of $267m) and Movantik ($174m, revised carrying value of $106m), and products in
development which were fully written off, tralokinumab ($53m) and other intangible assets ($51m). The impairments recorded on the launched
products were a consequence of revised market share assumptions and, for FluMist, the US market expected timing of renewed
recommendation. Impairments recorded on products in development were a consequence of failed or poor performing trials.
No impairment charge has been recorded on Verinurad, a product in development, with a net book value of $1,172m. The valuation is particularly
sensitive to variations in the probability of technical and regulatory success (‘PTRS’) assumptions. To illustrate this, sensitivities performed at the
156 AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements
9 Intangible assets continued
year end to vary to PTRS assumptions in the Group’s valuation model included reducing the PTRS by 5 percentage points. Assuming all other
assumptions remain constant, applying the sensitivity would result in an impairment charge of approximately $300m.
As detailed in Note 25, we have recognised significant intangible assets for late stage development programmes and launched products on
business combinations at their fair value at acquisition. Further information on our significant intangible assets are disclosed below.
Significant assets
Intangible assets arising from the acquisition of Acerta Pharma
Intangible assets arising from the acquisition of ZS Pharma1
RSV franchise assets arising from the acquisition of MedImmune
Intangible assets arising from the restructuring of a historical joint venture with MSD
Farxiga/Forxiga intangible assets acquired from BMS
Respiratory intangible assets acquired from Almirall and Actavis
Intangible assets arising from the acquisition of Ardea1
Bydureon intangible assets acquired from BMS
Onglyza intangible assets acquired from BMS
Other diabetes intangible assets acquired from BMS
Intangible assets arising from the acquisition of Pearl Therapeutics
Intangible assets arising from the acquisition of Omthera1
Intangible assets arising from the acquisition of Amplimmune1
Respiratory intangible assets acquired from Takeda
Roxadustat intangible assets acquired from FibroGen1
FluMist intangible assets arising from the acquisition of MedImmune
1 Assets in development are not amortised but are tested annually for impairment.
All the assets listed above are classified as Product, marketing and distribution rights.
10 Investments in associates and joint ventures
At 1 January
Additions
Share of after tax losses
Unrecognised profit on transactions with joint ventures
Exchange adjustments
At 31 December
Carrying value Remaining amortisation
period
15 years
$m
7,227
3,162
2,223
1,473
1,428
1,304
1,172
1,074
978
997
932
533
470
454
347
267
Not amortised
8 years
1-13 years
10 years
2-21 years
Not amortised
13 years
6 years
5-16 years
11 years
Not amortised
Not amortised
2-7 years
Not amortised
14 years
2017
$m
99
76
(55)
(27)
10
103
2016
$m
85
65
(33)
–
(18)
99
2015
$m
59
45
(16)
–
(3)
85
i
F
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
On 27 November 2017, AstraZeneca entered into a joint venture agreement with Chinese Future Industry Investment Fund (FIIF), to discover,
develop and commercialise potential new medicines to help meet unmet needs globally, and to bring innovative new medicines to patients in
China faster. The agreement resulted in the formation of a joint venture entity based in China, Dizhe (Jiangsu) Pharmaceutical Co., Limited.
AstraZeneca contributed $55m in initial funds and has a 48% interest in the joint venture. The joint venture entity purchased exclusive rights from
AstraZeneca in 2017 to develop and commercialise three potential medicines currently in pre-clinical development in the areas of oncology,
cardiovascular and metabolic diseases, and respiratory, resulting in a disposal gain of $28m for AstraZeneca recognised in other operating
income.
In 2015, AstraZeneca established the subsidiaries Entasis Therapeutics Ltd and Entasis Therapeutics Inc. (collectively known as ‘Entasis’) for the
development of early-stage infection assets. In March 2016, Entasis closed a Series B financing, raising $25m from four third party investors.
Under the funding agreement, a new board of directors was appointed, and a voting rights agreement was put in place committing to reduce
AstraZeneca’s voting interest to approximately 49%. The results of Entasis were consequently deconsolidated in 2016 from the Group, with an
investment in associate of $24m recognised. There was no gain or loss recognised on deconsolidation. During 2017, the voting interests were
further reduced and at 31 December 2017 were approximately 18%.
On 1 December 2015, AstraZeneca entered into a joint venture agreement with Fujifilm Kyowa Kirin Biologics Co., Ltd. to develop a biosimilar
using the combined capabilities of the two parties. The agreement resulted in the formation of a joint venture entity based in the UK, Centus
Biotherapeutics Limited. AstraZeneca contributed $45m in cash to the joint venture entity and has a 50% interest in the joint venture. An
additional contribution of $10m was made in 2016 and additional contributions totalling $20m were made in 2017.
On 30 April 2014, AstraZeneca entered into a joint venture agreement with Samsung Biologics Co., Ltd. to develop a biosimilar using the
combined capabilities of the two parties. The agreement resulted in the formation of a joint venture entity based in the UK, Archigen Biotech
Limited, with a branch in South Korea. AstraZeneca contributed $70m in cash to the joint venture entity and has a 50% interest in the joint
venture. An additional contribution of $30m was made in 2016.
All investments are accounted for using the equity method.
AstraZeneca Annual Report & Form 20-F Information 2017 / Notes to the Group Financial Statements 157
Notes to the Group Financial Statements
continued
10 Investments in associates and joint ventures continued
Aggregated summarised financial information for the associate and joint venture entities is set out below:
Non-current assets
Current assets
Total liabilities
Net assets
Amount attributable to AstraZeneca
Exchange adjustments
Carrying value of investments in associate and joint ventures
11 Other investments
Non-current investments
Equity securities available for sale
Total
Current investments
Equity securities and bonds available for sale
Fixed deposits
Total
2017
$m
207
158
(41)
324
117
(14)
103
2016
$m
144
128
(20)
252
125
(26)
99
2015
$m
123
75
(11)
187
93
(8)
85
2017
$m
2016
$m
2015
$m
933
933
1,150
80
1,230
727
727
847
37
884
458
458
548
65
613
Impairment charges of $14m in respect of available for sale securities are included in Other operating income and expense (2016: $21m;
2015: $17m).
Equity securities and bonds available for sale are held at fair value. The fair value of listed investments is based on year end quoted market prices.
Fixed deposits are held at amortised cost with carrying value being a reasonable approximation of fair value given their short-term nature.
None of the financial assets have been reclassified in the year.
Fair value hierarchy
The table below analyses equity securities and bonds available for sale, contained within Other investments and carried at fair value, by valuation
method. The different levels have been defined as follows:
> Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
> Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (ie as prices) or
indirectly (ie derived from prices).
> Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Level 1
Level 2
Level 3
Total
2017
$m
1,408
–
675
2016
$m
933
–
641
2015
$m
654
–
352
2,083
1,574
1,006
Equity securities available for sale that are analysed at Level 3 include investments in private biotech companies. In the absence of specific
market data, these unlisted investments are held at cost, adjusted as necessary for impairments and revaluations on new funding rounds, which
approximates to fair value. Movements in Level 3 investments are detailed below:
At 1 January
Additions
Revaluations
Transfers out
Disposals
Impairments and exchange adjustments
At 31 December
2017
$m
641
53
(1)
(12)
(15)
9
675
2016
$m
352
210
110
(12)
(2)
(17)
641
2015
$m
350
49
–
(22)
(6)
(19)
352
Assets are transferred in or out of Level 3 on the date of the event or change in circumstances that caused the transfer.
158 AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements
12 Derivative financial instruments
Non-current
Interest rate swaps designated in a fair value hedge
Interest rate swaps related to instruments designated at fair value through profit and loss
Cross currency swaps designated in a net investment hedge
Other derivatives
31 December 2015
assets
$m
49
77
320
–
446
Non-current
Interest rate swaps designated in a fair value hedge
Interest rate swaps related to instruments designated at fair value through profit and loss
Cross currency swaps designated in a net investment hedge
Cross currency swaps designated in a cashflow hedge
Other derivatives
31 December 2016
assets
$m
–
65
278
–
–
343
Non-current
Interest rate swaps designated in a fair value hedge
Interest rate swaps related to instruments designated at fair value through profit and loss
Cross currency swaps designated in a net investment hedge
Cross currency swaps designated in a cashflow hedge
Cross currency swaps designated in a fair value hedge
Other derivatives
31 December 2017
assets
$m
–
53
223
197
31
–
504
Current
assets
$m
–
Current Non-current
liabilities
$m
–
liabilities
$m
–
–
–
2
2
–
–
(9)
(9)
–
–
(1)
(1)
Current
assets
$m
19
Current Non-current
liabilities
$m
–
liabilities
$m
(2)
–
–
–
8
27
–
–
–
(18)
(18)
–
–
(115)
–
(117)
Current
assets
$m
–
Current Non-current
liabilities
$m
(3)
liabilities
$m
–
–
12
–
–
16
28
–
–
–
–
(21)
(24)
–
(4)
–
–
–
(4)
Total
$m
49
77
320
(8)
438
Total
$m
17
65
278
(115)
(10)
235
Total
$m
(3)
53
231
197
31
(5)
504
All derivatives are held at fair value and fall within Level 2 of the fair value hierarchy as defined in Note 11. None of the derivatives have been
reclassified in the year.
The fair value of interest rate swaps and cross currency swaps is estimated using appropriate zero coupon curve valuation techniques to discount
future contractual cash flows based on rates at current year end.
The fair value of forward foreign exchange contracts and currency options are estimated by cash flow accounting models using appropriate yield
curves based on market forward foreign exchange rates at the year end. The majority of forward foreign exchange contracts for existing
transactions had maturities of less than one month from year end.
i
F
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
The interest rates used to discount future cash flows for fair value adjustments, where applicable, are based on market swap curves at the
reporting date, and were as follows:
Derivatives
2017
2016
1.7% to 2.2%
1.5% to 2.2%
2015
1.2% to 2.1%
13 Non-current other receivables
Non-current other receivables of $847m (2016: $901m; 2015: $907m) include a prepayment of $180m (2016: $380m; 2015: $617m) which
represents the long-term element of minimum contractual royalties payable to Shionogi under the global licence agreement for Crestor, which
was renegotiated in December 2013. The resulting modified royalty structure, which includes fixed minimum and maximum payments in years
until 2020, has resulted in the Group recognising liabilities, and corresponding prepayments, for the discounted value of total minimum payments.
The current portion of the prepayment is $181m (2016: $116m; 2015: $260m) and is reported in amounts due within one year (see Note 15).
Non-current other receivables also include $178m (2016: $178m; 2015: $158m) prepayments in relation to our research collaboration with
Moderna Therapeutics and $175m (2016: $175m; 2015: $nil) receivable related to the disposal of the small molecule antibiotics assets in 2016.
AstraZeneca Annual Report & Form 20-F Information 2017 / Notes to the Group Financial Statements 159
Notes to the Group Financial Statements
continued
14 Inventories
Raw materials and consumables
Inventories in process
Finished goods and goods for resale
Inventories
2017
$m
1,024
1,208
803
3,035
2016
$m
811
1,060
463
2,334
2015
$m
960
545
638
2,143
The Group recognised $2,493m (2016: $2,644m; 2015: $2,942m) of inventories as an expense within cost of sales during the year.
Inventory write-offs in the year amounted to $109m (2016: $198m; 2015: $112m).
15 Current trade and other receivables
Amounts due within one year
Trade receivables
Less: Amounts provided for doubtful debts (Note 26)
Other receivables
Prepayments and accrued income
Amounts due after more than one year
Other receivables
Prepayments and accrued income
2017
$m
2016
$m
2015
$m
2,818
(16)
2,802
793
1,148
4,743
156
110
266
2,625
(42)
2,583
852
879
4,314
140
119
259
4,685
(52)
4,633
543
1,268
6,444
28
150
178
Trade and other receivables
5,009
4,573
6,622
All financial assets included within current trade and other receivables are held at amortised cost with carrying value being a reasonable
approximation of fair value.
16 Cash and cash equivalents
Cash at bank and in hand
Short-term deposits
Cash and cash equivalents
Unsecured bank overdrafts
Cash and cash equivalents in the cash flow statement
2017
$m
784
2,540
3,324
(152)
3,172
2016
$m
782
4,236
5,018
(94)
4,924
2015
$m
1,250
4,990
6,240
(189)
6,051
The Group holds $93m (2016: $91m; 2015: $110m) of cash and cash equivalents which is required to meet insurance solvency, capital and
security requirements.
Cash and cash equivalents are held at amortised cost. Fair value approximates to carrying value.
Non-cash and other movements, within operating activities in the Consolidated Statement of Cash Flows, includes:
Gains on disposal of short-term investments
Net gains on disposal of non-current assets
Changes in fair value of put option (Acerta Pharma)
Share-based payments charge for period
Settlement of share plan awards
Pension contributions
Pension charges recorded in operating profit
Foreign exchange and other
Total operating activities non-cash and other movements
2017
$m
(161)
(24)
(209)
220
(254)
(157)
74
(13)
(524)
2016
$m
–
(29)
(41)
241
(281)
(192)
74
(264)
(492)
2015
$m
–
(85)
–
211
(342)
(402)
182
86
(350)
160 AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements
17 Interest-bearing loans and borrowings
Repayment
dates
2017
$m
2016
$m
Current liabilities
Bank overdrafts
Bank collateral
Finance leases
5.9% Callable bond
Floating rate notes
1.75% Callable bond
On demand
US dollars
US dollars
US dollars
2017
2018
2018
Other loans (Commercial paper)
Within one year
Total
Non-current liabilities
Finance leases
5.9% Callable bond
Floating rate notes
1.75% Callable bond
1.95% Callable bond
2.375% Callable bond
0.875% Non-callable bond
0.25% Callable bond
Floating rate notes
2.375% Callable bond
7% Guaranteed debentures
0.75% Callable bond
3.375% Callable bond
3.125% Callable bond
1.25% Callable bond
5.75% Non-callable bond
6.45% Callable bond
4% Callable bond
4.375% Callable bond
Other loans
Total
2021
2021
2018
2019
2018
2020
2017
2022
US dollars
US dollars
US dollars
US dollars
US dollars
euros
euros
US dollars
US dollars
US dollars
euros
US dollars
US dollars
euros
2028
pounds sterling 2031
US dollars
2037
US dollars
US dollars
2027
2022
2025
2045
2042
2023
2024
2015
$m
189
–
67
–
–
–
660
916
28
1,796
399
997
997
1,586
812
–
–
–
355
–
–
–
515
2,719
986
976
–
152
513
5
–
399
998
180
2,247
–
–
–
–
999
1,591
890
594
249
992
347
1,067
1,978
742
941
468
94
–
87
1,769
–
–
357
2,307
6
–
399
998
998
1,589
782
522
–
–
350
937
–
827
426
1,976
1,971
2,720
2,719
987
979
16
986
979
7
15,560
14,501
14,137
i
F
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
All loans and borrowings above are unsecured, except for finance leases which are secured against the Information Technology assets to which
they relate (see Note 7).
At 31 December 2016
Changes from financing cash flows
Repayment of obligations under finance leases
Issue of loans
Repayment of loans
Movement in short-term borrowings
Total changes in liabilities arising on financing activities
Movement in overdrafts
Transfers
Exchange and other movements
At 31 December 2017
Current
loans and
borrowings
$m
2,307
Non-current
loans and
borrowings
$m
14,501
(14)
–
(1,750)
336
(1,428)
58
1,394
(84)
–
1,988
–
–
1,988
–
(1,394)
465
Total
$m
16,808
(14)
1,988
(1,750)
336
560
58
–
381
2,247
15,560
17,807
AstraZeneca Annual Report & Form 20-F Information 2017 / Notes to the Group Financial Statements 161
Notes to the Group Financial Statements
continued
17 Interest-bearing loans and borrowings continued
Set out below is a comparison by category of carrying values and fair values of all the Group’s interest-bearing loans and borrowings:
Instruments in a
fair value hedge
relationship1
$m
Instruments
designated
at fair value2
$m
Instruments
designated in
cash flow hedge3
$m
2015
Overdrafts
Finance leases due within one year
Finance leases due after more than one year
Loans due within one year
Loans due after more than one year
Total at 31 December 2015
2016
Overdrafts
Finance leases due within one year
Finance leases due after more than one year
Loans due within one year
Loans due after more than one year
Total at 31 December 2016
2017
Overdrafts
Finance leases due within one year
Loans due within one year
Loans due after more than one year
Total at 31 December 2017
–
–
–
–
1,398
1,398
–
–
–
770
598
1,368
–
–
596
304
900
–
–
–
–
355
355
–
–
–
–
350
350
–
–
–
347
347
–
–
–
–
–
–
–
–
–
–
2,286
2,286
–
–
–
2,602
2,602
Amortised
cost4
$m
189
67
28
660
Total
carrying
value
$m
189
67
28
660
Fair
value
$m
189
67
28
660
12,356
13,300
14,109
15,053
15,132
16,076
94
87
6
1,356
11,261
12,804
152
5
1,494
12,307
13,958
94
87
6
2,126
14,495
16,808
152
5
2,090
15,560
17,807
94
87
6
2,161
15,826
18,174
152
5
2,092
17,031
19,280
1 Instruments designated as hedged items in fair value hedge relationships with respect to interest rate risk include a designated portion of the US dollar 5.9% Callable bond repaid in 2017, and a
portion of the US dollar 1.75% Callable bond repayable in 2018.
2 Instruments designated at fair value through profit or loss include the US dollar 7% guaranteed debentures repayable in 2023.
3 Instruments designated in a cash flow hedge include the euro 0.25%, euro 0.75% and euro 1.25% Callable bonds repayable in 2021, 2024 and 2028 respectively.
4 Included within borrowings held at amortised cost are amounts designated as hedges of net investments in foreign operations of $1,054m (2016: $1,208m; 2015: $1,327m) held at amortised cost.
The fair value of these borrowings was $1,206m at 31 December 2017 (2016: $1,400m; 2015: $1,516m).
The fair value of fixed-rate publicly traded debt is based on year end quoted market prices; the fair value of floating rate debt is nominal value, as
mark to market differences would be minimal given the frequency of resets. The carrying value of loans designated at fair value through profit or
loss is the fair value; this falls within the Level 1 valuation method as defined in Note 11. For loans designated in a fair value hedge relationship,
carrying value is initially measured at fair value and remeasured for fair value changes in respect of the hedged risk at each reporting date. All
other loans are held at amortised cost. Fair values, as disclosed in the table above, are all determined using the Level 1 valuation method as
defined in Note 11, with the exception of overdrafts and finance leases, where fair value approximates to carrying values.
A loss of $9m was made during the year on the fair value of bonds designated at fair value through profit or loss, due to decreased credit risk. A
gain of $27m has been made on these bonds since designation due to increased credit risk. Under IFRS 9 the Group records the effect of the
losses and gains, arising from own credit risk, on the fair value of bonds designated at fair value through profit or loss in Other comprehensive
income. Changes in credit risk had no material effect on any other financial assets and liabilities recognised at fair value in the Group Financial
Statements. The change in fair value attributable to changes in credit risk is calculated as the change in fair value not attributable to market risk.
The amount payable at maturity on bonds designated at fair value through profit or loss is $282m.
The interest rates used to discount future cash flows for fair value adjustments, where applicable, are based on market swap curves at the
reporting date, and were as follows:
Loans and borrowings
2017
2016
2015
1.9% to 2.2%
1.5% to 2.2%
1.2% to 2.1%
162 AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements
18 Trade and other payables
Current liabilities
Trade payables
Value added and payroll taxes and social security
Rebates and chargebacks
Accruals
Contingent consideration
Other payables
Total
Non-current liabilities
Accruals
Contingent consideration
Other payables
Total
2017
$m
2016
$m
2015
$m
3,611
243
2,556
3,551
555
1,125
2,990
240
2,812
2,855
527
1,062
3,469
207
3,307
2,983
396
1,301
11,641
10,486
11,663
143
4,979
2,718
7,840
292
4,930
4,266
9,488
256
6,015
1,186
7,457
Non-current other payables includes $1,823m (2016: $1,901m; 2015: $nil) arising from the put option over the non-controlling interest in Acerta
Pharma (see Note 24). The put option liability is remeasured each period, based on the latest assessment of the expected redemption amount,
with remeasurements taken to Selling, general and administrative costs (see Note 2). Interest arising from amortising the liability is included within
Finance expense (see Note 3).
With the exception of contingent consideration payables of $5,534m (2016: $5,457m; 2015: $6,411m) which are held at fair value within Level 3 of
the fair value hierarchy as defined in Note 11, all other financial liabilities are held at amortised cost with carrying value being a reasonable
approximation of fair value.
Contingent consideration
At 1 January
Settlements
Revaluations
Discount unwind (Note 3)
Foreign exchange
At 31 December
2017
$m
5,457
(434)
109
402
–
2016
$m
6,411
(293)
(1,158)
497
–
2015
$m
6,899
(579)
(432)
524
(1)
5,534
5,457
6,411
Contingent consideration arising from business combinations is fair valued using decision-tree analysis, with key inputs including the probability
of success, consideration of potential delays and the expected levels of future revenues.
Revaluations of contingent consideration are recognised in Selling, general and administrative costs and include a increase of $208m in 2017
(2016: a decrease of $999m; 2015: a decrease of $378m) based on revised milestone probabilities, and revenue and royalty forecasts, relating to
the acquisition of BMS’s share of the Global Diabetes Alliance. Discount unwind on the liability is included within Finance expense (see Note 3).
Management has identified that reasonably possible changes in certain key assumptions, including the likelihood of achieving successful trial
results, obtaining regulatory approval, the projected market share of the therapeutic area and expected pricing for launched products, may cause
the calculated fair value of the above contingent consideration to vary materially in future years.
The maximum development and sales milestones payable under outstanding contingent consideration arrangements arising on business
combinations are as follows:
i
F
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Acquisitions
Spirogen
Amplimmune
Omthera Pharmaceuticals
Pearl Therapeutics
BMS’s share of Global Diabetes Alliance
Almirall
Definiens
contingent consideration
Milestones
Nature of Maximum future milestones
$m
216
Year
2013
2013
2013
2013
Milestones
Milestones
Milestones
2014 Milestones and royalties
2014 Milestones and royalties
2014
Milestones
275
120
390
600
925
150
The amount of royalties payable under the arrangements is inherently uncertain and difficult to predict, given the direct link to future sales and the
range of outcomes. The maximum amount of royalties payable in each year is with reference to net sales.
AstraZeneca Annual Report & Form 20-F Information 2017 / Notes to the Group Financial Statements 163
Notes to the Group Financial Statements
continued
19 Provisions
At 1 January 2015
Additions arising on business acquisitions
Charge for year
Cash paid
Reversals
Exchange and other movements
At 31 December 2015
Charge for year
Cash paid
Reversals
Exchange and other movements
At 31 December 2016
Charge for year
Cash paid
Reversals
Exchange and other movements
At 31 December 2017
Due within one year
Due after more than one year
Total
Severance
$m
526
Environmental
$m
84
Employee
benefits
$m
163
–
338
(408)
(40)
(13)
403
578
(433)
(40)
(21)
487
225
(324)
(75)
45
358
–
8
(25)
–
–
67
11
(19)
–
–
59
11
(20)
–
9
59
–
7
(12)
–
–
158
6
(21)
–
–
143
30
(43)
(10)
6
126
Legal
$m
74
–
313
(69)
–
39
357
223
(126)
–
(16)
438
281
(48)
(40)
23
654
Other
provisions
$m
260
10
40
(43)
(12)
2
257
170
(87)
(39)
(10)
291
55
(37)
(44)
6
271
2017
$m
1,121
347
1,468
2016
$m
1,065
353
1,418
Total
$m
1,107
10
706
(557)
(52)
28
1,242
988
(686)
(79)
(47)
1,418
602
(472)
(169)
89
1,468
2015
$m
798
444
1,242
AstraZeneca is undergoing a global restructuring initiative which involves rationalisation of the global supply chain, the sales and marketing
organisation, IT and business support infrastructure, and R&D. Employee costs in connection with the initiatives are recognised in severance
provisions. Final severance costs are often subject to the completion of the requisite consultations on the areas impacted.
Details of the environmental and legal provisions are provided in Note 28.
Employee benefit provisions include the Deferred Bonus Plan. Further details are included in Note 27.
Other provisions comprise amounts relating to specific contractual or constructive obligations and disputes.
No provision has been released or applied for any purpose other than that for which it was established.
20 Post-retirement benefits
Pensions
Background
The Company and most of its subsidiaries offer retirement plans which cover the majority of employees in the Group. Many of these plans are
‘defined contribution’ (“DC”), where the Company contribution and resulting charge is fixed at a set level or is a set percentage of employees’
pay.
However, several plans, mainly in the UK, the US and Sweden, are ‘defined benefit’ (“DB”), where benefits are based on employees’ length of
service and linked to their salary. The major defined benefit plans, apart from the collectively bargained Swedish plan (which is still open to
employees born before 1979), have been closed to new entrants since 2000. During 2010, following consultation with its UK employees’
representatives, the Company introduced a freeze on pensionable pay at 30 June 2010 levels for defined benefit members of the UK Pension
Fund. The number of active members in the Fund continues to decline and is now below 900 employees.
In November 2017, the Company decided to close both the qualified and non-qualified US pension plans to future accrual effective from 31
December 2017. The legacy DB participants are eligible for DC benefits from 1 January 2018. In addition, the eligibility criteria to qualify for
benefits within the US post-retirement welfare plan was also changed effective from 1 November 2017. Further information on the financial impact
of these changes is set out later in this section.
The major defined benefit plans are funded through separate, fiduciary-administered assets. The cash funding of the plans, which may from time
to time involve special Company payments, is designed, in consultation with independent qualified actuaries, to ensure that the assets are
sufficient to meet future obligations as and when they fall due. The funding level is monitored rigorously by the Company and local fiduciaries
taking into account: the Company’s credit rating, local regulation, cash flows and the solvency and maturity of the relevant pension scheme.
164 AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements
20 Post-retirement benefits continued
Financing principles
Ninety two per cent of the Company’s defined benefit obligations at 31 December 2017 are in schemes within the UK, the US and Sweden. In
these countries, the pension obligations are funded in line with the Company’s financing principles. There have been no fundamental changes to
these principles during 2017. The Company believes:
> in funding the benefits it promises to employees and meeting its obligations.
> that the pension arrangements should be considered in the context of its broader capital structure. In general, it does not believe in committing
excessive capital for funding when the Company might use the capital elsewhere to reinvest in the wider business, nor does it wish to generate
surpluses.
> in taking some measured and rewarded risks with the investments underlying the funding, subject to a long-term plan to reduce those risks
when opportunities arise.
> that holding certain investments may cause volatility in the funding position. However, the Company would not wish to amend its contribution
level for relatively small deviations from its preferred funding level, because it is expected that there will be short-term volatility, but it is
prepared to react appropriately to more significant deviations.
> that proactive engagement with local Fiduciary Bodies is necessary and helpful to provide robust oversight and input in relation to funding and
investment strategy and to facilitate liability management exercises appropriate to each pension plan.
> in considering the use of alternative methods of providing security that do not require immediate cash funding but help mitigate exposure of the
pension arrangement to the credit risk of the Company.
These principles are appropriate at the present date but they are kept under ongoing review; should circumstances change these principles may
also be subject to change.
The Company has developed a long-term funding framework to implement these principles, which targets full funding on a low risk funding
measure over the long term as the pension funds mature, with affordable long-term de-risking of investment strategy over time. Unless local
regulation dictates otherwise, this framework determines the cash contributions payable to the pension funds.
UK
The UK defined benefit pension fund represents approximately 64% of the Company’s defined benefit obligations at 31 December 2017. The
financing principles are modified in light of the UK regulatory requirements (summarised below) and resulting discussions with the Pension Fund
Trustee.
Role of Trustees (UK)
The UK Pension Fund is governed and administered by a corporate Trustee which is legally separate from the Company. The Trustee Directors
are comprised of representatives appointed by both the employer and employees, and include an independent professional Trustee Director. The
Trustee Directors are required by law to act in the interest of all relevant beneficiaries and are responsible in particular for the asset investment
policy and the day-to-day administration of the benefits. They are also responsible for jointly agreeing with the employer the level of contributions
due to the UK Pension Fund (see below).
Funding requirements (UK)
UK legislation requires that pension schemes are funded prudently (ie to a level in excess of the current expected cost of providing benefits). On a
triennial basis, the Trustee and the Company must agree the contributions required (if any) to ensure the Fund is fully funded over an appropriate
time period and on a suitable prudent measure. The last full actuarial valuation of the AstraZeneca Pension Fund was carried out by a qualified
actuary as at 31 March 2016 and following discussions between the Company and Trustee was finalised and accepted by The Pensions
Regulator in 2017. The next actuarial valuation is due to take place as at 31 March 2019.
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In relation to deficit recovery contributions, a lump sum contribution of £51m ($64m) was made in March 2017, with a further £51m contribution
due before 31 March 2018. In addition, a further contribution of £25.2m is also due before 31 March 2018 in relation to part payment of the
deferred contribution explained below.
During 2017, the Company provided a letter of credit to the Trustee, to underwrite the deferral of an additional deficit recovery contribution
payment of approximately £126m which was due in 2017. This contribution will now be paid in five equal instalments from March 2018 to March
2022. The letter of credit underwriting these payments will be renewed each year, but will reduce in value as each annual payment is made.
The Company entered into a long-term funding agreement with the Trustee in October 2016 under which the Company will grant a charge in
favour of the Trustee over the new Cambridge Biomedical Campus, upon practical completion, which would crystallise only in the event of the
Company’s insolvency. This charge will provide security in respect of future UK Pension Fund contributions.
Under the funding assumptions used to set the statutory funding target, the key assumptions from the actuarial valuation as at 31 March 2016
were as follows: long-term UK price inflation set at 2.6% per annum, salary increases at 0% per annum (as a result of pensionable pay levels
being frozen in 2010), pension increases at 2.85% per annum and discount rate at 3.71% per annum. The resulting valuation of the Fund’s
liabilities on that basis were £5,265m ($7,091m) compared to a market value of assets at 31 March 2016 of £4,492m ($6,050m).
Under the governing documentation of the UK Pension Fund, any future surplus in the Fund would be returnable to the Company by refund
assuming gradual settlement of the liabilities over the lifetime of the Fund. As such, there are no adjustments required in respect of IFRIC 14
‘IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction’.
Liability Management Exercises (UK)
During 2017, the Company completed a Pensions Increase Exchange (PIE) exercise. This exercise, which commenced in 2016, offered certain
pensioner members the option of taking a higher amount of pension right away, in exchange for giving up any potential future inflation linked
increases on all, or part of their pension. A credit to the income statement was recognised in 2016 in respect of this exercise of £54m ($74m), in
Operating Profit. No such credit was recognised in 2017.
AstraZeneca Annual Report & Form 20-F Information 2017 / Notes to the Group Financial Statements 165
Notes to the Group Financial Statements
continued
20 Post-retirement benefits continued
Regulation (UK)
The UK pensions market is regulated by The Pensions Regulator whose statutory objectives and regulatory powers are described on its website,
www.thepensionsregulator.gov.uk.
Rest of Group
The IAS 19 positions for the US and Sweden as at 31 December 2017 are shown below. These plans account for 28% of the Group’s defined
benefit obligations. The US and Sweden pension funds are governed by Fiduciary Bodies with responsibility for the investment policies of those
funds. These plans are funded in line with the Company’s financing principles and contributions are paid as prescribed by the long-term funding
framework.
As earlier mentioned, the Company announced changes to retirement benefit plans in the US in November 2017. Both the qualified and non-
qualified defined benefit pension plans closed to future accrual (ie were frozen), effective 31 December 2017, and changes in eligibility criteria
were made for the post-retirement welfare plan effective 1 November 2017. These changes triggered curtailment gains totalling $92m on re-
measurement of the future liabilities and which, under the rules of IAS 19, are recognised immediately in the Income statement.
> The US defined benefits programme was actuarially revalued at 31 December 2017, when plan obligations were $1,708m and plan assets were
$1,603m. This includes obligations in respect of the non-qualified plan which is largely unfunded.
> The Swedish defined benefits programme was actuarially revalued at 31 December 2017, when plan obligations were estimated to amount to
$1,811m and plan assets were $1,146m.
On current bases, it is expected that ongoing contributions (excluding those in respect of past service deficit contributions) during the year ending
31 December 2018 for the three main countries will be approximately $68m.
Post-retirement benefits other than pensions
In the US, and to a lesser extent in certain other countries, AstraZeneca’s employment practices include the provision of healthcare and life
assurance benefits for retired employees. As at 31 December 2017, some 3,338 retired employees and covered dependants currently benefit
from these provisions and some 2,833 current employees will be eligible on their retirement. AstraZeneca accrues for the present value of such
retiree obligations over the working life of the employee. In practice, these benefits will be funded with reference to the financing principles.
The cost of post-retirement benefits other than pensions for the Group in 2017 was $14m (2016: $17m; 2015: $23m). Plan assets were $290m
and plan obligations were $279m at 31 December 2017. These benefit plans have been included in the disclosure of post-retirement benefits
under IAS 19.
Financial assumptions
Qualified independent actuaries have updated the actuarial valuations under IAS 19 of the major defined benefit schemes operated by the Group
to 31 December 2017. The assumptions used by the actuaries are chosen from a range of possible actuarial assumptions which, due to the
long-term nature of the schemes, may not necessarily be borne out in practice. These assumptions were as follows:
Inflation assumption
Rate of increase in salaries
Rate of increase in pensions in payment
Discount rate – defined benefit obligation
Discount rate – interest cost2
Discount rate – service cost2
2017
UK Rest of Group
2.2%
3.1%
2016
UK Rest of Group
2.1%
3.2%
–1
2.9%
2.5%2
2.5%3
2.7%3
3.1%
1.1%
3.0%2
2.7%3
3.5%3
–1
3.0%
2.7%
N/A
N/A
3.1%
0.9%
3.3%
N/A
N/A
1 Pensionable pay frozen at 30 June 2010 levels following UK fund changes.
2 Group defined benefit obligation as at 31 December 2017 calculated using discount rates based on market conditions as at 31 December 2017.
3 2017 interest costs and service costs calculated using discount rates based on market conditions as at 31 December 2016.
The weighted average duration of the post-retirement scheme obligations in the UK is 17 years and 15 years in the Rest of Group.
Discount rate and methodology changes
In 2016, the Company’s discount rates were based on yields on long-term AA-rated fixed income instruments, using a single discount rate for
each pension plan to value the defined benefit obligations, service cost and interest cost. As stated last year, from January 2017, for the largest
plans, the Company moved to a multiple discount rate approach. This has resulted in separate discount rates for defined benefit obligations,
service cost and interest cost. The change has impacted on the measurement of the service and interest cost items in 2017.
Demographic assumptions
The mortality assumptions are based on country-specific mortality tables. These are compared to actual experience and adjusted where sufficient
data is available. Additional allowance for future improvements in life expectancy is included for all major schemes where there is credible data to
support this continuing trend.
The table below illustrates life expectancy assumptions at age 65 for male members retiring in 2017 and male members expected to retire in 2037
(2016: 2016 and 2036 respectively).
Country
UK
US
Sweden
Life expectancy assumption for a male member retiring at age 65
2036
2017
23.7
24.6
2037
24.8
2016
23.3
20.8
21.9
23.0
23.6
22.4
21.8
23.9
23.6
The Company adopted the CMI 2016 Mortality Projections Model with a 1% long-term improvement rate in 2017 in the UK.
166 AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements
20 Post-retirement benefits continued
Risks associated with the Company’s defined benefit pensions
The UK defined benefit plan accounts for 64% of the Group’s defined benefit obligations and exposes the Company to a number of risks, the
most significant of which are:
Risk
Volatile asset returns
Description
Mitigation
The Defined Benefit Obligation (DBO) is calculated
using a discount rate set with reference to AA-rated
corporate bond yields; asset returns that differ from
the discount rate will create an element of volatility
in the solvency ratio. The UK Pension Fund holds a
significant proportion (around 72.5%) in growth
assets. Although these growth assets are expected
to outperform AA-rated corporate bonds in the
long-term, they can lead to volatility and
mismatching risk in the short-term. The allocation
to growth assets is monitored to ensure it remains
appropriate given the UK Pension Fund’s long-term
objectives.
In order to mitigate investment risk, the Trustee
invests in a suitably diversified range of asset
classes, return drivers and investment managers.
The investment strategy will continue to evolve to
further improve the expected risk/return profile as
opportunities arise.
The Trustee has hedged the vast majority (over
85%) of unintended non-sterling, overseas
currency risk within the UK Pension Fund assets.
Changes in bond yields
A decrease in corporate bond yields will increase
the present value placed on the DBO for
accounting purposes.
Inflation risk
Life expectancy
A significant proportion of the DBO is indexed in
line with price inflation (specifically inflation in the
UK Retail Price Index) and higher inflation will lead
to higher liabilities (although, in most cases, this is
capped at an annual increase of 5%).
The majority of the UK Pension Fund’s obligations
are to provide benefits for the life of the member,
so increases in life expectancy will result in an
increase in the liabilities.
The interest rate hedge of the UK Pension Fund is
implemented via holding gilts and swaps of
appropriate duration and set at approximately 80%
of total assets and protects to some degree against
falls in long-term interest rates (approximately 75%
hedged at the end of 2016). There is a framework in
place to gradually increase the level of interest rate
hedging to 100% of assets over time, via a
combination of liability management exercises and
additional market-based hedging.
Note that there are some differences in the bonds
and instruments held by the UK Pension Fund to
hedge interest rate risk on the statutory and long-
term funding basis (gilts and swaps) and the bonds
analysed to set the DBO discount rate on an
accounting basis (AA corporate bonds). As such,
there remains some mismatching risk on an
accounting basis should yields on gilts and swaps
diverge compared to corporate bonds (ie the ‘credit
spread’ between gilts and corporate bonds
narrows).
The UK Pension Fund holds index-linked gilts and
derivative instruments such as swaps. The inflation
hedge of the UK Pension Fund is set at
approximately 85% of total assets and protects to
some degree against higher-than-expected inflation
increases on the DBO (approximately 75% hedged
at the end of 2016). There is a framework in place
to gradually increase the level of inflation hedging
to 100% of assets over time, via a combination of
liability management exercises and additional
market-based hedging.
The UK Pension Fund entered into a longevity swap
during 2013 which provides hedging against the
longevity risk of increasing life expectancy over the
next 76 years for around 10,000 of the UK Pension
Fund’s current pensioners and covers $2.4bn of the
UK Pension Fund’s liabilities. A one-year increase
in life expectancy will result in a $244m increase in
pension fund assets.
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Other risks
There are a number of other risks of running the UK Pension Fund including counterparty risks from using derivatives (mitigated by using a
diversified range of counterparties of high standing and ensuring positions are collateralised daily). Furthermore, there are operational risks (such
as paying out the wrong benefits) and legislative risks (such as the government increasing the burden on pension funds through new legislation).
These are mitigated so far as possible via the governance structure in place which oversees and administers the pension funds.
The Company’s pension plans in the US and Sweden also manage these key risks, where they are relevant, in a similar manner, operating a
diversified growth portfolio and a framework to hedge interest rate risk.
Post-retirement scheme deficit
The assets and obligations of the defined benefit schemes operated by the Company at 31 December 2017, as calculated in accordance with IAS
19, are shown overleaf. The fair values of the schemes’ assets are not intended to be realised in the short term and may be subject to significant
change before they are realised. The present value of the schemes’ obligations is derived from cash flow projections over long periods and is
therefore inherently uncertain.
AstraZeneca Annual Report & Form 20-F Information 2017 / Notes to the Group Financial Statements 167
Notes to the Group Financial Statements
continued
20 Post-retirement benefits continued
Scheme assets
Government bonds1
Corporate bonds2
Derivatives3
Investment funds: Listed Equities
Investment funds: Global Macro Hedge4
Investment funds: Diversified growth/Multi Strategy4
Investment funds: Multi-asset credit4
Cash and cash equivalents
Other
UK
Quoted Unquoted
$m
1,590
–
–
–
–
–
–
15
–
$m
–
34
(82)
1,264
1,044
1,460
622
190
–
Government bonds1
Corporate bonds2
Derivatives3
Investment funds: Listed Equities
Investment funds: Global Macro Hedge4
Investment funds: Diversified growth/Multi Strategy4
Investment funds: Multi-asset credit4
Cash and cash equivalents
Other
UK
Quoted Unquoted
$m
2,056
–
–
–
–
–
–
40
–
$m
–
37
(237)
1,174
1,004
1,921
633
121
–
Rest of Group
Unquoted
Quoted Unquoted
Total
$m
48
–
(4)
424
360
267
232
26
262
$m
1,669
846
(10)
332
–
–
–
130
2
$m
48
34
(86)
1,688
1,404
1,727
854
216
262
Rest of Group
Unquoted
Quoted Unquoted
Total
$m
45
–
26
421
396
416
268
23
266
$m
2,135
849
(12)
371
–
–
–
63
2
$m
45
37
(211)
1,595
1,400
2,337
901
144
266
Quoted
$m
79
846
(10)
332
–
–
–
115
2
Quoted
$m
79
849
(12)
371
–
–
–
23
2
Total fair value of scheme assets5
1,605
4,532
1,364
1,615
2,969
6,147
9,116
Total fair value of scheme assets5
2,096
4,653
1,312
1,861
3,408
6,514
9,922
1 Predominantly developed markets in nature.
2 Predominantly developed markets in nature and investment grade (AAA-BBB).
3 Includes interest rate swaps, inflation swaps, longevity swap and other contracts.
4 Investment Funds are pooled, commingled vehicles, whereby the pension scheme owns units in the fund, alongside other investors. The pension schemes invest in a number of Investment
Funds, including Listed Equities (primarily developed markets with some emerging markets across the world), Multi Asset Credit (bonds and debt including a range of investment grade and
non-investment grade credit across the world), Diversified Growth/Multi Strategy (multi-asset exposure both across and within traditional and alternative asset classes), and Global Macro Hedge
Funds (Discretionary/Fundamental Macro and managed futures).
5 Included in scheme assets is $nil (2016: $nil) of the Company’s own assets.
Scheme obligations
Present value of scheme obligations in respect of:
Active membership
Deferred membership
Pensioners
UK Rest of Group
$m
$m
(814)
(1,998)
(5,220)
(1,018)
(1,688)
(1,767)
2017
Total
$m
(1,832)
(3,686)
(6,987)
Total value of scheme obligations
(8,032)
(4,473)
(12,505)
UK Rest of Group
$m
$m
(679)
(1,806)
(4,633)
(7,118)
(1,590)
(1,046)
(1,548)
(4,184)
2016
Total
$m
1,717
880
(96)
2,020
1,404
1,727
854
346
264
2017
Total
$m
2,180
886
(223)
1,966
1,400
2,337
901
207
268
2016
Total
$m
(2,269)
(2,852)
(6,181)
(11,302)
2016
Total
$m
9,116
Net deficit in the scheme
Total fair value of scheme assets
Total value of scheme obligations
Deficit in the scheme as recognised in the
Consolidated Statement of Financial Position
Fair value of scheme assets
At beginning of year
Interest income on scheme assets
Expenses
Actuarial gains
Exchange and other adjustments
Employer contributions
Participant contributions
Benefits paid
Scheme assets’ fair value at end of year
UK Rest of Group
$m
6,749
$m
3,173
2017
Total
$m
9,922
UK Rest of Group
$m
6,137
$m
2,979
(8,032)
(4,473)
(12,505)
(7,118)
(4,184)
(11,302)
(1,283)
(1,300)
(2,583)
(981)
(1,205)
(2,186)
UK Rest of Group
$m
6,137
$m
2,979
81
(12)
188
176
34
–
159
(6)
45
596
123
3
(308)
6,749
2017
Total
$m
9,116
240
(18)
233
772
157
3
UK Rest of Group
$m
6,467
$m
2,954
221
(5)
858
(1,228)
130
4
(310)
6,137
104
(9)
84
(26)
62
–
(190)
2,979
2016
Total
$m
9,421
325
(14)
942
(1,254)
192
4
(500)
9,116
(273)
3,173
(581)
9,922
168 AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements
20 Post-retirement benefits continued
The actual return on the plan assets was a gain of $473m (2016: gain of $1,267m).
Movement in post-retirement scheme obligations
Present value of obligations in scheme at beginning of year
Current service cost
Past service (cost)/credit
Participant contributions
Benefits paid
Interest expense on post-retirement scheme obligations
Actuarial losses
Exchange and other adjustments
UK Rest of Group
$m
(7,118)
$m
(4,184)
2017
Total
$m
(11,302)
UK Rest of Group
$m
(7,451)
$m
(3,944)
(23)
(39)
(3)
308
(184)
(272)
(701)
(64)
70
–
273
(105)
(202)
(261)
(87)
31
(3)
581
(289)
(474)
(962)
(20)
27
(4)
310
(253)
(1,189)
1,462
(7,118)
(82)
15
(4)
190
(135)
(328)
104
2016
Total
$m
(11,395)
(102)
42
(8)
500
(388)
(1,517)
1,566
Present value of obligations in scheme at end of year
(8,032)
(4,473)
(12,505)
The obligations arise from the following plans:
(4,184)
(11,302)
Funded – pension schemes
Funded – post-retirement healthcare
Unfunded – pension schemes
Unfunded – post-retirement healthcare
Total
UK Rest of Group
$m
(8,013)
$m
(3,698)
–
–
(19)
(245)
(515)
(15)
2017
Total
$m
(11,711)
(245)
(515)
(34)
UK Rest of Group
$m
(7,101)
$m
(3,309)
–
–
(17)
(279)
(583)
(13)
2016
Total
$m
(10,410)
(279)
(583)
(30)
(8,032)
(4,473)
(12,505)
(7,118)
(4,184)
(11,302)
Consolidated Statement of Comprehensive Income disclosures
The amounts that have been charged to the Consolidated Statement of Comprehensive Income, in respect of defined benefit schemes for the
year ended 31 December 2017, are set out below.
Operating profit
Current service cost
Past service (cost)/credit
Expenses
Total charge to operating profit
Finance expense
Interest income on scheme assets
Interest expense on post-retirement scheme obligations
Net interest on post-employment defined benefit plan liabilities
Charge before taxation
Other comprehensive income
Difference between the actual return and the expected return
on the post-retirement scheme assets
Experience gains/(losses) arising on the post-retirement scheme
obligations
Changes in financial assumptions underlying the present value
of the post-retirement scheme obligations
Changes in demographic assumptions
Remeasurement of the defined benefit liability
(23)
(39)
(6)
(68)
159
(184)
(25)
(93)
45
(50)
(261)
39
(227)
UK Rest of Group
$m
$m
UK Rest of Group
$m
$m
2017
Total
$m
(87)
31
(18)
(74)
240
(289)
(49)
(123)
(20)
27
(5)
2
221
(253)
(32)
(30)
(64)
70
(12)
(6)
81
(105)
(24)
(30)
188
233
858
(4)
(54)
220
(214)
15
(15)
(475)
54
(242)
(1,409)
–
(331)
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a
n
c
i
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l
S
t
a
t
e
m
e
n
t
s
2016
Total
$m
(102)
42
(14)
(74)
325
(388)
(63)
(137)
942
214
(1,786)
55
(575)
(82)
15
(9)
(76)
104
(135)
(31)
(107)
84
(6)
(377)
55
(244)
Past service credit in 2017 includes a credit to Operating Profit of $92m arising from the changes to the defined benefit and post-retirement
welfare plans in the US, as referred to in the Rest of Group section on page 166. The past service credit in 2017 has been partially offset by costs
predominantly related to enhanced pensions in early retirement in the UK and Sweden.
Group costs in respect of defined contribution schemes during the year were $304m (2016: $352m).
AstraZeneca Annual Report & Form 20-F Information 2017 / Notes to the Group Financial Statements 169
Notes to the Group Financial Statements
continued
20 Post-retirement benefits continued
Rate sensitivities
The following table shows the US dollar effect of a change in the significant actuarial assumptions used to determine the retirement benefits
obligations in our three main defined benefit pension obligation countries.
Discount rate
UK ($m)
US ($m)
Sweden ($m)
Total ($m)
Inflation rate1
UK ($m)
US ($m)
Sweden ($m)
Total ($m)
Rate of increase in salaries
UK ($m)
US ($m)
Sweden ($m)
Total ($m)
Mortality rate
UK ($m)
US ($m)
Sweden ($m)
Total ($m)
+0.5%
2017
−0.5%
+0.5%
618
95
147
860
(703)
(101)
(168)
(972)
546
107
128
781
+0.5%
2017
−0.5%
+0.5%
(526)
–
(165)
(691)
495
–
146
641
(510)
(12)
(147)
(669)
2016
−0.5%
(712)
(114)
(149)
(975)
2016
−0.5%
486
12
127
625
+0.5%
2017
−0.5%
+0.5%
2016
−0.5%
–
–
(51)
(51)
–
–
47
47
–
(9)
(33)
(42)
–
9
30
39
+1 year
2017
−1 year
+1 year
2016
−1 year
(337)2
(26)
(63)
(426)
3373
27
64
428
(300)
(27)
(57)
(384)
292
28
57
377
1 Rate of increase in pensions in payment follows inflation.
2 Of the $337m increase, $244m is covered by the longevity swap.
3 Of the $337m decrease, $236m is covered by the longevity swap.
The sensitivity to the financial assumptions shown above has been estimated taking into account the approximate duration of the liabilities and
the overall profile of the plan membership. The sensitivity to the life expectancy assumption has been estimated based on the distribution of the
plan cash flows.
170 AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements
21 Reserves
Retained earnings
The cumulative amount of goodwill written off directly to reserves resulting from acquisitions, net of disposals, amounted to $631m (2016: $613m;
2015: $624m) using year end rates of exchange. At 31 December 2017, 476,504 shares, at a cost of $22m, have been deducted from retained
earnings (2016: 276,303 shares, at a cost of $19m; 2015: 49,105 shares, at a cost of $4m).
There are no significant statutory or contractual restrictions on the distribution of current profits of subsidiaries; undistributed profits of prior years
are, in the main, permanently employed in the businesses of these companies. The undistributed income of AstraZeneca companies overseas
might be liable to overseas taxes and/or UK taxation (after allowing for double taxation relief) if they were to be distributed as dividends (see
Note 4).
Cumulative translation differences included within retained earnings
At 1 January
Foreign exchange arising on consolidation
Exchange adjustments on goodwill (recorded against other reserves)
Foreign exchange arising on designating borrowings in net investment hedges
Fair value movement on derivatives designated in net investment hedges
Net exchange movement in retained earnings
At 31 December
2017
$m
2016
$m
2015
$m
(2,028)
536
18
505
(48)
1,011
(1,017)
(372)
(1,050)
(11)
(591)
(4)
(1,656)
(2,028)
490
(528)
(15)
(333)
14
(862)
(372)
Cumulative amounts with respect to cash flow hedges included within retained earnings are $76m (2016: $80m; 2015: $nil).
Other reserves
The other reserves arose from the cancellation of £1,255m of share premium account by the Company in 1993 and the redenomination of share
capital ($157m) in 1999. The reserves are available for writing off goodwill arising on consolidation and, subject to guarantees given to preserve
creditors at the date of the court order, are available for distribution.
22 Share capital of the Company
Issued Ordinary Shares ($0.25 each)
Redeemable Preference Shares (£1 each – £50,000)
At 31 December
2017
$m
317
–
317
Allotted, called-up and fully paid
2015
$m
316
2016
$m
316
–
316
–
316
The Redeemable Preference Shares carry limited class voting rights and no dividend rights. This class of shares is capable of redemption at par
at the option of the Company on the giving of seven days’ written notice to the registered holder of the shares.
The Company does not have a limited amount of authorised share capital.
The movements in the number of Ordinary Shares during the year can be summarised as follows:
i
F
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
At 1 January
Issues of shares (share schemes)
At 31 December
Share repurchases
No Ordinary Shares were repurchased by the Company in 2017 (2016: nil; 2015: nil).
Shares held by subsidiaries
No shares in the Company were held by subsidiaries in any year.
2017
2016
1,265,229,424
1,264,122,670
No. of shares
2015
1,263,143,338
992,181
1,106,754
979,332
1,266,221,605
1,265,229,424
1,264,122,670
AstraZeneca Annual Report & Form 20-F Information 2017 / Notes to the Group Financial Statements 171
Notes to the Group Financial Statements
continued
23 Dividends to shareholders
Final
Interim
Total
2017
2016
Per share
$1.90
$0.90
$2.80
Per share
$1.90
$0.90
$2.80
2015
Per share
$1.90
$0.90
$2.80
2017
$m
2,404
1,139
3,543
2016
$m
2,402
1,138
3,540
Reconciliation of dividend charged to equity to cash flow statement:
Dividends charged to equity
Exchange (gains)/losses on payment of dividend
Hedge contracts relating to payment of dividends (cash flow statement)
Dividends paid (cash flow statement)
2015
$m
2,400
1,137
3,537
2015
$m
3,537
–
(51)
2017
$m
2016
$m
3,543
3,540
(4)
(20)
3
18
3,519
3,561
3,486
24 Non-controlling interests
Following the acquisition of a majority stake in Acerta Pharma on 2 February 2016, the Group Financial Statements at 31 December 2017 reflect
equity of $1,676m (2016: $1,808m) and total comprehensive losses of $132m (2016: losses of $95m) attributable to the non-controlling interests,
held by other parties, of Acerta Pharma B.V. and its subsidiaries. The following summarised financial information, for Acerta Pharma B.V. and its
subsidiaries, is presented on a stand-alone basis since the acquisition date, and before the impact of Group-related adjustments, some of which
are incorporated into this calculation of the loss attributable to the non-controlling interests:
Total Revenue
Profit/(loss) after tax
Other comprehensive income
Total comprehensive income/(loss)
Non-current assets
Current assets
Total assets
Current liabilities
Total liabilities
Net assets/(liabilities)
Net cash inflow/(outflow) from operating activities
Net cash inflow from investing activities
Increase/(decrease) in cash and cash equivalents in the year
2017
$m
–
412
–
412
2017
$m
3
904
907
(417)
(417)
490
2017
$m
5
–
5
2016
$m
–
(212)
–
(212)
2016
$m
73
79
152
(171)
(171)
(19)
2016
$m
(223)
139
(84)
The non-controlling interest in Acerta Pharma is subject to a put option, exercisable by the minority shareholders at certain points in the future,
not earlier than the commercial launch of Calquence (acalabrutinib). This put option gives rise to a liability which is recorded at the present value
of the expected redemption amount, calculated using a probability-weighted model based on forecast revenue and earnings of Acerta Pharma,
and is recorded within Non-current other payables (see Note 18). The forecast revenue and earnings of Acerta Pharma will particularly be affected
by the outcome of ongoing clinical trials and regulatory submissions relating to Calquence. If actual earnings are lower than forecast, the liability
for the put option will decrease. Similarly, if actual earnings are higher than forecast, the liability for the put option will increase. The value of the
liability is also sensitive to the expected timing of exercise. The amount of the liability is not directly correlated to time until the expected date of
exercise. During the year, Calquence received regulatory approval in the US for the treatment of adult patients with mantle cell lymphoma (MCL)
who have received at least one prior therapy. This approval has changed the weighted probability of certain outcomes in respect of the forecast
earnings of Acerta Pharma and has brought forward the weighted average expected exercise date of the put option. The changes to these
assumptions resulted in a decrease in the liability for the year before the effect of interest costs.
172 AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements
25 Acquisitions of business operations
2017 Acquisitions
There were no acquisitions of business operations in 2017.
2016 Acquisitions
Acerta Pharma
On 2 February 2016, AstraZeneca completed an agreement to invest in a majority equity stake in Acerta Pharma, a privately-owned
biopharmaceutical company based in the Netherlands and US. The transaction provides AstraZeneca with a potential best-in-class irreversible
oral Bruton’s tyrosine kinase (BTK) inhibitor, Calquence, currently in Phase III development for B-cell blood cancers and in Phase I/II clinical trials
in multiple solid tumours. Acerta Pharma has approximately 150 employees.
Under the terms of the agreement, AstraZeneca has acquired 55% of the issued share capital of Acerta Pharma for an upfront payment of
$2.5bn. A further payment of $1.5bn was due either on receipt of the first regulatory approval for Calquence for any indication in the US, or the
end of 2018, depending on which was first. This was paid in 2017 on receipt of first regulatory approval in the US. The agreement also includes
options which, if exercised, provide the opportunity for Acerta Pharma’s shareholders to sell, and AstraZeneca to buy, the remaining 45% of
shares in Acerta Pharma. The options can be exercised at various points in time, conditional on the first approval of Calquence in both the US
and Europe and when the extent of the commercial opportunity has been fully established, at a price of approximately $3bn net of certain costs
and payments incurred by AstraZeneca and net of agreed future adjusting items, using a pre-agreed pricing mechanism.
The acquiring entity within the Group was a Swedish krona functional currency subsidiary. Foreign currency risk arises from the retranslation of
the US dollar denominated liabilities arising from the transaction. To manage this foreign currency risk these liabilities have been designated as
the hedge instrument in a net investment hedge of the Group’s underlying US dollar net investments. Exchange differences on the retranslation of
the contingent consideration liability are recognised in Other comprehensive income to the extent that the hedge is effective. Any ineffectiveness
is taken to profit.
AstraZeneca’s 55% holding is a controlling interest and Acerta Pharma’s combination of intangible product rights with an established workforce
and their operating processes requires that the transaction is accounted for as a business combination in accordance with IFRS 3.
Goodwill is principally attributable to the value of the specialist know-how inherent in the acquired workforce and the accounting for deferred
taxes. Goodwill is not expected to be deductible for tax purposes.
Acerta Pharma’s results have been consolidated into the Group’s results from 2 February 2016. From the period from acquisition to 31 December
2016, Acerta Pharma had no revenues and its loss after tax was $212m.
If the acquisition had taken effect at the beginning of the reporting period in which the acquisition occurred (1 January 2016), on a pro forma
basis, the revenue of the combined Group for 2016 would have been unchanged and the profit after tax would have been $3,367m. This pro
forma information does not purport to represent the results of the combined Group that actually would have occurred had the acquisition taken
place on 1 January 2016 and should not be taken to be representative of future results.
The fair values assigned to the Acerta Pharma business combination completed in 2016 were:
Non-current assets
Intangible assets (Note 9)
Current assets
Current liabilities
Non-current liabilities
Deferred tax liabilities
Total net assets acquired
Non-controlling interests
Goodwill (Note 8)
Fair value of total consideration
Less: fair value of deferred consideration
Total upfront consideration
Less: cash and cash equivalents acquired
Net cash outflow
Acquisition costs were immaterial.
Fair value
$m
7,307
253
(90)
(1,777)
5,693
(1,903)
19
3,809
(1,332)
2,477
(94)
2,383
i
F
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
AstraZeneca Annual Report & Form 20-F Information 2017 / Notes to the Group Financial Statements 173
Notes to the Group Financial Statements
continued
25 Acquisitions of business operations continued
2015 Acquisitions
ZS Pharma
On 17 December 2015, AstraZeneca completed the acquisition of ZS Pharma, a biopharmaceutical company based in San Mateo, California.
ZS Pharma uses its proprietary ion-trap technology to develop novel treatments for hyperkalaemia, a serious condition of elevated potassium in
the bloodstream, typically associated with chronic kidney disease (CKD) and chronic heart failure (CHF).
The acquisition gives AstraZeneca access to the potassium-binding compound ZS-9, a potential best-in-class treatment for hyperkalaemia.
ZS Pharma represents a strong fit with AstraZeneca’s pipeline and portfolio in Cardiovascular & Metabolic Diseases, one of the Company’s three
main therapy areas. AstraZeneca’s strategy focuses on reducing morbidity, mortality and organ damage by addressing multiple risk factors
across cardiovascular disease, diabetes and chronic kidney disease. ZS-9 complements the Company’s increasing focus on CKD and CHF,
including the investigational medicine roxadustat, which is currently in Phase III development for patients with anaemia associated with CKD, as
well as its leading Diabetes portfolio.
Under the terms of the agreement, AstraZeneca acquired 100% of the share capital of ZS Pharma for $90 per share in an all-cash transaction,
or approximately $2.7bn in aggregate transaction value.
ZS Pharma has around 200 employees across three sites in California, Texas and Colorado. The combination of intangible product rights with an
established workforce and their associated operating processes, principally those related to research and development and manufacturing,
requires that the transaction is accounted for as a business combination in accordance with IFRS 3.
Goodwill is principally attributable to the commercial synergies AstraZeneca expects to be able to realise upon launch of ZS-9, the value of the
specialist know-how inherent in the acquired workforce and the accounting for deferred taxes. Goodwill is not expected to be deductible for
tax purposes.
ZS Pharma’s results have been consolidated into the Group’s results from 17 December 2015. From the period from acquisition to
31 December 2015, ZS Pharma’s revenues and loss were immaterial.
If the acquisition had taken effect at the beginning of the reporting period in which the acquisition occurred (1 January 2015), on a pro forma
basis, the revenue of the combined Group for 2015 would have been unchanged and the profit after tax would have been $2,702m. This pro
forma information does not purport to represent the results of the combined Group that actually would have occurred had the acquisition taken
place on 1 January 2015 and should not be taken to be representative of future results.
The final fair values assigned to the ZS Pharma business combination are detailed below:
Fair value
$m
3,162
21
3,183
169
(50)
(977)
(13)
(990)
2,312
388
2,700
(73)
(181)
2,446
Non-current assets
Intangible assets (Note 9)
Property, plant and equipment (Note 7)
Current assets
Current liabilities
Non-current liabilities
Deferred tax liabilities
Other liabilities
Total net assets acquired
Goodwill (Note 8)
Total upfront consideration
Less: cash and cash equivalents acquired
Less: upfront consideration settled in January 2016
Net cash outflow
Acquisition costs were immaterial.
174 AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements
26 Financial risk management objectives and policies
The Group’s principal financial instruments, other than derivatives, comprise bank overdrafts, finance leases, loans, current and non-current
investments, cash and short-term deposits. The main purpose of these financial instruments is to manage the Group’s funding and liquidity
requirements. The Group has other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its
operations.
The principal financial risks to which the Group is exposed are those of liquidity, interest rate, foreign currency and credit. Each of these is
managed in accordance with Board-approved policies. These policies are set out below.
The Group uses foreign currency borrowings, foreign currency forwards and swaps, currency options, cross-currency swaps and interest rate
swaps for the purpose of hedging its foreign currency and interest rate risks. The Group may designate certain financial instruments as fair value
hedges, cash flow hedges or net investment hedges in accordance with IAS 39. Key controls applied to transactions in derivative financial
instruments are: to use only instruments where good market liquidity exists, to revalue all financial instruments regularly using current market
rates and to sell options only to offset previously purchased options or as part of a risk management strategy. The Group is not a net seller of
options, and does not use derivative financial instruments for speculative purposes.
Capital management
The capital structure of the Group consists of shareholders’ equity (Note 22), debt (Note 17) and cash (Note 16). For the foreseeable future, the
Board will maintain a capital structure that supports the Group’s strategic objectives through:
> managing funding and liquidity risk
> optimising shareholder return
> maintaining a strong, investment-grade credit rating.
The Group utilises factoring arrangements for selected trade receivables. These factoring arrangements qualify for full derecognition of the
associated trade receivables under IAS 39.
Funding and liquidity risk are reviewed regularly by the Board and managed in accordance with policies described below.
The Board’s distribution policy comprises a regular cash dividend and, subject to business needs, a share repurchase component. The Board
regularly reviews its shareholders’ return strategy, and in 2012 decided to suspend share repurchases in order to retain strategic flexibility.
The Group’s net debt position (loans and borrowings net of cash and cash equivalents, other investments and derivative financial instruments)
has increased from a net debt position of $10,657m at the beginning of the year to a net debt position of $12,679m at 31 December 2017,
primarily as a result of cash outflows from investing activities, including acquisitions.
Liquidity risk
The Board reviews the Group’s ongoing liquidity risks annually as part of the planning process and on an ad hoc basis. The Board considers
short-term requirements against available sources of funding, taking into account forecast cash flows. The Group manages liquidity risk by
maintaining access to a number of sources of funding which are sufficient to meet anticipated funding requirements. Specifically, the Group uses
US commercial paper, committed bank facilities and cash resources to manage short-term liquidity and manages long-term liquidity by raising
funds through the capital markets. The Group is assigned short-term credit ratings of P-2 by Moody’s and A-2 by Standard and Poor’s. The
Group’s long-term credit rating is A3 negative outlook by Moody’s and BBB+ stable outlook by Standard and Poor’s.
In addition to cash and cash equivalents of $3,324m, fixed deposits of $80m, less overdrafts of $152m at 31 December 2017, the Group has
committed bank facilities of $3bn available to manage liquidity. At 31 December 2017, the Group has issued $3,959m under a Euro Medium Term
Note programme and $12,980m under a SEC-registered programme. The Group regularly monitors the credit standing of the banking group and
currently does not anticipate any issue with drawing on the committed facilities should this be necessary. The committed facilities of $3bn mature
in April 2022 and were undrawn at 31 December 2017.
i
F
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
The maturity profile of the anticipated future contractual cash flows including interest in relation to the Group’s financial liabilities, on an
undiscounted basis and which, therefore, differs from both the carrying value and fair value, is as follows:
Within one year
In one to two years
In two to three years
In three to four years
In four to five years
In more than five years
Effect of interest
Effect of discounting, fair values and issue costs
31 December 2015
Bank
overdrafts
and other
loans
$m
851
–
–
–
–
–
Bonds
$m
568
2,318
1,865
1,444
2,025
14,192
851
22,412
(2)
–
(8,194)
(109)
849
14,109
Finance
leases
$m
66
41
22
10
2
–
141
(46)
–
95
Trade
and other
payables
$m
11,701
1,522
1,110
1,277
2,187
5,313
23,110
–
(3,990)
19,120
Total
non-derivative
financial
instruments
$m
13,186
Interest
rate swaps
$m
(54)
Total
Cross-
currency
swaps
$m
(17)
derivative
financial
instruments
$m
(71)
Total
$m
13,115
3,881
2,997
2,731
4,214
19,505
46,514
(8,242)
(4,099)
34,173
(54)
(19)
(15)
(15)
(44)
(201)
201
(126)
(126)
(17)
(26)
(330)
–
–
(390)
67
3
(320)
(71)
(45)
(345)
(15)
3,810
2,952
2,386
4,199
(44)
19,461
(591)
45,923
268
(123)
(7,974)
(4,222)
(446)
33,727
AstraZeneca Annual Report & Form 20-F Information 2017 / Notes to the Group Financial Statements 175
Notes to the Group Financial Statements
continued
26 Financial risk management objectives and policies continued
Within one year
In one to two years
In two to three years
In three to four years
In four to five years
In more than five years
Effect of interest
Effect of discounting, fair values and issue costs
31 December 2016
Bank
overdrafts
and other
loans
$m
455
–
–
–
7
–
Bonds
$m
2,374
1,921
1,500
2,080
1,756
14,796
Total
Total
Finance
leases
$m
42
Trade
and other
payables
$m
10,566
non-derivative
financial
instruments
$m
13,437
Interest
rate swaps
$m
(54)
Cross-
currency
swaps
$m
32
derivative
financial
instruments
$m
(22)
Total
$m
13,415
24
16
10
3
–
4,986
1,144
1,666
877
3,624
6,931
2,660
3,756
2,643
18,420
47,847
(8,117)
(2,948)
36,782
(19)
(15)
(15)
(15)
(30)
(148)
148
(82)
(82)
12
(216)
47
86
320
281
(351)
(93)
(163)
(7)
(231)
32
71
6,924
2,429
3,788
2,714
290
18,710
133
47,980
(203)
(175)
(8,320)
(3,123)
(245)
36,537
462
24,427
95
22,863
(4)
–
(8,111)
(59)
458
16,257
(2)
–
–
93
(2,889)
19,974
Within one year
In one to two years
In two to three years
In three to four years
In four to five years
In more than five years
Effect of interest
Effect of discounting, fair values and issue costs
31 December 2017
Bank
overdrafts
and other
loans
$m
859
–
–
16
–
–
Bonds
$m
1,985
1,564
2,144
2,000
1,736
15,575
875
25,004
(14)
–
(7,969)
(94)
861
16,941
Total
Total
Finance
leases
$m
5
Trade
and other
payables
$m
11,840
non-derivative
financial
instruments
$m
14,689
Interest
rate swaps
$m
(10)
Cross-
currency
swaps
$m
420
derivative
financial
instruments
$m
410
–
–
–
–
–
5
–
–
5
1,976
1,586
3,240
1,112
2,808
22,562
–
(3,081)
19,481
3,540
3,730
5,256
2,848
18,383
48,446
(7,983)
(3,175)
37,288
(12)
(12)
(12)
(12)
(12)
(70)
70
(50)
(50)
(100)
295
(747)
34
26
(72)
(480)
93
(459)
Total
$m
15,099
3,428
4,013
4,497
2,870
18,397
(112)
283
(759)
22
14
(142)
48,304
(410)
(8,393)
43
(3,132)
(509)
36,779
Where interest payments are on a floating rate basis, it is assumed that rates will remain unchanged from the last business day of each year
ended 31 December.
It is not expected that the cash flows in the maturity profile could occur significantly earlier or at significantly different amounts, with the exception
of $5,534m of contingent consideration and $1,823m arising from the put option over the non-controlling interest in Acerta Pharma, both held
within other payables (see Note 18).
Market risk
Interest rate risk
The Group maintains a mix of fixed and floating rate debt. The portion of fixed rate debt was approved by the Board and any variation requires
Board approval.
A significant portion of the long-term debt is held at fixed rates of interest. The Group uses interest rate swaps and forward rate agreements to
manage this mix. During the year the Group issued $2.0bn of bonds maturing in 2022 and 2027 to refinance the $1.75bn 5.9% 2017 bond and for
general corporate purposes.
At 31 December 2017, the Group held interest rate swaps with a notional value of $0.9bn, converting the 7% guaranteed debentures payable in
2023 to floating rates and partially converting the 1.75% callable bond maturing in 2018 to floating rates. No new interest rate swaps were
entered into during 2017. At 31 December 2017, swaps with a notional value of $0.6bn were designated in fair value hedge relationships and
swaps with a notional value of $0.29bn related to debt designated as fair value through profit or loss. Designated hedges are expected to be
effective and therefore the impact of ineffectiveness on profit is not expected to be material. The accounting treatment for fair value hedges and
debt designated as fair value through profit or loss is disclosed in the Group Accounting Policies section from page 139.
The majority of surplus cash is currently invested in US dollar liquidity funds, fully collateralised repurchase arrangements and investment grade
fixed securities.
176 AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements
26 Financial risk management objectives and policies continued
The interest rate profile of the Group's interest-bearing financial instruments, as at 31 December 2017, 31 December 2016 and 31 December
2015, is set out below. In the case of current and non-current financial liabilities, the classification includes the impact of interest rate swaps
which convert the debt to floating rate. Current financial liabilities with short maturities are classified as floating rate given the amounts borrowed
are regularly reset to market rates.
Fixed rate Floating rate
$m
$m
2017
Total Fixed rate Floating rate
$m
$m
$m
2016
Total Fixed rate Floating rate
$m
$m
$m
2015
Total
$m
Financial liabilities
Interest-bearing loans and borrowings
Current
Non-current
Total
Financial assets
Fixed deposits
Cash and cash equivalents
Total
404
14,608
15,012
–
–
–
1,843
952
2,795
80
3,324
3,404
2,247
15,560
17,807
80
3,324
3,404
1,086
13,154
14,240
–
–
–
1,221
1,347
2,568
37
5,018
5,055
2,307
14,501
16,808
37
5,018
5,055
67
11,986
12,053
–
–
–
849
2,151
3,000
65
6,240
6,305
916
14,137
15,053
65
6,240
6,305
In addition to the financial assets above, there are $6,366m (2016: $5,519m; 2015: $6,494m) of other current and non-current asset investments
and other financial assets on which no interest is received.
Foreign currency risk
The US dollar is the Group’s most significant currency. As a consequence, the Group results are presented in US dollars and exposures are
managed against US dollars accordingly.
Translational
Approximately 70% of Group external sales in 2017 were denominated in currencies other than the US dollar, while a significant proportion of
manufacturing, and research and development costs were denominated in pounds sterling and Swedish krona. Surplus cash generated by
business units is substantially converted to, and held centrally in, US dollars. As a result, operating profit and total cash flow in US dollars will be
affected by movements in exchange rates.
This currency exposure is managed centrally, based on forecast cash flows. The impact of movements in exchange rates is mitigated significantly
by the correlations which exist between the major currencies to which the Group is exposed and the US dollar. Monitoring of currency exposures
and correlations is undertaken on a regular basis and hedging is subject to pre-execution approval.
As at 31 December 2017, 2.8% of interest-bearing loans and borrowings were denominated in pounds sterling and 20.6% were denominated in
euros. Where there is non-US dollar debt and an underlying net investment of that amount in the same currency, the Group applies net
investment hedging. Exchange differences on the retranslation of debt designated as net investment hedges are recognised in other
comprehensive income to the extent that the hedge is effective. Any ineffectiveness is taken to profit.
The Group holds cross-currency swaps to hedge against the impact of fluctuations in foreign exchange rates. Fair value movements on the
revaluation of the cross-currency swaps are recognised in other comprehensive income to the extent that the hedge is effective, with any
ineffectiveness taken to profit. In 2017, following a reduction in the value of the Group's euro net assets, €300m of our €750m 0.875% 2021 bond
was de-designated from the Group's euro net investment hedge relationship. Subsequently a €300m cross-currency swap was transacted and
designated as a fair value hedge of the resulting exposure to movements in the euro:US dollar exchange rate.
i
F
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Foreign currency risk arises when the Group has inter-company funding and investments in certain subsidiaries operating in countries with
exchange controls.
In Venezuela, the official exchange rate for essential goods and services is VEF 10/$ (the DIPRO rate) as published by CENCOEX (the National
Foreign Trade Center). Alternative exchange rates include the DICOM rate, which is a second official exchange tier to cover non essentials. At
31 December 2017, the DICOM rate was approximately VEF 3,300/$.
During 2017, the Group began using the DICOM rate for the consolidation of the financial statements of the Venezuelan subsidiaries. The Group
believes that this rate represents the most appropriate rate for consolidation as it reflects their best expectation of the rate at which profits will be
remitted. The remaining foreign exchange risk to the Group in respect of Venezuela is now immaterial.
Transactional
One hundred percent of the Group’s major transactional currency exposures on working capital balances, which typically extend for up to
three months, are hedged, where practicable, using forward foreign exchange contracts against individual Group companies’ reporting currency.
In addition, the Group’s external dividend, which is paid principally in pounds sterling and Swedish krona, is fully hedged from announcement to
payment date. Foreign exchange gains and losses on forward contracts transacted for transactional hedging are taken to profit.
Sensitivity analysis
The sensitivity analysis set out overleaf summarises the sensitivity of the market value of our financial instruments to hypothetical changes in
market rates and prices. The range of variables chosen for the sensitivity analysis reflects our view of changes which are reasonably possible over
a one-year period. Market values are the present value of future cash flows based on market rates and prices at the valuation date. For long-term
debt, an increase in interest rates results in a decline in the fair value of debt.
AstraZeneca Annual Report & Form 20-F Information 2017 / Notes to the Group Financial Statements 177
Notes to the Group Financial Statements
continued
26 Financial risk management objectives and policies continued
The sensitivity analysis assumes an instantaneous 100 basis point change in interest rates in all currencies from their levels at 31 December 2017,
with all other variables held constant. Based on the composition of our long-term debt portfolio as at 31 December 2017, a 1% increase in
interest rates would result in an additional $28m in interest expense being incurred per year. The exchange rate sensitivity analysis assumes an
instantaneous 10% change in foreign currency exchange rates from their levels at 31 December 2017, with all other variables held constant. The
+10% case assumes a 10% strengthening of the US dollar against all other currencies and the -10% case assumes a 10% weakening of the US
dollar.
Each incremental 10% movement in foreign currency exchange rates would have approximately the same effect as the initial 10% detailed in the
table below and each 1% change in interest rates would have approximately the same effect as the 1% detailed in the table below.
31 December 2015
Increase/(decrease) in fair value of financial instruments ($m)
Impact on profit: (loss)/gain ($m)
Impact on equity: gain/(loss) ($m)
31 December 2016
Increase/(decrease) in fair value of financial instruments ($m)
Impact on profit: (loss)/gain ($m)
Impact on equity: gain/(loss) ($m)
31 December 2017
Increase/(decrease) in fair value of financial instruments ($m)
Impact on profit: (loss)/gain ($m)
Impact on equity: gain/(loss) ($m)
Interest rates
+1%
997
−1%
(1,150)
+10%
136
Exchange rates
−10%
(136)
–
–
–
–
(91)
227
91
(227)
Interest rates
+1%
−1%
1,249
(1,390)
+10%
180
Exchange rates
−10%
(180)
–
–
–
–
(24)
204
24
(204)
Interest rates
+1%
−1%
1,329
(1,293)
+10%
198
Exchange rates
−10%
(198)
–
–
–
–
(123)
321
123
(321)
There has been no change in the methods and assumptions used in preparing the above sensitivity analysis over the three-year period.
Credit risk
The Group is exposed to credit risk on financial assets, such as cash balances (including fixed deposits and Cash and cash equivalents),
derivative instruments, Trade and other receivables. The Group is also exposed in its Net asset position to its own credit risk in respect of the
2023 debentures which are accounted for at fair value through profit or loss. Under IFRS 9, the Group records the effect of the losses and gains,
arising from own credit risk, on the fair value of bonds designated at fair value through profit or loss in Other comprehensive income.
Trade and other receivables
Trade receivable exposures are managed locally in the operating units where they arise and credit limits are set as deemed appropriate for the
customer. The Group is exposed to customers ranging from government-backed agencies and large private wholesalers to privately owned
pharmacies, and the underlying local economic and sovereign risks vary throughout the world. Where appropriate, the Group endeavours to
minimise risks by the use of trade finance instruments such as letters of credit and insurance. The Group establishes an allowance for impairment
that represents its estimate of incurred losses in respect of specific Trade and other receivables where it is deemed that a receivable may not be
recoverable. When the debt is deemed irrecoverable, the allowance account is written off against the underlying receivable.
In the US, sales to three wholesalers accounted for approximately 60% of US sales (2016: three wholesalers accounted for approximately 83%;
2015: three wholesalers accounted for approximately 84%).
The ageing of trade receivables at the reporting date was:
Not past due
Past due 0–90 days
Past due 90–180 days
Past due > 180 days
Movements in provisions for trade receivables
At 1 January
Income statement
Amounts utilised, exchange and other movements
At 31 December
2017
$m
2,488
2016
$m
2,559
260
31
23
14
–
10
2015
$m
4,388
189
21
35
2,802
2,583
4,633
2017
$m
2016
$m
2015
$m
42
(26)
–
16
52
–
(10)
42
54
2
(4)
52
The allowance for impairment has been calculated based on past experience and is in relation to specific customers. Given the profile of our
customers, including large wholesalers and government-backed agencies, no further credit risk has been identified with the trade receivables
not past due other than those balances for which an allowance has been made. The income statement credit or charge is recorded in Selling,
general and administrative costs.
178 AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements
26 Financial risk management objectives and policies continued
Other financial assets
The Group may hold significant cash balances as part of its normal operations, with the amount of cash held at any point reflecting the level of
cash flow generated by the business and the timing of the use of that cash. The majority of excess cash is centralised within the Group treasury
entity and is subject to counterparty risk on the principal invested. This risk is mitigated through a policy of prioritising security and liquidity over
return, and as such cash is only invested in high credit quality investments. Counterparty limits are set according to the assessed risk of each
counterparty and exposures are monitored against these limits on a regular basis. The majority of the Group's cash is invested in US dollar AAA-
rated liquidity funds, fully collateralised repurchase agreements and short-term bank deposits.
The most significant concentration of financial credit risk at 31 December 2017 was $1,149m invested in five AAA-rated liquidity funds. The
liquidity fund portfolios are managed by the related external third party fund managers to maintain the AAA rating. The group does not invest in
more than 10% of the total third party managed fund portfolio for each individual fund. There were no other significant concentrations of financial
credit risk at the reporting date.
At 31 December 2017, the Group had investments of $1,150m (2016: $950m; 2015: $1,050m) in short-term repurchase agreements, which are
fully collateralised investments. In the event of any default, ownership of the collateral would revert to the Group and would be readily convertible
to cash. The value of the collateral held at 31 December 2017 was $1,151m (2016: $951m; 2015: $1,098m).
All financial derivatives are transacted with commercial banks, in line with standard market practice. The Group has agreements with some bank
counterparties whereby the parties agree to post cash collateral, for the benefit of the other, equivalent to the market valuation of the derivative
positions above a predetermined threshold. The carrying value of such cash collateral held by the Group at 31 December 2017 was $513m
(2016: $322m; 2015: $451m) and the carrying value of each cash collateral posted by the Group at 31 December 2017 was $nil (2016: $80m;
2015: $nil).
27 Employee costs and share plans for employees
Employee costs
The average number of people, to the nearest hundred, employed by the Group is set out in the table below. In accordance with the Companies
Act 2006, this includes part-time employees.
Employees
UK
Continental Europe
The Americas
Asia, Africa & Australasia
Continuing operations
2017
2016
2015
6,900
14,500
16,300
22,300
60,000
7,000
14,700
17,800
22,000
61,500
7,100
14,800
17,500
20,700
60,100
Geographical distribution described in the table above is by location of legal entity employing staff. Certain staff will spend some or all of their
activity in a different location.
The number of people employed by the Group at the end of 2017 was 61,100 (2016: 59,700; 2015: 61,500).
The costs incurred during the year in respect of these employees were:
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S
t
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e
m
e
n
t
s
Salaries
Social security costs
Pension costs
Other employment costs
Total
2017
$m
5,004
2016
$m
4,664
570
378
534
584
426
610
2015
$m
4,603
567
484
474
6,486
6,284
6,128
Severance costs of $225m are not included above (2016: $578m; 2015: $338m).
The Directors believe that, together with the basic salary system, the Group’s employee incentive schemes provide competitive and market-
related packages to motivate employees. They should also align the interests of employees with those of shareholders, as a whole, through long-
term share ownership in the Company. The Group’s current UK, Swedish and US schemes are described below; other arrangements apply
elsewhere.
AstraZeneca Annual Report & Form 20-F Information 2017 / Notes to the Group Financial Statements 179
Notes to the Group Financial Statements
continued
27 Employee costs and share plans for employees continued
Bonus plans
The AstraZeneca UK Performance Bonus Plan
Employees of participating AstraZeneca UK companies are invited to participate in this bonus plan, which rewards strong individual performance.
Bonuses are paid in cash.
The AstraZeneca Executive Annual Bonus Scheme
This scheme is a performance bonus scheme for Directors and senior employees who do not participate in the AstraZeneca UK Performance
Bonus Plan. Annual bonuses are paid in cash and reflect both corporate and individual performance measures. The Remuneration Committee has
discretion to reduce or withhold bonuses if business performance falls sufficiently short of expectations in any year such as to make the payment
of bonuses inappropriate.
The AstraZeneca Deferred Bonus Plan
This plan was introduced in 2006 and is used to defer a portion of the bonus earned under the AstraZeneca Executive Annual Bonus Scheme into
Ordinary Shares in the Company for a period of three years. The plan currently operates only in respect of Executive Directors and members of
the SET. Awards of shares under this plan are typically made in March each year, the first award having been made in February 2006.
Sweden
In Sweden, an all-employee performance bonus plan is in operation, which rewards strong individual performance. Bonuses are paid 50% into a
fund investing in AstraZeneca equities and 50% in cash. The AstraZeneca Executive Annual Bonus Scheme, the AstraZeneca Performance Share
Plan and the AstraZeneca Global Restricted Stock Plan all operate in respect of relevant AstraZeneca employees in Sweden.
US
In the US, there are two all-employee short-term or annual performance bonus plans in operation to differentiate and reward strong individual
performance. Annual bonuses are paid in cash. There is also one senior staff long-term incentive scheme, under which 129 participants may be
eligible for awards granted as AstraZeneca ADSs. AstraZeneca ADSs necessary to satisfy the awards are purchased in the market or funded via a
share trust. The AstraZeneca Performance Share Plan and the AstraZeneca Global Restricted Stock Plan operate in respect of relevant
employees in the US.
Share plans
The charge for share-based payments in respect of share plans is $220m (2016: $241m; 2015: $211m). The plans are equity settled.
The AstraZeneca UK All-Employee Share Plan
The Company offers UK employees the opportunity to buy Partnership Shares (Ordinary Shares). Employees may invest up to £1,800 over a 12-
month accumulation period and purchase Partnership Shares in the Company with the total proceeds at the end of the period. The purchase
price for the shares is the lower of the price at the beginning or the end of the 12-month period. In 2010, the Company introduced a Matching
Share element, the first award of which was made in 2011. Currently one Matching Share is awarded for every four Partnership Shares
purchased. Partnership Shares and Matching Shares are held in the HM Revenue & Customs (HMRC)-approved All-Employee Share Plan. At the
Company’s AGM in 2002, shareholders approved the issue of new shares for the purposes of the All-Employee Share Plan.
The AstraZeneca 2014 Performance Share Plan (PSP)
This plan was approved by shareholders in 2014 for a period of 10 years and replaces the AstraZeneca Performance Share Plan. Generally,
awards can be granted at any time, but not during a closed period of the Company. The first grant of awards was made in May 2014. Awards
granted under the plan vest after three years, or in the case of Executive Directors and members of the SET, after an additional two-year holding
period, and can be subject to the achievement of performance conditions. For awards granted to all participants in 2017, vesting is subject to a
combination of measures focused on scientific leadership, revenue growth and financial performance. The Remuneration Committee has
responsibility for agreeing any awards under the plan and for setting the policy for the way in which the plan should be operated, including
agreeing performance targets and which employees should be invited to participate. The main grant of awards in 2017 under the plan took place
in March with further grants in May and August.
Shares
ʼ000
2,223
36
152
8
7
2,673
24
67
2,359
10
44
WAFV1
pence
2381
2087
2123
n/a
2178
1962
1935
2536
2440
2607
2234
WAFV1
$
35.29
33.05
33.21
32.32
33.31
28.19
28.64
33.58
30.88
34.20
29.11
Shares awarded in March 2015
Shares awarded in June 2015
Shares awarded in August 2015
Shares awarded in September 2015
Shares awarded in November 2015
Shares awarded in March 2016
Shares awarded in May 2016
Shares awarded in August 2016
Shares awarded in March 2017
Shares awarded in May 2017
Shares awarded in August 2017
1 Weighted average fair value.
180 AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements
27 Employee costs and share plans for employees continued
The AstraZeneca Investment Plan (AZIP)
This plan was introduced in 2010 and approved by shareholders at the 2010 AGM. The final grant of awards under this plan took place in March
2016. Awards granted under the plan vest after eight years and are subject to performance conditions measured over a period of between three
and eight years.
Shares awarded in March 2015
Shares awarded in August 2015
Shares awarded in March 2016
Shares
ʼ000
64
4
84
WAFV
pence
4762
n/a
3923
WAFV
$
70.58
66.42
56.38
The AstraZeneca Global Restricted Stock Plan
This plan was introduced in 2010. The main grant of awards in 2017 under the plan was in March, with further, smaller grants in May, August and
November. This plan provides for the grant of restricted stock unit (RSU) awards to selected below SET-level employees and is used in
conjunction with the AstraZeneca Performance Share Plan to provide a mix of RSUs and performance shares. Awards typically vest on the third
anniversary of the date of grant and are contingent on continued employment with the Company. The Remuneration Committee has responsibility
for agreeing any awards under the plan and for setting the policy for the way in which the plan should be operated.
Shares awarded in March 2015
Shares awarded in August 2015
Shares awarded in March 2016
Shares awarded in August 2016
Shares awarded in March 2017
Shares awarded in May 2017
Shares awarded in August 2017
Shares awarded in November 2017
Shares
ʼ000
1,966
WAFV
pence
4762
17
2,695
122
2,502
78
31
77
4245
3923
5071
4880
5214
4468
4942
WAFV
$
70.58
66.42
56.38
67.16
61.76
68.40
58.22
66.24
The AstraZeneca Restricted Share Plan
This plan was introduced in 2008 and provides for the grant of restricted share awards to key employees, excluding Executive Directors. Awards
are made on an ad hoc basis with variable vesting dates. The plan has been used six times in 2017 to make awards to 74 employees. The
Remuneration Committee has responsibility for agreeing any awards under the plan and for setting the policy for the way in which the plan should
be operated.
Shares awarded in March 2015
Shares awarded in June 2015
Shares awarded in August 2015
Shares awarded in September 2015
Shares awarded in November 2015
Shares awarded in March 2016
Shares awarded in May 2016
Shares awarded in August 2016
Shares awarded in November 2016
Shares awarded in February 2017
Shares awarded in March 2017
Shares awarded in May 2017
Shares awarded in August 2017
Shares awarded in September 2017
Shares awarded in November 2017
Shares
ʼ000
164
WAFV
pence
4762
69
31
41
41
809
335
37
14
205
134
8
26
31
23
4174
4245
4199
4355
3923
3869
5071
4233
4293
4880
5214
4468
4765
4942
WAFV
$
70.58
66.09
66.42
64.64
66.62
56.38
57.28
67.16
53.42
55.50
61.76
68.40
58.22
65.60
66.24
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c
i
a
l
S
t
a
t
e
m
e
n
t
s
The fair values were determined using a modified version of the binomial model. This method incorporated expected dividends but no other
features into the measurements of fair value. The grant date fair values of share awards disclosed in this section do not take account of service
and non-market related performance conditions.
AstraZeneca Annual Report & Form 20-F Information 2017 / Notes to the Group Financial Statements 181
Notes to the Group Financial Statements
continued
28 Commitments and contingent liabilities
Commitments
Contracts placed for future capital expenditure on property, plant and equipment and
software development costs not provided for in these accounts
2017
$m
2016
$m
570
629
2015
$m
518
Guarantees and contingencies arising in the ordinary course of business, for which no security has been given, are not expected to result in any
material financial loss.
Research and development collaboration payments
The Group has various ongoing collaborations, including in-licensing and similar arrangements with development partners. Such collaborations
may require the Group to make payments on achievement of stages of development, launch or revenue milestones, although the Group generally
has the right to terminate these agreements at no cost. The Group recognises research and development milestones as intangible assets once it
is committed to payment, which is generally when the Group reaches set trigger points in the development cycle. Revenue-related milestones are
recognised as intangible assets on product launch at a value based on the Group’s long-term revenue forecasts for the related product. The table
below indicates potential development and revenue-related payments that the Group may be required to make under such collaborations.
Future potential research and development milestone payments
Total Under 1 year Years 1 and 2 Years 3 and 4
$m
723
$m
1,254
$m
580
$m
5,838
Years 5
and greater
$m
3,281
Future potential revenue milestone payments
5,064
436
1,216
276
3,136
The table includes all potential payments for achievement of milestones under ongoing research and development arrangements. Revenue-
related milestone payments represent the maximum possible amount payable on achievement of specified levels of revenue as set out in
individual contract agreements, but exclude variable payments that are based on unit sales (eg royalty-type payments) which are expensed as the
associated sale is recognised. The table excludes any payments already capitalised in the Financial Statements for the year ended 31 December
2017.
The future payments we disclose represent contracted payments and, as such, are not discounted and are not risk adjusted. As detailed in the
Risk section from page 210, the development of any pharmaceutical product candidate is a complex and risky process that may fail at any stage
in the development process due to a number of factors (including items such as failure to obtain regulatory approval, unfavourable data from key
studies, adverse reactions to the product candidate or indications of other safety concerns). The timing of the payments is based on the Group’s
current best estimate of achievement of the relevant milestone.
Environmental costs and liabilities
The Group’s expenditure on environmental protection, including both capital and revenue items, relates to costs that are necessary for
implementing internal systems and programmes, and meeting legal and regulatory requirements for processes and products. This includes
investment to conserve natural resources and otherwise minimise the impact of our activities on the environment.
They are an integral part of normal ongoing expenditure for carrying out the Group’s research, manufacturing and commercial operations and are
not separated from overall operating and development costs. There are no known changes in legal, regulatory or other requirements resulting in
material changes to the levels of expenditure for 2015, 2016 or 2017.
In addition to expenditure for meeting current and foreseen environmental protection requirements, the Group incurs costs in investigating and
cleaning up land and groundwater contamination. In particular, AstraZeneca has environmental liabilities at some currently or formerly owned,
leased and third party sites.
In the US, Zeneca Inc., and/or its indemnitees, have been named as potentially responsible parties (PRPs) or defendants at approximately
13 sites where Zeneca Inc. is likely to incur future environmental investigation, remediation, operation and maintenance costs under federal, state,
statutory or common law environmental liability allocation schemes (together, US Environmental Consequences). Similarly, Stauffer Management
Company LLC (SMC), which was established in 1987 to own and manage certain assets of Stauffer Chemical Company acquired that year,
and/or its indemnitees, have been named as PRPs or defendants at 35 sites where SMC is likely to incur US Environmental Consequences.
AstraZeneca has also given indemnities to third parties for a number of sites outside the US. These environmental liabilities arise from legacy
operations that are not currently part of the Group’s business and, at most of these sites, remediation, where required, is either completed or
nearing completion. AstraZeneca has made provisions for the estimated costs of future environmental investigation, remediation, operation and
maintenance activity beyond normal ongoing expenditure for maintaining the Group’s R&D and manufacturing capacity and product ranges,
where a present obligation exists, it is probable that such costs will be incurred and they can be estimated reliably. With respect to such
estimated future costs, there were provisions at 31 December 2017 in the aggregate of $59m (2016: $59m; 2015: $67m), mainly relating to the
US. Where we are jointly liable or otherwise have cost-sharing agreements with third parties, we reflect only our share of the obligation. Where the
liability is insured in part or in whole by insurance or other arrangements for reimbursement, an asset is recognised to the extent that this recovery
is virtually certain.
It is possible that AstraZeneca could incur future environmental costs beyond the extent of our current provisions. The extent of such possible
additional costs is inherently difficult to estimate due to a number of factors, including: (1) the nature and extent of claims that may be asserted in
the future; (2) whether AstraZeneca has or will have any legal obligation with respect to asserted or unasserted claims; (3) the type of remedial
action, if any, that may be selected at sites where the remedy is presently not known; (4) the potential for recoveries from or allocation of liability
to third parties; and (5) the length of time that the environmental investigation, remediation and liability allocation process can take.
Notwithstanding and subject to the foregoing, we estimate the potential additional loss for future environmental investigation, remediation,
remedial operation and maintenance activity above and beyond our provisions to be, in aggregate, between $87m and $144m (2016: $85m and
$141m; 2015: $71m and $119m), which relates mainly to the US.
182 AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements
28 Commitments and contingent liabilities continued
Legal proceedings
AstraZeneca is involved in various legal proceedings considered typical to its business, including actual or threatened litigation and/or actual or
potential government investigations relating to employment matters, product liability, commercial disputes, pricing, sales and marketing
practices, infringement of IP rights, and the validity of certain patents and competition laws. The more significant matters are discussed below.
Most of the claims involve highly complex issues. Often these issues are subject to substantial uncertainties and, therefore, the probability of a
loss, if any, being sustained and an estimate of the amount of any loss is difficult to ascertain. Consequently, for a majority of these claims, it is
not possible to make a reasonable estimate of the expected financial effect, if any, that will result from ultimate resolution of the proceedings. In
these cases, AstraZeneca discloses information with respect to the nature and facts of the cases.
With respect to each of the legal proceedings described below, other than those for which provision has been made, we are unable to make
estimates of the possible loss or range of possible losses at this stage, other than as set forth in this section. We also do not believe that
disclosure of the amount sought by plaintiffs, if known, would be meaningful with respect to those legal proceedings. This is due to a number of
factors, including: (1) the stage of the proceedings (in many cases trial dates have not been set) and the overall length and extent of pre-trial
discovery; (2) the entitlement of the parties to an action to appeal a decision; (3) clarity as to theories of liability, damages and governing law; (4)
uncertainties in timing of litigation; and (5) the possible need for further legal proceedings to establish the appropriate amount of damages, if any.
While there can be no assurance regarding the outcome of any of the legal proceedings referred to in this Note 28, based on management’s
current and considered view of each situation, we do not currently expect them to have a material adverse effect on our financial position. This
position could of course change over time, not least because of the factors referred to above.
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 generally indicate the
loss absorbed or make a provision for our best estimate of the expected loss.
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, and we consider recovery to be virtually certain, the best
estimate of the amount expected to be received is recognised as an asset.
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 the future incur judgments or insurance settlements that could have a material adverse effect on our results in
any particular period.
IP claims include challenges to the Group’s patents on various products or processes and assertions of non-infringement of patents. A loss in any
of these cases could result in loss of patent protection on the related product. The consequences of any such loss could be a significant
decrease in product sales, which could have a material adverse effect on our results. The lawsuits filed by AstraZeneca for patent infringement
against companies that have filed ANDAs in the US, seeking to market generic forms of products sold by the Group prior to the expiry of the
applicable patents covering these products, typically also involve allegations of non-infringement, invalidity and unenforceability of these patents
by the ANDA filers. In the event that the Group is unsuccessful in these actions or the statutory 30-month stay expires before a ruling is obtained,
the ANDA filers involved will also have the ability, subject to FDA approval, to introduce generic versions of the product concerned.
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s
AstraZeneca has full confidence in, and will vigorously defend and enforce, its IP.
Over the course of the past several years, including in 2017, a significant number of commercial litigation claims in which AstraZeneca is involved
have been resolved, particularly in the US, thereby reducing potential contingent liability exposure arising from such litigation. Similarly, in part
due to patent litigation and settlement developments, greater certainty has been achieved regarding possible generic entry dates with respect to
some of our patented products. At the same time, like other companies in the pharmaceutical sector and other industries, AstraZeneca continues
to be subject to government investigations around the world.
Patent litigation
Brilinta (ticagrelor)
US patent proceedings
In 2015, in response to Paragraph IV notices from multiple ANDA filers, AstraZeneca filed patent infringement lawsuits in the US District Court for
the District of Delaware (the District Court) relating to patents listed in the FDA Orange Book with reference to Brilinta. AstraZeneca continues to
litigate in the District Court against the ANDA filers. Trials are scheduled for March and April 2018.
Patent proceedings outside the US
In Canada, in June 2017, Teva Canada Limited challenged the patents listed on the Canadian Patent Register with reference to Brilinta. In
September 2017, Apotex Inc. did the same. AstraZeneca has responded to the challenges and hearings are scheduled for April and May 2019.
In China, in October 2017, the Chinese Patent Office issued a decision invalidating one of AstraZeneca's Chinese substance patents relating to
Brilinta. The patent, Chinese Patent No. ZL99815926.3, is due to expire in December 2019. AstraZeneca has appealed.
Byetta (exenatide)
US patent proceedings
In December 2015, AstraZeneca filed a patent infringement lawsuit in response to a Paragraph IV notice from Amneal Pharmaceuticals LLC
(Amneal) relating to patents listed in the FDA Orange Book with reference to Byetta. In October 2017, AstraZeneca settled the patent litigation
against Amneal. A consent judgment has been entered in the US District Court for the District of Delaware which will enjoin Amneal from
launching its proposed exenatide ANDA product until April 2018, subject to regulatory approval.
AstraZeneca Annual Report & Form 20-F Information 2017 / Notes to the Group Financial Statements 183
Notes to the Group Financial Statements
continued
28 Commitments and contingent liabilities continued
Calquence (acalabrutinib)
US patent proceedings
In November 2017, Pharmacyclics LLC filed a complaint in the US District Court for the District of Delaware against Acerta Pharma B.V., Acerta
Pharma LLC, and AstraZeneca (collectively, AstraZeneca) alleging that Calquence infringes certain claims of US Patent Nos. 9,079,908;
9,139,591; and 9,556,182. AstraZeneca filed an answer to the complaint in January 2018 alleging, inter alia, that the asserted patents are invalid
and not infringed.
Crestor (rosuvastatin calcium)
Patent proceedings outside the US
In Australia, as previously disclosed, a provision was taken in respect of damages claims from generic entities and the Commonwealth of
Australia in relation to alleged losses suffered in connection with AstraZeneca’s enforcement of Crestor patents which were subsequently found
invalid. During 2016 and 2017, AstraZeneca settled several of these claims; however, the claims from Apotex Inc (and other related Apotex
entities) and the Commonwealth of Australia remain outstanding.
In France, patent infringement proceedings continue against Biogaran S.A.S. in relation to the supplementary protection certificate related to the
Crestor substance patent (European Patent No. EP 0,521,471).
In Japan, patent invalidity proceedings continue against Nippon Chemiphar Co. Ltd (Nippon) in relation to the Crestor substance patent
(Japanese Patent No. JP 2648897), which expired in Japan in May 2017. The patent was found valid by the Japanese Patent Office in 2016 but
this decision was appealed to the High Court.
In the Netherlands, in 2015, the District Court of the Hague determined that Resolution Chemicals Ltd.’s (Resolution) rosuvastatin zinc product
does not infringe the supplementary protection certification (SPC) related to the Crestor substance patent (European Patent No. EP 0,521,471). In
February 2016, the Court of Appeal of the Hague overturned the decision and found that Resolution’s product does infringe the SPC. Resolution
appealed to the Supreme Court. A decision is pending.
In Spain, in March 2017, AstraZeneca received an interim injunction from the Commercial Court of Barcelona (the Commercial Court) against the
launch of ratiopharm Espana, S.A.'s rosuvastatin zinc product. In March 2017, AstraZeneca also initiated main infringement proceedings before
the same court. In July 2017, the Commercial Court lifted the interim injunction. Proceedings are ongoing.
In Switzerland, in May 2016, Mepha Pharma AG challenged the validity of the supplementary protection certificate related to the Crestor
substance patent (European Patent No. EP 0,521,471). The patent was maintained through to expiry in 2017.
In the UK, in October 2015, Resolution Chemicals Ltd. commenced an action in the UK Patent Court alleging partial invalidity and non-
infringement of the supplementary protection certificate related to the Crestor substance patent (European Patent No. EP 0,521,471). In 2017, the
case was stayed by agreement between the parties and the patent was maintained through to expiry in 2017.
Daliresp (roflumilast)
US patent proceedings
In 2015, in response to Paragraph IV notices from ANDA filers, AstraZeneca filed patent infringement lawsuits in the US District Court for the
District of New Jersey (the District Court) relating to patents listed in the FDA Orange Book with reference to Daliresp. In 2017, AstraZeneca
entered into several separate settlements and the District Court entered consent judgments to dismiss several of the litigations. AstraZeneca
continues to litigate in the District Court against additional ANDA filers. Trial is scheduled for April 2018.
Faslodex (fulvestrant)
US patent proceedings
AstraZeneca has filed patent infringement lawsuits in the US District Court for the District of New Jersey (the District Court) relating to four
patents listed in the FDA Orange Book with reference to Faslodex after receiving a number of Paragraph IV notices relating to multiple ANDAs
seeking FDA approval to market generic versions of Faslodex, prior to the expiration of AstraZeneca’s patents. In July 2016, AstraZeneca settled
one of these, the lawsuit brought against Sandoz, Inc (Sandoz), and the District Court entered a consent judgment, which included an injunction
preventing Sandoz from launching a generic fulvestrant product until March 2019, or earlier in certain circumstances. In 2016 and 2017,
AstraZeneca resolved the lawsuits against seven additional ANDA filers, and the District Court also entered consent judgments ending those
lawsuits. AstraZeneca continues to litigate in the District Court against one ANDA filer.
In February 2017, AstraZeneca was served with three petitions for inter partes review by the Patent Trial and Appeal Board (PTAB) of the US
Patent and Trademark Office relating to patents listed in the FDA Orange Book with reference to Faslodex. In September 2017, the PTAB denied
institution of all three petitions, and no appeals were taken.
In March and October 2017, AstraZeneca received Paragraph IV notices regarding NDAs submitted pursuant to 21 U.S.C. § 355(b)(2) by Teva
Pharmaceuticals USA, Inc. (Teva) and Fresenius Kabi USA LLC (Fresenius), respectively, relating to the same FDA Orange Book-listed patents. In
April 2017, AstraZeneca filed a lawsuit against Teva in the US District Court for the District of New Jersey (the District Court). In December 2017,
AstraZeneca filed lawsuits against Fresenius in both the District Court and the US District Court for the District of Delaware. In January 2018,
AstraZeneca settled the lawsuits against both Teva and Fresenius and consent judgments have been entered, ending the lawsuits.
Patent proceedings outside the US
In Brazil, in February 2013, Eurofarma Laboratorios S.A. (Eurofarma) filed a nullity action against a formulation patent for Faslodex. In October
2015, the 31st Specialized Intellectual Property (IP) Federal Court of Rio de Janeiro invalidated AstraZeneca’s patent. In July 2017, the 1st
Specialized IP Panel of the Rio Federal Court of Appeals rejected AstraZeneca’s appeal against this decision. AstraZeneca did not appeal further.
In China, in March 2014, AstraZeneca received a request for invalidation of the Faslodex formulation patent CN01803546.9 filed by Jiangsu
Hansoh Pharmaceutical Co. Ltd. at the Chinese Patent Office. In September 2014, the Patent Re-examination Board of the Chinese Patent Office
declared the patent invalid. AstraZeneca appealed to the Beijing IP Court and the appeal was rejected in April 2016. AstraZeneca appealed this
decision to the Beijing Higher People's Court and the appeal was rejected in December 2016. AstraZeneca did not appeal further.
184 AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements
28 Commitments and contingent liabilities continued
In Europe, in May 2017, at an oral hearing, the Opposition Division of the European Patent Office revoked a Faslodex divisional patent (European
Patent No. EP 2,266,573) for lack of inventive step. Oppositions against the grant of the patent had been filed by five opponents. AstraZeneca
appealed in July 2017.
In Germany, in July 2015, AstraZeneca was served with complaints filed by Hexal AG (Hexal) and ratiopharm GmbH (ratiopharm) requesting the
revocation of the German part of European Patent No. EP 1,250,138 (the ’138 patent). In January 2017, the German Federal Patent Court
declared the ’138 patent invalid. AstraZeneca's appeal is pending. In January 2017, the Regional Court of Düsseldorf lifted a provisional injunction
based on the ’138 patent which had been in place against Hexal since February 2016. In January 2017, the Higher Regional Court of Düsseldorf
suspended the effects of a provisional injunction based on the ’138 patent which had been in place against ratiopharm since September 2016.
In Spain, in January 2016 and July 2017, the Barcelona Commercial Court ordered preliminary injunctions based on the Spanish part of European
Patent Nos. EP 1,250,138 and EP 2,266,573, respectively preventing Sandoz Farmacéutica, S.A. (Sandoz) and Teva Pharm S.L.U. (Teva) from
launching generic Faslodex in Spain. Sandoz appealed and, in December 2017, the Barcelona Court of Appeals revoked and lifted the preliminary
injunction against Sandoz.
Imfinzi (durvalumab)
US patent proceedings
In July 2017, Bristol-Myers Squibb, E.R. Squibb & Sons L.L.C., Ono Pharmaceutical Co. and Tasuku Honjo filed a patent infringement action in
the US District Court for the District of Delaware relating to AstraZeneca’s commercialisation of Imfinzi in the US. AstraZeneca filed an answer to
the complaint in October 2017 alleging, inter alia, that the asserted patent is invalid and not infringed. The litigation is ongoing.
Losec/Prilosec (omeprazole)
Patent proceedings outside the US
In Canada, in 2004, AstraZeneca brought proceedings against Apotex Inc. (Apotex) for infringement of several patents related to Losec. In
February 2015, the Federal Court of Canada (the Federal Court) found that Apotex had infringed the Losec formulation patent (Canadian Patent
No. 1,292,693). This finding was upheld on appeal. In July 2017, after a reference to account for Apotex’s profits earned as a result of the
infringement, the Federal Court issued its decision describing how the quantification of monies owed to AstraZeneca should proceed. Apotex has
appealed.
Nexium (esomeprazole magnesium)
US patent proceedings
In 2017, AstraZeneca settled several separate patent litigations against ANDA filers relating to patents listed in the FDA Orange Book with
reference to Nexium, Nexium oral suspension and Nexium 24HR (OTC). The US District Court for the District of New Jersey entered consent
judgments and each of the separate patent litigations was dismissed.
Patent proceedings outside the US
In Canada, in July 2014, the Federal Court of Canada found the Nexium substance patent (Canadian Patent No. 2,139,653 (the ’653 patent))
invalid and not infringed by Apotex Inc. In July 2015, AstraZeneca’s appeal was dismissed. AstraZeneca was granted leave to appeal to the
Supreme Court of Canada (the Supreme Court) and a hearing was held in November 2016. In June 2017, the Supreme Court granted
AstraZeneca’s appeal and found the ’653 patent valid. AstraZeneca is taking steps to collect infringement damages.
Onglyza (saxagliptin) and Kombiglyze (saxagliptin and metformin)
US patent proceedings
AstraZeneca initiated patent infringement proceedings against various generic entities in the US District Court for the District of Delaware (the
District Court) after those entities had submitted ANDAs containing a Paragraph IV Certification alleging that US Patent No. RE44,186 (the ’186
patent), listed in the FDA Orange Book with reference to Onglyza and Kombiglyze XR, is invalid and/or will not be infringed by the products as
described in their ANDAs. In February 2017, the District Court issued a decision upholding the validity of the ’186 patent. Mylan Pharmaceuticals
Inc. (Mylan), one of the generic defendants, appealed the District Court's decision to the US Court of Appeals for the Federal Circuit (the Court of
Appeals). In June 2016, the Court of Appeals denied Mylan’s petition for rehearing en banc of the decision affirming the denial of Mylan’s motion
to dismiss for lack of jurisdiction. In September 2016, Mylan filed a petition for writ of certiorari with the US Supreme Court seeking an appeal of
the Court of Appeals’ decision and, in January 2017, that petition was denied. In May 2016, the US Patent and Trademark Office (USPTO)
instituted an inter partes review brought by Mylan challenging the validity of the ’186 patent (the Mylan IPR). Subsequently, additional generic
entities also filed petitions for inter partes review challenging the validity of the ’186 patent and joined the Mylan IPR. In August 2017, the USPTO
decided in AstraZeneca’s favour and upheld the challenged claims of the ’186 patent. Mylan has appealed the USPTO’s decision to the Court of
Appeals.
Pulmicort Respules (budesonide inhalation suspension)
US patent proceedings
In February 2015, the US District Court for the District of New Jersey (the District Court) determined that the asserted claims of US Patent No.
7,524,834, which covered Pulmicort Respules, were invalid following challenges brought by Apotex Inc. and Apotex Corp., Breath Limited,
Sandoz, Inc. and Watson Laboratories, Inc. (together, the Generic Challengers). In May 2015, the US Court of Appeals for the Federal Circuit
affirmed the District Court’s decision. Since 2009, various injunctions were issued in this matter. Damages claims based on those injunctions
have been filed by the Generic Challengers and a provision has been taken.
Synagis (palivizumab)
US patent proceedings
In March 2017, MedImmune LLC was served with a complaint filed by UCB BioPharma SPRL in the US District Court for the District of Delaware
(the District Court) alleging that Synagis infringed US Patent No. 7,566,771. In May 2017, the District Court granted the parties' joint stipulation to
voluntarily terminate the litigation with prejudice.
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Notes to the Group Financial Statements
continued
28 Commitments and contingent liabilities continued
Tagrisso (osimertinib)
Patent proceedings outside the US
In Europe, in October 2016, Stada Arzneimittel AG filed an opposition to the grant of European Patent No. 2,736,895 (the ’895 patent). The
European Patent Office Opposition Hearing took place in January 2018 and the ’895 patent was upheld.
Vimovo (naproxen/esomeprazole magnesium)
Patent proceedings outside the US
In Canada, in January 2015, AstraZeneca received two notices of allegation from Mylan Pharmaceuticals ULC (Mylan). In response, AstraZeneca
and Pozen Inc. (now Aralez Pharmaceuticals Inc.), the licensee and patent holder respectively, commenced proceedings in relation to the Vimovo
formulation patent (Canadian Patent No. 2,449,098). In February 2017, the Federal Court of Canada dismissed AstraZeneca's application. The
Minister of Health has issued a marketing authorisation to Mylan.
Product liability litigation
Byetta/Bydureon (exenatide)
In the US, Amylin Pharmaceuticals, LLC, a wholly-owned subsidiary of AstraZeneca, and/or AstraZeneca are among multiple defendants in
various lawsuits filed in federal and state courts involving claims of physical injury from treatment with Byetta and/or Bydureon. The lawsuits
allege several types of injuries including pancreatitis, pancreatic cancer, thyroid cancer, and kidney cancer. A multidistrict litigation was
established in the US District Court for the Southern District of California (the District Court) in regard to the alleged pancreatic cancer cases in
federal courts. Further, a co-ordinated proceeding has been established in Los Angeles, California in regard to the various lawsuits in California
state courts.
In November 2015, the District Court granted the defendants’ motion for summary judgment and dismissed all claims alleging pancreatic cancer
that accrued prior to 11 September 2015. In November 2017, the US Court of Appeals for the Ninth Circuit vacated the District Court's order and
remanded for further discovery. The appeal of a similar motion, which was granted in favour of the defendants in the California state co-ordinated
proceeding in May 2016, remains pending.
Crestor (rosuvastatin calcium)
In the US, AstraZeneca was defending a number of lawsuits alleging multiple types of injuries caused by the use of Crestor, including diabetes
mellitus, various cardiac injuries, rhabdomyolysis, and/or liver and kidney injuries. AstraZeneca has resolved all active claims with regard to this
matter.
Farxiga (dapagliflozin) and Xigduo (dapagliflozin/metformin HCl)
In the US, AstraZeneca has been named as a defendant in lawsuits involving plaintiffs claiming physical injury, including diabetic ketoacidosis and
kidney injury/failure, from treatment with Farxiga and/or Xigduo XR. Cases with these allegations have been filed in several jurisdictions. In April
2017, the Judicial Panel on Multidistrict Litigation ordered transfer of any currently pending cases as well as any similar, subsequently filed cases
to a co-ordinated and consolidated pre-trial multidistrict litigation proceeding in the US District Court for the Southern District of New York.
Nexium (esomeprazole magnesium)
In the US, AstraZeneca was defending product liability lawsuits brought in US federal and state courts by approximately 1,900 plaintiffs who
alleged that Nexium caused osteoporotic injuries, such as bone deterioration, loss of bone density and/or bone fractures, but all such claims have
now been dismissed with judgment entered in AstraZeneca's favour. In January 2017, the California Second Appellate Division affirmed the
dismissal of the fewer than 40 cases in California state court and no further appeal was taken. There are currently no claims pending in the US
that allege that Nexium caused osteoporotic or other bone-related injuries.
Nexium (esomeprazole magnesium) and Losec/Prilosec (omeprazole)
In the US, AstraZeneca is defending various lawsuits brought in federal and state courts involving multiple plaintiffs claiming that they have been
diagnosed with kidney injuries following treatment with proton pump inhibitors, including Nexium and Prilosec. In May 2017, counsel for a group
of such plaintiffs filed a motion with the Judicial Panel on Multidistrict Litigation (JPML) seeking the transfer of any currently pending federal court
cases as well as any similar, subsequently filed cases to a co-ordinated and consolidated pre-trial multidistrict litigation (MDL) proceeding. In
August 2017, the JPML granted the motion and consolidated the pending federal court cases in an MDL proceeding in federal court in New
Jersey for pre-trial purposes.
In Canada, in July and August 2017, AstraZeneca was served with three putative class action lawsuits. Two of the lawsuits seek authorisation to
represent individuals resident in Canada who allegedly suffered kidney injuries from the use of proton pump inhibitors, including Nexium and
Losec, and the third, pending in Quebec, seeks authorisation to represent such individuals resident in Quebec.
Onglyza (saxagliptin) and Kombiglyze (saxagliptin and metformin)
In the US, AstraZeneca is defending various lawsuits alleging heart failure, cardiac failure, and/or death from treatment with Onglyza or
Kombiglyze. In October 2017, counsel for a group of plaintiffs filed a motion with the Judicial Panel on Multidistrict Litigation seeking the transfer
of any currently pending federal court cases as well as any similar, subsequently filed cases to a co-ordinated and consolidated pre-trial
multidistrict litigation proceeding.
Seroquel (quetiapine fumarate)
In the US, in November 2017, AstraZeneca was named as one of several defendants in a lawsuit filed in Missouri involving one plaintiff alleging,
among other things, wrongful death from treatment with Seroquel.
Commercial litigation
Amplimmune
In the US, in June 2017, AstraZeneca was served with a lawsuit filed by the stockholders' agents for Amplimmune, Inc. (Amplimmune) in
Delaware State Court that alleged, among other things, breaches of contractual obligations relating to a 2013 merger agreement between
AstraZeneca and Amplimmune.
Array BioPharma
In the US, in December 2017, AstraZeneca was served with a complaint filed in New York State court by Array BioPharma, Inc. (Array) that
alleged, among other things, breaches of contractual obligations relating to a 2003 collaboration agreement between AstraZeneca and Array.
186 AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements
28 Commitments and contingent liabilities continued
Nexium settlement anti-trust litigation
In the US, AstraZeneca is a defendant in a multidistrict litigation class action and individual lawsuit alleging that AstraZeneca’s settlements of
certain patent litigation in the US relating to Nexium violated US anti-trust law and various state laws. A trial in the US District Court for the District
of Massachusetts (the District Court) commenced in October 2014 and, in December 2014, a jury returned a verdict in favour of AstraZeneca and
entered judgment in favour of AstraZeneca in September 2015. The plaintiffs appealed that judgment and, in November 2016, the US Court of
Appeals for the First Circuit affirmed the District Court’s decision. The plaintiffs did not file a petition for writ of certiorari with the US Supreme
Court, and the federal appeals for this verdict are accordingly concluded.
Two lawsuits filed in Pennsylvania state court by various indirect purchasers of Nexium for similar matters remain pending.
Ocimum lawsuit
In the US, in December 2015, AstraZeneca was served with a complaint filed by Ocimum Biosciences, Ltd. (Ocimum) in the Superior Court for the
State of Delaware that alleges, among other things, breaches of contractual obligations and misappropriation of trade secrets, relating to a now
terminated 2001 licensing agreement between AstraZeneca and Gene Logic, Inc. (Gene Logic), the rights to which Ocimum purports to have
acquired from Gene Logic.
Toprol-XL (metoprolol succinate)
In the US, in March 2015, AstraZeneca was served with a state court complaint filed by the Attorney General for the State of Louisiana (the State)
alleging that, in connection with enforcement of its patents for Toprol-XL, it had engaged in unlawful monopolisation and unfair trade practices,
causing the State government to pay increased prices for Toprol-XL. In February 2016, the State court heard oral argument on AstraZeneca’s
motion to dismiss and ordered the dismissal of the complaint with prejudice and judgment in AstraZeneca's favour. The State is appealing the
dismissal.
Other commercial litigation
Anti-Terrorism Act Civil Lawsuit
In the US, in October 2017, AstraZeneca and certain other pharmaceutical and/or medical device companies were named as defendants in a
complaint filed in federal court in the District of Columbia by US nationals (or their estates, survivors, or heirs) who were killed or wounded in Iraq
between 2005 and 2009. The plaintiffs allege that the defendants violated the US Anti-Terrorism Act and various state laws by selling
pharmaceuticals and medical supplies to the Iraqi Ministry of Health.
Telephone Consumer Protection Act litigation
In the US, in December 2016, AstraZeneca and several other entities were served with a complaint filed in the US District Court for the Southern
District of Florida that alleges, among other things, violations of the Telephone Consumer Protection Act caused by the sending of unsolicited
advertisements by facsimile. AstraZeneca's motion to dismiss is pending.
Government investigations/proceedings
Crestor (rosuvastatin calcium)
Qui tam litigation
In the US, in January and February 2014, AstraZeneca was served with lawsuits filed in the US District Court for the District of Delaware under the
qui tam (whistleblower) provisions of the federal False Claims Act and related state statutes, alleging that AstraZeneca directed certain employees
to promote Crestor off-label and provided unlawful remuneration to physicians in connection with the promotion of Crestor. The DOJ and all US
states have declined to intervene in the lawsuits. This litigation has been stayed pending trial court disposition or earlier resolution of the Texas
Attorney General litigation involving Crestor disclosed below.
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Texas Attorney General litigation
In the US, in January 2015, following a previously disclosed investigation by the State of Texas into AstraZeneca's sales and marketing activities
involving Crestor, AstraZeneca was served with a lawsuit in which the Texas Attorney General's office intervened in a state whistleblower action
pending in Travis County Court, Texas. The lawsuit alleges that AstraZeneca engaged in inappropriate promotion of Crestor and improperly
influenced the formulary status of Crestor.
Nexium (esomeprazole magnesium)
Federal Trade Commission inquiry
In the US, in 2008, AstraZeneca received a Civil Investigative Demand from the US Federal Trade Commission (FTC) seeking information
regarding the Nexium patent litigation settlement with Ranbaxy Laboratories Ltd. This investigation was officially closed by the FTC in October
2017.
Seroquel IR (quetiapine fumarate) and Seroquel XR (quetiapine fumarate)
Qui tam litigation in New York
In the US, in September 2015, AstraZeneca was served with a lawsuit filed in US Federal Court in New York under the qui tam (whistleblower)
provisions of the federal and certain state False Claims Acts. The lawsuit alleges that AstraZeneca misrepresented the safety profile of, and
improperly promoted, Seroquel. The US government and the named states have declined to intervene in this case.
Qui tam litigation in Delaware
In the US, in April 2014, AstraZeneca was served with lawsuits filed in the US District Court for the District of Delaware under the qui tam
(whistleblower) provisions of the federal False Claims Act and related state statutes, alleging that AstraZeneca directed certain employees to
promote Seroquel off-label and provided unlawful remuneration to physicians in connection with the promotion of Seroquel. The DOJ and all US
states have declined to intervene in the lawsuits. This litigation has been stayed pending trial court disposition or earlier resolution of the Texas
Attorney General litigation involving Seroquel disclosed below.
Texas Attorney General litigation
In the US, in October 2014, following a previously disclosed investigation by the State of Texas (the State) into AstraZeneca’s sales and marketing
activities involving Seroquel, the Texas Attorney General’s Office intervened in a State whistleblower action pending in Travis County Court, Texas
(the County Court). The lawsuit alleges that AstraZeneca engaged in inappropriate promotion and made improper payments intended to influence
AstraZeneca Annual Report & Form 20-F Information 2017 / Notes to the Group Financial Statements 187
Notes to the Group Financial Statements
continued
28 Commitments and contingent liabilities continued
the formulary status of Seroquel. The relief that the State seeks to recover from AstraZeneca includes trebled civil remedies, penalties, interest,
and attorneys’ fees pursuant to the Texas Medicaid Fraud Prevention Act and damages pursuant to Texas common law.
In June 2017, the County Court entered an order denying all of the State’s motions for summary judgment except for the State’s motion on the
defence of waiver, and denying AstraZeneca’s motion for summary judgment. The trial, which was scheduled for October 2017, has been
postponed until the Texas Supreme Court resolves the appeals in unrelated cases called Nazari v. State and In re Xerox Corp. A provision has
been taken with regard to claims brought by the State and other related lawsuits against AstraZeneca.
Synagis (palivizumab)
Litigation in New York
In the US, in June 2011, MedImmune received a demand from the US Attorney’s Office for the Southern District of New York requesting certain
documents related to the sales and marketing activities of Synagis. In July 2011, MedImmune received a similar court order to produce
documents from the Office of the Attorney General for the State of New York Medicaid and Fraud Control Unit pursuant to what the government
attorneys advised was a joint investigation. MedImmune has co-operated with these inquiries. In March 2017, MedImmune was served with a
lawsuit filed in US Federal Court in New York by the Attorney General for the State of New York alleging that MedImmune inappropriately
provided assistance to a single specialty care pharmacy.
In June 2017, AstraZeneca was served with a lawsuit in US Federal Court in New York by a relator under the qui tam (whistleblower) provisions of
the federal and certain state False Claims Acts. The lawsuit was originally filed under seal in April 2009 and alleges that MedImmune made false
claims about Synagis. In November 2017, AstraZeneca was served with an amended complaint in which a relator set forth additional false claims
allegations relating to Synagis.
Florida Attorney General investigation
In May 2012, MedImmune received a subpoena duces tecum from the Office of Attorney General for the State of Florida Medicaid and Fraud
Control Unit requesting certain documents related to the sales and marketing activities of Synagis. MedImmune accepted receipt of the request
and has co-ordinated with the Florida government to provide the appropriate responses and co-operate with any related investigation.
AstraZeneca is unaware of the nature or focus of the investigation; however, based on the requests, it appears to be similar to the inquiry from the
State of New York (which is described above).
Other government investigations/proceedings
Additional government inquiries
As is true for most, if not all, major prescription pharmaceutical companies, AstraZeneca is currently involved in multiple inquiries into drug
marketing and pricing practices. In addition to the investigations described above, various law enforcement offices have, from time to time,
requested information from the Group. There have been no material developments in those matters.
Tax
Where tax exposures can be quantified, an accrual is made based on best estimates and management’s judgement. Details of the movements in
relation to material tax exposures are discussed below. As accruals can be built up over a long period of time but the ultimate resolution of tax
exposures usually occurs at a point in time, and given the inherent uncertainties in assessing the outcomes of these exposures (which sometimes
can be binary in nature), we could, in future periods, experience adjustments to these accruals that have a material positive or negative effect on
our results in any particular period.
AstraZeneca faces a number of audits and reviews in jurisdictions around the world and, in some cases, is in dispute with the tax authorities. The
issues under discussion are often complex and can require many years to resolve. Accruals for tax contingencies require management to make
estimates and judgements with respect to the ultimate outcome of a tax audit, and actual results could vary from these estimates.
Transfer pricing and other international tax contingencies
The total net accrual included in the Group Financial Statements to cover the worldwide exposure to transfer pricing audits is $235m, a decrease
of $85m compared with 2016 mainly due to the revision to the presentation of interest on tax contingencies and a reduction in accruals for
transfer pricing contingencies as a result of tax authority discussions and audit settlements.
Management continues to believe that AstraZeneca’s positions on all its transfer pricing audits and disputes are robust, and that AstraZeneca is
appropriately provided, including the assessment where corresponding relief will be available. 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 $30m (2016: $184m; 2015: $357m). However, management believes that it is unlikely that these additional losses will arise. It
is possible that some of these contingencies may reduce in the future to the extent that any tax authority challenge is unsuccessful, or matters
lapse following expiry of the relevant statutes of limitation resulting in a reduction in the tax charge in future periods.
Other tax contingencies
Included in the tax accrual is $932m relating to a number of other tax contingencies, a decrease of $76m mainly due to the revision to the
presentation of interest on tax contingencies and releases following expiry of statute of limitations, partially offset by the impact of an additional
year of transactions relating to contingencies for which accruals had already been established and exchange rate effects. For these tax
exposures, AstraZeneca does not expect material additional losses. It is, however, possible that some of these contingencies may reduce in the
future if any tax authority challenge is unsuccessful or matters lapse following expiry of the relevant statutes of limitation resulting in a reduction in
the tax charge in future periods.
Timing of cash flows and interest
It is not possible to estimate 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 within other receivables and payables is a net amount of interest arising on tax contingencies of $72m.
188 AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements
29 Operating leases
Total rentals under operating leases charged to profit were as follows:
Operating leases
2017
$m
137
2016
$m
174
2015
$m
185
The future minimum lease payments under operating leases that have initial or remaining terms in excess of one year at 31 December 2017 were
as follows:
Obligations under leases comprise:
Not later than one year
Later than one year and not later than five years
Later than five years
Total future minimum lease payments
30 Statutory and other information
Fees payable to PricewaterhouseCoopers LLP and its associates:
Group audit fee
Fees payable to PricewaterhouseCoopers LLP and its associates for other services:
The audit of subsidiaries pursuant to legislation
Attestation under s404 of Sarbanes-Oxley Act 2002
Audit-related assurance services
Tax compliance services
Other assurance services
Fees payable to PricewaterhouseCoopers LLP in respect of the Group’s pension schemes:
The audit of subsidiaries’ pension schemes
Fees payable to KPMG LLP and its associates:
Group audit fee
Fees payable to KPMG LLP and its associates for other services:
The audit of subsidiaries pursuant to legislation
Attestation under s404 of Sarbanes-Oxley Act 2002
Audit-related assurance services
Tax compliance services
Other assurance services
Fees payable to KPMG LLP in respect of the Group’s pension schemes:
The audit of subsidiaries’ pension schemes
2017
$m
2016
$m
112
304
107
523
98
247
96
441
2015
$m
95
245
69
409
2017
$m
2016
$m
2015
$m
3.0
5.7
2.0
0.4
–
–
–
11.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
i
F
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
2017
$m
2016
$m
2015
$m
–
0.3
–
0.6
–
0.8
0.2
1.9
2.8
5.4
1.8
0.7
–
0.2
0.6
11.5
3.2
5.4
1.8
0.7
0.1
0.5
0.6
12.3
Related party transactions
The Group had no material related party transactions which might reasonably be expected to influence decisions made by the users of these
Financial Statements.
Key management personnel compensation
Key management personnel are defined for the purpose of disclosure under IAS 24 ‘Related Party Disclosures’ as the members of the Board and
the members of the SET.
Short-term employee benefits
Post-employment benefits
Share-based payments
Total remuneration is included within employee costs (see Note 27).
31 Subsequent events
There were no material subsequent events.
2017
$’000
28,274
2016
$’000
23,725
2,469
16,452
47,195
2,407
20,377
46,509
2015
$’000
29,265
2,636
17,885
49,786
AstraZeneca Annual Report & Form 20-F Information 2017 / Notes to the Group Financial Statements 189
Group Subsidiaries and Holdings
In accordance with section 409 of the Companies Act 2006 a full list of subsidiaries, partnerships, associates, joint ventures and joint
arrangements, the country of incorporation, registered office address, and the effective percentage of equity owned as at 31 December 2017 are
disclosed below. Unless otherwise stated the share capital disclosed comprises ordinary shares which are indirectly held by AstraZeneca PLC.
Unless otherwise stated the accounting year ends of subsidiaries are 31 December. The Group Financial Statements consolidate the Financial
Statements of the Company and its subsidiaries at 31 December 2017.
At 31 December 2017
Wholly owned subsidiaries
Group Interest
Argentina
AstraZeneca S.A.
Nicolas de Vedia 3616, Piso 8, Ciudad Autónoma de
Buenos Aires, Argentina
100%
At 31 December 2017
AstraZeneca (Wuxi) Trading Co. Ltd
Building E (Building No. 5), Huirong Commercial Plaza,
East Jinghui Road,
Xinwu District, Wuxi, China
Group Interest
100%
AstraZeneca Investment (China) Co., Ltd
No.199 Liangjing Road, China (Shanghai) Pilot Free
Trade Zone, Shanghai, China
100%
Australia
AstraZeneca Holdings Pty Limited
AstraZeneca PTY Limited
Pharmaceutical Manufacturing
Company Pty Limited
Pharmaceutical Manufacturing
Division Pty Limited
66 Talavera Road, Macquarie Park,
NSW 2113, Australia
100%
100%
100%
100%
AstraZeneca Pharmaceutical
(China) Co. Ltd
No 88 Yaocheng Avenue, Taizhou,
Jiangsu Province, China
AstraZeneca Pharmaceuticals
Technologies (Beijing) Co., Ltd
Unit 2203, 22F, No 8, Jianguomenwai Avenue,
Chaoyang District, Beijing, China
Austria
AstraZeneca Österreich GmbH
A-1030 Wien, Landstraßer Hauptstraße 1A, Austria
100%
Colombia
AstraZeneca Colombia S.A.S.
Carrera 7 No. 71-21, Torre A, Piso 19,
Bogota, D.C., Colombia
Belgium
AstraZeneca S.A. / N.V.
Egide Van Ophemstraat 110 1180
Brussels, Belgium
Brazil
AstraZeneca do Brasil Limitada
Rod. Raposo Tavares, KM 26, 9, Cotia, Brazil
Bulgaria
AstraZeneca Bulgaria EOOD
36 Dragan Tzankov Blvd., District Izgrev,
Sofia, 1057, Bulgaria
100%
100%
100%
Costa Rica
AstraZeneca CAMCAR
Costa Rica, S.A.
Escazu, Guachipelin, Centro Corporativo Plaza Roble,
Edificio Los Balcones,
Segundo Nivel, San Jose, Costa Rica
100%
Croatia
AstraZeneca d.o.o.
Radnicka cesta 80, 10000 Zagreb, Croatia
100%
Czech Republic
AstraZeneca Czech Republic, s.r.o.
U Trezorky 921/2, 158 00 Prague 5, Czech Republic
100%
Canada
AstraZeneca Canada Inc.1
Suite 5000, 1004 Middlegate Road, Ontario, L4Y 1M4,
Canada
100%
Cayman Islands
AZ Reinsurance Limited
94 Solaris Avenue, Second Floor, Camana Bay,
Grand Cayman, Cayman Islands
Chile
AstraZeneca S.A.
AstraZeneca Farmaceutica Chile Limitada
Av. Isidora Goyenechea 3477,
2nd Floor, Las Condes, Santiago, Chile
China
AstraZeneca Pharmaceuticals Co., Limited
No. 2, Huangshan Road,
Wuxi New District, China
Denmark
AstraZeneca A/S
Arne Jacobsens Allé 13, DK-2300,
Copenhagen S, Denmark
Egypt
AstraZeneca Egypt for
Pharmaceutical Industries JSC
Villa 133, Road 90 North, New Cairo, Egypt
AstraZeneca Egypt for Trading LLC
14C Ahmed Kamel Street, New Maadi,
Cairo, Egypt
100%
100%
100%
Drimex LLC
Villa 47, Road 270, New Maadi,
Cairo 11435, Egypt
100%
Estonia
AstraZeneca Eesti OÜ
Jarvevana tee 9, Tallinn, 11314, Estonia
100%
100%
100%
100%
100%
100%
100%
100%
At 31 December 2017
Group Interest
Finland
AstraZeneca OY.
Itsehallintokuja 4, Espoo,
02600, Finland
France
AstraZeneca S.A.S.
AstraZeneca Finance S.A.S.
AstraZeneca Holding France S.A.S.
AstraZeneca Reims S.A.S.
Tour Carpe Diem-31,
Place des Corolles,
92400 Courbevoie, France
AstraZeneca Dunkerque Production SCS
224 Avenue de la Dordogne,
59640 Dunkerque, France
Germany
AstraZeneca Holding GmbH2
AstraZeneca GmbH
Tinsdaler Weg 183, Wedel, D-22880, Germany
Sofotec GmbH
Benzstrasse 1-3, 61352, Bad Homburg
v.d. Hohe, Germany
100%
100%
100%
100%
100%
100%
100%
100%
100%
Definiens AG
Bernhard-Wicki-Straße 5, 80636, Munich, Germany
100%
Greece
AstraZeneca S.A.
Theotokopoulou 4 & Astronafton,
Athens, 151 25, Greece
Hong Kong
AstraZeneca Hong Kong Limited
18/F., Shui On Centre, 6-8 Harbour Road,
Wanchai, Hong Kong
Hungary
AstraZeneca Kft
2nd floor, 134-146 building B, Bocskai str.,
Budapest, 1113, Hungary
India
AstraZeneca India Private Limited3
12th Mile on Bellary Road, Venkatala
Kattigenahalli, Yelahanka,
Bangalore-560 063, India
Iran
AstraZeneca Pars Company
Suite 1, 1st Floor No. 39, Alvand Ave.,
Argantin Sq., Tehran 1516673114, Iran
100%
100%
100%
100%
100%
190 AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements
At 31 December 2017
Group Interest
At 31 December 2017
Group Interest
Ireland
AstraZeneca Pharmaceuticals (Ireland)
Designated Activity Company
4th Floor, South Bank House, Barrow Street,
Dublin, 4, Republic of Ireland
Israel
AstraZeneca Israel Ltd
6 Hacharash St., Hod Hasharon 4524075, Israel
Italy
Simesa SpA
AstraZeneca SpA
Palazzo Ferraris, via Ludovico il Moro 6/c
20080, Basiglio (Milan), Italy
100%
100%
100%
100%
Japan
AstraZeneca K.K.
3-1, Ofuka-cho, Kita-ku, Osaka, 530-0011, Japan
100%
Kenya
AstraZeneca Pharmaceuticals Limited
Chaka Place, Ground Floor,
Argwings Kodhek, Nairobi, Kenya
Latvia
AstraZeneca Latvija SIA
Skanstes iela 50, Riga, LV-1013, Latvia
Lithuania
AstraZeneca Lietuva UAB
Jasinkio 16A, Vilnius, LT-03163, Lithuania
Luxembourg
AstraZeneca Luxembourg S.A.
Am Brill 7 B – L-3961 Ehlange –
Grand Duchy du Luxembourg, Luxembourg
Malaysia
AstraZeneca Asia-Pacific Business
Services Sdn Bhd
Level 8, Unit 8.01-8.05 Menara UAC,
Jalan PJU 7/5, Mutiara Damansara,
47800 Petaling Jaya, Selangor, Malaysia
100%
100%
100%
100%
100%
AstraZeneca Sdn Bhd
Level 12, Surian Tower, No. 1 Jalan PJU 7/3, Mutiara
Damansara, 47810 Petaling Jaya, Selangor, Malaysia
100%
Mexico
AstraZeneca, S.A. de C.V.
Av. Periferico Sur 4305 interior 5, Colonia
Jardines en la Montana, Mexico City, Tlalpan
Distrito Federal, CP14210, Mexico
100%
AstraZeneca Health Care Division, S.A. de
C.V.
Avenida Lomas Verdes 67 Colonia Lomas
Verdes, Naucalpan de Juarez, CP 53120, Mexico
100%
Morocco
AstraZeneca Maroc SARLAU
92 Boulevard Anfa ETG 2,
Casablanca 20000, Morocco
100%
The Netherlands
AstraZeneca B.V.
AstraZeneca Continent B.V.
AstraZeneca Gamma B.V.
AstraZeneca Holdings B.V.
AstraZeneca Jota B.V.
AstraZeneca Rho B.V.
AstraZeneca Sigma B.V.
AstraZeneca Zeta B.V.
Prinses Beatrixlaan 582, 2595BM,
The Hague, The Netherlands
MedImmune Pharma B.V.
Lagelandsweeg 78, 6545 CG Nijmegen,
The Netherlands
New Zealand
AstraZeneca Limited
Level 1, 22-28 Customs Street East,
Auckland Central, Auckland, 1010, New Zealand
Nigeria
AstraZeneca Nigeria Limited
No.9 Joel Ogunaike Street, GRA Ikeja,
Lagos, Nigeria
Norway
AstraZeneca AS
Grenseveien 92, Box 6050 Etterstad,
NO-0602 Oslo, Norway
Pakistan
AstraZeneca Pharmaceuticals Pakistan
(Private) Limited4
Office No 1, 2nd Floor, Sasi Arcade, Block 7,
Main Clifton Road, Karachi, Pakistan
Panama
AstraZeneca CAMCAR, S.A.
Bodega #1, Parque Logistico MIT, Carretera
Hacia Coco Solo, Colon, Panama
Peru
AstraZeneca Peru S.A.
Av. El Derby 055, Torre 2. Piso 5. Of. 503.
Santiago de Surco, Lima, Peru
Philippines
AstraZeneca Pharmaceuticals (Phils.) Inc.
16th Floor, Inoza Tower, 40th Street,
Bonifacio Global City, Taguig 1634, Philippines
Poland
AstraZeneca Pharma Poland Sp.z.o.o.
Postepu 14, 02-676, Warszawa, Poland
Portugal
Astra Alpha Produtos Farmaceuticos Lda
AstraZeneca Produtos Farmaceuticos Lda
Novastra Promoção e Comércio
Farmacêutico Lda
Novastuart Produtos Farmaceuticos Lda
Stuart-Produtos Farmacêuticos Lda
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Group Interest
At 31 December 2017
Zeneca Epsilon – Produtos
Farmacêuticos Lda
Zenecapharma Produtos
Farmaceuticos Lda
Rua Humberto Madeira, No 7,
Queluz de Baixo, 2730-097, Barcarena, Portugal
Puerto Rico
IPR Pharmaceuticals, Inc.
Road 188, San Isidro Industrial Park,
Canóvanas, Puerto Rico 00729
Romania
AstraZeneca Pharma S.R.L.
12 Menuetului Street,
Bucharest Business Park, Building D,
West Wing, 1st Floor, Sector 1,
Bucharest, 013713, Romania
Russia
AstraZeneca Industries, LLC
AstraZeneca Pharmaceuticals, LLC
125284, Begovaya Str, 3, block 1,
Moscow, Russian Federation
Singapore
AstraZeneca Singapore Pte Limited
10 Kallang Avenue #12-10, Aperia Tower 2,
339510, Singapore
100%
100%
100%
100%
100%
100%
100%
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South Africa
Astra Pharmaceuticals (Pty) Limited
AstraZeneca Pharmaceuticals (Pty) Limited
17 Georgian Crescent West, Northdowns Office Park,
Bryanston, 2041, South Africa
100%
100%
South Korea
AstraZeneca Korea Co. Ltd
17th Floor, Luther Building, 42, Olympic-ro 35da-gil
Songpa-gu, Seoul, South Korea
100%
100%
Spain
AstraZeneca Farmaceutica Spain S.A.
AstraZeneca Farmaceutica Holding Spain,
S.A.
Laboratorio Beta, S.A.
Laboratorio Lailan, S.A.
Laboratorio Odin, S.A.
Laboratorio Tau S.A.
Parque Norte, Edificio Álamo, C/Serrano Galvache no
56., 28033 Madrid, Spain
100%
100%
100%
100%
100%
Sweden
Astra Export & Trading Aktiebolag
Astra Lakemedel Aktiebolag
AstraZeneca AB
AstraZeneca Biotech AB
AstraZeneca BioVentureHub AB
AstraZeneca Holding Aktiebolag2
AstraZeneca International
Holdings Aktiebolag5
AstraZeneca Nordic AB
AstraZeneca Pharmaceuticals Aktiebolag
AstraZeneca Södertälje 2 AB
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
AstraZeneca Annual Report & Form 20-F Information 2017 / Group Subsidiaries and Holdings 191
Group Subsidiaries and Holdings
continued
At 31 December 2017
Stuart Pharma Aktiebolag
Tika Lakemedel Aktiebolag
SE-151 85 Södertälje, Sweden
Aktiebolaget Hassle
Symbicom Aktiebolag5
431 83 MoIndal, Sweden
Astra Tech International Aktiebolag
Box 14, 431 21 MoIndal, Sweden
Switzerland
AstraZeneca AG
AstraZeneca, Grafenauweg 10, CH-6301, Zug,
Switzerland
Spirogen Sarl5
Rue du Grand-Chêne 5, CH-1003 Lausanne,
Switzerland
Taiwan
AstraZeneca Taiwan Limited6
21st Floor, Taipei Metro Building 207,
Tun Hwa South Road, SEC 2 Taipei,
Taiwan, Republic of China
Thailand
AstraZeneca (Thailand) Limited
Asia Centre 19th floor, 173/20,
South Sathorn Rd, Khwaeng Thungmahamek,
Khet Sathorn, Bangkok, 10120, Thailand
Group Interest
100%
100%
100%
100%
100%
100%
100%
100%
100%
Tunisia
AstraZeneca Tunisie SaRL
Lot n°1.5.5 les jardins du lac, bloc B les berges du lac
Tunis, Tunisia
100%
Turkey
AstraZeneca Ilac Sanayi ve Ticaret Limited
Sirketi
YKB Plaza, B Blok, Kat:3-4, Levent/Beşiktaş, Istanbul,
Turkey
100%
Zeneca Ilac Sanayi Ve Ticaret Anonim Sirketi
Büyükdere Cad., Y.K.B. Plaza, B Blok, Kat:4,
Levent/Beşiktaş, Istanbul, Turkey
Ukraine
AstraZeneca Ukraina LLC
13, Pymonenko Street, building 1,
Kiev, 04050, Ukraine
100%
100%
United Arab Emirates
AstraZeneca FZ-LLC
P.O. Box 27614, Block D, Dubai Healthcare City,
Oud Mehta Road, Dubai, United Arab Emirates
100%
United Kingdom
Ardea Biosciences Limited
Arrow Therapeutics Limited
Astra Pharmaceuticals Limited
AstraPharm5
AstraZeneca China UK Limited
100%
100%
100%
100%
100%
Group Interest
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
At 31 December 2017
AstraZeneca Death In Service Trustee Limited
AstraZeneca Employee Share Trust Limited
AstraZeneca Finance Limited
AstraZeneca Intermediate Holdings Limited2
AstraZeneca Investments Limited
AstraZeneca Japan Limited
AstraZeneca Nominees Limited
AstraZeneca Quest Limited
AstraZeneca Share Trust Limited
AstraZeneca Sweden Investments Limited
AstraZeneca Treasury Limited5
AstraZeneca UK Limited
AstraZeneca US Investments Limited2
AZENCO2 Limited
AZENCO4 Limited
Cambridge Antibody Technology Group
Limited
KuDOS Horsham Limited
KuDOS Pharmaceuticals Limited
Meronem Group Limited
Zenco (No 8) Limited
Zeneca Finance (Netherlands) Company
1 Francis Crick Avenue, Cambridge Biomedical
Campus, Cambridge, CB2 0AA, United Kingdom
100%
100%
100%
100%
100%
100%
MedImmune Limited
Milstein Building, Granta Park, Cambridge, CB21 6GH,
United Kingdom
100%
MedImmune U.K. Limited
Plot 6, Renaissance Way, Boulevard Industry Park,
Liverpool, L24 9JW, United Kingdom
100%
United States
Amylin Pharmaceuticals, LLC7
AstraZeneca Collaboration Ventures, LLC7
AstraZeneca Pharmaceuticals LP8
AstraZeneca, LLC7
AstraZeneca LP8
Atkemix Nine Inc.
Atkemix Ten Inc.
BMS Holdco, Inc.
Corpus Christi Holdings Inc.
Omthera Pharmaceuticals, Inc.
Stauffer Management Company LLC7
Zeneca Holdings Inc.
Zeneca Inc.
Zeneca Wilmington Inc.2
1800 Concord Pike, Wilmington DE, 19803,
United States
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
ZS Pharma Inc.
1100 Park Place, Suite 300, San Mateo, CA 94403,
United States
100%
AlphaCore Pharma, LLC7
333 Parkland Plaza, Suite 5, Ann Arbor,
MI 48103, United States
100%
At 31 December 2017
Amylin Ohio LLC7
8814 Trade Port Drive, West Chester,
OH 45011, United States
Group Interest
100%
Ardea Biosciences, Inc.
4939 Directors Place, San Diego, CA 92121,
United States
100%
AZ-Mont Insurance Company
76 St Paul Street, Suite 500, Burlington, VT 05401,
United States
100%
Definiens Inc.
1808 Aston Avenue, Suite 190, Carlsbad,
CA 92008, United States
MedImmune Biologics, Inc.
MedImmune, LLC7
MedImmune Ventures, Inc.
One MedImmune Way, Gaithersburg, MD 20878,
United States
100%
100%
100%
100%
Optein, Inc.
2711 Centerville Road, Suite 400, Wilmington, DE 1989,
United States
100%
Pearl Therapeutics, Inc.
200 Cardinal Way, Redwood City, CA 94063,
United States
100%
Uruguay
AstraZeneca S.A.6
Yaguarón 1407 of 1205, Montevideo, Uruguay
100%
Venezuela
AstraZeneca Venezuela S.A.
Gotland Pharma S.A.
Av. La Castellana, Torre La Castellana, Piso 5, Oficina
5-G, 5-H, 5-I, Urbanización La Castellana, Municipio
Chacao, Estado Bolivariano de Miranda, Venezuela
100%
100%
Subsidiaries where the effective
interest is less than 100%
Algeria
SPA AstraZeneca Al Djazair9
No 20 Zone Macro Economique, dar El Medina-Hydra,
Alger, Algeria
65.77%
India
75%
AstraZeneca Pharma India Limited3
Block N1, 12th Floor, Manyata Embassy Business Park,
Rachenahalli, Outer Ring Road, Bangalore-560 045,
India
Indonesia
P.T. AstraZeneca Indonesia
Perkantoran Hijau Arkadia Tower F,
3rd Floor, JI. T.B. Simatupang Kav. 88, Jakarta, 12520,
Indonesia
95%
192 AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements
Group Interest
At 31 December 2017
Datapharm Communications Limited7,13
12.5%
Ground Floor, Pascal Place, Randalls Way, Leatherhead,
Surrey, KT22 7TW, United Kingdom
At 31 December 2017
Myotherix Inc10
29540 Kohoutek Way, Union City, CA 94587,
United States
Group Interest
8.27%
Entasis Therapeutics Limited14
3rd Floor, 1 Ashley Road,
Altrincham, Cheshire, WA14 2DT, United Kingdom
18.49%
Nano Precision Medical, Inc.
5858 Horton St Suite 393, Emeryville, CA 94608,
United States
5.58%
Mereo Biopharma Group PLC
4th Floor, One, Cavendish Place,
London, W1G 0QF, United Kingdom
2.7%
PhaseBio Pharmaceuticals, Inc.18
One Great Valley, Parkway, Suite 30, Malvern,
PA 19355, United States
Silence Therapeutics PLC
27 Eastcastle Street, London, W1W 8DH,
United Kingdom
0.17%
Rani Therapeutics, LLC21
2051 Ringwood Ave, San Jose, CA 95116,
United States
14.39%
0.97%
18%
Regulus Therapeutics Inc.
10614 Science Center Dr., San Diego, CA 92121,
United States
3.39%
At 31 December 2017
Group Interest
The Netherlands
Acerta Pharma B.V.
Aspire Therapeutics B.V.
Kloosterstraat 9, 5349 AB, Oss, The Netherlands
United States
Acerta Pharma LLC7
2200 Bridge Parkway, Suite 101, Redwood City,
CA 94065, United States
55%
55%
55%
Joint Ventures
Hong Kong
WuXi MedImmune Biopharmaceutical
Co., Limited
Room 1902, 19/F, Lee Garden One, 33 Hysan Avenue,
Causeway Bay, Hong Kong
50%
United Kingdom
Archigen Biotech Limited9
Centus Biotherapeutics Limited9
1 Francis Crick Avenue, Cambridge Biomedical
Campus, Cambridge, CB2 0AA, United Kingdom
50%
50%
United States
Montrose Chemical Corporation of California
Suite 380, 600 Ericksen Ave N/E,
Bainbridge Island, United States
Significant Holdings
Australia
Armaron Bio Ltd10
Level 1, 120 Jolimont Road, East Melbourne 3002 VIC,
Australia
22.94%
China
Dizal (Jiangsu) Pharmaceutical Co., Ltd.11
Suite 4105, Building E (Building No.5) of Huirong Plaza,
East Jinghui Road, Xinwu District,
Wuxi, Jiangsu Province, China
48.3%
United Kingdom
Apollo Therapeutics LLP7
Stevenage Biosciences Catalyst, Gunnels Wood Road,
Stevenage, Hertfordshire, SG1 2FX, United Kingdom
25%
United States
C.C.Global Chemicals Company
PO Box 7, MS2901, Texas, TX76101-0007,
United States
Associated Holdings
New Zealand
Adherium Limited
4.62%
Level 2, 204 Quay Street, Auckland, 1010, New Zealand
United States
AbMed Corporation15
65 Cummings Park Drive, Woburn, MA 01801,
United States
Affinita Biotech, Inc.16
329 Oyster Point Blvd., 3rd Floor, South San Francisco,
CA 94080, United States
16.23%
Albireo Pharma, Inc.
10 Post Office Square, Suite 502 South, Boston,
MA 02109, United States
50%
5.71%
Biohaven Pharmaceutical Holding
Company Ltd.
0.45%
234 Church Street, New Haven, CT 06510, United States
Biodesix Inc.17
2970 Wilderness Place, Suite 100, Boulder, CO 80301,
United States
0.07%
BlinkBio, Inc.
P.O. Box 1966, Jupiter, FL 33468, United States
0.45%
Cerapedics, Inc.18
11025 Dover St #1600, Broomfield, CO 80021,
United States
8.8%
Corvidia Corporation17
19%
35 Gatehouse Drive, Waltham, MA 02451, United States
Elusys Therapeutics, Inc.19
25 Riverside Drive, Unit One, Pine Brook, NJ 07058,
United States
7.2%
37.5%
1.01%
FibroGen, Inc.
409 Illinois St., San Francisco, CA 94158, United States
G1 Therapeutics, Inc.
79 T.W. Alexander Drive, 4401 Research Commons,
Suite 105, Research Triangle Park,
NC 7709, United States
10.41%
Hydra Biosciences Inc.
4.27%
45 Moulton Street, Cambridge, MA 02138, United States
1 Ownership held in ordinary and class B special shares.
2 Directly held by AstraZeneca PLC.
3 Accounting year end is 31 March.
4 Accounting year end is 30 June.
5 Ownership held in class A and class B shares.
6 Ownership held in common shares and special shares.
7 Ownership held as membership interest.
8 Ownership held as partnership interest.
9 Ownership held in class A shares.
10 Ownership held in class B preference shares.
11 Voting rights and percentages vary depending on the
subject matter and business to be voted on.
12 Ownership held in class B preference shares, class C
preference shares, class D preference shares and class E
preference shares.
13 A company limited by guarantee.
14 Ownership held in ordinary shares and class A shares.
15 Ownership held in common shares and series A preferred
shares.
16 Ownership held in class A voting and class A non-voting
shares.
17 Ownership held in series A preferred stock.
18 Ownership held in class C preference shares.
19 Ownership held in class D preference shares.
20 Ownership held in class D preference shares, class E
preference shares and class F preference shares.
21 Ownership held in class C-1 preference shares.
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Switzerland
ADC Therapeutics Sàrl12
Biopôle, Route de la Corniche 3B, 1066 Epalinges,
Switzerland
7.3%
Inotek Pharmaceuticals Corporation
91 Hartwell Ave, 2nd Floor, Lexington, MA 02421,
United States
7.05%
United Kingdom
Circassia Pharmaceuticals PLC
The Magdalen Centre, Robert Robinson Avenue,
Oxford Science Park, Oxford, Oxfordshire, OX4 4GA,
United Kingdom
14.2%
Millendo Therapeutics, Inc.10
301 North Main Street, Suite 100, Ann Arbor, MI 48104,
United States
4.42%
Moderna Therapeutics, Inc.20
320 Bent Street, Cambridge, MA 02141, United States
8.32%
AstraZeneca Annual Report & Form 20-F Information 2017 / Group Subsidiaries and Holdings 193
Company Balance Sheet
at 31 December
AstraZeneca PLC
Fixed assets
Fixed asset investments
Current assets
Debtors – other
Debtors – amounts owed by Group undertakings
Creditors: Amounts falling due within one year
Non-trade creditors
Interest-bearing loans and borrowings
Net current assets
Total assets less current liabilities
Creditors: Amounts falling due after more than one year
Amounts owed to Group undertakings
Interest-bearing loans and borrowings
Net assets
Capital and reserves
Called-up share capital
Share premium account
Capital redemption reserve
Other reserves
Profit and loss account
Shareholders’ funds
Notes
2017
$m
2016
$m
1
31,482
30,449
2
3
3
3
4
11
7,995
8,006
(325)
(1,397)
(1,722)
6,284
14
8,935
8,949
(518)
(1,749)
(2,267)
6,682
37,766
37,131
(283)
(15,197)
(15,480)
22,286
317
4,393
153
2,549
14,874
22,286
(283)
(14,138)
(14,421)
22,710
316
4,351
153
2,583
15,307
22,710
$m means millions of US dollars.
The Company’s profit for the year was $3,109m (2016: $3,699m).
The Company Financial Statements from page 194 to 198 were approved by the Board on 2 February 2018 and were signed on its behalf by
Pascal Soriot
Director
Marc Dunoyer
Director
Company’s registered number 02723534
194 AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements
Statement of Changes in Equity
For the year ended 31 December
At 1 January 2016
Total comprehensive income for the period
Profit for the period
Amortisation of loss on cash flow hedge
Total comprehensive income for the period
Transactions with owners, recorded directly in equity
Dividends
Capital contributions for share-based payments
Issue of Ordinary Shares
Total contributions by and distributions to owners
At 31 December 2016
Total comprehensive income for the period
Profit for the period
Amortisation of loss on cash flow hedge
Total comprehensive income for the period
Transactions with owners, recorded directly in equity
Dividends
Capital contributions for share-based payments
Issue of Ordinary Shares
Total contributions by and distributions to owners
Share
capital
$m
316
Share
Capital
premium
account
$m
4,304
redemption
reserve
$m
153
Other
reserves
$m
2,623
Profit and
loss account
$m
15,147
–
–
–
–
–
–
–
–
–
–
–
–
47
47
–
–
–
–
–
–
–
–
–
–
–
(40)
–
(40)
316
4,351
153
2,583
–
–
–
–
–
1
1
–
–
–
–
–
42
42
–
–
–
–
–
–
–
–
–
–
–
(34)
–
(34)
Total
equity
$m
22,543
3,699
1
3,700
3,699
1
3,700
(3,540)
(3,540)
–
–
(3,540)
15,307
3,109
1
3,110
(40)
47
(3,533)
22,710
3,109
1
3,110
(3,543)
(3,543)
–
–
(3,543)
14,874
(34)
43
(3,534)
22,286
At 31 December 2017
317
4,393
153
2,549
At 31 December 2017, $14,874m (2016: $15,307m) of the profit and loss account reserve was available for distribution. Included in other reserves
is a special reserve of $157m (2016: $157m), arising on the redenomination of share capital in 1999.
Included within other reserves at 31 December 2017 is $708m (2016: $742m) in respect of cumulative share-based payment awards. These
amounts are not available for distribution.
i
F
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
AstraZeneca Annual Report & Form 20-F Information 2017 / Company Statements 195
Company Accounting Policies
Basis of presentation of financial information
These financial statements were prepared in accordance with FRS 101 ‘Reduced Disclosure Framework’.
In preparing these financial statements, the Company applied the recognition, measurement and disclosure requirements of International
Financial Reporting Standards as adopted by the EU (Adopted IFRSs), but makes amendments where necessary in order to comply with the
Companies Act 2006 and has set out below where advantage of the FRS 101 disclosure exemptions has been taken.
In these financial statements, the Company has applied the exemptions available under FRS 101 in respect of the following disclosures:
> Statement of Cash Flows and related notes
> disclosures in respect of transactions with wholly owned subsidiaries
> disclosures in respect of capital management
> the effects of new but not yet effective IFRSs
> disclosures in respect of the compensation of Key Management Personnel.
As the Group Financial Statements (presented on pages 135 to 193) include the equivalent disclosures, the Company has also taken the
exemptions under FRS 101 available in respect of the following disclosures:
IFRS 2 ‘Share-based Payment’ in respect of group settled share-based payments
>
> certain disclosures required by IFRS 13 ‘Fair Value Measurement’ and the disclosures required by IFRS 7 ‘Financial Instrument Disclosures’.
No individual profit and loss account is prepared as provided by section 408 of the Companies Act 2006.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these financial
statements.
Basis of accounting
The Company Financial Statements are prepared under the historical cost convention, in accordance with the Companies Act 2006.
The following paragraphs describe the main accounting policies, which have been applied consistently.
Foreign currencies
Profit and loss account items in foreign currencies are translated into US dollars at average rates for the relevant accounting periods. Monetary
assets and liabilities are translated at exchange rates prevailing at the date of the Company Balance Sheet. Exchange gains and losses on loans
and on short-term foreign currency borrowings and deposits are included within net interest payable. Exchange differences on all other
transactions are taken to operating profit.
Taxation
The current tax payable is based on taxable profit for the year. Taxable profit differs from reported profit because taxable profit excludes items
that are either never taxable or tax deductible or items that are taxable or tax deductible in a different period. The Company’s current tax assets
and liabilities are calculated using tax rates that have been enacted or substantively enacted by the reporting date.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax assets are recognised to the extent that it is
probable that taxable profit will be available against which the asset can be utilised. This requires judgements to be made in respect of the
availability of future taxable income.
No deferred tax asset or liability is recognised in respect of temporary differences associated with investments in subsidiaries and branches
where the Company is able to control the timing of reversal of the temporary differences and it is probable that the temporary differences will not
reverse in the foreseeable future.
The Company’s deferred tax assets and liabilities are calculated using tax rates that are expected to apply in the period when the liability is
settled or the asset realised based on tax rates that have been enacted or substantively enacted by the reporting date.
Accruals for tax contingencies require management to make judgements and estimates of exposures in relation to tax audit issues. Tax benefits
are not recognised unless the tax positions will probably be sustained based upon management's interpretation of applicable laws and
regulations and the likelihood of settlement.
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. Accruals for tax contingencies are measured
using the single best estimate of likely outcome approach.
Investments
Fixed asset investments, including investments in subsidiaries, are stated at cost and reviewed for impairment if there are indications that the
carrying value may not be recoverable.
Share-based payments
The issuance by the Company to employees of its subsidiaries of a grant of awards over the Company’s shares, represents additional capital
contributions by the Company to its subsidiaries. An additional investment in subsidiaries results in a corresponding increase in shareholders’
equity. The additional capital contribution is based on the fair value of the grant issued, allocated over the underlying grant’s vesting period, less
the market cost of shares charged to subsidiaries in settlement of such share awards.
Financial instruments
Loans and other receivables are held at amortised cost. Long-term loans payable are held at amortised cost.
Litigation
Through the normal course of business, the AstraZeneca Group is involved in legal disputes, the settlement of which may involve cost to the
Company. Provision is made where an adverse outcome is probable and associated costs can be estimated reliably. In other cases, appropriate
descriptions are included.
196 AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements
Notes to the Company Financial Statements
1 Fixed asset investments
At 1 January 2017
Additions
Transfer to current assets
Capital reimbursement
Exchange
Amortisation
At 31 December 2017
A list of subsidiaries is included on pages 190 to 193.
2 Non-trade creditors
Amounts due within one year
Short-term borrowings
Other creditors
Amounts owed to Group undertakings
3 Loans
Amounts due within one year
Interest-bearing loans and borrowings (unsecured)
Floating rate notes
1.75% Callable bond
5.9% Callable bond
Amounts due after more than one year
Amounts owed to Group undertakings (unsecured)
7.2% Loan
Interest-bearing loans and borrowings (unsecured)
Floating rate notes
1.75% Callable bond
1.95% Callable bond
2.375% Callable bond
0.875% Non-callable bond
0.25% Callable bond
Floating rate bond
2.375% Callable bond
0.75% Callable bond
3.375% Callable bond
3.125% Callable bond
1.25% Callable bond
5.75% Non-callable bond
6.45% Callable bond
4% Callable bond
4.375% Callable bond
Shares
$m
16,026
Investments in subsidiaries
Total
$m
30,449
Loans
$m
14,423
–
–
(30)
–
–
1,987
(1,399)
–
463
12
1,987
(1,399)
(30)
463
12
15,996
15,486
31,482
2017
$m
199
119
7
325
2016
$m
371
140
7
518
i
F
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Repayment
dates
2017
$m
2016
$m
US dollars
US dollars
US dollars
2018
2018
2017
399
998
–
1,397
–
–
1,749
1,749
US dollars
2023
283
283
US dollars
US dollars
US dollars
US dollars
euros
euros
US dollars
US dollars
euros
US dollars
US dollars
euros
pounds sterling
US dollars
US dollars
US dollars
2018
2018
2019
2020
2021
2021
2022
2022
2024
2025
2027
2028
2031
2037
2042
2045
–
–
999
1,591
890
594
249
992
1,067
1,978
742
941
468
2,720
987
979
399
998
998
1,589
782
522
–
–
937
1,976
–
827
426
2,719
986
979
15,197
14,138
AstraZeneca Annual Report & Form 20-F Information 2017 / Notes to the Company Financial Statements 197
Notes to the Company Financial Statements
continued
3 Loans continued
Loans are repayable:
After five years from balance sheet date
From two to five years
From one to two years
Within one year
Total unsecured
2017
$m
2016
$m
10,165
4,316
999
1,397
9,133
3,891
1,397
1,749
16,877
16,170
With the exception of the 2018 and 2022 floating rate notes, all loans are at fixed interest rates. Accordingly, the fair values of the loans will
change as market rates change. However, since the loans are held at amortised cost, changes in interest rates and the credit rating of the
Company do not have any effect on the Company’s net assets.
4 Share capital
Details of share capital movements in the year are included in Note 22 to the Group Financial Statements.
5 Contingent liabilities
The Company is named as a party to legal proceedings in the Farxiga product liability litigation and the Array BioPharma Inc. commercial
litigation, each of which are described more fully in Note 28 to the Group Financial Statements.
Other
The Company has guaranteed the external borrowing of a subsidiary in the amount of $286m.
6 Statutory and other information
The Directors were paid by another Group company in 2017 and 2016.
7 Subsequent events
There were no material subsequent events.
198 AstraZeneca Annual Report & Form 20-F Information 2017 / Financial Statements
Group Financial Record
For the year ended 31 December
Revenue and profits
Product Sales
Externalisation Revenue
Cost of sales
Distribution costs
Research and development expense
Selling, general and administrative costs
Other operating income and expense
Operating profit
Finance income
Finance expense
Share of after tax losses in associates and joint ventures
Profit before tax
Taxation
Profit for the period
Other comprehensive income for the period, net of tax
Total comprehensive income for the period
Profit attributable to:
Owners of the Parent
Non-controlling interests
Earnings per share
Basic earnings per $0.25 Ordinary Share
Diluted earnings per $0.25 Ordinary Share
Dividends
Return on revenues
Operating profit as a percentage of Total Revenue
Ratio of earnings to fixed charges
At 31 December
Statement of Financial Position
Property, plant and equipment, goodwill and intangible assets
Other investments and non-current receivables
Deferred tax assets
Current assets
Total assets
Current liabilities
Deferred tax liabilities
Other non-current liabilities
Net assets
Share capital
Reserves attributable to equity holders of the Company
Non-controlling interests
Total equity and reserves
For the year ended 31 December
Cash flows
Net cash inflow/(outflow) from:
Operating activities
Investing activities
Financing activities
2013
$m
2014
$m
2015
$m
2016
$m
2017
$m
25,711
95
(5,261)
(306)
(4,821)
(12,206)
500
3,712
50
(495)
–
3,267
(696)
2,571
(113)
2,458
2,556
15
$2.04
$2.04
$2.80
14.4%
9.9
26,095
452
(5,842)
(324)
(5,579)
23,641
1,067
(4,646)
(339)
(5,997)
(13,000)
(11,112)
1,500
4,114
46
(1,075)
(16)
3,069
(243)
2,826
(338)
2,488
2,825
1
$2.23
$2.23
$2.80
335
2,137
78
(963)
(6)
1,246
(11)
1,235
(1,506)
(271)
1,233
2
$0.98
$0.98
$2.80
8%
6.1
21,319
1,683
(4,126)
(326)
(5,890)
(9,413)
1,655
4,902
67
(1,384)
(33)
3,552
(146)
3,406
(1,778)
1,628
3,499
(93)
$2.77
$2.76
$2.80
20,152
2,313
(4,318)
(310)
(5,757)
(10,233)
1,830
3,677
113
(1,508)
(55)
2,227
641
2,868
639
3,507
3,001
(133)
$2.37
$2.37
$2.80
16.7%
21.3%
11.3
8.9
16.4%
4.4
2013
$m
2014
$m
2015
$m
2016
$m
2017
$m
31,846
2,513
1,205
20,335
55,899
(16,051)
(2,827)
(13,768)
23,253
315
22,909
29
23,253
38,541
2,138
1,219
16,697
58,595
(17,330)
(1,796)
(19,823)
19,646
316
19,311
19
19,646
40,859
1,896
1,294
16,007
60,056
(14,869)
(2,665)
(24,013)
18,509
316
18,174
19
18,509
46,092
2,070
1,102
13,262
62,526
(15,256)
(3,956)
(26,645)
16,669
316
14,538
1,815
16,669
45,628
2,387
2,189
13,150
63,354
(16,383)
(3,995)
(26,334)
16,642
317
14,643
1,682
16,642
i
F
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
2013
$m
2014
$m
2015
$m
2016
$m
2017
$m
7,400
(2,889)
(3,047)
1,464
7,058
(7,032)
(2,705)
(2,679)
3,324
(4,239)
878
(37)
4,145
(3,969)
(1,324)
(1,148)
3,578
(2,328)
(2,936)
(1,686)
For the purpose of computing the ratio of earnings to fixed charges, earnings consist of the income from continuing ordinary activities before
taxation of Group companies and income received from companies owned 50% or less, plus fixed charges. Fixed charges consist of interest on
all indebtedness, amortisation of debt discount and expense, and that portion of rental expense representative of the interest factor.
AstraZeneca Annual Report & Form 20-F Information 2017 / Group Financial Record 199
200
AstraZeneca Annual Report & Form 20-F Information 2017 / Additional Information can
Science
prevent disease in adolescents
Today, non-communicable
diseases (NCDs) kill 40 million
people each year, with Type 2
diabetes, cancer, heart and
respiratory disease accounting
for over 80% of these deaths.
One way we are addressing this
global health issue is to focus on
prevention and, more specifically,
on youth. With over 1.2 billion
adolescents in the world today,
improving adolescent health
and wellbeing will not only have
major benefits for adolescents,
and for those around them,
but will also improve the health
benefits of future generations.
The AstraZeneca Young
Health Programme (YHP) is
a global disease prevention
programme with a focus on
adolescents. Launched in 2010,
it tackles the NCD epidemic
by focusing on risk behaviours.
Our programming, advocacy
and research looks at the primary
risk factors that lead to disease
later in life. By encouraging
more young people to adopt
healthy habits, it is more likely
to lead to healthier outcomes.
“ Through the YHP, I trained to become
a Peer Educator and now use street
theatre to educate young people about
their health concerns. Due to YHP
many young people have given up
smoking and are seeking access to
healthcare facilities. Since being part
of the YHP, my confidence has grown
and the increased responsibility has
given me a clearer sense of purpose.
The YHP has changed my life.”
> 30 NGO partners
> 21 countries around the world on five continents
> 1.6 million youths reached with health
information
> 12,800 health workers trained
> 14,600 peer educators trained
> Breakthrough research – Johns Hopkins,
Imperial College
> New evidence – Population Reference Bureau
policy briefs and data sheets on risk behaviours
Photo: Marco Betti and AstraZeneca Young Health Programme.
Additional Information
Development Pipeline 202
Patent Expiries of Key
Marketed Products 208
Risk 210
Geographical Review 221
Sustainability: supplementary
information 227
Shareholder Information 228
Trade Marks 234
Glossary 235
Index 239
201
AstraZeneca Annual Report & Form 20-F Information 2017 / Additional InformationAdditional Information Development Pipeline
as at 31 December 2017
AstraZeneca-sponsored or directed trials
Phase III/Pivotal Phase II/Registration
New Molecular Entities (NMEs) and significant additional indications
Regulatory submission dates shown for assets in Phase III and beyond. As disclosure of compound information is balanced by the business need
to maintain confidentiality, information in relation to some compounds listed here has not been disclosed at this time.
Compound
Oncology
Mechanism
Area Under
Investigation
Calquence# (acalabrutinib)
BTK inhibitor
B-cell malignancy
savolitinib# SAVOIR
selumetinib ASTRA
MET inhibitor
MEK inhibitor
papillary renal cell carcinoma
differentiated thyroid cancer
Date
Commenced
Phase
Q1 2015
Q3 2017
Q3 2013
Estimated Regulatory Acceptance Date/Submission Status
US
EU
Japan
China
Launched
2020
2020
H2 2018
(Orphan Drug Designation)
H2 2018
moxetumomab pasudotox#
PLAIT
Imfinzi# + tremelimumab
ARCTIC
Imfinzi# + tremelimumab
MYSTIC
Imfinzi# + tremelimumab
NEPTUNE
Imfinzi# + tremelimumab
+ chemotherapy
POSEIDON
anti-CD22
recombinant
immunotoxin
PD-L1 mAb +
CTLA-4 mAb
PD-L1 mAb +
CTLA-4 mAb
PD-L1 mAb +
CTLA-4 mAb
PD-L1 mAb +
CTLA-4 mAb
hairy cell leukaemia
Q2 2013
H1 2018
(Orphan Drug Designation)
3rd line NSCLC
Q2 2015
H1 2018
H1 2018
H1 2018
1st line NSCLC
Q3 2015
H2 2018
H2 2018
H2 2018
1st line NSCLC
1st line NSCLC
Q4 2015
Q2 2017
2019
2019
2019
2020
2019
2019
2019
2020
Imfinzi# + tremelimumab + SoC
CASPIAN
PD-L1 mAb +
CTLA-4 mAb + SoC
1st line SCLC
Q1 2017
2019
2019
2019
PD-L1 mAb +
CTLA-4 mAb
PD-L1 mAb +
CTLA-4 mAb
PD-L1 mAb +
CTLA-4 mAb
PD-L1 mAb +
CTLA-4 mAb
Imfinzi# + tremelimumab
KESTREL
Imfinzi# + tremelimumab
EAGLE
Imfinzi# + tremelimumab
DANUBE
Imfinzi# + tremelimumab
HIMALAYA
Lynparza#¶ + cediranib
CONCERTO
CVMD
Epanova
ZS-9 (sodium zirconium
cyclosilicate)
roxadustat#
OLYMPUS (US)
ROCKIES (US)
1st line HNSCC
Q4 2015
H2 2018
H2 2018
H2 2018
2nd line HNSCC
Q4 2015
H2 2018
H2 2018
H2 2018
1st line bladder cancer
Q4 2015
2019
2019
2019
1st line hepatocellular
carcinoma
PARP inhibitor +
VEGF inhibitor
recurrent platinum-resistant
ovarian cancer
Q4 2017
Q1 2017
2021
2021
2021
2021
2019
omega-3
carboxylic acids
severe hypertriglyceridaemia
Approved
2020
potassium binder
hyperkalaemia
Accepted1
2019
hypoxia-inducible
factor prolyl
hydroxylase inhibitor
anaemia in CKD/end-stage
renal disease
Q3 2014
H2 2018
Accepted2
202
AstraZeneca Annual Report & Form 20-F Information 2017 / Additional Information
Compound
Respiratory
Mechanism
Area Under
Investigation
Date
Commenced
Phase
Estimated Regulatory Acceptance Date/Submission Status
US
EU
Japan
China
Bevespi (PT003)
LABA/LAMA
COPD
IL-5R mAb
severe,
uncontrolled asthma
Launched
Accepted
H2 2018
H2 2018
Launched
Approved
Approved
2021
Fasenra# (benralizumab#)
CALIMA
SIROCCO
ZONDA
BISEBORA
GREGALE
PT010
tezepelumab
NAVIGATOR
SOURCE
Other
anifrolumab#
TULIP
lanabecestat#
AMARANTH + extension,
DAYBREAK-ALZ
LABA/LAMA/ICS
COPD
TSLP mAb
severe,
uncontrolled asthma
Q3 2015
Q1 2018
2019
2021
2019
2021
H2 2018
H2 2018
2021
Type 1 IFN
receptor mAb
beta-secretase
inhibitor
systemic lupus erythematosus
Q3 2015
Alzheimer’s disease
Q2 2016
2019
(Fast Track)
2020
(Fast Track)
2019
2019
2020
2020
# Collaboration.
¶ Registrational Phase II trial.
1 CHMP positive opinion received.
2 FibroGen completed rolling regulatory submission in China.
Phases I and II
NMEs and significant additional indications
Compound
Oncology
Imfinzi#
Mechanism
PD-L1 mAb
Imfinzi# + tremelimumab
Imfinzi# + tremelimumab
PD-L1 mAb + CTLA-4 mAb
PD-L1 mAb + CTLA-4 mAb
Imfinzi# + tremelimumab + chemo
PD-L1 mAb + CTLA-4 mAb
Area Under Investigation
solid tumours
gastric cancer
biliary tract, oesophageal
1st line pancreatic ductal adenocarcinoma,
oesophageal and SCLC
Imfinzi# + AZD5069
PD-L1 mAb + CXCR2 antagonist
pancreatic ductal adenocarcinoma
Imfinzi# + AZD5069 or Imfinzi# + AZD9150#
PD-L1 mAb + CXCR2 antagonist or
PD-L1 mAb + STAT3 inhibitor
HNSCC
Imfinzi# + dabrafenib + trametinib
PD-L1 mAb + BRAF inhibitor + MEK inhibitor melanoma
Imfinzi# + AZD1775#
Imfinzi# + MEDI0680
Imfinzi# or Imfinzi# +
(tremelimumab or AZD9150#)
Imfinzi# + Iressa
Imfinzi# + MEDI0562#
Imfinzi# + MEDI9197#
PD-L1 mAb + Wee1 inhibitor
PD-L1 mAb + PD-1 mAb
PD-L1 mAb or PD-L1 mAb +
(CTLA-4 mAb or STAT3 inhibitor)
solid tumours
solid tumours
diffuse large B-cell lymphoma
PD-L1 mAb + EGFR inhibitor
NSCLC
PD-L1 mAb + humanised OX40 agonist
solid tumours
PD-L1 mAb + TLR 7/8 agonist
Imfinzi# + oleclumab (MEDI9447)
PD-L1 mAb + CD73 mAb
Imfinzi# + monalizumab
Imfinzi# + selumetinib
Imfinzi# + tremelimumab
PD-L1 mAb + NKG2a mAb
PD-L1 mAb + MEK inhibitor
PD-L1 mAb + CTLA-4 mAb
solid tumours
solid tumours
solid tumours
solid tumours
solid tumours
tremelimumab + MEDI0562#
CTLA-4 mAb + humanised OX40 agonist
solid tumours
Imfinzi# + azacitidine
PD-L1 mAb + azacitidine
myelodysplastic syndrome
Date
Commenced
Phase
Phase
II
II
II
I
II
II
I
I
II
I
I
I
I
I
I
I
I
I
I
Q3 2014
Q2 2015
Q4 2013
Q2 2016
Q2 2017
Q3 2015
Q1 2014
Q4 2015
Q3 2016
Q3 2016
Q2 2014
Q2 2016
Q2 2017
Q1 2016
Q1 2016
Q4 2015
Q4 2013
Q2 2016
Q2 2016
203
AstraZeneca Annual Report & Form 20-F Information 2017 / Development PipelineAdditional Information Development Pipeline
continued
Compound
Imfinzi# + MEDI0457#
Imfinzi# + RT (platform)
CLOVER
Lynparza# + AZD6738
Lynparza# + AZD1775#
Lynparza# + Imfinzi#
MEDIOLA
Mechanism
Area Under Investigation
Phase
PD-L1 mAb + DNA HPV vaccine
HNSCC
PD-L1 mAb + RT
locally-advanced HNSCC, NSCLC, SCLC
PARP inhibitor + ATR inhibitor
PARP inhibitor + Wee1 inhibitor
PARP inhibitor + PD-L1 mAb
gastric cancer
solid tumours
solid tumours
Tagrisso + (selumetinib# or savolitinib#)
TATTON
EGFR inhibitor + (MEK inhibitor or
MET inhibitor)
advanced EGFRm NSCLC
Tagrisso
BLOOM
EGFR inhibitor
CNS metastases in advanced
EGFRm NSCLC
AZD1775# + chemotherapy
Wee1 inhibitor + chemotherapy
ovarian cancer
AZD1775#
vistusertib
AZD5363#
AZD4547
AZD0156
AZD1390
AZD2811#
AZD4573
AZD4635
AZD4785
AZD5153
AZD5991
Wee1 inhibitor
mTOR inhibitor
AKT inhibitor
FGFR inhibitor
ATM inhibitor
ATM inhibitor
Aurora B inhibitor
CDK9 inhibitor
A2aR inhibitor
KRAS inhibitor
BRD4 inhibitor
MCL1 inhibitor
solid tumours
solid tumours
breast cancer
solid tumours
solid tumours
healthy volunteer trial
solid tumours
haematological malignancies
solid tumours
solid tumours
solid tumours
haematological malignancies
Calquence + vistusertib
B-cell malignancy + mTor inhibitor
haematological malignancies
AZD6738
AZD8186
AZD9496
MEDI-565#
MEDI0562#
MEDI1873
MEDI3726#
MEDI4276
MEDI5083
MEDI7247
MEDI9197#
oleclumab (MEDI9447)
CVMD
verinurad
MEDI0382
MEDI6012
AZD4831
AZD5718
AZD8601#
MEDI5884#
Respiratory
abediterol#
tezepelumab#
AZD1419#
AZD7594
AZD8871#
PT010
AZD5634
ATR inhibitor
PI3k inhibitor
solid tumours
solid tumours
selective oestrogen receptor degrader
oestrogen receptor +ve breast cancer
CEA BiTE mAb
humanised OX40 agonist
GITR agonist fusion protein
solid tumours
solid tumours
solid tumours
PSMA antibody drug conjugate
prostate cancer
HER2 bi-specific antibody drug conjugate
solid tumours
immune activator
solid tumours
antibody drug conjugate
haematological malignancies
TLR 7/8 agonist
CD73 mAb
solid tumours
solid tumours
URAT1 inhibitor
CKD
GLP-1/glucagon dual agonist
Type 2 diabetes/obesity
LCAT
myeloperoxidase
FLAP
VEGF-A
cholesterol modulation
LABA
TSLP mAb
inhaled TLR9 agonist
inhaled SGRM
MABA
LABA/LAMA/ICS
inhaled ENaC
CV disease
HF with a preserved ejection fraction
coronary artery disease
CV disease
CV disease
asthma/COPD
atopic dermatitis
asthma
asthma/COPD
COPD
asthma
cystic fibrosis
asthma/COPD
COPD
rheumatoid arthritis/respiratory
asthma
COPD
AZD7594 + abediterol#
inhaled SGRM + LABA
AZD7986#
AZD9567
AZD1402#
MEDI3506
DPP1
oral SGRM
inhaled IL-4Ra
IL-33 mAb
204
AstraZeneca Annual Report & Form 20-F Information 2017 / Additional Information
Date
Commenced
Phase
Q4 2017
Q1 2018
Q3 2016
Q3 2015
Q2 2016
Q2 2016
Q4 2015
Q1 2015
Q3 2015
Q1 2013
Q1 2014
Q4 2011
Q4 2015
Q4 2017
Q4 2015
Q4 2017
Q2 2016
Q2 2017
Q3 2017
Q3 2017
Q3 2017
Q4 2013
Q2 2013
Q4 2014
Q1 2011
Q1 2015
Q4 2015
Q1 2017
Q4 2015
Q1 2017
Q2 2017
Q4 2015
Q3 2015
Q2 2017
Q3 2016
Q4 2015
Q3 2016
Q4 2017
Q1 2017
Q4 2017
Q4 2007
Q2 2015
Q4 2016
Q3 2015
Q1 2017
Q2 2014
Q1 2016
Q4 2016
Q4 2017
Q4 2015
Q4 2017
Q2 2017
II
I
II
I
II
II
II
II
I
II
II
II
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
II
II
II
I
II
I
II
II
II
II
II
II
II
I
I
II
II
I
I
Mechanism
Area Under Investigation
Date
Commenced
Phase
Phase
Compound
Other
anifrolumab#
anifrolumab#
inebilizumab#
mavrilimumab#
MEDI3902
Type 1 IFN receptor mAb
Type 1 IFN receptor mAb
CD19 mAb
GM-CSFR mAb
Psl/PcrV bispecific mAb
lupus nephritis
systemic lupus erythematosus
(subcutaneous)
neuromyelitis optica
rheumatoid arthritis
II
II
II
(Orphan drug
US, EU)
II
prevention of nosocomial pseudomonas
aeruginosa pneumonia
II
(Fast Track, US)
prevention of nosocomial Staphylococcus
aureus pneumonia
II
(Fast Track, US)
suvratoxumab (MEDI4893)
mAb binding to S. aureus toxin
prezalumab# (MEDI5872#)
MEDI8852
MEDI8897#
AZD0284
MEDI0700#
MEDI1814#
MEDI4920
MEDI7352
MEDI7734
MEDI9314
# Collaboration.
B7RP1 mAb
influenza A mAb
RSV mAb-YTE
RORg
primary Sjögren’s syndrome
influenza A treatment
passive RSV prophylaxis
psoriasis/respiratory
BAFF/B7RP1 bispecific mAb
systemic lupus erythematosus
amyloid beta mAb
Alzheimer’s disease
anti-CD40L-Tn3 fusion protein
primary Sjögren’s syndrome
NGF/TNF bi-specific mAb
ILT7 mAb
IL-4R mAb
osteoarthritis pain
myositis
atopic dermatitis
II
II
(Fast Track, US)
II
(Fast Track, US)
I
I
I
I
I
I
I
Q4 2015
Q1 2017
Q1 2015
Q1 2010
Q2 2016
Q4 2014
Q3 2015
Q4 2015
Q1 2015
Q4 2016
Q1 2016
Q2 2014
Q2 2014
Q1 2016
Q3 2016
Q1 2016
Significant Life-cycle Management
Compound
Oncology
Mechanism
Area Under Investigation
Calquence# (acalabrutinib)
BTK inhibitor
Calquence# (acalabrutinib)
BTK inhibitor
1st line chronic lymphocytic
leukaemia
relapsed/refractory chronic
lymphocytic leukaemia,
high risk
Date
Commenced
Phase
Q3 2015
Q4 2015
Estimated Regulatory Acceptance Date/Submission Status
US
EU
Japan
China
2020
(Orphan Drug
Designation)
2020
(Orphan
designation)
2019
(Orphan Drug
Designation)
2019
(Orphan
designation)
Calquence# (acalabrutinib)
BTK inhibitor
1st line mantle cell lymphoma
Q1 2017
2023
Faslodex FALCON
oestrogen receptor
antagonist
1st line hormone receptor +ve
advanced breast cancer
Imfinzi# PACIFIC
PD-L1 mAb
locally-advanced (Stage 3),
NSCLC
Imfinzi# PEARL (China)
PD-L1 mAb
1st line NSCLC
Lynparza# OlympiAD
PARP inhibitor
gBRCA metastatic
breast cancer
Q2 2014
Q1 2017
Q2 2014
Approved
Approved
Approved
Approved
Accepted
(Breakthrough
Therapy Designation &
Priority Review)
Accepted
Accepted
Approved
(Priority Review)
H1 2018
2020
H2 2018
Accepted
Accepted
(Orphan drug
designation,
Priority Review)
Approved
(Orphan drug
designation)
Lynparza# SOLO-2
PARP inhibitor
2nd line or greater BRCAm
PSR ovarian cancer,
maintenance monotherapy
Q3 2013
Approved
(Priority Review)
Accepted
Lynparza# SOLO-1
Lynparza# SOLO-3
Lynparza# POLO
PARP inhibitor
1st line BRCAm ovarian cancer
PARP inhibitor
gBRCA PSR ovarian cancer
PARP inhibitor
pancreatic cancer
Lynparza# PROfound
PARP inhibitor
prostate cancer
Lynparza# OlympiA
Tagrisso FLAURA
PARP inhibitor
gBRCA adjuvant breast cancer
EGFR inhibitor
1st line advanced EGFRm
NSCLC
Q3 2013
Q1 2015
Q1 2015
Q1 2017
Q2 2014
Q1 2015
H2 2018
H2 2018
H2 2018
2019
H2 2018
2019
2020
(Breakthrough
Therapy Designation)
2019
2020
2020
2020
2020
2020
2020
Accepted
(Breakthrough
Therapy Designation)
Accepted
Accepted
H2 2018
Tagrisso ADAURA
EGFR inhibitor
adjuvant EGFRm NSCLC
Q4 2015
2022
2022
2022
2022
205
AstraZeneca Annual Report & Form 20-F Information 2017 / Development PipelineAdditional Information Development Pipeline
continued
Compound
CVMD
Brilinta1 THALES
Mechanism
Area Under Investigation
P2Y12 receptor
antagonist
acute ischaemic stroke or
transient ischaemic attack
Date
Commenced
Phase
Estimated Regulatory Acceptance Date/Submission Status
US
EU
Japan
China
Q1 2018
2020
2020
2020
2020
Brilinta1 THEMIS
P2Y12 receptor
antagonist
Brilinta1 HESTIA
P2Y12 receptor
antagonist
Farxiga2 DECLARE-TIMI 58
SGLT2 inhibitor
CV outcomes trial in patients
with Type 2 diabetes and
coronary artery disease
without a previous history
of MI or stroke
prevention of vaso-occlusive
crises in paediatric patients
with sickle cell disease
CV outcomes trial in patients
with Type 2 diabetes
SGLT2 inhibitor
Type 1 diabetes
SGLT2 inhibitor
SGLT2 inhibitor
worsening HF or CV death
in patients with chronic HF
renal outcomes and CV
mortality in patients with CKD
SGLT2 inhibitor/
metformin FDC
Type 2 diabetes
DPP-4 inhibitor/
SGLT2 inhibitor FDC
Type 2 diabetes
Q1 2014
2019
2019
2019
2020
Q1 2014
2021
2021
Q2 2013
Q4 2014
Q1 2017
Q1 2017
2019
2019
H2 2018
H1 2018
H2 2018
2020
2020
2020
2020
2021
2021
n/a
2021
Launched
Launched
2020
Launched
Launched
GLP-1 receptor
agonist
GLP-1 receptor
agonist
DPP-4 inhibitor/
SGLT2 inhibitor
omega-3
carboxylic acids
Type 2 diabetes
Q1 2013
Launched
Accepted
Type 2 diabetes outcomes trial
Q2 2010
H1 2018
H1 2018
H2 2018
Type 2 diabetes
Q2 2017
H1 2018
H1 2018
CV outcomes trial in
statin-treated patients at
high CV risk, with persistent
hypertriglyceridaemia plus
low HDL-cholesterol
Q4 2014
2020
2020
2020
2020
IL-5R mAb
COPD
Q3 2014
H2 2018
H2 2018
2019
ICS/LABA
as-needed use in mild asthma
Q4 2014
LAMA/LABA
COPD
2018
H1 2018
Launched
proton-pump
inhibitor
proton-pump
inhibitor
stress ulcer prophylaxis
paediatrics
Launched
Launched
Approved
GC-C receptor
peptide agonist
irritable bowel syndrome
with constipation (IBS-C)
2019
2019
Accepted
Accepted
Farxiga2
Farxiga2
Farxiga2
Xigduo XR/Xigduo3
Qtern
Bydureon BCise/Bydureon
autoinjector4
Bydureon EXSCEL
saxagliptin/dapagliflozin/
metformin
Epanova STRENGTH
Respiratory
Fasenra# (benralizumab#)
TERRANOVA GALATHEA
Symbicort SYGMA
Duaklir Genuair#
Other
Nexium
Nexium
linaclotide#
# Collaboration.
1 Brilinta in the US and Japan; Brilique in ROW.
2 Farxiga in the US; Forxiga in ROW.
3 Xigduo XR in the US; Xigduo in the EU.
4 Bydureon BCise in the US; Bydureon autoinjector in the EU.
206
AstraZeneca Annual Report & Form 20-F Information 2017 / Additional Information
Terminations/Discontinued projects
NME/Line Extension
Symbicort – breath actuated inhaler
Compound
ICS/LABA
AZD3241
AZD9412#
AZD4076
MEDI4166
verinurad
NME
NME
NME
NME
myeloperoxidase inhibitor
inhaled interferon beta
anti-miR103/107 oligonucleotide
Reason for Discontinuation
Area Under Investigation
Strategic
asthma/COPD
Safety/efficacy
multiple system atrophy
Strategic
Safety/efficacy
asthma/COPD
non-alcoholic fatty liver
disease/non-alcoholic
steatohepatitis (NASH)
PCSK9/GLP-1 mAb + peptide fusion
Safety/efficacy
diabetes/cardiovascular
selective uric acid reabsorption inhibitor (URAT-1)
Strategic
MEDI8111
AZD9898#
MEDI-573
tralokinumab
STRATOS 1,2
TROPOS
MESOS
Strategic
Safety/efficacy
Safety/efficacy
Safety/efficacy
chronic treatment of
hyperuricemia in patients
trauma/bleeding
asthma
metastatic breast cancer
severe, uncontrolled asthma
# Collaboration.
Completed Projects/Divestitures
Compound
Tagrisso AURA, AURA2,
(AURA17 Asia regional)
Mechanism
EGFR inhibitor
Tagrisso AURA3
EGFR inhibitor
Area Under
Investigation
≥2nd line advanced
EGFRm T790M
NSCLC
≥2nd line advanced
EGFRm T790M
NSCLC
Completed/
Divested
Completed
Estimated Regulatory Submission Acceptance
US
EU
Japan
China
Launched
(Breakthrough
Therapy,
Priority Review,
Orphan drug)
Launched
(Accelerated
assessment)
Launched
Launched
Completed
Launched
Launched
Brilinta/Brilique
Onglyza SAVOR-TIMI 53
Farxiga/Forxiga
Imfinzi (durvalumab#)
P2Y12 receptor
antagonist
DPP-4 inhibitor
arterial thrombosis
Completed
Launched
Launched
Launched
Launched
Type 2 diabetes
outcomes trial
Completed
Launched
Launched
Launched
Onglyza
SAVOR-TIMI
53
SGLT2 inhibitor
Type 2 diabetes
Completed
Launched
Launched
Launched
Launched
PD-L1 mAb
≥2nd line advanced
bladder cancer
Completed
n/a
n/a
n/a
Approved,
Launched
(Breakthrough
Therapy &
Priority Review)
AZD9150
MEDI0680
STAT3 inhibitor
haematological
malignancies
Completed
PD-1 mAb
solid tumours
Completed
Kombiglyze XR/Komboglyze1
DPP-4 inhibitor/
metformin FDC
Type 2 diabetes
Launched
Launched
Launched
# Collaboration.
1 Kombiglyze XR in the US; Komboglyze in the ROW.
207
AstraZeneca Annual Report & Form 20-F Information 2017 / Development PipelineAdditional Information Patent Expiries of Key
Marketed Products
Patents covering our products are or may be challenged by third parties. Generic products may be launched ‘at risk’ and our patents may be
revoked, circumvented or found not to be infringed. For more information, please see Risk from page 210. Many of our products are subject to
challenges by third parties. Details of material challenges by third parties can be found in Note 28 to the Financial Statements from page 182.
The expiry dates shown below include granted SPC/PTE and/or Paediatric Exclusivity periods (as appropriate). In Europe, the exact SPC situation
may vary by country as different Patent Offices grant SPCs at different rates. Expiry dates in red relate to new molecular entity patents, the remaining
dates relate to other patents. The expiry dates of relevant regulatory data exclusivity periods are not represented in the table below. A number of our
products are subject to generic competition in one or more markets. Further information can be found in the Geographical Review from page 221.
Key marketed
products
Atacand3
Description
An angiotensin II antagonist for the 1st line treatment
of hypertension and symptomatic heart failure
Bevespi
Aerosphere
A combination of a long-acting muscarinic antagonist and a
long-acting beta-2 adrenergic agonist used for the long-term
maintenance treatment of airflow obstruction in COPD
Brilinta/
Brilique
Bydureon/
Bydureon
BCise
Byetta
Calquence
An oral P2Y12 platelet inhibitor for acute coronary
syndromes (ACS) or extended therapy in high-risk
patients with a history of myocardial infarction (MI)
A once-weekly injectable glucagon-like peptide-1 (GLP-1)
receptor agonist available as a single-dose tray, a single-dose
pen or autoinjector device indicated as monotherapy and as
part of combination therapy adjunct to diet and exercise to
improve glycaemic control in adults with Type 2 diabetes
A twice-daily injectable GLP-1 receptor agonist indicated
to improve glycaemic control in adults with Type 2 diabetes
A selective inhibitor of Bruton tyrosine kinase indicated
for the treatment of mantle cell lymphoma (MCL) and in
development for the treatment of multiple B-cell
malignancies and other cancers
US
Product Sales ($m)
Aggregate Revenue
for China, Japan
and Europe2
Product Sales ($m)
EU1
Japan
2017
2016
2015
2017
2016
2015
US
expired
China
4
expired
4
2030-2031
2030
2030
2030
19
16
36
34
86
97
106
2
–
–
–
–
2018-2024,
2021-2030
2018-2024,
20217-2027
2023-2024,
2025-2030
2018,
20195,
20216
2018-2028,
20308
2020-2028,
20298
2017-2028,
20298
2018-2028,
20298
509
348
240
402
347
268
458
463
482
93
109
90
2017-20209
2020 2017-2021 2018-2020
114
164
209
39
62
86
2032, 2036
2032
2032
2032
–
–
–
–
–
–
Crestor
A statin for dyslipidaemia and hypercholesterolaemia
2018-202210 2020-2021 2017, 2020
2017,
2023
373 1,223 2,844
1,528 1,698 1,642
167
134
104
26
15
–
An oral PDE4 (phosphodiesterase-4) inhibitor for adults with
severe COPD to decrease their number of exacerbations
(US only)
2020,
2023-2024
2023
201911,
2023
Daliresp/
Daxas
Duaklir
Fasenra
Faslodex
Farxiga/
Forxiga
A fixed-dose combination of a long-acting muscarinic
antagonist (LAMA) and a long-acting beta2-adrenergic
receptor agonist (LABA) for the maintenance treatment
of COPD
A monoclonal antibody for add-on maintenance treatment
of patients with severe asthma aged 12 years and older,
and with an eosinophilic phenotype, which directly targets
and depletes eosinophils by recruiting natural killer cells
and inducing apoptosis (programmed cell death)
An injectable oestrogen receptor antagonist. It is used for
the treatment of hormone receptor positive advanced breast
cancer whose disease has progressed following treatment
with prior endocrine therapy
A selective inhibitor of human sodium-glucose co-
transporter 2 (SGLT2 inhibitor) indicated as monotherapy
and as part of combination therapy adjunct to diet and
exercise to improve glycaemic control in adult patients
with Type 2 diabetes
Fluenz tetra/
FluMist
Quadravalent
A live-attenuated vaccine indicated for active immunisation
for the prevention of influenza disease caused by influenza A
subtype viruses and type B viruses contained in the vaccine
Imfinzi
Iressa
A human monoclonal antibody that blocks PD-L1 interaction
with PD-1 and CD80 on T cells, countering the tumour’s
immune-evading tactics and inducing an immune response.
It is currently indicated in the US for the treatment of locally
advanced or metastatic urothelial carcinoma
An epidermal growth factor receptor-tyrosine kinase
inhibitor (EGFR-TKI) that acts to block signals for cancer
cell growth and survival in advanced non-small cell lung
cancer (NSCLC)
Kombiglyze
XR17
Combines saxagliptin (Onglyza) and extended release
metformin (metformin XR) in a once-daily tablet for
Type 2 diabetes
208
2020, 2025*,
2022-202712
2020,
2022-2027
2025,
2022-2029
2025,
2021-2029
2020,
2028-2034
2021,
2028
2020,
2028
2020
–
–
–
–
–
–
77
62
26
–
–
–
202113
202114
2026
492
438
356
352
311
269
2020, 2025*,
2020-2030
2020-2023,
2028
2020-2027 2024-2025,
2028
355
358
229
245
175
121
2018-2026 2020-2025 2020-2026 2020-2025
–
33
206
76
65
83
2030
2030
2030
2030
19
–
–
–
–
–
201715
2023
201916,
2023
2018,
2023
39
23
6
367
358
396
2023,
2025
2021, 2025 2021-2026,
2025
18
111
145
154
–
–
–
AstraZeneca Annual Report & Form 20-F Information 2017 / Additional Information Key marketed
products
Lynparza
Description
US
China
EU1
Japan
2017
2016
2015
2017
2016
2015
An oral poly ADP-ribose polymerase (PARP) inhibitor that
may exploit tumour DNA damage response (DDR) pathway
deficiencies to potentially kill cancer cells. It is indicated in
the EU and US for the treatment of women with BRCAm
ovarian cancer
2022-2024,
2028*,
202919,
2024-2031
2021-2024,
2024-2027,
202919
2021-2029,
2024-2027
2021-2024,
2024-2027
141
127
70
130
81
23
US
Product Sales ($m)
Aggregate Revenue
for China, Japan
and Europe2
Product Sales ($m)
Movantik/
Moventig
A once-daily, peripherally-acting mu-opioid receptor
antagonist approved for the treatment of opioid-induced
constipation (OIC) in adult patients. The indication varies
by jurisdiction
2022-2027,
2028*, 2032
2024 2022-2024,
2029*20
2022-2024
120
90
28
2
–
–
Nexium
A proton pump inhibitor used to treat acid-related diseases 2018-202021 2018-2019
2018
2018,
2018-2019
499
526
870
973
975
985
Onglyza
Pulmicort
Qtern
An oral dipeptidyl peptidase 4 (DPP-4) inhibitor
for Type 2 diabetes
An inhaled corticosteroid for maintenance treatment
of asthma
A once-daily oral treatment combination of dapagliflozin
(10mg) and saxagliptin (5mg) indicated as an adjunct to
diet and exercise to improve glycaemic control in adults
with Type 2 diabetes who have inadequate control with
dapagliflozin or who are already treated with dapagliflozin
and saxagliptin
Seloken/
Toprol-XL
A beta-blocker once-daily tablet for control of hypertension,
heart failure and angina
2023, 2028 2021, 2025 2024, 2025
18
209
231
266
114
120
124
2018-201922
201823
201823
201823
156
174
200
847
732
662
2020-2023 2020-2027 2024-2025
4
–
–
–
–
–
2020,
2025*,
2020-2029
expired
expired
expired
expired
37
95
89
470
462
436
Seroquel XR Generally approved for the treatment of schizophrenia,
201724
2017
2017
25
175
515
716
82
134
201
bipolar disorder, major depressive disorder and, on a more
limited basis, for generalised anxiety disorder
Symbicort
A combination of an inhaled corticosteroid and a fast onset
LABA for maintenance treatment of asthma and COPD
A humanised mAb used to prevent serious lower respiratory
tract disease caused by respiratory syncytial virus (RSV) in
paediatric patients at high risk of acquiring RSV disease
An EGFR-TKI indicated for patients with metastatic EGFR
T790M mutation-positive NSCLC
A LAMA for the maintenance treatment of COPD
Synagis
Tagrisso
Tudorza/
Eklira
Genuair
Xigduo
2017-202926 2017-201827 2018-201927 2017-202027 1,099 1,242 1,520
1,201 1,276 1,375
2023
2023
2023
317
325
285
370
352
377
2032
2032
2032
2034
405
254
15
486
158
4
2020, 2025*,
2022-2027
2020,
2022-2027
2025,
2022-2029
2025,
2021-2029
66
77
103
74
84
77
Combines dapagliflozin (Farxiga/Forxiga), an SGLT2
inhibitor, and metformin IR, in a twice-daily tablet to improve
glycaemic control in adult patients with Type 2 diabetes
who are inadequately controlled by metformin alone
2020,
2025*,
2020-2030
2020-2023 2020-2028 2024-2025,
2030
134
99
32
58
37
21
Zoladex
A luteinising hormone-releasing hormone (LHRH) agonist
used to treat prostate cancer, breast cancer and certain
benign gynaecological disorders
2022
2021
2021
2021
15
35
28
483
498
485
* Date represents expiry of a pending SPC/PTE and/or Paediatric Exclusivity period.
1 Expiry in major EU markets.
2 The Product Sales reflected are of Europe Region as defined in Market definitions on page 235.
3 Atacand HCT in US.
4 Takeda retained rights.
5 The patent was invalidated during invalidation proceedings at the Chinese Patent Office (SIPO). The patentee has appealed that decision.
6 The patent was invalidated during invalidation proceedings at the Chinese Patent Office (SIPO).
7 The patent was revoked during opposition proceedings at the European Patent Office (EPO). The patentee has appealed that decision.
8 Patent expiry date relates to BCise.
9 Settled with two generic companies with a licensed entry date of 15 October 2017, or later, subject to regulatory approval.
10 A settlement agreement in the US permitted Watson Laboratories, Inc. and Actavis, Inc. (together, Watson) to begin selling its generic version of Crestor and its rosuvastatin zinc product
from 2 May 2016.
11 There is eight years’ data exclusivity and two years’ market exclusivity for Daxas in the EU to 5 July 2020.
12 Not filed for approval in US.
13 Settled with various generic companies for licensed entry dates of 25 March 2019 or later.
14 In Germany, the patent has been revoked, and AstraZeneca is appealing; generics have launched pending appeal.
15 In the US, Iressa has seven years’ orphan drug exclusivity to 13 July 2022.
16 SPCs expire 2 March 2019. There is eight years’ data exclusivity and two years’ market exclusivity for Iressa in the EU to 24 June 2019.
17 Komboglyze/Kombiglyze XR revenue is included in the Onglyza revenue figure.
18 AstraZeneca does not have commercialisation rights.
19 Patent expiry date relates to the tablet formulation.
20 ProStrakan Group (a subsidiary of Kyowa Hakko Kirin Co. Ltd) is exclusively licensed in the EU, Iceland, Norway, Switzerland and Liechtenstein.
21 Licence agreements have allowed generic companies to launch generic capsule versions in the US.
22 A licence agreement with Teva permits its ongoing sale in the US of a generic version from December 2009. The 2018 expiry relates to the Flexhaler device, while the 2019 expiry relates to the
formulation in the Flexhaler presentation and also to Respules.
23 The 2018 expiry relates to the formulation in the Turbuhaler presentation and to a process useful for the Respules product.
24 Licence agreements with various generics companies allowed launches of generic versions of Seroquel XR in the US as of 1 November 2016.
25 Rights licensed to Astellas.
26 Patent expiry dates relate to the Symbicort pMDI product, including any granted Paediatric Exclusivity term.
27 Patent expiry dates relate to the Symbicort Turbuhaler product.
AstraZeneca Annual Report & Form 20-F Information 2017 / Patent Expiries of Key Marketed Products
209
Additional Information Risk
Risks and uncertainties
Operating in the pharmaceutical sector carries various inherent risks and uncertainties that may affect our business. In this section, we describe
the risks and uncertainties that we consider material to our business in that they may have a significant effect on our financial condition, results
of operations, and/or reputation.
These risks are not listed in any particular order of priority and have been categorised consistently with the Principal Risks detailed from
page 63, which are included below along with the other risks that we face. We believe that the forward-looking statements about AstraZeneca
in this Annual Report, identified by words such as ‘anticipates’, ‘believes’, ‘expects’ and ‘intends’, and that include, among other things,
Future prospects in the Financial Review on page 78, are based on reasonable assumptions. However, forward-looking statements involve
inherent risks and uncertainties such as those summarised below. They relate to events that may occur in the future, that may be influenced
by factors beyond our control and that may have actual outcomes materially different from our expectations. Therefore, other risks, unknown
or not currently considered material, could have a material adverse effect on our financial condition or results of operations.
Product pipeline and IP risks
Impact
Failure or delay in delivery of pipeline or launch of new products
Our continued success depends on the development and successful launch of
innovative new drugs.
The development of pharmaceutical product candidates is a complex, risky and
lengthy process involving significant financial, R&D and other resources. A project
may fail at any stage of the process due to various factors, including failure to
obtain the required regulatory or marketing approvals for the product candidate
or for its manufacturing facilities, unfavourable clinical efficacy data, safety concerns,
failure to demonstrate adequate cost-effective benefits to regulatory authorities and/or
payers and the emergence of competing products. More details of projects that have
suffered setbacks or failures during 2017 can be found in the Therapy Area Review.
The anticipated launch dates of major new products significantly affect our business,
including investment in large clinical studies, the manufacture of pre-launch product
stocks, investment in marketing materials pre-launch, sales force training and the
timing of anticipated future revenue streams from new Product Sales. Launch dates
are primarily driven by our development programmes and the demands from
various factors, including adverse findings in pre-clinical or clinical studies,
regulatory demands, price negotiation, competitor activity and technology transfer.
More complex and stringent regulations govern the manufacturing and supply of
biologics products, thus impacting the production and release schedules of such
products more significantly.
In addition to developing products in-house, we also expand our product portfolio and
geographical presence through licensing arrangements and strategic collaborations,
which are key to growing and strengthening our business. The success of such
arrangements is largely dependent on the technology and other IP rights we acquire
or license, and the resources, efforts and skills of our partners. Disputes or difficulties
in our relationship with our collaborators or partners may arise, for example, due to
conflicting priorities or conflicts of interest between parties.
In many cases we make milestone payments well in advance of the commercialisation
of the products, with no assurance that we will recoup these payments.
We experience strong competition from other pharmaceutical companies in respect
of licensing arrangements, strategic collaborations, and acquisition targets.
Failure or delay in development of new product candidates that
achieve the expected commercial success could frustrate the
achievement of development targets, adversely affect the reputation
of our R&D capabilities, and is likely to materially adversely affect
our business and results of operations. See also Failure to achieve
strategic plans or meet targets and expectations on page 219.
Since our business model and strategy rely on the success of relatively
few compounds, the failure of any compound in our late-stage pipeline
or in-line products may have a significant negative effect on our
business or results of operations.
Significant delays to anticipated launch dates of new products could
have a material adverse effect on our financial position and/or results
of operations. For example, for the launch of products that are
seasonal in nature, delays in regulatory approvals or manufacturing
difficulties may delay launch to the next season which, in turn, may
significantly reduce the return on costs incurred in preparing for the
launch for that season. Furthermore, in immuno-oncology in particular,
speed to market is critical given the large number of clinical trials
being conducted by other companies.
In addition, a delayed launch may lead to increased costs if, for
example, marketing and sales efforts need to be rescheduled or
performed for longer than expected.
Failure to complete collaborative projects in a timely, cost-effective
manner may limit our ability to access a greater portfolio of products,
IP technology and shared expertise. Disputes and difficulties with
our partners may erode or eliminate the benefits of our alliances and
collaborations. In addition, failure to perform on the part of parties to
externalisation transactions may diminish the future value of those
transactions or, in some cases, allow a competitor to beat us to market
with a similar or first-in-class product. Delay of launch can also erode
the term of patent exclusivity.
Competition from other pharmaceutical companies means that we
may be unsuccessful in implementing some of our intended projects
or we may have to pay a significant premium over book or market
values for our acquisitions.
210
AstraZeneca Annual Report & Form 20-F Information 2017 / Additional Information Product pipeline and IP risks
Impact
Difficulties in obtaining or maintaining regulatory drug approval for products
Delays in regulatory reviews and approvals could delay our ability to
market our products and may adversely affect our revenue. In addition,
post-approval requirements, including additional clinical trials, could
result in increased costs, and may impact the labelling and approval
status of currently marketed products.
We are subject to strict controls on the commercialisation processes for our
pharmaceutical products, including their development, manufacture, distribution
and marketing. The criteria for establishing safety, efficacy and quality, which are
essential for securing marketing approvals, may vary by country and by region.
Regulators can refuse to grant approval or may require additional data before approval
is granted, even though the medicine may already be launched in other countries.
Factors, including advances in science and technology, evolving regulatory science,
and different approaches to benefit/risk tolerance by regulatory authorities, the general
public, and other third party public interest groups influence the initial approvability
of new drugs. While we seek to manage many of these risks, unanticipated and
unpredictable policymaking by governments and regulators, limited regulatory authority
resources or conflicting priorities often lead to severe delays in regulatory approvals.
We may be required to conduct additional clinical trials after a drug’s approval because
a regulatory authority may have a concern that impacts the benefit/risk profile of one
of our marketed drugs or drugs currently in development. For our marketed drugs,
new data and meta-analyses have the potential to drive changes in the approval
status or labelling. In addition, recent years have seen an increase in post-marketing
regulatory requirements and commitments, and an increased call for third-party
access to regulatory and clinical trial data packages for independent analysis and
interpretation, and broader data transparency. Such transparency, while important,
could lead to inappropriate or incorrect data analyses which may damage the integrity
of our products and our Company’s reputation.
Failure to obtain, defend and enforce effective IP protection and IP challenges by third parties
A pharmaceutical product may be protected from being copied for a limited period
of time under certain patent rights and/or related IP rights, such as Regulatory
Data Protection or Orphan Drug status. Typically, products protected by such rights
generate significantly higher revenues than those not protected. Our ability to obtain,
maintain, defend and enforce patents and other IP rights in relation to our products is
an important element in protecting and recouping our investment in R&D and creating
long-term value for the business. Some countries in which we operate do not offer
robust IP protection. This may be because IP laws are still developing, the scope of
those laws is limited or the political environment does not support such legislation.
We may also face challenges early in the patent application process and throughout
a patent’s life. The grounds for these challenges could be the validity of a patent
and/or its effective scope and are based on ever-evolving legal precedents. We are
experiencing increased challenges in the US and elsewhere in the world and there
can be no guarantee of success for either party in patent proceedings and litigation.
We also bear the risk that our products may be found to infringe patents owned
or licensed by third parties, including research-based and generic pharmaceutical
companies and individuals. These third parties may seek remedies for patent
infringement, including injunctions (for example, preventing the marketing of one
of our products) and damages (for example, research-based competitors are alleging
infringement of their patents and are seeking damages in relation to our marketing of
Imfinzi and Calquence).
Details of material patent proceedings and litigation matters can be found in Note 28
to the Financial Statements from page 182.
Limitations on the availability of patent protection, the ability to
obtain related IP rights or the use of compulsory licensing in certain
countries in which we operate, as well as our ability to defend and
enforce our patents, could allow for earlier entry of generic or
biosimilar competitor products. This could have a material adverse
effect on the pricing and sales of our products and, consequently,
could materially adversely affect our revenues.
Third parties may be awarded remedies for alleged infringement
of their IP, for example injunctions and damages for alleged patent
infringement. In the US, courts may order enhanced (ie up to treble)
damages for alleged wilful infringement of patents. From time to
time we may acquire licences, discontinue activities and/or modify
processes to avoid claims of patent infringement. These steps could
entail significant costs and our revenue and margins could be
materially adversely affected.
More information about protecting our IP, the risk of patent litigation
and the early loss of IP rights is contained in the Intellectual Property
section on page 32, the Competitive pressures including expiry or
loss of IP rights and generic competition risk on page 212 and Note
28 to the Financial Statements from page 182.
AstraZeneca Annual Report & Form 20-F Information 2017 / Risk
211
Additional Information Risk
continued
Commercialisation risks
Impact
Competitive pressures including expiry or loss of IP rights, and generic competition
If we are not successful in obtaining, maintaining, defending or
enforcing our exclusive rights to market our products, particularly
in the US where we achieve our highest Product Sales, our revenue
and margins could be materially adversely affected. In addition,
unsuccessful assertion of our IP rights may lead to damages or
other liabilities to third parties that could materially adversely
affect our financial performance.
Unfavourable resolution of current and potential future patent litigation
may require us to make significant provisions in our accounts relating
to legal proceedings and/or could materially adversely affect our
financial condition or results of operations.
A pharmaceutical product competes with other products marketed by research-based
pharmaceutical companies and with generic or biosimilar drugs marketed by generic
drug manufacturers.
Approval of competitive products for the same or similar indication as one of our
products may result in immediate and significant decreases in our revenues.
Generic versions of products, including biosimilars, are often sold at lower prices than
branded products, as the manufacturer does not have to recoup the significant cost
of R&D investment and market development. Expiry or loss of IP rights can materially
adversely affect our revenues and financial condition due to the launch of cheaper
generic copies of the product in the country where the rights have expired or been
lost (see the table in the Patent Expiries of Key Marketed Products section from
page 208). For example in 2017, our US Product Sales of Crestor fell to $373 million
(2016: $1,223 million), following the launch of generics.
Additionally, the expiry or loss of patents covering other innovator companies’ products
may also lead to increased competition and pricing pressure for our own, still-patented
products in the same product class due to the availability of lower priced generic
products in that product class.
Generic manufacturers may also take advantage of the failure of certain countries to
properly enforce Regulatory Data Protection or other related IP rights and may launch
generics during this protected period. This is a particular risk in some Emerging
Markets where appropriate patent protection or other related IP rights may be difficult
to obtain or enforce.
The biosimilars market has experienced notable growth in 2017, with approval of
several monoclonal antibody biosimilars in the US and Europe. This trend is expected
to continue. Increased regulatory and legal activity related to the launch and approval
of these therapeutics is anticipated. Regulatory authorities in other territories continue
to implement or consider abbreviated approval processes for biosimilars, allowing
quicker entry to market for such products and earlier than anticipated competition for
patented biologics.
As well as facing generic competition upon expiry or loss of IP rights, we also face the
risk that generic drug manufacturers seek to market generic versions of our products
prior to expiries of our patents and/or the Regulatory Exclusivity periods. For example,
we are currently facing challenges from numerous generic drug manufacturers
regarding our patents relating to key products, including Brilinta, Faslodex, Byetta,
Daliresp, Onglyza and Crestor.
IP rights protecting our products may be challenged by external parties. We expect
our most valuable products to receive the greatest number of challenges. Despite our
efforts to establish and defend robust patent protection for our products, we bear the
risk that courts may decide that our IP rights are invalid and/or that third parties do not
infringe our asserted IP rights.
Where we assert our IP rights but are ultimately unsuccessful, third parties may seek
damages, alleging, for example, that they have been inappropriately restrained from
entering the market. In such cases, we bear the risk that we incur liabilities to those
third parties.
Details of material patent litigation matters can be found in Note 28 to the Financial
Statements from page 182.
212
AstraZeneca Annual Report & Form 20-F Information 2017 / Additional Information Commercialisation risks
Price controls and reductions
Impact
Due to these pricing pressures, there can be no certainty that we will
be able to charge prices for a product that, in a particular country or
in the aggregate, enable us to earn an adequate return on our product
investment. These pressures, including the increasingly restrictive
reimbursement policies to which we are subject, could materially
adversely affect our business or results of operations.
We expect these pricing pressures will continue and may increase.
The continued disparities in EU and US pricing systems could lead
to marked price differentials between regions, which, by way of the
implementation of existing or new reference pricing mechanisms,
increases the pricing pressure affecting the industry. The importation
of pharmaceutical products from countries where prices are low due
to government price controls, or other market dynamics, to countries
where prices for those products are higher, is already prevalent and
may increase. Strengthened collaboration by governments may
accelerate the development of further cost-containment policies
(such as joint procurement). Increased and simplified access to
national and regional prices in markets and the publication of
these prices in centralised databases have facilitated the uptake
and efficiency of price referencing across the world.
Most of our key markets have experienced the implementation of various cost control
or reimbursement mechanisms for pharmaceutical products.
In the US, there is significant pricing pressure driven by payer consolidation, restrictive
reimbursement policies, and cost control tools, such as exclusionary formularies and
price protection clauses. Many formularies employ ‘generic first’ strategies and/or require
physicians to obtain prior approval for the use of a branded medicine where a generic
alternative exists. These mechanisms can be used by payers to limit the use of branded
products and put pressure on manufacturers to reduce net prices. In addition, patients
are seeing changes in the design of their health plan benefits and may experience
variation in how their plans cover their medications, including increases in the
out-of-pocket payments for their branded medications. Patient out-of-pocket spending
is generally in the form of a co-payment or co-insurance, but there is a growing trend
towards high deductible health plans that require that patients pay the full list price
of their drugs and services until they meet certain out-of-pocket thresholds. Ongoing
scrutiny of the US pharmaceutical industry, focused largely on pricing, is placing
increased emphasis on the value of medications. This scrutiny will likely continue
across many stakeholders, including policymakers and legislators.
The new US political leadership continues to consider a range of legislative and
regulatory proposals to address the high costs of prescription drugs as well as reforms
to the US healthcare system. These may include changes to the ACA, modifications
to Medicare and other government programmes, and policies aimed at reducing
drug prices such as importation schemes. For more information, please see Pricing of
medicines in the Marketplace section from page 12. However, many of these proposals
have not achieved broad support from policymakers and, in the near term, legislators
have shifted focus away from healthcare reform. It is difficult to predict what specific
proposals could be enacted and to determine the implications for the healthcare
system and pharmaceutical industry. However, healthcare reform remains a key
campaign promise of the current administration and proposals that would significantly
modify existing laws and regulations, including the ACA, government programmes and
policies relating to drug pricing, could affect private health insurance, coverage through
Medicaid and the health insurance exchange marketplaces, Medicare coverage and
savings provisions, and other facets of the US healthcare market, with potentially
significant impacts on the pharmaceutical industry.
In Europe, the industry continues to be exposed to various ad hoc cost-containment
measures and reference pricing mechanisms, which impact prices. There is a
trend towards increasing transparency and comparison of prices among EU
Member States which may eventually lead to a change in the overall pricing and
reimbursement landscape.
In Emerging Markets, governments are increasingly controlling pricing in the self-pay
sector and favouring locally manufactured drugs. In addition, the emergence of price
referencing has been seen in some markets combined with a call from authorities to
provide greater global price transparency.
Concurrently, many markets are adopting the use of Health Technology Assessment
(HTA) to provide a rigorous evaluation of the clinical efficacy of a product at, or post,
launch. HTA evaluations are also increasingly being used to assess the clinical effect,
as well as cost-effectiveness, of products in a particular health system. This comes
as payers and policymakers attempt to increase efficiencies in the use and choice of
pharmaceutical products.
A summary of the principal aspects of price regulation and how pricing pressures are
affecting our business in our most important markets is set out in Pricing of medicines in
the Marketplace section from page 12 and on the next page in the following risk factor.
AstraZeneca Annual Report & Form 20-F Information 2017 / Risk
213
Additional Information Risk
continued
Commercialisation risks
Impact
Economic, regulatory and political pressures
Operating in over 100 countries, we are subject to political, socio-economic and
financial factors both globally and in individual countries.
A sustained global economic downturn may further exacerbate pressure from
governments and other healthcare payers on medicine prices and volumes of sales in
response to pressures on budgets, and may cause a slowdown or a decline in growth
in some markets. Those most severely impacted by the economic downturn may seek
alternative ways to settle their debts through, for example, the issuance of government
bonds which might trade at a discount to the face value of the debt. Other customers
may cease to trade, which may result in losses from writing off debts, or a reduction in
demand for products.
We are highly dependent on being able to access a sustainable flow of liquid funds
due to the high fixed costs of operating our business and the long and uncertain
development cycles of our products. In a sustained economic downturn, financial
institutions with whom we deal may cease to trade and there can be no guarantee
that we will be able to access monies owed to us without a protracted, expensive
and uncertain process, if at all.
The majority of our cash investments are managed centrally and are invested in
collateralised bank deposits, fixed income securities in government, financial and
non-financial securities and AAA credit-rated institutional money market funds.
Money market funds are backed by institutions in the US and the EU, which, in turn,
invest in other funds, including sovereign funds. This means our credit exposure is
a mix of US and EU sovereign default risk, financial institution and non-financial
institution default risk.
On 23 June 2016, the UK held a referendum on the UK’s continuing membership
of the EU, the outcome of which was a decision for the UK to leave the EU (Brexit).
On 29 March 2017, the UK Government formally notified the EU under Article 50 of the
UK’s intention to leave the EU. This notification began the process of negotiation that
will likely determine the future terms of the UK’s relationship with the EU. Absent a
negotiated agreement, the UK will leave the EU on 29 March 2019 and relevant EU law
and agreements will cease to apply. Until the Brexit negotiation process is completed,
it is difficult to anticipate the potential impact on AstraZeneca’s market share, sales,
profitability and results of operations. The Group operates from a global footprint and
retains flexibility to adapt to changing circumstances. The uncertainty during and
after the period of negotiation is also expected to increase volatility and may have
an economic impact on the countries in which we operate, particularly in the UK and
Eurozone. The Board reviews the potential impact of Brexit as an integral part of its
Principal Risks (as outlined from page 63) rather than as a stand-alone risk. As the
process of Brexit evolves, the Board will continue to assess its impact on the Company.
Deterioration of, or failure to improve, socio-economic conditions,
and situations and/or resulting events, depending on their severity,
could adversely affect our supply and/or distribution chain in the
affected countries and the ability of customers or ultimate payers
to purchase our medicines. This could adversely affect our business
or results of operations.
While we have adopted cash management and treasury policies to
manage the risk of not being able to access a sustainable flow of
liquid funds (see the Financial risk management policies section of the
Financial Review from page 79), we cannot be certain that these will
be as effective as they are intended to be, in particular in the event of
a global liquidity crisis. In addition, open positions where we are owed
money and investments we have made in financial and non-financial
institutions or money market funds cannot be guaranteed to be
recoverable. Additionally, if we need access to external sources
of financing to sustain and/or grow our business, such as the debt
or equity capital financial markets, this may not be available on
commercially acceptable terms, if at all, in the event of a severe and/or
sustained economic downturn. This may, for instance, be the case in
the event of any default by the Company on its debt obligations, which
may materially adversely affect our ability to secure debt funding in the
future or our financial condition in general. Further information on debt
funding arrangements is contained in the Financial risk management
policies section of the Financial Review from page 79.
It is still early to judge the impact of Brexit as it is unclear as to the
trading relationships the UK will be able to negotiate with the EU and
other significant trading partners. Any deterioration in market access
or trading terms including customs duties, VAT or other tariffs that
constitute real cost, delay or restrictions to the movement of goods
and increased administration may materially adversely impact our
financial performance.
214
AstraZeneca Annual Report & Form 20-F Information 2017 / Additional Information Commercialisation risks
Impact
Failures or delays in the quality and execution of our commercial strategies
Failure to execute our commercial strategies could materially adversely
impact our business or results of operations.
If a new product does not succeed as anticipated or its rate of sales
growth is slower than anticipated, there is a risk that we may be unable
to fully recoup the costs incurred in launching it, which could materially
adversely affect our business or results of operations.
Due to the complexity of the commercialisation process for biologics,
the methods of distributing and marketing biologics could materially
adversely impact our revenues from the sales of biologics medicines,
such as Synagis and FluMist/Fluenz.
The failure to exploit potential opportunities appropriately in Emerging
Markets or materialisation of the risks and challenges of doing
business in such markets, including inadequate protection against
crime (including counterfeiting, corruption and fraud) or inadvertent
breaches of local and international law may materially adversely affect
our reputation, business or results of operations.
Integration processes may also result in business disruption, diversion
of management resources, the loss of key employees and other issues,
such as a failure to integrate IT and other systems.
The incurrence of significant debt or liabilities due to the integration of
an acquired business could cause deterioration in our credit rating and
result in increased borrowing costs and interest expense. We may
issue additional shares to pay for acquired businesses, which would
result in the dilution of our then existing shareholders.
Commercial success of our Growth Platforms is a critical factor in sustaining or
increasing global Product Sales and replacing lost Product Sales due to patent expiry.
The successful launch of a new pharmaceutical product involves substantial investment
in sales and marketing activities, launch stocks and other items. We may ultimately
be unable to achieve commercial success for various reasons, including difficulties
in manufacturing sufficient quantities of the product candidate for development or
commercialisation in a timely manner, the impact of price control measures imposed
by governments and healthcare authorities, the outcome of negotiations with
third-party payers, erosion of IP rights, including infringement by third parties,
failure to show a differentiated product profile and changes in prescribing habits.
The commercialisation of biologics is often more complex than for small molecule
pharmaceutical products, primarily due to differences in the mode of administration,
technical aspects of the product, and rapidly changing distribution and
reimbursement environments.
We face particular challenges in Emerging Markets, including:
> More volatile economic conditions and/or political environments.
> Competition from multinational and local companies with existing market presence.
> The need to identify and to leverage appropriate opportunities for sales and marketing.
> Poor IP protection.
> Inadequate protection against crime (including counterfeiting, corruption and fraud).
> The need to impose developed market compliance standards.
> The need to meet a more diverse range of national regulatory, clinical, manufacturing
and distribution requirements.
> Potential inadvertent breaches of local and international law.
> Not being able to recruit appropriately skilled and experienced personnel.
> Difficulty in identifying the most effective sales and marketing channels and
routes to market.
> Intervention by national governments or regulators restricting market access and/or
introducing adverse price controls.
> Difficulty in managing local partnerships such as co-promotion and co-marketing;
both driving performance and adhering to AstraZeneca’s compliance standards
which are often higher than the market norm.
> Difficulties in cash repatriation due to strict foreign currency controls and lack of hard
currency reserves in some Emerging Markets.
> Complexity inherent within a direct exports business from UK and Sweden operations
to countries where we do not have a legal entity.
We may also seek to acquire complementary businesses or enter into other strategic
transactions. The integration of an acquired business could involve incurring significant
debt and unknown or contingent liabilities, as well as having a negative effect on
our reported results of operations from acquisition-related charges, amortisation of
expenses related to intangibles and charges for the implementation of long-term assets.
We may also experience difficulties in integrating geographically separated
organisations, systems and facilities, and personnel with different organisational cultures.
Disputes or difficulties in our relationship with our collaborators or partners may also
arise, often due to conflicting priorities or conflicts of interest between parties.
AstraZeneca Annual Report & Form 20-F Information 2017 / Risk
215
Additional Information Risk
continued
Supply chain and business execution risks
Impact
Failure to maintain supply of compliant, quality products
We may experience difficulties, delays and interruptions in the manufacturing
and supply of our products for various reasons, including:
> Demand significantly in excess of forecast demand, which may lead to supply
shortages (this is particularly challenging before launch).
> Supply chain disruptions, including those due to natural or man-made disasters at
one of our facilities or at a critical supplier or vendor.
> Delays in construction of new facilities or the expansion of existing facilities, including
those intended to support future demand for our products (the complexities
associated with biologics facilities, especially for drug substance, increase the
probability of delay).
> The inability to supply products due to a product quality failure or regulatory agency
compliance action such as licence withdrawal, product recall or product seizure.
> Other manufacturing or distribution problems, including changes in manufacturing
production sites, limits to manufacturing capacity due to regulatory requirements,
changes in the types of products produced, or physical limitations or other business
interruptions that could impact continuous supply.
We increasingly rely on third parties for the timely supply of goods, such as raw
materials (for example, the API in some of our medicines and drug substances and/or
finished drug products for some of our biologics medicines), equipment, formulated
drugs and packaging, critical product components and services, all of which are key to
our operations. Many of these goods are difficult to substitute in a timely manner or
at all. We expect that external capacity for biologics drug substance production will
remain constrained for the next few years and, accordingly, may not be readily available
for supplementary production in the event that we experience an unforeseen need for
such capacity.
Illegal trade in our products
The illegal trade in pharmaceutical products is widely recognised by industry,
non-governmental organisations and governmental authorities to be increasing.
Illegal trade includes counterfeiting, theft and illegal diversion (that is, when our
products are found in a market where we did not send them and where they are not
approved or not permitted/allowed to be sold). There is a risk to public health when
illegally traded products enter the supply chain, as well as associated financial risk.
Authorities and the public expect us to help reduce opportunities for illegal trade
in our products through securing our supply chains, surveillance, investigation
and supporting legal action against those found to be engaged in illegal trade.
Reliance on third-party goods and services
AstraZeneca spends approximately $10 billion each year with trade suppliers.
The spend supports the length of our value chain from discovery to manufacture
and commercialisation of our medicines.
Many of our business-critical operations, including certain R&D processes, IT systems,
HR, finance, tax and accounting services have been outsourced to third party
providers. We are therefore heavily reliant on these third parties not just to deliver
timely and high quality services, but also to comply with applicable laws and
regulations and adhere to our ethical business expectations of third party providers.
Difficulties with manufacturing and supply, forecasting, distribution or
third-party suppliers may result in product shortages, which may lead
to lost Product Sales and materially adversely affect our reputation
and revenues. Even slight variations in components or any part of the
manufacturing process may lead to a product that is non-compliant
and does not meet quality standards. This could lead to recalls,
spoilage, product shortage, regulatory action and/or reputational harm.
Public loss of confidence in the integrity of pharmaceutical products
as a result of illegal trade could materially adversely affect our
reputation and financial performance. In addition, undue or misplaced
concern about this issue may cause some patients to stop taking their
medicines, with consequential risks to their health. Authorities may
take action, financial or otherwise, if they believe we are liable for
breaches in our own supply chains.
There is also a direct financial loss when, for example, counterfeit
and/or illegally diverted products replace sales of genuine products
in a market or genuine products are recalled following discovery
of counterfeit products.
The failure of outsource providers to deliver timely services, and to
the required level of quality, or the failure of outsource providers to
co-operate with each other, could materially adversely affect our
financial condition or results of operations. Moreover, the failure of
these third parties to operate in an ethical manner could adversely
impact our reputation both internally and externally or even result
in non-compliance with applicable laws and regulations.
Our business and financial results could also be materially adversely
affected by disruptions caused by our failure to successfully manage
either the integration of outsourced services or the transition process
of insourcing services from third parties.
216
AstraZeneca Annual Report & Form 20-F Information 2017 / Additional Information Supply chain and business execution risks
Impact
Failure of information security, data protection and cybercrime
We are dependent on effective IT systems. These systems support key business
functions such as our R&D, manufacturing, supply chain and sales capabilities and
are an important means of safeguarding and communicating data, including critical or
sensitive information, the confidentiality and integrity of which we rely on. In addition,
we must ensure that the personal data which we, or third-party vendors operating on
our behalf, hold and process is protected in a manner that complies with the EU GDPR
which was approved by the EU on 28 May 2016, and will enter into force in May 2018.
Examples of sensitive information that we protect include clinical trial records (patient
names and treatments), personal information (employee bank details, home address),
IP related to manufacturing process and compliance, key research science techniques,
AstraZeneca property (theft) and privileged access (rights to perform IT tasks).
The size and complexity of our IT systems, and those of our third-party vendors
(including outsource providers) with whom we contract, have significantly increased
over the past decade and this makes such systems potentially vulnerable to service
interruptions and security breaches from attacks by malicious third parties, or from
intentional or inadvertent actions by our employees or vendors.
Significant changes in the business footprint and the implementation of the IT strategy,
including the creation and use of captive offshore Global Technology Centres, could
lead to temporary loss of capability.
We increasingly use the internet, digital content, social media, mobile applications and
other forms of new technology to communicate internally and externally. The accessibility
and instantaneous nature of interactions with such media may facilitate or exacerbate
the risk of unauthorised data loss from within AstraZeneca. It may also lead to false
or misleading statements being made about AstraZeneca, which may damage our
reputation. As existing social media platforms expand and evolve, and new social
media platforms emerge, it becomes increasingly challenging to identify new points
of entry and to put structures in place to secure and protect sensitive information.
Failure of critical processes
Unexpected events and/or events beyond our control could result in the failure of
critical processes within the Company or at third parties on whom we are reliant.
The business faces threats to business continuity from many directions. Examples
of material threats include:
> Disruption to our business if there is instability in a particular geographic region,
including as a result of war, terrorism, riots, unstable governments, civil insurrection
or social unrest.
> Natural disasters in areas of the world prone to extreme weather events and earthquakes.
> Cyber threats similar to those detailed in the Failure of information security, data
protection and cybercrime section above.
Any expected gains from productivity initiatives are uncertain
We continue to implement various productivity initiatives and restructuring
programmes with the aim of enhancing the long-term efficiency of the business.
However, anticipated cost savings and other benefits from these programmes are
based on estimates and the actual savings may vary significantly or may not be
achieved at all. In particular, these cost-reduction measures are often based on
current conditions and cannot always take into account any future changes to the
pharmaceutical industry or our operations, including new business developments
or wage or price increases.
Any significant disruption to these IT systems, including breaches of
data security or cyber security, failure to integrate new and existing
IT systems or failure to prepare for emerging EU GDPR and other
applicable laws, could harm our reputation and materially adversely
affect our financial condition or results of operations.
While we invest heavily in the protection of our data and IT, we may be
unable to prevent breakdowns or breaches in our systems that could
result in disclosure of confidential or other sensitive information, damage
to our reputation, regulatory penalties, financial losses and/or other costs.
The inability to effectively back up and restore data could lead to
permanent loss of data that could result in non-compliance with
applicable laws and regulations, and otherwise harm our business.
We and our vendors could be susceptible to third-party attacks on
our information security systems. Such attacks are of ever-increasing
levels of sophistication and are made by groups and individuals with
a wide range of motives and expertise, including criminal groups,
‘hacktivists’ and others. From time to time we experience intrusions,
including as a result of computer-related malware. We may be
unable to ward off such attacks which could have an adverse affect
on our business.
Inappropriate use of certain media vehicles could lead to the
unauthorised or unintentional public disclosure of sensitive information
(such as personally identifiable information on employees, healthcare
professionals or patients, such as those enrolled in our clinical trials),
which may damage our reputation, adversely affect our business or
results of operations and expose us to legal risks and/or additional
legal obligations. Similarly, the involuntary public disclosure of
commercially sensitive information or an information loss could
adversely affect our business or results of operations. In addition,
negative posts or comments about us (or, for example, the safety
of our products) on social media websites or other digital channels
could harm our reputation.
Failure of critical processes may result in an inability to research,
manufacture or supply products to patients. AstraZeneca has
developed a Business Resilience framework which is designed
to mitigate such risks. However, there is no guarantee that these
measures will be sufficient to prevent business interruption.
This may expose the Company to litigation and/or regulatory action
which may result in fines, loss of revenue and adversely affect the
Company’s financial results.
Our failure to successfully implement these planned cost-reduction
measures, either through the successful implementation of employee
relations processes (including consultation, engagement, talent
management, recruitment and retention), or the possibility that these
efforts do not generate the level of cost savings we anticipate, could
materially adversely affect our business or results of operations.
Failure to attract and retain key personnel, and engage successfully with our employees
We rely heavily on recruiting and retaining talented employees with a diverse range
of skills and capabilities to meet our strategic objectives.
We face intense competition for well-qualified individuals, as the supply of people with
specific skills and significant leadership potential or in specific geographic regions may
be limited and in the UK the added uncertainty created by Brexit could impact the
hiring and retention of staff in some business-critical areas.
The successful delivery of our business objectives is dependent on high levels
of engagement, commitment and motivation of the workforce.
The inability to attract and retain highly skilled personnel may
weaken our succession plans for critical positions in the medium
term, may materially adversely affect the implementation of our
strategic objectives and could ultimately impact our business
or results of operations.
Failure to engage effectively with our employees could lead to
business disruption in our day-to-day operations, reduce levels of
productivity and/or increase levels of voluntary turnover, all of which
could ultimately materially adversely affect our business or results
of operations.
AstraZeneca Annual Report & Form 20-F Information 2017 / Risk
217
Additional Information Risk
continued
Legal, regulatory and compliance risks
Impact
Failure to comply with applicable laws, rules and regulations; manage
our liabilities; or to adequately anticipate or proactively manage
emerging policy and legal developments could materially adversely
affect our licence to operate, or results of operations; adversely affect
our reputation; cause harm to people or the environment; and/or lead
to fines or other penalties. For example, once a product has been
approved for marketing by the regulatory authorities, it is subject to
continuing control and regulation, such as the manner of its manufacture,
distribution, marketing and safety surveillance. If regulatory
issues concerning compliance with environmental, current Good
Manufacturing Practice or safety monitoring regulations for
pharmaceutical products (often referred to as pharmacovigilance)
arise, this could lead to loss of product approvals, product recalls
and seizures, and interruption of production, which could create
product shortages and delays in new product approvals, and
negatively impact patient access.
Failure to adhere to applicable laws, rules and regulations
Our many business operations are subject to a wide range of laws, rules and
regulations from governmental and non-governmental bodies around the world.
Any failure to comply with these applicable laws, rules and regulations may result in
us being investigated by relevant agencies and authorities and/or in legal proceedings
being filed against us. Such investigations or proceedings could result in us becoming
subject to civil or criminal sanctions and/or being forced to pay fines or damages.
Relevant authorities have wide-ranging administrative powers to deal with any failure
to comply with continuing regulatory oversight and this could affect us, whether such
failure is our own or that of our contractors or external partners.
Material examples of statutes, rules and regulations impacting business operations
include:
> Compliance with Good Manufacturing Practice.
> Local, national and international environment or occupational health and safety laws
and regulations.
> Trade control laws governing our imports and exports including nationally and
internationally recognised trade agreements, embargoes, trade and economic
sanctions and anti-boycott requirements.
> Competition laws and regulations, including challenges from competition authorities
and private damages actions.
> Rules and regulations established to promote ethical supply chain management.
> Financial regulations including, but not limited to, external financial reporting, taxation
and money laundering.
> Employment practices.
> Disclosure of payments to healthcare professionals under the Sunshine Act and
EFPIA legislation.
> Appropriate disclosure of community support, patient group support and
product donations.
We have environmental and/or occupational health and safety-related liabilities at some
current, formerly owned, leased and third-party sites. For more information on the most
significant of these and for details on other significant litigation matters, please refer to
Note 28 to the Financial Statements from page 182.
Safety and efficacy of marketed products is questioned
Our ability to accurately assess, prior to launch, the eventual efficacy or safety of a new
product once in broader clinical use can only be based on data available at that time,
which is inherently limited due to relatively short periods of product testing and
relatively small clinical study patient samples.
Serious safety concerns or adverse events relating to our products
could lead to product recalls, seizures, loss of product approvals and
interruption of supply and could materially adversely impact patient
access, our reputation and financial revenues.
Any unforeseen safety concerns or adverse events relating to our products or failure
to comply with laws, rules and regulations relating to provision of appropriate warnings
concerning the dangers and risks of our products that result in injuries could expose
us to large product liability damages claims, settlements and awards, particularly in
the US. Adverse publicity relating to the safety of a product or of other competing
products may increase the risk of product liability claims.
Details of material product liability litigation matters can be found in Note 28 to the
Financial Statements from page 182.
Significant product liability claims could also arise which could be
costly, divert management attention or damage our reputation and
demand for our products.
Unfavourable resolution of such current and similar future product
liability claims could subject us to enhanced damages, require
us to make significant provisions in our accounts relating to legal
proceedings and could materially adversely affect our financial
condition or results of operations, particularly where such
circumstances are not covered by insurance. For more information,
see the limited third party insurance coverage risk on page 219.
Adverse outcome of litigation and/or governmental investigations
We may be subject to various product liability, consumer, commercial, anti-trust,
environmental, employment or tax litigation or other legal proceedings and
governmental investigations. Litigation, particularly in the US, is inherently
unpredictable and unexpectedly high awards for damages can result from an adverse
verdict. In many cases, plaintiffs may claim enhanced damages in extremely high
amounts. In particular, the marketing, promotional, clinical and pricing practices of
pharmaceutical manufacturers, as well as the manner in which manufacturers interact
with purchasers, prescribers and patients, are subject to extensive regulation, litigation
and governmental investigation. Many companies, including AstraZeneca, have been
subject to claims related to these practices asserted by federal and state governmental
authorities and private payers and consumers, which have resulted in substantial
expense and other significant consequences. Note 28 to the Financial Statements from
page 182 describes the material legal proceedings in which we are currently involved.
Governmental investigations, for example under the US Foreign
Corrupt Practices Act or federal or state False Claims Acts or other
types of legal proceedings, regardless of their outcome, could be
costly, divert management attention, or damage our reputation and
demand for our products. Unfavourable resolution of current and
similar future proceedings against us could subject us to criminal
liability, fines, penalties or other monetary or non-monetary remedies,
including enhanced damages, require us to make significant provisions
in our accounts relating to legal proceedings and could materially
adversely affect our business or results of operations.
218
AstraZeneca Annual Report & Form 20-F Information 2017 / Additional Information Legal, regulatory and compliance risks
Impact
Failure to adhere to increasingly stringent anti-bribery and anti-corruption legislation
There is an increasing global focus on the implementation and enforcement of
anti-bribery and anti-corruption legislation.
Two relevant pieces of legislation include the UK Bribery Act and the US Foreign
Corrupt Practices Act, and many other countries where we operate are also enforcing
their own laws more aggressively and/or adopting tougher new measures. There has
also been an increase in co-operation and co-ordination between regulators across
countries with respect to investigation and enforcement.
Despite taking measures to prevent breaches of applicable anti-
bribery and anti-corruption laws by our personnel and associated third
parties, breaches may still occur, potentially resulting in the imposition
of significant penalties, such as fines, the requirement to comply with
monitoring or self-reporting obligations, or debarment or exclusion
from government sales or reimbursement programmes, any of which
could materially adversely affect our reputation, business or results
of operations.
We have been the subject of anti-corruption investigations and there can be no
assurance that we will not, from time to time, be subject to informal enquiries and
formal investigations from governmental agencies. In the context of our business,
governmental officials interact with us in various roles that are important to our
operations, such as in the capacity of a regulator, partner or healthcare payer,
reimburser or prescriber, among others. To the extent we are the subject of any
such pending and material matters, details are included in Note 28 to the Financial
Statements from page 182.
Economic and financial risks
Impact
Failure to achieve strategic plans or meet targets and expectations
From time to time, we communicate our business strategy or our targets or expectations
regarding our future financial or other performance (for example, the expectations
described in Future prospects in the Financial Review on page 78). All such statements
are of a forward-looking nature and are based on assumptions and judgements we
make, all of which are subject to significant inherent risks and uncertainties, including
those that we are unaware of and/or that are beyond our control.
Unexpected deterioration in the Company’s financial position
A wide range of financial risks could result in a material deterioration in the Company’s
financial position.
As a global business, currency fluctuations can significantly affect our results of
operations, which are reported in US dollars. Approximately 31% of our global 2017
Product Sales were in the US, which is expected to remain our largest single market for
the foreseeable future. Product Sales in other countries are predominantly in currencies
other than the US dollar, including the euro, Japanese yen, Chinese renminbi and
Australian dollar.
Our consolidated balance sheet contains significant investments in intangible assets,
including goodwill. The nature of the biopharmaceutical business is high risk and
requires that we invest in a large number of projects in an effort to develop a successful
portfolio of approved products. Our ability to realise value on these significant
investments is often contingent upon, among other things, regulatory approvals,
market acceptance, competition and legal developments. As such, in the course
of our many acquisitions and R&D activities, we expect that some of our intangible
assets will become impaired and be written off at some time in the future.
Inherent variability of biologics manufacturing increases the risk of write-offs of
these product batches. Due to the value of the materials used, the carrying amount
of biologic products is much higher than that of small molecule products. As we
continue to grow our biologics business, we also increase the risk of potential
impairment charges.
The costs associated with product liability litigation have increased the cost of,
and narrowed the coverage afforded by, pharmaceutical companies’ product liability
insurance. To contain insurance costs, as of February 2006, we adjusted our product
liability coverage profile, accepting uninsured exposure above $100 million. In addition,
where claims are made under insurance policies, insurers may reserve the right to deny
coverage on various grounds. For example, product liability litigation cases relating to
Farxiga and Nexium in the US are not covered by third-party product liability insurance.
See Note 28 to the Financial Statements from page 182 for details.
There can be no guarantee that our financial targets or expectations
will materialise on the expected timeline or at all. Actual results may
deviate materially and adversely from any such target or expectation,
including if one or more of the assumptions or judgements underlying
any such target or expectation proves to be incorrect in whole or in part.
Any failure to successfully implement our business strategy, whether
determined by internal or external risk factors, may frustrate the
achievement of our financial or other targets or expectations and,
in turn, materially damage our brand and materially adversely affect
our business, financial position or results of operations.
Movements in the exchange rates used to translate foreign currencies
into US dollars may materially adversely affect our financial condition
or results of operations. Some of our subsidiaries import and export
goods and services in currencies other than their own functional
currency, and so the financial results of such subsidiaries could be
affected by currency fluctuations arising between the transaction and
settlement dates. In addition, there are foreign exchange differences
arising on the translation of investments in subsidiaries.
We have significant investments in goodwill and intangible assets as
a result of our acquisitions of various businesses and our purchases
of certain assets, such as product development and marketing rights.
Impairment losses may materially adversely affect our financial
condition or results of operations. Details of the carrying values of
goodwill and intangible assets, and the estimates and assumptions
we make in our impairment testing, are included in Notes 8 and 9 to
the Financial Statements from page 154.
Financial liabilities arising due to product liability or other litigation, in
respect of which we do not have insurance coverage, or if an insurer’s
denial of coverage is ultimately upheld, could require us to make
significant provisions relating to legal proceedings and could materially
adversely affect our financial condition or results of operations.
For more information, please see the Adverse outcome of litigation
and/or governmental investigations risk on page 218.
The resolution of tax disputes regarding the profits to be taxed in
individual territories can result in a reallocation of profits between
jurisdictions and an increase or decrease in related tax costs, and
has the potential to affect our cash flows, EPS and post-tax earnings.
Claims, regardless of their merits or their outcome, are costly,
divert management attention and may adversely affect our reputation.
AstraZeneca Annual Report & Form 20-F Information 2017 / Risk
219
Additional Information Risk
continued
Economic and financial risks
Impact
Unexpected deterioration in the Company’s financial position continued
The integrated nature of our worldwide operations can produce conflicting claims from
revenue authorities as to the profits to be taxed in individual countries. The majority
of the jurisdictions in which we operate have double tax treaties with other foreign
jurisdictions, which provide a framework for mitigating the incidence of double taxation
on our revenues and capital gains.
The Company’s worldwide operations are taxed under laws in the jurisdictions in which
they operate. International standards governing the global tax environment regularly
change. The Organisation for Economic Co-operation and Development (OECD) has
proposed a number of changes under the Base Erosion and Profit Shifting (BEPS)
Action Plans which are now being progressively implemented by tax authorities
around the world.
Our defined benefit pension obligations are largely backed by assets invested across
the broad investment market. Our most significant obligations relate to defined benefit
pension funds in the UK, Sweden and the US. The largest obligation is in the UK.
Failure in financial control or the occurrence of fraud
Effective internal controls are necessary for us to provide reliable financial reports
and are designed to prevent and detect fraud. Lapses in controls and procedures
could undermine the ability to prevent fraud or provide accurate disclosure of
financial information on a timely basis. Testing of our internal controls can provide
only reasonable assurance with respect to the preparation and fair presentation of
financial statements and may not prevent or detect misstatements or fraud.
If any double tax treaties should be withdrawn or amended, especially
in a territory where a member of the AstraZeneca Group is involved
in a taxation dispute with a tax authority in relation to cross-border
transactions, such withdrawal or amendment, could materially
adversely affect our financial condition or results of operations, as
could a negative outcome of a tax dispute or a failure by tax authorities
to agree through competent authority proceedings. Changes to the
application of double tax treaties, as a result of the parent company
of the Group no longer being an EU entity following Brexit, could also
result in adverse consequences such as those described above. See
the Financial risk management policies section of the Financial Review
on page 79 for tax risk management policies and Note 28 to the
Financial Statements from page 182 for details of current tax disputes.
Changes in tax regimes, such as the recently announced changes to
the US federal tax regime effective 1 January 2018, could result in a
material impact on the Company’s cash tax liabilities and tax charge,
resulting in either an increase or a reduction in financial results
depending upon the nature of the change. We represent views to the
OECD, governments and tax authorities through public consultations
to ensure international institutions and governments understand the
business implications of proposed law changes. Specific OECD BEPS
recommendations that we expect to impact the Company include
changes to patent box regimes, restrictions of interest deductibility
and revised transfer pricing guidelines.
Sustained falls in asset values could reduce pension fund solvency
levels, which may result in requirements for additional cash, restricting
the cash available for our business. Changes to funding regulations for
defined benefit pensions may also result in a requirement for additional
cash contributions by the Company. If the present value of the
liabilities increases due to a sustained low interest rate environment,
an increase in expectations of future inflation, or an improvement
in member longevity (above that already assumed), this could also
reduce pension fund solvency ratios. The likely increase in the IAS 19
accounting deficit generated by any of these factors may cause the
credit rating agencies to review our credit rating, with the potential
to negatively affect our ability to raise debt and the price of new debt
issuances. See Note 20 to the Financial Statements from page 164
for further details of the Group’s pension obligations.
Significant resources may be required to remediate any lapse or
deficiency in internal controls.
Any such deficiency may also trigger investigations by a number of
organisations, for example, the SEC, the DOJ or the UK Serious Fraud
Office and may result in fines being levied against the Company or
individual directors or officers.
Serious fraud may lead to potential prosecution or even imprisonment
of senior management.
220
AstraZeneca Annual Report & Form 20-F Information 2017 / Additional Information Geographical Review
This section contains further information about the performance of our products within
the geographical areas in which our sales and marketing efforts are focused. Sales relate
to Product Sales.
Total Oncology
4,024
2017
Oncology:
Tagrisso
Faslodex
Zoladex
Iressa
Lynparza
Arimidex
Casodex
Imfinzi
Calquence
Others
Cardiovascular &
Metabolic Diseases:
Crestor
Brilinta
Farxiga
Seloken/Toprol-XL
Onglyza
Bydureon
Atacand
Byetta
Symlin
Others
Total Cardiovascular &
Metabolic Diseases
Respiratory:
Symbicort
Pulmicort
Daliresp/Daxas
Tudorza/Eklira
Duaklir
Bevespi
Fasenra
Others
Total Respiratory
Other:
Nexium
Synagis
Seroquel XR
Losec/Prilosec
Movantik/Moventig
FluMist/Fluenz
Others
Total Other
Total Product Sales
Sales
$m
Actual
%
World
CER
%
Emerging Markets
Sales
$m
Actual
%
CER
%
Sales
$m
US
Actual
%
Sales
$m
Actual
%
Europe
CER
%
Established ROW
Sales
$m
Actual
%
CER
%
955
941
735
528
297
217
215
19
3
114
2,365
1,079
1,074
695
611
574
300
176
48
344
126
13
126
13
(10)
(10)
3
36
(6)
(13)
n/m
n/m
10
19
3
35
(4)
(11)
n/m
n/m
13
19
(30)
(30)
29
29
(6)
(15)
(1)
(5)
(31)
20
(13)
29
28
(4)
(16)
(1)
(3)
(30)
20
(12)
135
115
353
251
18
118
108
–
–
28
1,126
784
224
232
593
130
9
178
12
–
205
n/m
20
(1)
8
n/m
18
(1)
8
n/m
n/m
7
1
–
–
12
19
9
19
74
11
10
4
–
–
16
20
11
21
73
12
(8)
(10)
125
10
75
12
(50)
(50)
–
(10)
–
(7)
405
492
15
39
141
7
(1)
19
3
–
1,120
373
509
489
37
320
458
19
114
48
4
59
12
(57)
70
11
(50)
n/m
n/m
n/m
–
25
(70)
46
7
(61)
(15)
(1)
(47)
(30)
20
n/m
187
256
141
112
130
34
22
–
–
3
885
666
295
242
52
104
88
86
34
–
92
146
12
(10)
(7)
60
(8)
(19)
–
–
(63)
21
142
11
(8)
(8)
58
(8)
(19)
–
–
(63)
20
(23)
(23)
14
29
(42)
(21)
(12)
(11)
(24)
–
13
28
(41)
(21)
(11)
(11)
(22)
–
(23)
(24)
228
78
226
126
8
58
86
–
–
83
893
542
51
111
13
57
19
17
16
–
43
175
15
(16)
(8)
183
18
(15)
(6)
n/m
n/m
(18)
(23)
–
–
17
10
(8)
16
91
(19)
(19)
73
(15)
(24)
–
(14)
(15)
(21)
–
–
20
12
(6)
11
90
(19)
(20)
73
(15)
(24)
–
(12)
7,266
(10)
(10)
2,367
11
12
2,371
(26)
1,659
(12)
(13)
869
(1)
–
2,803
1,176
198
150
79
16
1
283
4,706
1,952
687
332
271
122
78
714
4,156
20,152
(6)
11
29
(12)
25
n/m
n/m
(10)
(1)
(4)
1
(55)
(2)
34
(25)
(38)
(18)
(5)
(6)
12
28
(12)
25
n/m
n/m
439
840
4
2
–
–
–
(9)
(1)
103
1,388
(3)
1
(55)
(1)
34
(28)
(38)
(17)
684
–
62
140
–
(1)
383
1,268
(5)
6,149
9
20
–
n/m
n/m
–
–
(25)
12
(1)
–
(10)
9
n/m
n/m
(34)
(14)
6
10
23
–
n/m
n/m
–
–
(24)
13
2
–
(12)
10
n/m
n/m
(32)
(12)
8
1,099
156
167
66
–
16
1
4
(12)
(10)
25
(14)
–
n/m
n/m
819
92
26
73
77
–
–
(44)
129
1,509
(8)
1,216
499
317
175
11
120
–
47
1,169
6,169
(10)
(2)
(66)
10
33
(100)
(55)
(28)
(16)
248
370
78
77
2
76
142
993
4,753
(10)
(7)
73
(12)
24
–
–
10
(5)
(1)
5
(42)
(7)
(10)
(8)
73
(11)
24
–
–
10
(5)
(3)
5
(42)
(7)
n/m
n/m
12
(49)
(15)
17
(47)
(14)
(6)
446
88
1
9
2
–
–
47
593
521
–
17
43
–
3
142
726
(7)
3,081
2
(2)
–
–
–
–
–
(6)
1
(3)
–
–
2
(1)
–
–
–
–
–
(6)
1
(1)
–
–
(22)
(20)
–
(50)
(28)
(11)
–
–
(50)
(28)
(9)
1
AstraZeneca Annual Report & Form 20-F Information 2017 / Geographical Review
221
Additional Information Sales
$m
Actual
%
World
CER
%
Emerging Markets
Sales
$m
Actual
%
CER
%
Sales
$m
US
Actual
%
Sales
$m
Actual
%
Europe
CER
%
Established ROW
Sales
$m
Actual
%
CER
%
423
830
816
513
218
232
247
104
n/m
n/m
18
–
(6)
19
–
(5)
10
96
355
233
100
100
10
3
(14)
25
6
(10)
n/m
n/m
7
n/m
n/m
(7)
(7)
(21)
20
(6)
(9)
(26)
20
3,401
(32)
(32)
839
835
737
720
578
315
254
–
437
36
70
4
(8)
–
(13)
(20)
–
(28)
39
72
9
(6)
–
(8)
(19)
–
(26)
110
107
25
943
721
189
133
536
142
4
162
24
–
7
1
(17)
–
5
69
82
4
(11)
(50)
(17)
–
–
15
8
(13)
6
12
80
96
12
(4)
(25)
(9)
13
–
228
(35)
(30)
254
438
35
23
127
14
2
–
893
n/m
23
25
n/m
81
(26)
100
n/m
74
1,223
(57)
348
457
95
376
463
36
164
–
40
45
75
7
(10)
(4)
6
(22)
–
(27)
76
228
156
120
81
37
27
8
733
866
258
187
90
132
100
97
45
–
119
n/m
10
(8)
(7)
n/m
11
(4)
(5)
n/m
n/m
(24)
(7)
(65)
16
(5)
12
48
(6)
(6)
22
(8)
(26)
–
(17)
(24)
(7)
(65)
18
(4)
15
52
(5)
(5)
23
(8)
(25)
–
(17)
83
68
270
137
3
71
111
71
814
591
44
58
16
70
11
20
21
–
50
8,116
(14)
(13)
2,139
1
8
3,202
(31)
1,894
–
1
881
2,989
1,061
154
170
63
–
–
316
4,753
2,032
677
735
276
91
104
1,152
5,067
21,319
(12)
5
48
(11)
(10)
8
48
(9)
n/m
n/m
–
–
22
(5)
(19)
2
(28)
(19)
–
–
27
(3)
(18)
2
(27)
(17)
n/m
n/m
(59)
(20)
(19)
(64)
(23)
(20)
(10)
402
698
4
1
1
–
–
137
1,243
690
–
69
128
1
1
580
1,469
(8)
5,794
2
15
n/m
–
–
–
–
8
10
(9)
–
(17)
(15)
–
10
21
n/m
n/m
n/m
–
–
13
17
(3)
–
(7)
(9)
–
n/m
n/m
1,242
174
134
77
–
–
–
11
1,638
554
325
515
10
90
33
(9)
(9)
–
(4)
(4)
6
105
1,632
7,365
(18)
(13)
29
(25)
–
–
–
909
99
15
83
60
–
–
(39)
(16)
118
1,284
(39)
14
(28)
(44)
n/m
(84)
(54)
(31)
(22)
251
352
134
83
–
64
269
1,153
5,064
(15)
(15)
100
8
(12)
(14)
100
9
n/m
n/m
–
–
34
(7)
(12)
(7)
(33)
(14)
–
(16)
(27)
(18)
(5)
–
–
38
(4)
(11)
(7)
(32)
(13)
–
3
(21)
(15)
(3)
436
90
1
9
2
–
–
50
588
537
–
17
55
–
6
198
813
3,096
100
26
(1)
–
100
15
(7)
(8)
n/m
n/m
(10)
(15)
18
11
4
19
81
33
6
38
(20)
(5)
–
(14)
6
8
2
(18)
(23)
7
2
(5)
22
72
25
11
25
(20)
(9)
–
(21)
(1)
5
(3)
n/m
n/m
–
–
n/m
n/m
–
–
108
12
–
–
108
8
(2)
–
(32)
(26)
–
(14)
(29)
(13)
2
(10)
–
(32)
(31)
–
(14)
(27)
(17)
(4)
Geographical Review
continued
Total Oncology
3,383
2016
Oncology:
Tagrisso
Faslodex
Zoladex
Iressa
Lynparza
Arimidex
Casodex
Others
Cardiovascular &
Metabolic Diseases:
Crestor
Brilinta
Farxiga
Seloken/Toprol-XL
Onglyza
Bydureon
Atacand
Byetta
Symlin
Others
Total Cardiovascular &
Metabolic Diseases
Respiratory:
Symbicort
Pulmicort
Daliresp/Daxas
Tudorza/Eklira
Duaklir
Bevespi
Fasenra
Others
Total Respiratory
Other:
Nexium
Synagis
Seroquel XR
Losec/Prilosec
Movantik/Moventig
FluMist/Fluenz
Others
Total Other
Total Product Sales
222
AstraZeneca Annual Report & Form 20-F Information 2017 / Additional Information All commentary in this section relates to
Product Sales. The market definitions used
in the geographical areas review below are
defined in the Glossary on page 235.
2017 in brief
Sales decreased 5% in the year to
$20,152 million (2016: $21,319 million;
2015: $23,641 million).
In 2017, sales in Emerging Markets increased
6% (CER: increased 8%) to $6,149 million
(2016: $5,794 million; 2015: $5,822 million).
China sales grew by 12% (CER: increased
15%) to $2,955 million (2016: $2,636 million;
2015: $2,530 million), representing 48% of
total Emerging Markets sales. Onglyza and
Iressa were included on the National
Reimbursement Drug List (NRDL) in China
in the year, as were Brilinta, Faslodex and
Seroquel XR; the benefits of this inclusion
are anticipated to favourably impact Product
Sales after 2017. Crestor also had its 2nd line
usage restriction removed and Zoladex was
reclassified from the hormone and endocrine
classification to oncology, which is expected
to continue to support growth. Tagrisso was
launched in China in April 2017.
In Emerging Markets, excluding China, Latin
America sales were impacted by ongoing
economic conditions, with sales in Latin
America (ex-Brazil) declining by 12% (CER:
declining by 10%) to $453 million (2016:
$516 million; 2015: $643 million). Brazil sales
increased by 4% (CER: decreased 5%)
to $361 million (2016: $348 million; 2015:
$381 million). Russia sales decreased by
1% (CER: decreased 14%) to $231 million
(2016: $233 million; 2015: $231 million).
Sales in the US decreased 16% to
$6,169 million (2016: $7,365 million; 2015:
$9,474 million). The decline reflected generic
medicine launches that impacted sales of
Crestor and Seroquel XR. Unfavourable
managed-care pricing and continued
competitive intensity impacted sales of
Symbicort, which declined by 12% to
$1,099 million (2016: $1,242 million; 2015:
$1,520 million). The New Oncology Growth
Platform in the US, however, grew by 50%
to $607m, primarily reflecting encouraging
Tagrisso sales growth of 59% to $405 million
(2016: $254 million; 2015: $15 million) in
the year. The New CVMD Growth Platform
increased sales by 5% in the US to $1,942
million (2016: $1,848 million; 2015: $1,662
million), reflecting strong performances from
Farxiga and Brilinta. Brilinta grew by 46% in
the US to $509 million (2016: $348 million;
2015: $240 million).
Sales in Europe decreased 6% (CER:
decreased 7%) to $4,753 million in the year
(2016: $5,064 million; 2015: $5,323 million).
The New Oncology Growth Platform in Europe
grew by 102% (CER: increased 99%) to $317
million (2016: $157 million; 2015: $27 million),
partly driven by Tagrisso sales of $187 million
(2016: $76 million; 2015: $4 million). Lynparza
sales of $130 million (2016: $81m; 2015: $23m)
represented growth of 60% (CER: growth at
58%). Forxiga sales growth of 29% (28% at
CER) to $242 million (2016: $187 million; 2015:
$126 million) was accompanied by Brilique
growth of 14% (CER: growth of 13%) to $295
million (2016: $258 million; 2015: $230 million).
These performances were more than offset
by declines in other areas, including a 10%
decline in Symbicort sales to $819 million
(2016: $909 million; 2015: $1,076 million).
Symbicort maintained its position, however,
as the number one ICS/LABA medicine,
despite competition from branded and
analogue medicines. Crestor sales declined
by 23% to $666 million (2016: $866 million;
2015: $916 million), reflecting the entry of generic
medicines in certain markets in the year.
Sales in the Established Rest of World (ROW)
in 2017 remained stable (CER: increased 1%)
at $3,081 million (2016: $3,096 million; 2015:
$3,022 million). Japan sales increased by 1%
(CER: increased 4%) to $2,208 million (2016:
$2,184 million; 2015: $2,020 million), partly
reflecting the launch of Tagrisso and a new
label for Faslodex. EGFR T790M-mutation
testing rates in Japan continued to exceed
90% through the year, with full-year Tagrisso
sales of $219 million (2016: $82 million; 2015:
$nil) reflecting a high penetration rate in the
currently-approved 2nd line setting. Faslodex
sales in Japan were favourably impacted by a
new label in the year; Faslodex sales in Japan
increased by 14% (CER: increased 17%) to
$72 million (2016: $63 million; 2015: $51 million).
The first Crestor competitor medicine was
launched in Japan in the third quarter of 2017
and further generic competition entered the
market in the fourth quarter of 2017. Full-year
Crestor sales in Japan declined by 6%
(CER: declined by 4%) to $489 million
(2016: $521 million; 2015: $468 million).
Nexium sales in Japan increased by 1%
(CER: increased 4%) in the year to $439
million (2016: $436 million; 2015: $405 million)
and sales of Forxiga increased by 89%
(CER: increased 93%) in the year to $53 million
(2016: $28 million; 2015: $16 million).
2016 in brief
Sales decreased 10% (CER: decreased 8%)
in the year to $21,319 million (2015: $23,641
million; 2014: $26,095 million).
Sales growth for the year in Emerging
Markets remained stable (CER: increased
6%) at $5,794 million (2015: $5,822 million;
2014: $5,827 million). Sales growth was
impacted by challenging macro-economic
conditions in Latin America, such as the
current economic situation in Venezuela,
where ex-Brazil sales decreased 20%
(CER: decreased 7%) to $516 million (2015:
$643 million; 2014: $730 million). The effects
of significant reductions in Saudi Arabian
governmental healthcare spending, as well
as the reduction of AstraZeneca’s activities
in Venezuela, also adversely impacted sales.
China sales increased 4% (CER: increased
10%) to $2,636 million (2015: $2,530 million;
2014: $2,242 million), and represent 45% of
the Group’s Emerging Markets sales. Sales
in Brazil decreased 9% (CER: increased 2%)
to $348 million (2015: $381 million; 2014:
$451 million). The increase after eliminating
exchange rate impacts reflects the strong
performance of Forxiga, which increased 40%
(CER: increased 50%) to $28 million (2015:
$20 million; 2014: $5 million). Oncology
medicines, which decreased 8% (CER:
increased 1%) to $82 million (2015: $89 million;
2014: $99 million), and Seloken, which
decreased 6% (CER: increased 6%) to
$63 million (2015: $67 million; 2014:
$84 million). Russia sales increased 1%
(CER: increased 13%) to $233 million (2015:
$231 million; 2014: $312 million), led by strong
performances in Cardiovascular & Metabolic
Diseases medicine sales, which increased
23% (CER: increased 38%) to $80 million
(2015: $65 million; 2014: $89 million).
In 2016, sales in the US decreased 22%
to $7,365 million (2015: $9,474 million; 2014:
$10,120 million). The decline in US sales
reflected the competition from generic Crestor
medicines that entered the US market from
July 2016. Unfavourable managed-care
pricing and continued competitive intensity
also impacted the sales of Symbicort.
Sales in Europe decreased 5% (CER:
decreased 3%) to $5,064 million in the year
(2015: $5,323 million; 2014: $6,638 million).
Strong growth in sales of Forxiga, up 48%
(CER: up 52%) to $187 million (2015: $126
million; 2014: $66 million), and Brilique, up
12% (CER: up 15%) to $258 million (2015:
$230 million; 2014: $231 million), was more
than offset by a 15% decrease in Symbicort
sales (CER: 12% decrease) to $909 million
(2015: $1,076 million; 2014: $1,462 million).
However, Symbicort maintained its position
as the number one ICS/LABA medicine by
volume, despite competition from analogue
medicines. Lynparza and Tagrisso sales
increased to $81 million (2015: $23 million;
2014: $nil) and $76 million (2015: $4 million;
2014: $nil) respectively.
Sales in the Established ROW in 2016
increased 2% (CER: decreased 4%) to $3,096
million (2015: $3,022 million; 2014: $3,510
million). Sales of Forxiga in Established ROW
increased 81% (CER: increased 72%),
to $58 million (2015: $32 million; 2014:
$17 million). Nexium sales decreased 2%
(CER: decreased 10%) to $537 million
(2015: $549 million; 2014: $606 million).
Japan sales increased 8% (CER: decreased
3%) to $2,184 million (2015: $2,020 million;
AstraZeneca Annual Report & Form 20-F Information 2017 / Geographical Review
223
Additional Information Geographical Review
Geographical Review
continued
continued
2014: $2,227 million), reflecting the biennial
price reduction effective from April 2016 of
around 6% after eliminating the exchange rate
impact. The CER percentage decline in Japan
was partly mitigated by stable sales of Crestor
of $521 million (2015: $468 million; 2014:
$502 million) in the year. Since the launch
of Tagrisso in Japan in March 2016, sales
amounted to $82 million (2015 & 2014: $nil).
Sales by Region
Emerging Markets
Sales in Emerging Markets increased 6%
(CER: increased 8%) to $6,149 million (2016:
$5,794 million; 2015: $5,822 million).
Oncology
Oncology sales in the Emerging Markets
increased 19% (CER: increased 20%) to
$1,126 million (2016: $943 million; 2015:
$943 million).
Sales of Tagrisso were $135 million in the year
(2016: $10 million; 2015: $nil).
Sales of Iressa increased by 8% to $251
million (2016: $233 million; 2015: $272 million).
China sales increased by 24% (CER: increased
28%) to $144 million (2016: $116 million; 2015:
$146 million), reflecting an improvement in
patient access following the conclusion of the
national negotiation process in 2016; Iressa
was subsequently included on the NRDL.
Other Emerging Markets sales were adversely
impacted by competition from branded and
generic medicines, most notably in the
Republic of Korea.
Sales of Faslodex grew by 20% (CER:
increased 18%) to $115 million (2016:
$96 million; 2015: $87 million). In 2017,
AstraZeneca received a label extension for
Faslodex in Russia in the 1st line monotherapy
setting, based on data from the FALCON
trial. Russia sales grew by 29% in the year
(CER: increased 14%) to $18 million (2016:
$14 million; 2015: $9 million).
Sales of Zoladex declined by 1% to
$353 million in the year (2016: $355 million;
2015: $345 million).
Cardiovascular & Metabolic Diseases
Cardiovascular & Metabolic Diseases sales
in Emerging Markets increased 11% (CER:
increased 12%) to $2,367 million (2016:
$2,139 million; 2015: $2,120 million).
Sales of Brilinta for the year grew by 19%
(CER: increased 21%) to $224 million (2016:
$189 million; 2015: $112 million). Growth
in Emerging Markets was reflected in a
continued outperformance of the growth
of the oral anti-platelet market. Encouraging
sales performances were delivered in
many markets.
224
Farxiga sales increased by 74% (CER:
increased 73%) to $232 million (2016: $133
million; 2015: $73 million), reflecting ongoing
launches and improved levels of patient
access. In March 2017, Forxiga became the
first SGLT2-inhibitor medicine to be approved
in China.
Onglyza sales in Emerging Markets declined
by 8% (CER: decreased 10%) to $130 million
(2016: $142 million; 2015: $159 million). Onglyza,
however, entered the NRDL in China in
the year, underpinning fourth quarter 2017
Emerging Markets sales growth.
Respiratory
Respiratory sales in Emerging Markets
increased 12% (CER: increased 13%) to $1,388
million (2016: $1,243 million; 2015: $1,132 million).
Sales of Symbicort grew by 9% (CER:
increased 10%) to $439 million (2016: $402
million; 2015: $394 million), partly reflecting
growth in China of 13% (CER: increased 17%)
to $177 million (2016: $156 million; 2015:
$124 million) and in Latin America (ex-Brazil),
where sales grew by 24% (CER: increased
30%) to $46 million (2016: $37 million; 2015:
$42 million).
Pulmicort sales increased by 20% (CER:
increased 23%) to $840 million (2016: $698
million; 2015: $609 million), reflecting strong
underlying volume growth, with sales in China,
Middle East and North Africa proving
particularly encouraging. Usage in China
continued to progress, with an increasing
prevalence of acute COPD and paediatric
asthma accompanied by continued investment
by AstraZeneca in new hospital nebulisation
centres by around 2,000 to 15,000.
Other
Other sales in Emerging Markets decreased
14% (CER: decreased 12%) to $1,268 million
(2016: $1,469 million; 2015: $1,627 million).
Nexium sales declined by 1% (CER: increased
2%) to $684 million (2016: $690 million; 2015:
$761 million).
US
Sales in the US decreased 16% to
$6,169 million (2016: $7,365 million;
2015: $9,474 million).
Oncology
Oncology sales in the US increased 25%
to $1,120 million (2016: $893 million; 2015:
$514 million).
Tagrisso sales in the US were $405 million
(2016: $254 million; 2015: $15 million) and
grew by 59%, with a steady increase in
epidermal growth factor receptor (EGFR)
T790M-mutation testing rates. In September
2017, the US National Comprehensive Cancer
Network clinical-practice guidelines were
updated to include the use of Tagrisso in the
1st line treatment of patients with metastatic
EGFR-mutated non-small cell lung cancer
(NSCLC). The use of Tagrisso in this indication
is not yet approved by the FDA.
Iressa sales in the US increased by 70% to
$39 million (2016: $23 million; 2015: $6 million).
Sales of Lynparza grew by 11% in the year
to $141 million (2016: $127 million; 2015:
$70 million). First-half sales were adversely
impacted by the introduction of competing
poly ADP ribose polymerase (PARP) inhibitor
medicines. A much-improved performance in
the second half, however, reflected the launch
of tablets for patients regardless of BRCA-
mutation status, for the treatment of 2nd line
ovarian cancer. By the end of November 2017,
Lynparza was the leading PARP inhibitor in the
US, measured by total prescription volumes.
Faslodex sales increased by 12% to $492
million (2016: $438 million; 2015: $356 million),
mainly reflecting a continued strong uptake of
the combination with palbociclib, a medicine
approved for the treatment of hormone-
receptor-positive (HR+) breast cancer.
The sales of Imfinzi were $19 million (2016:
$nil; 2015: $nil). Imfinzi launched in the US
in May 2017. Imfinzi was approved under the
FDA’s Accelerated Approval pathway and
launched on the same day as a fast-to-
market, limited commercial opportunity,
indicated for the 2nd line treatment of patients
with locally-advanced or metastatic urothelial
carcinoma (bladder cancer). AstraZeneca
is actively preparing for the potential launch
of Imfinzi in locally-advanced, unresectable
NSCLC in the first half of 2018, reflecting
the FDA regulatory submission acceptance
and the award of Priority Review status in
the fourth quarter of 2017.
The sales of Calquence were $3 million
(2016 & 2015: $nil). Calquence delivered
a promising performance in the number
of new patient starts in previously-treated
mantle cell lymphoma (MCL). The medicine was
included within National Comprehensive Cancer
Network guidelines from 15 November 2017.
Zoladex decreased 57% to $15 million
(2016: $35 million; 2015: $28 million). On
31 March 2017, AstraZeneca completed an
agreement with TerSera for the commercial
rights to Zoladex in the US and Canada.
AstraZeneca Annual Report & Form 20-F Information 2017 / Additional Information Cardiovascular & Metabolic Diseases
Cardiovascular & Metabolic Diseases sales
in the US decreased 26% to $2,371 million
(2016: $3,202 million; 2015: $4,634 million).
Pulmicort sales in the US declined by
10% to $156 million (2016: $174 million;
2015: $200 million).
Europe
Sales in Europe decreased 6% (CER:
decreased 7%) to $4,753 million (2016:
$5,064 million; 2015: $5,323 million).
Daliresp/Daxas sales, representing 84% of
global sales, increased by 25% to $167 million
(2016: $134 million; 2015: $104 million), driven
by increased adoption of the medicine which
is the only oral, selective, long-acting inhibitor
of the enzyme phosphodiesterase-4, an
inflammatory agent in COPD.
Tudorza/Eklira sales in the US declined by
14% to $66 million (2016: $77 million; 2015:
$103 million), reflecting lower levels of use of
inhaled monotherapy medicines for COPD
and the Group's commercial focus on
the launch of Bevespi. On 17 March 2017,
AstraZeneca announced that it had entered
a strategic collaboration with Circassia for
the development and commercialisation
of Tudorza in the US. Circassia began its
promotion of Tudorza in the US in May 2017.
AstraZeneca will continue to book Product
Sales of Tudorza in the US.
Bevespi was launched commercially in the
US during early 2017. Prescriptions in the
fourth quarter of 2017 tracked in line with
other LAMA/LABA launches. The overall class
in the US, however, continued to grow more
slowly than anticipated. Bevespi was the
first medicine launched using the Group’s
Aerosphere Delivery Technology delivered
in a pressurised metered-dose inhaler.
Other
Other sales in the US decreased 28%
to $1,169 million (2016: $1,632 million;
2015: $2,381 million).
Nexium sales in the US declined by 10%
to $499 million (2016: $554 million; 2015:
$902 million) in the year, reflecting a
true-up adjustment.
Synagis sales decreased by 2% to $317
million (2016: $325 million; 2015: $285 million),
constrained by the guidelines from the
American Academy of Pediatrics Committee
on Infectious Diseases, which restricted the
number of patients eligible for preventative
therapy with Synagis.
Sales of Seroquel XR in the US, where several
competitors launched generic Seroquel XR
medicines from November 2016, declined by
66% to $175 million (2016: $515 million; 2015:
$716 million).
Oncology
Oncology sales in Europe increased 21%
to $885 million (2016: $733 million; 2015:
$635 million).
Tagrisso sales of $187 million (2016:
$76 million; 2015: $4 million) represented
growth of 146% (CER: increased 142%)
were driven by a continued uptake, positive
reimbursement decisions and a continued
growth in testing rates. Tagrisso was
reimbursed in 15 European countries at the
end of the year and was under reimbursement
review in additional European countries,
with positive decisions anticipated in 2018.
Iressa sales declined in Europe by 7%
(CER: decreased 8%) to $112 million
(2016: $120 million; 2015: $128 million).
Lynparza sales in Europe increased by 60%
(CER: increased 58%) to $130 million (2016:
$81 million; 2015: $23 million), reflecting high
BRCA-testing rates and a number of successful
launches, most recently in Finland and the
Republic of Ireland.
Sales of Faslodex increased by 12%
(CER: increased 11%) to $256 million
(2016: $228 million; 2015: $207 million).
Zoladex sales declined by 10% (CER:
decreased 8%) to $141 million (2016:
$156 million; 2015: $171 million), reflecting
generic competition mainly in Central and
Eastern Europe.
Cardiovascular & Metabolic Diseases
Cardiovascular & Metabolic Disease sales
in Europe decreased 12% (CER: decreased
13%) to $1,659 million (2016: $1,894 million;
2015: $1,901 million).
Sales of Brilique in Europe increased by 14%
(CER: increased 13%) to $295 million (2016:
$258 million; 2015: $230 million), reflecting
indication leadership across a number of
markets and bolstered by the inclusion in the
high-risk, post-myocardial infarction (HR PMI)
guidelines from the European Society of
Cardiology in 2017. Volume share reached
6.5% at the end of the year, with improvements
delivered across the major markets: Brilique
continued to outperform the oral anti-platelet
market in the year. Brilique gained further
reimbursement in key markets in its HR PMI
indication in the 60mg dose.
Sales of Brilinta, at $509 million (2016: $348
million; 2015: $240 million), represented an
increase of 46% for the year. The performance
was driven primarily by an increase in the
average duration of therapy and strong growth
in the number of patients sent home from
hospital with Brilinta. Furthermore, Brilinta
achieved a record total-prescription market
share of 7.2% at the end of the year: days-of-
therapy volume market-share data was
particularly encouraging. The performance
reflected the growth in demand, driven by
updated preferred guidelines from the
American College of Cardiology and the
American Heart Association in 2016, as well
as the narrowing of a competitor’s label.
Brilinta is the standard of care in the treatment
of ST-segment elevation myocardial infarction
and remained the branded oral anti-platelet
market leader in the US in the period.
Farxiga sales in the year increased by 7%
to $489 million (2016: $457 million; 2015:
$261 million). The SGLT2-class growth was
supported by growing evidence around
cardiovascular (CV) benefits, including data
from the CVD-REAL study that was published
in March 2017.
Bydureon sales in the US declined by 1%
to $458 million (2016: $463 million; 2015:
$482 million), reflecting the prevailing level
of competition and resulting price pressures.
In the third quarter of the year, AstraZeneca
launched the newly-approved injectable
suspension autoinjector, known as Bydureon
BCise in the US. The new autoinjector is a
new formulation of Bydureon injectable
suspension in an improved once-weekly,
single-dose autoinjector device. It is designed
for patient ease and convenience in a pre-filled
device with a pre-attached hidden needle.
Crestor sales declined by 70% to $373 million
(2016: $1,223 million; 2015: $2,844 million),
reflecting the market entry in July 2016 of
multiple Crestor generic medicines.
Respiratory
Respiratory sales in the US decreased 8%
to $1,509 million (2016: $1,638 million; 2015:
$1,945 million).
Sales of Symbicort in the US declined by
12% to $1,099 million (2016: $1,242 million;
2015: $1,520 million), in line with expectations
of continued challenging conditions which
were a result of the impact of managed-care
access programmes on pricing within the
class. Competition also remained intense
from other classes, such as LAMA/LABA
combination medicines.
AstraZeneca Annual Report & Form 20-F Information 2017 / Geographical Review
225
Additional Information Geographical Review
continued
Forxiga sales in Europe increased by 29%
(CER: increased 28%) to $242 million (2016:
$187 million; 2015: $126 million) as the
medicine continued to gain market share
in the innovative oral class.
Onglyza sales in the year declined by 21%
to $104 million (2016: $132 million; 2015:
$141 million), reflecting the broader dynamic
of shift away from the dipeptidyl peptidase-4
(DPP-4 class).
Bydureon sales in Europe declined by 12%
(CER: decreased 11%) in the year to $88
million (2016: $100 million; 2015: $81 million),
reflecting the impact of increased levels of
competition.
Crestor sales declined by 23% to $666
million (2016: $866 million; 2015: $916 million),
reflecting the launch of generic medicines in
certain markets such as France and Spain.
Respiratory
Respiratory sales in Europe decreased
5% to $1,216 million (2016: $1,284 million;
2015: $1,383 million).
Symbicort sales declined by 10% to
$819 million (2016: $909 million; 2015:
$1,076 million), reflecting the level of
competition from other branded and
Symbicort-analogue medicines. However,
Symbicort continued to retain its class-
leadership position and stabilise volume
share in the LABA/ICS class.
Other
Other sales in Europe decreased 14%
(CER: decreased 15%) to $993 million
(2016: $1,153 million; 2015: $1,404 million).
Sales of Nexium declined by 1% (CER:
decreased 3%) to $248 million (2016: $251
million; 2015: $284 million) and Seroquel XR
sales declined by 42% to $78 million (2016:
$134 million; 2015: $202 million), reflecting
the impact of generic competition.
FluMist/Fluenz sales in Europe increased
by 17% (CER: increased 12%) to $76 million
(2016: $64 million; 2015: $76 million), primarily
driven by higher usage rates in the UK,
which reflects the favourable impact of
the UK National Immunisation Programme.
Established ROW
Sales in Established ROW remained stable
(CER: increased 1%) to $3,081 million
(2016: $3,096 million; 2015: $3,022 million).
Other
Other sales in Established ROW decreased
11% (CER: decreased 9%) to $726 million
(2016: $813 million; 2015: $928 million).
Oncology
Oncology sales in Established ROW increased
10% (CER: increased 12%) to $893 million
(2016: $814 million; 2015: $733 million).
Sales of Nexium in Japan increased by
1% (CER: increased 4%) to $439 million
(2016: $436 million; 2015: $405 million),
which represented 84% of Nexium sales
in Established ROW.
Tagrisso’s testing rates in Japan continued to
exceed 90% through the year, with full-year
sales of $219 million (2016: $82 million; 2015:
$nil) reflecting a high penetration rate in the
currently approved 2nd line EGFR T790M-
mutation setting.
In June 2017, a label extension based upon
the FALCON trial in the 1st line setting was
approved in Japan, where Faslodex sales
grew by 14% (CER: increased 17%) in
the year to $72 million (2016: $63 million;
2015: $51 million). Zoladex sales fell by 16%
(CER: decreased 15%) to $226 million (2016:
$270 million; 2015: $272 million), driven by
increased competition.
Cardiovascular & Metabolic Diseases
Cardiovascular & Metabolic Diseases sales
in Established ROW decreased 1% (CER:
stable) to $869 million (2016: $881 million;
2015: $834 million).
Sales of Forxiga in Established ROW
increased 91% (CER: increased 90%) to $111
million (2016: $58 million; 2015: $32 million). In
Japan sales of Forxiga grew at 89% (CER:
increased 93%) to $53 million (2016: $28
million; 2015: $16 million).
In Japan, where Shionogi is a partner, Crestor
maintained its position as the leading statin.
Sales declined by 6% (CER: decreased 4%)
to $489 million (2016: $521 million; 2015:
$468 million), however, reflecting the recent
entry of multiple Crestor competitors in the
market in the second half of the year.
Respiratory
Respiratory sales in Established ROW
increased 1% to $593 million (2016:
$588 million; 2015: $527 million).
Symbicort sales increased 2% to $446 million
(2016: $436 million; 2015: $404 million). In Japan,
where Astellas assists as a promotional partner,
sales declined by 3% (stable at CER) to $205
million (2016: $211 million; 2015: $176 million).
226
AstraZeneca Annual Report & Form 20-F Information 2017 / Additional Information
Sustainability:
supplementary information
External assurance
Bureau Veritas has provided independent
external assurance to a limited level on
the following sustainability information
contained within this Annual Report:
> Access to healthcare, page 29
> China market development, page 29
> Develop a strong and diverse
pipeline of leaders, page 35
> Human rights, page 36
> Managing change, page 37
> Employee relations, page 37
> Safety, health and wellbeing, page 37
> Sustainability, page 38
> Sustainability strategy, page 38
> Priority areas and assurance, page 38
> Benchmarking and assurance, page 38
> Sustainability governance, page 39
> Broadening access to healthcare, page 39
> Healthy Lung Asia, page 39
> Healthy Heart Africa, page 40
> Ethics and transparency, page 40
> Protecting the environment, page 43
> Renewable energy, page 43
> Community investment, page 45
> STEM learning and careers, page 45
> Carbon reporting, page 227
Based on the evidence provided and subject
to the scope, objectives and limitations
defined in the full assurance statement,
nothing has come to the attention of Bureau
Veritas causing them to believe that the
sustainability information contained within
this Annual Report is materially misstated.
Bureau Veritas is a professional services
company that has a long history of
providing independent assurance services
in environmental, health, safety, social
and ethical management and disclosure.
The full assurance statement, which
includes Bureau Veritas’s scope of
work, methodology, overall opinion, and
limitations and exclusions, is available
on our website, www.astrazeneca.com.
Carbon reporting
We have reported on all of the emission
sources required under the Quoted Companies
Greenhouse Gas Emissions (Directors’ Reports)
Regulations 2013. These sources fall within
our consolidated Financial Statements. We do
not have responsibility for any emission sources
that are not included in our consolidated
Financial Statements.
We have used the GHG Protocol Corporate
Accounting and Reporting Standard (revised
edition). Emission factors for electricity have
been derived from the International Energy
Agency (IEA), USEPA eGRID, US Green-e
and the Association of Issuing Bodies (AIB)
databases and for all other fuels and emission
sources from the 2006 IPCC Guidelines for
National Greenhouse Gas Inventories.
Bureau Veritas has undertaken a limited
assurance on the 2017 GHG emissions data.
The assurance statement, including scope,
methodology, overall opinion, and limitations
and exclusions, is available on our website,
www.astrazeneca.com.
Global greenhouse gas emissions data for the period 1 January 2017 to 31 December 2017
Emissions from:
Scope 1: Combustion of fuel and operation of facilities2
Scope 2 (Market-based): Electricity (net of market instruments),
heat, steam and cooling purchased for own use3
Scope 2 (Location-based): Electricity, heat, steam and cooling
purchased for own use3
Tonnes CO2e
2017
2016
20151
291,652
309,661
318,633
182,847
218,770
348,664
278,870
288,210
285,052
Company’s chosen intensity measurement: Scope 1 + Scope 2 (Market-
based) emissions reported above normalised to million US dollar revenue
21.1
23.0
27.0
Scope 3 Total: Emissions from all 15 Greenhouse Gas Protocol Scope 3
Categories4 (one year in arrears)
5,942,808 7,497,338 6,310,359
Scope 3 in our Operational Footprint: Supply chain emissions:
Upstream emissions from personal air travel, goods transport,
waste incineration, and first tier active pharmaceutical ingredients
and formulation & packaging suppliers (>90% of category spend,
energy only, one year in arrears); Downstream emissions from HFA
propellants released during patient use of our inhaled medicines
2016-2025 Strategy ‘Operational Footprint’ KPI: Scope 1 + Scope 2
(Market-based) + our Operational Footprint Scope 3 sources.
Baseline year is 2015
2016-2025 Strategy Scope 3 intensity measurement KPI: Scope 3
emissions from all 15 Greenhouse Gas Protocol Scope 3 Categories
normalised to million US dollar revenue. Includes Operational Scope 3
emissions. Baseline year is 2015 (one year in arrears)
1,184,050 1,130,640 1,109,893
1,658,548 1,659,071
1,777,190
317
375
300
1 Regular review of the data is carried out to ensure accuracy and consistency. This has led to changes in the data from previous
years. The data quoted in this Annual Report are generated from the revised data.
2 Included in this section are greenhouse gases from direct fuel combustion, process and engineering emissions at our sites and
from fuel use in our vehicle fleet.
3 Greenhouse gases from imported electricity are calculated using the GHG Protocol Scope 2 Guidance (January 2015) requiring
the dual reporting using two emissions factors for each site – market-based and location-based. Location-based factors are the
grid average emissions factor for the country (or subregion in the US) that a site is in. Market-based factors are more specific
to the site and local energy market, taking account of the residual energy mix a site is sourcing power from and any certified
renewable power purchased by a site.
4 GHG Protocol Scope 3 Categories: Purchased goods and services; Capital goods; Fuel- and energy-related activities; Upstream
transportation and distribution; Waste generated in operations; Business travel; Employee commuting; Upstream leased
assets; Downstream transportation and distribution; Processing of sold products; Use of sold products; End-of-life treatment
of sold products; Downstream leased assets; Franchises; Investments.
AstraZeneca Annual Report & Form 20-F Information 2017 / Sustainability: supplementary information
227
Additional Information Shareholder Information
The principal markets for trading in AstraZeneca
shares are the London Stock Exchange, the
Stockholm Stock Exchange and the New York
Stock Exchange. Ordinary Shares of $0.25
each in AstraZeneca PLC are listed on the
London Stock Exchange and the shareholder
register is maintained by Equiniti Limited,
the Ordinary Share registrar. Shares listed
on the Stockholm Stock Exchange are issued
under the Euroclear Services Agreement by
Euroclear Sweden AB, the Swedish Central
Securities Depositary. Shares listed on the
New York Stock Exchange are in the form
of American Depositary Shares (ADSs),
evidenced by American Depositary Receipts
(ADRs) issued by the Company’s ADR
depositary, Citibank, N.A. Two ADSs are
equivalent to one Ordinary Share. Before
27 July 2015 the ratio was one ADS per one
Ordinary Share.
Ordinary Share registrar
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
UK
Tel (Freephone in UK): +44 (0)800 389 1580
Tel (outside UK): +44 (0)121 415 7033
Swedish Central Securities Depositary
Euroclear Sweden AB
PO Box 191
SE-101 23 Stockholm
Sweden
Tel: +46 (0)8 402 9000
ADR depositary
Citibank Shareholder Services
PO Box 43077
Providence
RI 02940-3077
USA
Tel (toll free in the US): +1 (888) 697 8018
Tel (outside the US): +1 (781) 575 4555
citibank@shareholders-online.com
Annual general meeting (AGM)
The 2018 AGM will be held on 18 May 2018.
The meeting place will be in London, UK.
Shareholders holding Ordinary Shares directly
are entitled to attend and vote at the meeting
or may submit a proxy voting instruction in
advance, by following the instructions in the
notice of AGM.
If you hold shares listed in Stockholm or
hold ADRs, information relating to voting
and attendance will be included in the
relevant notice of AGM.
If you hold your shares through a nominee,
your nominee provider will be able to advise
you of their arrangements in relation to voting
and attendance.
228
ShareGift
Shareholders that hold only a small number
of shares, the value of which makes it
uneconomical to sell them, may wish to
consider donating them to charity through
ShareGift, an independent charity share
donation scheme (registered charity
number 1052686). Further information
about ShareGift can be found on its
website at www.sharegift.org or by calling
+44 (0)20 7930 3737.
The Unclaimed Assets Register
AstraZeneca provides information to the
Unclaimed Assets Register (UAR) relating
to unclaimed dividends paid on Ordinary
Shares. The UAR database provides a
facility to search for financial assets that
may have been forgotten and can be
contacted on +44 (0)333 000 0182 or
uarenquiries@uk.experian.com.
Shareholder fraud warning
Shareholders of AstraZeneca and many
other companies have reported receiving
unsolicited calls and correspondence relating
to their shareholdings and investment matters.
Shareholders are advised to be very cautious
of any unsolicited approaches and to note that
reputable firms authorised by the Financial
Conduct Authority (FCA) are very unlikely to
make such approaches. Such approaches
are likely to be part of a ‘boiler room scam’
attempting to defraud shareholders.
Shareholders are advised to familiarise
themselves with the information on scams
available on the FCA website, www.fca.org.uk/
consumers and within the FAQs in the
Investors section of AstraZeneca’s website,
www.astrazeneca.com.
Any suspected scams or fraudulent
approaches should be reported to the FCA
via its website and to AstraZeneca’s Ordinary
Share registrar, using the contact details
on this page.
Investor Relations
AstraZeneca PLC
1 Francis Crick Avenue
Cambridge Biomedical Campus
Cambridge CB2 0AA
UK
www.astrazeneca.com/investors
irteam@astrazeneca.com
Tel (UK): +44 (0)20 3749 5717
Tel (US toll free): +1 866 381 7277
Dividends
Dividend dates for 2018 are shown in the
financial calendar on page 229. A first interim
dividend is normally announced in July/August
and paid in September and a second interim
dividend is normally announced in January/
February and paid in March. Dividends are
paid in GBP, SEK and US$, depending
on where the eligible shares are listed.
Further information on dividends declared
can be found in the Shareholder Information
section of AstraZeneca’s website at
www.astrazeneca.com.
Shareholders holding Ordinary Shares
directly may opt for dividends to be paid
straight to their bank or building society
account, rather than being paid by cheque.
To elect for this swift and secure method
of payment, contact the Ordinary Share
registrar, visit www.shareview.com or fill
in the mandate form that will be sent to
you with your next dividend cheque. If you
hold shares listed in Stockholm, you should
contact your personal broker or, if you hold
a VP account, contact the bank that services
your VP account. If you hold ADRs directly
you should contact Shareholder Services on
the number provided. If you hold your shares
through a nominee, you should direct any
queries relating to your shareholding and
dividend payments to the nominee provider.
Shareholder communications
Copies of shareholder communications and
annual reports are available on AstraZeneca’s
website at www.astrazeneca.com. If you hold
Ordinary Shares directly, currently receive
hard copies of shareholder communications
and/or the annual report and would rather
receive these documents electronically,
you can manage your communication
preferences at www.shareview.com or
by contacting the Ordinary Share registrar.
If your record on the Ordinary Share register
has been duplicated you may receive multiple
copies of shareholder communications; if this
is the case please contact the Ordinary Share
registrar so that this can be rectified.
Holders of shares listed in Stockholm
should contact Computershare AB, PO
Box 610, SE-182 16 Danderyd, (telephone
+46 (0)8 588 04 200) and holders of ADRs
should contact the ADR depositary or their
personal broker with queries relating to
shareholder communications.
Shareview
Holders of Ordinary Shares may create a
portfolio at www.shareview.co.uk to view
and manage their AstraZeneca shareholding.
Shareview is a free and secure online service
provided by the Ordinary Share registrar that
allows users to, among other things, update
personal details, manage communication
preferences, view dividend information and
manage direct dividend payments.
AstraZeneca Annual Report & Form 20-F Information 2017 / Additional Information Financial calendar
Event
Second interim
dividend for 2017
Ex-dividend date
Record date
Payment date
Announcement of
first quarter results
for 2018
Annual general
meeting (AGM)
Announcement of
second quarter results
for 2018
First interim
dividend for 2018
Ex-dividend date
Record date
Payment date
Announcement of
third quarter results
for 2018
Provisional date
15 February 2018
16 February 2018
19 March 2018
18 May 2018
18 May 2018
26 July 2018
9 August 2018
10 August 2018
10 September 2018
8 November 2018
Financial year end
31 December 2018
History and development of the Company
AstraZeneca PLC was incorporated in
England and Wales on 17 June 1992 under
the Companies Act 1985. It is a public limited
company domiciled in the UK. The Company’s
registered number is 2723534 and its
registered office is at 1 Francis Crick Avenue,
Cambridge Biomedical Campus, Cambridge
CB2 0AA, UK (telephone +44 (0)20 3749 5000).
From February 1993 until April 1999, the
Company was called Zeneca Group PLC.
On 6 April 1999, the Company changed its
name to AstraZeneca PLC.
The Company was formed when the
pharmaceutical, agrochemical and specialty
chemical businesses of Imperial Chemical
Industries PLC were demerged in 1993.
In 1999, the Company sold the specialty
chemical business. Also in 1999, the
Company merged with Astra of Sweden.
In 2000, it demerged the agrochemical
business and merged it with the similar
business of Novartis to form a new company
called Syngenta AG. In 2007, the Group
acquired MedImmune, a biologics and
vaccines business based in the US.
In 1999, in connection with the merger
between Astra and Zeneca, the Company’s
share capital was redenominated in US
dollars. On 6 April 1999, Zeneca shares
were cancelled and US dollar shares issued,
credited as fully paid on the basis of one
dollar share for each Zeneca share then held.
This was achieved by a reduction of capital
under section 135 of the Companies Act 1985.
Upon the reduction of capital becoming
effective, all issued and unissued Zeneca
shares were cancelled and the sum arising as
a result of the share cancellation credited to
a special reserve, which was converted into
US dollars at the rate of exchange prevailing
on the record date. This US dollar reserve
was then applied in paying up, at par, newly
created US dollar shares.
At the same time as the US dollar shares
were issued, the Company issued 50,000
Redeemable Preference Shares for cash,
at par. The Redeemable Preference Shares
carry limited class voting rights, no dividend
rights and are capable of redemption, at par,
at the option of the Company on the giving
of seven days’ written notice to the registered
holder of the Redeemable Preference Shares.
A total of 826 million Ordinary Shares were
issued to Astra shareholders who accepted
the merger offer before the final closing date,
21 May 1999. The Company received
acceptances from Astra shareholders
representing 99.6% of Astra’s shares and
the remaining 0.4% was acquired in 2000,
for cash.
Issued share capital, shareholdings and share prices
At 31 December 2017, the Company had 87,934 registered holders of 1,266,221,605 Ordinary Shares. There were 107,486 holders of Ordinary
Shares held under the Euroclear Services Agreement, representing 10.4% of the issued share capital of the Company and 1,849 registered
holders of ADSs, representing 17.7% of the issued share capital of the Company.
Ordinary Shares in issue
Ordinary Shares in issue – millions
At year end
Weighted average for year
Stock market price per Ordinary Share (London Stock Exchange)
Highest (pence)
Lowest (pence)
At year end (pence)
Analysis of shareholdings as a percentage of issued share capital at 31 December
Number of Ordinary Shares1
1 – 250
251 – 500
501 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 50,000
50,001 – 1,000,000
Over 1,000,000
1 Includes Euroclear and ADR holdings.
2013
2014
2015
2016
2017
1,257
1,252
3612.0
2909.5
3574.5
1,263
1,262
4823.5
3549.5
4555.5
1,264
1,264
4863.0
3903.5
4616.5
1,265
1,265
5220.0
3774.0
4437.5
1,266
1,266
5508.0
4194.0
5121.0
2013
%
0.5
0.6
0.8
1.1
0.2
1.0
12.3
83.5
2014
%
0.5
0.6
0.7
1.0
0.2
1.0
13.3
82.7
2015
%
0.5
0.6
0.7
0.9
0.2
0.9
13.0
83.2
2016
%
0.5
0.5
0.6
0.8
0.2
0.9
12.3
84.2
2017
%
0.5
0.5
0.6
0.8
0.2
1.0
11.9
84.5
229
AstraZeneca Annual Report & Form 20-F Information 2017 / Shareholder InformationAdditional Information
Shareholder Information
continued
Reported high and low share prices during the year
2016
2017
– Quarter 1
– Quarter 2
– Quarter 3
– Quarter 4
– Quarter 1
– Quarter 2
– Quarter 3
– Quarter 4
– July
– August
– September
– October
– November
– December
Ordinary Shares
London Stock Exchange1
Low
(pence)
High
(pence)
Ordinary Shares
Stockholm Stock Exchange2
Low
(SEK)
High
(SEK)
ADRs
New York Stock Exchange3
Low
(US$)
High
(US$)
4562.0
4467.0
5220.0
5096.0
4974.5
5508.0
5192.0
5180.0
5192.0
4564.0
4955.0
5176.0
5180.0
5121.0
3890.0
3774.0
4469.5
4007.0
4194.0
4566.0
4325.0
4705.0
4325.0
4384.0
4573.5
5022.0
4777.0
4705.0
584.0
592.0
556.0
581.5
558.0
619.0
578.0
581.0
578.0
491.9
547.5
568.0
581.0
568.5
452.8
458.2
456.6
448.5
470.6
534.0
466.2
541.0
471.8
466.2
479.6
552.5
546.5
541.0
33.90
30.25
34.50
33.00
31.80
35.36
34.16
34.78
34.16
30.34
34.00
34.78
34.56
34.70
27.95
27.26
29.97
25.81
26.72
29.76
28.88
32.09
28.88
28.96
30.07
33.49
32.87
32.09
1 For shares listed on the London Stock Exchange, the reported high and low middle market closing quotations are derived from the Daily Official List.
2 For shares listed on the Stockholm Stock Exchange, the high and low closing sales prices are as stated in the Official List.
3 For ADRs listed on the New York Stock Exchange, the reported high and low sales prices are as reported by Dow Jones (ADR quotations).
US holdings
At 31 January 2018, the proportion of Ordinary Shares represented by ADSs was 17.7% of the issued share capital of the Company. At 31 January
2018 there were 87,700 registered holders of Ordinary Shares, of which 703 were based in the US and there were 1,850 record holders of ADRs,
of which 1,828 were based in the US.
Major shareholdings
At 31 December 2017, the following persons had disclosed an interest in the issued Ordinary Share capital of the Company in accordance with the
requirements of rules 5.1.2 or 5.1.5 of the UK Listing Authority’s Disclosure Guidance and Transparency Rules:
Shareholder
BlackRock, Inc.
Investor AB
The Capital Group Companies, Inc.
Number of
Ordinary Shares
Date of
disclosure to
Company1
Number of Ordinary
Shares disclosed as a
percentage of issued
share capital at
31 December 2017
100,885,181
8 December 2009
51,587,810
63,029,311
2 February 2012
14 August 2017
7.97
4.07
4.98
1 Since the date of disclosure to the Company, the interest of any person listed above in Ordinary Shares may have increased or decreased. No requirement to notify the Company of any increase
or decrease arises unless the holding passes a notifiable threshold in accordance with rules 5.1.2 or 5.1.5 of the UK Listing Authority’s Disclosure Guidance and Transparency Rules.
So far as the Company is aware, no other person held a notifiable interest in the issued Ordinary Share capital of the Company. No changes to
major shareholdings were disclosed to the Company between 31 December 2017 and 31 January 2018.
Changes in the percentage ownerships disclosed by major shareholders during the past three years are set out below. Major shareholders do not
have different voting rights.
Shareholder
BlackRock, Inc.
Investor AB
The Capital Group Companies, Inc.
31 January
2018
31 January
2017
31 January
2016
31 January
2015
7.97
4.07
4.98
7.97
4.08
3.00
7.98
4.08
3.00
7.99
4.08
< 3.00
So far as the Company is aware, it is neither directly nor indirectly owned or controlled by one or more corporations or by any government.
The Company does not know of any arrangements, the operation of which might result in a change in the control of the Company.
230
AstraZeneca Annual Report & Form 20-F Information 2017 / Additional Information Directors’ and officers’ shareholdings
At 31 January 2018, the total amount of
the Company’s voting securities owned by
Directors and officers of the Company was:
Title of class
Amount
owned
Percentage
of class
Ordinary Shares
657,098
0.05
Options to purchase securities from
registrant or subsidiaries
(a) At 31 January 2018, options outstanding
to subscribe for Ordinary Shares were:
Number of shares
2,116,201
Subscription
price (pence)
Normal
expiry date
1882-3929
2017-2023
The weighted average subscription price of
options outstanding at 31 January 2018 was
3118 pence. All options were granted under
Company employee share schemes.
(b) Included in paragraph (a) are options
granted to Directors and officers of the
Company as follows:
Number of shares
2,495
Subscription
price (pence)
Normal
expiry date
3307-3597
2018-2021
(c) Included in paragraph (b) are options
granted to individually named Directors.
Details of these option holdings at
31 December 2017 are shown in the
Remuneration Report on page 124.
During the period 1 January 2018 to
31 January 2018, no Director exercised
any options.
Related party transactions
During the period 1 January 2018 to 31
January 2018, there were no transactions,
loans, or proposed transactions between the
Company and any related parties which were
material to either the Company or the related
party, or which were unusual in their nature or
conditions (see also Note 30 to the Financial
Statements on page 189).
Articles of Association
AstraZeneca PLC’s current Articles were
adopted by shareholders at the Company’s
AGM held on 24 April 2015. Any amendment
to the Articles requires the approval of
shareholders by a special resolution at
a general meeting of the Company.
Objects
The Company’s objects are unrestricted.
Directors
The Board has the authority to manage
the business of the Company, for example,
through powers to allot and repurchase its
shares, subject where required to shareholder
resolutions. Subject to certain exceptions,
Directors do not have power to vote at Board
meetings on matters in which they have
a material interest.
The quorum for meetings of the Board is a
majority of the full Board, of whom at least
four must be Non-Executive Directors.
In the absence of a quorum, the Directors do
not have power to determine compensation
arrangements for themselves or any member
of the Board.
The Board may exercise all the powers of
the Company to borrow money. Variation
of these borrowing powers would require
the passing of a special resolution of the
Company’s shareholders.
All Directors must retire from office at
the Company’s AGM each year and may
present themselves for election or re-election.
Directors are not prohibited, upon reaching
a particular age, from submitting themselves
for election or re-election.
Within two months of the date of their
appointment, Directors are required to
beneficially own Ordinary Shares of an
aggregate nominal amount of at least $125,
which currently represents 500 shares.
Rights, preferences and restrictions
attaching to shares
As at 31 December 2017, the Company had
1,266,221,605 Ordinary Shares and 50,000
Redeemable Preference Shares in issue.
The Ordinary Shares represent 99.98% and
the Redeemable Preference Shares represent
0.02% of the Company’s total share capital
(these percentages have been calculated by
reference to the closing mid-point US$/GBP
exchange rate on 31 December 2017 as
published in the London edition of the
Financial Times newspaper).
As agreed by the shareholders at the
Company’s AGM held on 29 April 2010,
the Articles were amended with immediate
effect to remove the requirement for the
Company to have an authorised share capital,
the concept of which was abolished under the
Companies Act 2006. Each Ordinary Share
carries the right to vote at general meetings
of the Company. The rights and restrictions
attaching to the Redeemable Preference
Shares differ from those attaching to Ordinary
Shares as follows:
> The Redeemable Preference Shares
carry no rights to receive dividends.
> The holders of Redeemable Preference
Shares have no rights to receive notices of,
attend or vote at general meetings except
in certain limited circumstances. They have
one vote for every 50,000 Redeemable
Preference Shares held.
> On a distribution of assets of the Company,
on a winding-up or other return of capital
(subject to certain exceptions), the holders
of Redeemable Preference Shares have
priority over the holders of Ordinary
Shares to receive the capital paid up
on those shares.
> Subject to the provisions of the Companies
Act 2006, the Company has the right to
redeem the Redeemable Preference Shares
at any time on giving not less than seven
days’ written notice.
There are no specific restrictions on the transfer
of shares in the Company, which is governed
by the Articles and prevailing legislation.
The Company is not aware of any agreements
between holders of shares that may result in
restrictions on the transfer of shares or that
may result in restrictions on voting rights. The
Company is also not aware of any arrangements
under which financial rights are held by a
person other than the holder of the shares.
Action necessary to change the rights
of shareholders
In order to vary the rights attached to any
class of shares, the consent in writing of the
holders of three quarters in nominal value of
the issued shares of that class or the sanction
of a special resolution passed at a general
meeting of such holders is required.
General meetings
AGMs require 21 clear days’ notice to
shareholders. Subject to the Companies
Act 2006, other general meetings require
14 clear days’ notice.
For all general meetings, a quorum of two
shareholders present in person or by proxy,
and entitled to vote on the business transacted,
is required unless each of the two persons
present is a corporate representative of the
same corporation; or each of the two persons
present is a proxy of the same shareholder.
Shareholders and their duly appointed proxies
and corporate representatives are entitled to
be admitted to general meetings.
Limitations on the rights to own shares
There are no limitations on the rights to
own shares.
231
AstraZeneca Annual Report & Form 20-F Information 2017 / Shareholder InformationAdditional Information Shareholder Information
continued
Documents on display
The Articles and other documents concerning
the Company which are referred to in this
Annual Report may be inspected at the
Company’s registered office at 1 Francis
Crick Avenue, Cambridge Biomedical
Campus, Cambridge CB2 0AA, UK.
Compliance requirements under Listing
Rule 9.8.4
Other than as set out below, the Company
has nothing to report under Listing Rule 9.8.4.
Item
Details of any long-term
incentive schemes
Location of details in
Annual Report
Note 27 of the Financial
Statements and Directors’
Remuneration Report
Shareholder waiver
of dividends
Page 98 in the Corporate
Governance Report
Property
Substantially all of our properties are held
freehold, free of material encumbrances and
are fit for their purpose. For more information
please refer to Note 7 to the Group Financial
Statements on page 153.
Tax information for shareholders
Taxation for US persons
The following summary of material UK and US
federal income tax consequences of ownership
of Ordinary Shares or ADR held as capital
assets by the US holders described below is
based on current UK and US federal income
tax law, including the US/UK double taxation
convention relating to income and capital
gains, which entered into force on 31 March
2003 (the Convention). This summary does not
describe all of the tax consequences that may
be relevant in light of the US holders’ particular
circumstances and tax consequences
applicable to US holders subject to special
rules (such as certain financial institutions,
entities treated as partnerships for US
federal income tax purposes, persons whose
functional currency for US federal income
tax purposes is not the US dollar, tax-exempt
entities, persons subject to alternative
minimum tax, persons subject to the Medicare
contribution tax on ‘net investment income’,
or persons holding Ordinary Shares or ADRs in
connection with a trade or business conducted
outside of the US). US holders are urged to
consult their tax advisers regarding the UK and
US federal income tax consequences of the
ownership and disposition of Ordinary Shares
or ADRs in their particular circumstances.
232
foreign currency payment, determined at the
spot rate of the relevant foreign currency on
the date the dividend is received by the US
holders, regardless of whether the dividend
is converted into US dollars), and it will not be
eligible for the dividends received deduction
generally available to US corporations. If the
dividend is converted into US dollars on the
date of receipt, US holders of Ordinary Shares
generally should not be required to recognise
foreign currency gains or losses in respect of
the dividend income. They may have foreign
currency gain or loss (taxable at the rates
applicable to ordinary income) if the amount
of such dividend is converted into US dollars
after the date of its receipt.
Subject to applicable limitations and the
discussion above regarding concerns
expressed by the US Treasury, dividends
received by certain non-corporate US holders
of Ordinary Shares or ADRs may be taxable
at favourable US federal income tax rates.
US holders should consult their own tax
advisers to determine whether they are subject
to any special rules which may limit their
ability to be taxed at these favourable rates.
Taxation on capital gains
Under present English law, individuals who are
neither resident nor ordinarily resident in the
UK, and companies which are not resident in
the UK, will not be liable for UK tax on capital
gains made on the disposal of their Ordinary
Shares or ADRs, unless such Ordinary Shares
or ADRs are held in connection with a trade,
profession or vocation carried on in the UK
through a branch or agency or other
permanent establishment.
A US holder will generally recognise US
source capital gains or losses for US federal
income tax purposes on the sale or exchange
of Ordinary Shares or ADRs in an amount
equal to the difference between the US dollar
amount realised and such holder’s US dollar
tax basis in the Ordinary Shares or ADRs.
US holders should consult their own tax
advisers about the treatment of capital gains,
which may be taxed at lower rates than
ordinary income for non-corporate US
holders and capital losses, the deductibility
of which may be subject to limitations.
This summary is based in part on representations
of Citibank as depositary for ADRs and
assumes that each obligation in the deposit
agreement among the Company and the
depositary and the holders from time to time
of ADRs and any related agreements will
be performed in accordance with its terms.
The US Treasury has expressed concerns that
parties to whom American depositary shares
are released before shares are delivered to
the depositary (pre-release), or intermediaries
in the chain of ownership between holders
and the issuer of the security underlying the
American depositary shares, may be taking
actions that are inconsistent with the claiming,
by US holders of American depositary shares,
of foreign tax credits for US federal income
tax purposes. Such actions would also be
inconsistent with the claiming of the reduced
tax rates, described below, applicable to
dividends received by certain non-corporate
US holders. Accordingly, the availability of the
reduced tax rates for dividends received by
certain non-corporate US holders could be
affected by actions that may be taken by
parties to whom ADRs are pre-released.
For the purposes of this summary, the term
‘US holder’ means a beneficial owner of
Ordinary Shares or ADRs that is, for US
federal income tax purposes, a citizen or
resident of the US, a corporation (or other
entity taxable as a corporation) created or
organised in or under the laws of the US,
any state in the US or the District of Columbia,
or an estate or trust, the income of which
is subject to US federal income taxation
regardless of its source.
This summary assumes that we are not,
and will not become, a passive foreign
investment company, as discussed below.
UK and US income taxation of dividends
The UK does not currently impose a
withholding tax on dividends paid by
a UK company, such as the Company.
For US federal income tax purposes,
distributions paid by the Company to a US
holder are included in gross income as foreign
source ordinary dividend income to the
extent paid out of the Company’s current or
accumulated earnings and profits, calculated
in accordance with US federal income tax
principles. The Company does not maintain
calculations of its earnings and profits under
US federal income tax principles and so it
is expected that distributions generally will
be reported to US holders as dividends.
The amount of the dividend will be the US
dollar amount received by the depositary
for US holders of ADRs (or, in the case of
Ordinary Shares, the US dollar value of the
AstraZeneca Annual Report & Form 20-F Information 2017 / Additional Information Exchange controls and other limitations
affecting security holders
There are no governmental laws, decrees or
regulations in the UK restricting the import or
export of capital or affecting the remittance
of dividends, interest or other payments to
non-resident holders of Ordinary Shares
or ADRs.
There are no limitations under English law
or the Articles on the right of non-resident
or foreign owners to be the registered holders
of, or to exercise voting rights in relation to,
Ordinary Shares or ADRs or to be registered
holders of notes or debentures of the
Company or its wholly-owned subsidiary,
Zeneca Wilmington Inc.
Exchange rates
The following information relating to
average and spot exchange rates used by
AstraZeneca is provided for convenience:
SEK/US$
US$/GBP
Average rates
(statement of comprehensive income,
statement of cash flows)
2015
2016
2017
End of year spot rates
(statement of financial position)
2015
2016
2017
8.3950
8.5286
1.5357
1.3673
8.5835
1.2835
8.4114
9.1162
1.4816
1.2272
8.2467
1.3468
Passive Foreign Investment Company
(PFIC) rules
We believe that we were not a PFIC for US
federal income tax purposes for the year
ended 31 December 2017. However, since
PFIC status depends on the composition of
our income and assets, and the market value
of our assets (including, among others, less
than 25% owned equity investments), from
time to time, there can be no assurance that
we will not be considered a PFIC for any
taxable year. If we were treated as a PFIC for
any taxable year during which Ordinary
Shares or ADRs were held, certain adverse
tax consequences could apply to US holders.
Information reporting and backup
withholding
Payments of dividends and sales proceeds
that are made within the US or through certain
US-related financial intermediaries may be
subject to information reporting and backup
withholding, unless: (i) the US holder is a
corporation or other exempt recipient; or (ii) in
the case of backup withholding, the US holder
provides a correct taxpayer identification
number and certifies that it is not subject
to backup withholding. The amount of any
backup withholding from a payment to a US
holder will be allowed as a credit against the
holder’s US federal income tax liability and
may entitle the holder to a refund, provided
that the required information is timely supplied
to the US Internal Revenue Service (IRS).
Certain US holders who are individuals
(or certain specified entities), may be required
to report information relating to securities
issued by non-US persons (or foreign
accounts through which the securities are
held), generally on IRS Form 8938, subject
to certain exceptions (including an exception
for securities held in accounts maintained by
US financial institutions). US holders should
consult their tax advisers regarding their
reporting obligations with respect to the
Ordinary Shares or ADRs.
UK inheritance tax
Under the current Double Taxation (Estates)
Convention (the Estate Tax Convention)
between the US and the UK, Ordinary Shares
or ADRs held by an individual shareholder
who is domiciled for the purposes of the
Estate Tax Convention in the US, and is not
for the purposes of the Estate Tax Convention
a national of the UK, will generally not
be subject to UK inheritance tax on the
individual’s death or on a chargeable gift
of the Ordinary Shares or ADRs during
the individual’s lifetime, provided that any
applicable US federal gift or estate tax
liability is paid, unless the Ordinary Shares
or ADRs are part of the business property
of a permanent establishment of the individual
in the UK or, in the case of a shareholder
who performs independent personal services,
pertain to a fixed base situated in the UK.
Where the Ordinary Shares or ADRs have
been placed in trust by a settlor who, at the
time of settlement, was a US domiciled
shareholder, the Ordinary Shares or ADRs will
generally not be subject to UK inheritance tax
unless the settlor, at the time of settlement,
was a UK national, or the Ordinary Shares or
ADRs are part of the business property of a
permanent establishment of the individual in
the UK or, in the case of a shareholder who
performs independent personal services,
pertain to a fixed base situated in the UK.
In the exceptional case where the Ordinary
Shares or ADRs are subject to both UK
inheritance tax and US federal gift or estate
tax, the Estate Tax Convention generally
provides for double taxation to be relieved
by means of credit relief.
UK stamp duty reserve tax and stamp duty
A charge to UK stamp duty or UK stamp duty
reserve tax (SDRT) may arise on the deposit
of Ordinary Shares in connection with the
creation of ADRs. The rate of stamp duty or
SDRT will generally be 1.5% of the value of
the consideration or, in some circumstances,
the value of the Ordinary Shares. There is no
1.5% SDRT charge on the issue of Ordinary
Shares (or, where it is integral to the raising of
new capital, the transfer of Ordinary Shares)
into the ADR arrangement.
No UK stamp duty will be payable on the
acquisition or transfer of existing ADRs
provided that any instrument of transfer or
written agreement to transfer is executed
outside the UK and remains at all times
outside the UK. An agreement for the transfer
of ADRs will not give rise to a liability for SDRT.
A transfer of, or an agreement to, transfer
Ordinary Shares will generally be subject
to UK stamp duty or SDRT at 0.5% of
the amount or value of any consideration,
provided, in the case of stamp duty, it is
rounded up to the nearest £5.
Transfers of Ordinary Shares into CREST
will generally not be subject to stamp duty
or SDRT, unless such a transfer is made for
a consideration in money or money’s worth,
in which case a liability to SDRT will arise,
usually at the rate of 0.5% of the value of the
consideration. Paperless transfers of Ordinary
Shares within CREST are generally liable to
SDRT at the rate of 0.5% of the value of the
consideration. CREST is obliged to collect
SDRT from the purchaser on relevant
transactions settled within the system.
233
AstraZeneca Annual Report & Form 20-F Information 2017 / Shareholder InformationAdditional Information Trade Marks
AstraZeneca, the AstraZeneca logotype, and the AstraZeneca symbol are all trade marks of the Group.
The following brand names which appear in italics in this Annual Report are trade marks of the Group:
Trade mark
Accolate1
Arimidex
Atacand
Atacand HCT
Atacand Plus
BCise
Bevespi Aerosphere
Bricanyl
Brilinta
Brilique
Bydureon
Byetta
Calquence
Caprelsa2
Carbocaine3
Casodex
Citanest3
Cosudex
Crestor
Daliresp
Daxas
Diprivan3
Duzallo
EMLA3
Entocort4
Farxiga
Fasenra
Faslodex
Fluenz
FluMist
Forxiga
Genuair
Imdur5
Imfinzi
Iressa
Kombiglyze
Komboglyze
Losec
Lynparza
Marcaine3
Meronem6
Merrem6
Movantik
Moventig
Myalept7
Naropin3
Nexium
Nolvadex
Onglyza
Oxis Turbuhaler
Plendil
Pressair
Prilosec
Pulmicort
Pulmicort Flexhaler
Pulmicort Respules
Pulmicort Turbuhaler
Qtern
Respules
Rhinocort8
Rhinocort Aqua8
Seloken
Seroquel
Seroquel XR
Symbicort
Symbicort SMART
Symbicort Turbuhaler
Symlin
Synagis9
Tagrisso
Tenormin10
Toprol-XL
Turbuhaler
Vimovo
Xigduo
Xylocaine3
Xylocard3
Xyloproct3
Zavicefta11
Zestril10
Zoladex
Zomig
Zurampic
1 AstraZeneca assigned this trade mark in the US to Par Pharmaceuticals Inc. effective 5 January 2015.
2 AstraZeneca assigned this trade mark to Genzyme Corporation effective 30 September 2015.
3 AstraZeneca divested these trade marks to Aspen group effective 1 November 2017.
4 AstraZeneca assigned this trade mark in the US to Elan Pharma International Limited effective 15 December 2015, and in the rest of the world to Tillots Pharma AG effective 16 July 2015.
5 AstraZeneca assigned this trade mark to Everest Future Limited effective 1 May 2016.
6 AstraZeneca assigned Meronem and Merrem to Pfizer Inc. in most markets outside the US effective 23 December 2016.
7 AstraZeneca assigned this trade mark to Aegerion effective 9 January 2015.
8 AstraZeneca assigned Rhinocort and Rhinocort Aqua to Cilag GmbH International outside the US effective 5 December 2016.
9 AstraZeneca owns this trade mark in the US only. AbbVie owns it in the rest of the world.
10 AstraZeneca assigned these trade marks in the US to Alvogen Pharma US Inc. effective 9 January 2015.
11 AstraZeneca assigned this trade mark to Pfizer Inc. effective 23 December 2016.
The following brand names which appear in italics in this Annual Report are trade marks licensed to the Group by the entities set out below:
Trade mark
Duaklir
Eklira
Epanova
Tudorza
Licensor or Owner
Almirall, S.A.
Almirall, S.A.
Chrysalis Pharma AG
Almirall, S.A.
The following brand names which appear in italics throughout this Annual Report are not owned by or licensed to the Group and are owned
by the entities set out below:
Trade mark
Avastin
Darzalex
Keytruda
Lipitor
Owner
Genentech, Inc.
Johnson & Johnson
MSD
Pfizer Ireland Pharmaceuticals
messenger RNA Therapeutics
Moderna Therapeutics, Inc.
Vidaza
Celgene Corporation
234
AstraZeneca Annual Report & Form 20-F Information 2017 / Additional Information Glossary
Market definitions
Region
US
Europe
Country
US
Albania*
Austria
Belgium
Czech Republic
Denmark
Estonia*
Bosnia and Herzegovina*
Finland
Bulgaria
Croatia
Cyprus*
Established ROW Australia
Emerging Markets Algeria
Argentina
Aruba*
Bahamas*
Bahrain*
Barbados*
Belarus*
Belize*
Bermuda*
Brazil
Chile
China
Colombia
France
Germany
Greece
Canada
Costa Rica
Cuba*
Dominican Republic*
Ecuador*
Egypt
El Salvador
Georgia*
Guatemala
Honduras
Hong Kong
India
Indonesia
Iran*
Hungary
Iceland*
Ireland
Israel*
Italy
Latvia*
Lithuania*
Japan
Iraq*
Jamaica*
Jordan*
Kazakhstan
Kuwait*
Lebanon*
Libya*
Malaysia
Mexico
Morocco*
Nicaragua
Oman*
Other Africa*
Luxembourg*
Malta*
Netherlands
Norway
Poland
Portugal*
Romania
New Zealand
Pakistan*
Palestine*
Panama
Peru
Philippines
Qatar*
Russia
Saudi Arabia
Singapore
South Africa
South Korea
Sri Lanka*
Sudan*
Serbia and Montenegro*
Slovakia
Slovenia*
Spain
Sweden
Switzerland
UK
Syria*
Taiwan
Thailand
Trinidad and Tobago*
Tunisia*
Turkey
Ukraine*
United Arab Emirates
Uruguay*
Venezuela*
Vietnam
Yemen*
* IQVIA, IQVIA Midas Quantum Q3 2017 data is not available or AstraZeneca does not subscribe for IQVIA quarterly data for these countries.
The above table is not an exhaustive list of all the countries in which AstraZeneca operates, and excludes countries with revenue in 2017 of less
than $1 million.
Established Markets means US, Europe and Established ROW.
North America means US and Canada.
Other Established ROW means Australia and New Zealand.
Other Emerging Markets means all Emerging Markets except China.
Other Africa includes Angola, Botswana, Ethiopia, Ghana, Kenya, Mauritius, Mozambique, Namibia, Nigeria, Swaziland, Tanzania, Uganda,
Zambia and Zimbabwe.
Asia Area comprises India, Indonesia, Malaysia, Philippines, Singapore, South Korea, Sri Lanka, Taiwan, Thailand and Vietnam.
US equivalents
Terms used in this Annual Report
Accruals
Called-up share capital
Creditors
Debtors
Earnings
Employee share schemes
Fixed asset investments
Freehold
Loans
Prepayments
Profit
Share premium account
Short-term investments
US equivalent or brief description
Accrued expenses
Issued share capital
Liabilities/payables
Receivables and prepaid expenses
Net income
Employee stock benefit plans
Non-current investments
Ownership with absolute rights in perpetuity
Long-term debt
Prepaid expenses
Income
Premiums paid in excess of par value of Ordinary Shares
Redeemable securities and short-term deposits
AstraZeneca Annual Report & Form 20-F Information 2017 / Glossary
235
Additional Information Glossary continued
The following abbreviations and expressions have the following
meanings when used in this Annual Report:
Abbott – Abbott Laboratories.
AbbVie – AbbVie Inc.
ACA (Affordable Care Act) – the US Patient Protection and Affordable
Care Act which was signed into law on 23 March 2010 as amended by
the Health Care and Education Reconciliation Act which was signed
into law on 30 March 2010.
Acerta Pharma – Acerta Pharma B.V.
ACS – acute coronary syndromes.
Actavis – Actavis plc.
ADC Therapeutics – ADC Therapeutics Sàrl.
ADR – an American Depositary Receipt evidencing title to an ADS.
ADS – an American Depositary Share representing half an underlying
Ordinary Share.
Aegerion – Aegerion Pharmaceuticals, Inc.
AGM – an Annual General Meeting of the Company.
Allergan – Allergan plc.
Almirall – Almirall, S.A.
Amgen – Amgen, Inc.
Amplimmune – Amplimmune, Inc.
Amylin – Amylin Pharmaceuticals, LLC (formerly Amylin
Pharmaceuticals, Inc.).
ANDA – an abbreviated new drug application, which is a marketing
approval application for a generic drug submitted to the FDA.
Annual Report – this Annual Report and Form 20-F Information 2017.
API – active pharmaceutical ingredient.
Aralez – Aralez Pharmaceuticals Trading DAC.
Ardea – Ardea Biosciences, Inc.
Articles – the Articles of Association of the Company.
Aspen – Aspen Global Incorporated.
Astellas – Astellas Pharma Inc.
Astra – Astra AB, being the company with whom the Company
merged in 1999.
AstraZeneca – the Company and its subsidiaries.
ATM – Ataxia telangiectasia mutated.
AZIP – AstraZeneca Investment Plan.
BACE – beta secretase cleaving enzyme.
biologic(s) – a class of drugs that are produced in living cells.
biosimilars – a copy of a biologic that is sufficiently similar to
meet regulatory requirements.
BMS – Bristol-Myers Squibb Company.
Board – the Board of Directors of the Company.
Bureau Veritas – Bureau Veritas UK Limited.
CDP – a not-for-profit that runs the global disclosure system for
investors, companies, cities, states and regions to manage their
environmental impacts.
Celgene – Celgene International Sàrl/Celgene Corporation.
CEO – the Chief Executive Officer of the Company.
CER – constant exchange rates.
CFDA – China Food and Drug Administration.
CFO – the Chief Financial Officer of the Company.
CHMP – the Committee for Medicinal Products for Human Use.
Cilag – Cilag GmbH International.
Circassia – Circassia Pharmaceuticals plc.
CIS – Commonwealth of Independent States.
CMS – China Medical System Holdings Ltd.
Code of Ethics – the Group’s Code of Ethics.
Company or Parent Company – AstraZeneca PLC (formerly Zeneca
Group PLC (Zeneca)).
COPD – chronic obstructive pulmonary diseases.
CREST – UK-based securities settlement system.
CRISPR – clustered regularly interspaced short palindromic repeats.
CRL – Complete Response Letter.
CROs – contract research organisations.
CRUK – Cancer Research UK.
CV – cardiovascular.
CVMD – Cardiovascular & Metabolic Diseases.
Daiichi Sankyo – Daiichi Sankyo, Inc.
Definiens – Definiens AG.
Director – a director of the Company.
DJSI – Dow Jones Sustainability Index.
DOJ – the United States Department of Justice.
DTR – UK Disclosure Guidance and Transparency Rules.
earnings per share (EPS) – profit for the year after tax and
non-controlling interests, divided by the weighted average
number of Ordinary Shares in issue during the year.
EC – European Commission.
EFPIA – European Federation of Pharmaceutical Industries
and Associations.
EGFR – epidermal growth factor receptor.
EMA – European Medicines Agency.
Entasis – Entasis Therapeutics Ltd and Entasis Therapeutics Inc.
EPO – European Patent Office.
ESMO – European Society for Medical Oncology.
ESPC – Early Stage Product Committee.
ESRD – end-stage renal disease.
EVP – Executive Vice-President.
EU – the European Union.
EU 5 – European Union Five (France, Germany, Italy, Spain and the UK).
FDA – the US Food and Drug Administration, which is part of the
US Department of Health and Human Services Agency, which is
the regulatory authority for all pharmaceuticals (including biologics
and vaccines) and medical devices in the US.
FDC – fixed-dose combination.
FibroGen – FibroGen, Inc.
FRC – Financial Reporting Council.
GAAP – Generally Accepted Accounting Principles.
GDPR – General Data Protection Regulation.
Gilead – Gilead Sciences, Inc.
GMD – Global Medicines Development.
GPPS – Global Product and Portfolio Strategy.
gross margin – the margin, as a percentage, by which sales exceed
the cost of sales, calculated by dividing the difference between the
two by the sales figure.
Group – AstraZeneca PLC and its subsidiaries.
Grünenthal – Grünenthal Group.
GSK – GlaxoSmithKline plc.
HHA – Healthy Heart Africa programme.
HR – human resources.
236
AstraZeneca Annual Report & Form 20-F Information 2017 / Additional Information IA – the Group’s Internal Audit Services function.
Novo Nordisk – Novo Nordisk A/S.
IAS – International Accounting Standards.
IAS 19 – IAS 19 ‘Employee Benefits’.
NSAID – a non-steroidal anti-inflammatory drug.
NSCLC – non-small cell lung cancer.
IAS 32 – IAS 32 ‘Financial Instruments: Presentation’.
NSTE-ACS – non-ST-Elevation acute coronary syndromes.
IAS 39 – IAS 39 ‘Financial Instruments: Recognition and Measurement’.
NYSE – the New York Stock Exchange.
IASB – International Accounting Standards Board.
n/m – not meaningful.
ICS – inhaled corticosteroid.
OECD – the Organisation for Economic Co-operation and Development.
IFPMA – International Federation of Pharmaceutical Manufacturers
and Associations.
OIC – opioid-induced constipation.
Omthera – Omthera Pharmaceuticals, Inc.
IFRS – International Financial Reporting Standards or International
Financial Reporting Standard, as the context requires.
IFRS 8 – IFRS 8 ‘Operating Segments’.
IMED – Innovative Medicines and Early Development.
Incyte – Incyte Corporation.
Innate Pharma – Innate Pharma S.A.
Insmed – Insmed, Inc.
IO – immuno-oncology.
IP – intellectual property.
Ironwood – Ironwood Pharmaceuticals, Inc.
IS – information services.
ISAs – International Standards on Auditing.
IT – information technology.
Johnson & Johnson – Johnson & Johnson.
KPI – key performance indicator.
krona or SEK – references to the currency of Sweden.
Kyowa Hakko Kirin – Kyowa Hakko Kirin Co., Ltd.
LABA – long-acting beta2-agonist.
LAMA – long-acting muscarinic antagonist.
LCM projects – significant life-cycle management projects
(as determined by potential revenue generation), or line extensions.
Lean – means enhancing value for customers with fewer resources.
LEO Pharma – LEO Pharma A/S.
Lilly – Eli Lilly and Company.
LSPC – Late Stage Product Committee.
LTI – long-term incentive, in the context of share plan remuneration
arrangements.
MAA – a marketing authorisation application, which is an application
for authorisation to place medical products on the market. This is a
specific term used in the EU and European Economic Area markets.
mAb – monoclonal antibody, a biologic that is specific, that is, it binds
to and attacks one particular antigen.
major market – US, EU, Japan (JP) and China (CN).
MAT – moving annual total.
MedImmune – MedImmune, LLC (formerly MedImmune, Inc.).
MEK – part of the mitogen-activated protein kinase (MAPK) pathway.
MI – myocardial infarction.
Moderna – Moderna Therapeutics, Inc.
MSD – Merck & Co., Inc., which is known as Merck in the US and
Canada and MSD in other territories.
NCD – non-communicable disease.
NDA – a new drug application to the FDA for approval to market a new
medicine in the US.
NME – new molecular entity.
Novartis – Novartis Pharma AG.
operating profit – sales, less cost of sales, less operating costs,
plus operating income.
Ordinary Share – an ordinary share of $0.25 each in the share capital
of the Company.
Orphan Drug – a drug which has been approved for use in a relatively
low-incidence indication (an orphan indication) and has been rewarded
with a period of market exclusivity; the period of exclusivity and the
available orphan indications vary between markets.
OTC – over-the-counter.
Paediatric Exclusivity – in the US, a six-month period of exclusivity
to market a drug which is awarded by the FDA in return for certain
paediatric clinical studies using that drug. This six-month period runs
from the date of relevant patent expiry. Analogous provisions are
available in certain other territories (such as European Supplementary
Protection Certificate (SPC) paediatric extensions).
PARP – an oral poly ADP-ribose polymerase.
PD-L1 – an anti-programmed death-ligand 1.
Pearl Therapeutics – Pearl Therapeutics, Inc.
Pfizer – Pfizer, Inc.
PhRMA – Pharmaceutical Research and Manufacturers of America.
Phase I – the phase of clinical research where a new drug or treatment
is tested in small groups of people (20 to 80) to check that the drug
can achieve appropriate concentrations in the body, determine a safe
dosage range and identify side effects. This phase includes healthy
volunteer studies.
Phase II – the phase of clinical research which includes the controlled
clinical activities conducted to evaluate the effectiveness of the drug in
patients with the disease under study and to begin to determine the safety
profile of the drug. Phase II studies are typically conducted in small-
or medium-sized groups of patients and can be divided into Phase IIa
studies, which tend to be designed to assess dosing requirements,
and Phase IIb studies, which tend to assess safety and efficacy.
Phase III – the phase of clinical research which is performed to gather
additional information about effectiveness and safety of the drug, often
in a comparative setting, to evaluate the overall benefit/risk profile of
the drug. Phase III studies usually include between several hundred
and several thousand patients.
PHC – personalised healthcare.
PMDA – Pharmaceuticals and Medical Devices Agency of Japan.
pMDI – pressurised metered-dose inhaler.
pound sterling, £, GBP or pence – references to the currency of
the UK.
Pozen – POZEN, Inc.
primary care – general healthcare provided by physicians who
ordinarily have first contact with patients and who may have
continuing care for them.
Proof of Concept – data demonstrating that a candidate drug results
in a clinical change on an acceptable endpoint or surrogate in patients
with the disease.
AstraZeneca Annual Report & Form 20-F Information 2017 / Glossary
237
Additional Information Glossary continued
PSP – AstraZeneca Performance Share Plan.
PTE – Patent Term Extension, an extension of up to five years in
the term of a US patent relating to a drug which compensates for
delays in marketing resulting from the need to obtain FDA approval.
The analogous right in the EU is an SPC.
Qiagen – Qiagen NV.
R&D – research and development.
Recordati – Recordati S.p.A.
Redeemable Preference Share – a redeemable preference share
of £1 each in the share capital of the Company.
Regulatory Data Protection (RDP) – see Intellectual Property on
page 32.
Regulatory Exclusivity – any of the IP rights arising from generation
of clinical data and includes Regulatory Data Protection, Paediatric
Exclusivity and Orphan Drug status.
RNA – ribonucleic acid.
Roche – F. Hoffmann-La Roche AG.
ROW – rest of world.
RSV – respiratory syncytial virus.
Sanofi – SANOFI S.A./Sanofi Pasteur, Inc.
Sarbanes-Oxley Act – the US Sarbanes-Oxley Act of 2002.
SDRT – UK stamp duty reserve tax.
SEC – the US Securities and Exchange Commission, the governmental
agency that regulates the US securities industry and stock markets.
Seroquel – Seroquel IR and Seroquel XR.
SET – Senior Executive Team.
SG&A costs – selling, general and administrative costs.
SGLT2 – sodium-glucose co-transporter 2.
SHE – Safety, Health and Environment.
Shionogi – Shionogi & Co. Ltd.
Shire – Shire plc.
SLE – systemic lupus erythematosus.
SPC – supplementary protection certificate.
specialty care – specific healthcare provided by medical
specialists who do not generally have first contact with patients.
Spirogen – Spirogen Sàrl.
SSE – the Stockholm Stock Exchange.
Takeda – Takeda Pharmaceutical Company Limited.
TerSera – TerSera Therapeutics LLC.
Teva – Teva Pharmaceuticals USA, Inc.
Total Revenue – the sum of Product Sales and Externalisation Revenue.
TSR – total shareholder return, being the total return on a share
over a period of time, including dividends reinvested.
UK – United Kingdom of Great Britain and Northern Ireland.
UK Corporate Governance Code – the UK Corporate Governance
Code published by the FRC in September 2014 that sets out standards
of good practice in corporate governance for the UK.
US – United States of America.
US dollar, US$, USD or $ – references to the currency of the US.
Valeant – Valeant Holdings Ireland/Valeant Pharmaceutical
International, Inc.
WHO – World Health Organization, the United Nations’ specialised
agency for health.
YHP – Young Health Programme.
ZS Pharma – ZS Pharma, Inc.
238
AstraZeneca Annual Report & Form 20-F Information 2017 / Additional Information Index
Accounting policies
Acerta Pharma
Acquisitions
Affordable Care Act
Almirall
Animal research
Annual General Meeting
Articles of Association
AstraZeneca at a glance
Audit Committee
Audit Committee Report
Bioethics
Biologics
BMS
Board of Directors
Business model
Cambridge
Capitalisation and shareholder return
Cardiovascular & Metabolic Diseases
Cash and cash equivalents
Chairman’s Statement
Chief Executive Officer’s Review
Clinical trials
Code of Ethics
Commitments and contingent liabilities
Community investment
Company history
Compliance and Internal Audit Services
Consolidated Statements
Corporate Governance
Development pipeline
Diabetes
Directors’ interest in shares
Directors’ responsibility statement
Diversity
Dividends
79, 139, 196
Information Technology
75-78, 172-173
Intangible assets
173-174
Intellectual Property
12, 27, 213
Interest-bearing loans and borrowings
76, 163
Key Performance Indicators
42
Leases
99, 228
Life-cycle of a medicine
116, 231
Litigation
2-3
Manufacturing and Supply
87, 100-104
Market definitions
100-104
Marketplace
41-42
Modern Slavery Act
12, 19, 22
Non-Financial Reporting Regulations
75-76, 81, 146, 157, 163
Oncology
88-89
14-16
25
78
Operating profit
Other Disease Areas
Other investments
Patent Expiries
52-55
Patient safety
160
4, 86
5-7
15, 41
Physician Payments Sunshine Act
Political donations
Post-retirement benefits
Product revenue information
97-98, 101
Property, plant and equipment
182-188
Precision medicine and genomics
45
229
Provisions
Regulatory environment
97-98
Related party transactions
135-138
Relations with shareholders
84-125
Remuneration
33
81, 155-157
32-33
161-162
17-21
189
14-16
82, 103, 182-188
30-31
235
8-13
36
45
48-51
1, 66-69, 146-147
60-62
158
208-209
42
41
99
82, 164-170
2, 70, 145, 221-226
153
23
164
11
189, 231
96
105-125
202-207
Remuneration Policy
109, www.astrazeneca.com/remunerationpolicy2017
54-55
Research and Development
116
128
Reserves
Respiratory
35, 93-94
Restructuring
3, 21, 78, 98, 228
Results of operations 2017
Earnings per Ordinary Share
1, 21, 72-73
Risk
Employee costs and share plans for employees
180-181
Sales and Marketing
Employees
Environmental impact
Ethics
Externalisation
Financial highlights
Finance income and expense
Financial instruments
Financial position 2017
Financial Review
Financial risk management
Financial Statements 2017
Gender diversity
Geographical Review
Glossary
Group Financial Record
Group Subsidiaries and Holdings
Growth Platforms
Healthy Heart Africa programme
Human Rights
Independent auditors’ report
35-37
43-44
Sales by geographical area
Sales by therapy area
40-41, 98
Sarbanes-Oxley Act
71-72, 145
Science Committee
1
147
147
75
Segment information
Senior management (SET)
Share capital
Share repurchase
66-83
Shareholder information
79, 175-179
Strategic priorities
135-189
Sustainability: supplementary information
37, 88
Taxation
221-226
Taxation information for shareholders
235-238
Trade and other payables
199
Trade and other receivables
190-193
Trade marks
19, 71
29, 40
36
129-134
Values and Purpose
Young Health Programme
ZS Pharma
22-25
171
56-59
73, 146, 164
69
63-65, 210-220
26-28
3, 221-226
2, 6, 221-226
83
97
151-152
87, 90-91
99, 171
78, 171
228-233
2, 17-21
227
82, 148-150, 188
232-233
76, 163
76, 160, 178
234
14
39, 201
30, 54, 77, 103, 174
AstraZeneca Annual Report & Form 20-F Information 2017 / Important information for readers of this Annual Report
239
Additional Information 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, including, among
other things, statements about expected
revenues, margins, earnings per share or
other financial or other measures. 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 Risk section
from page 210 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 2017
obtained from IQVIA, a leading supplier of
statistical data to the pharmaceutical industry.
Unless otherwise noted, for the US,
dispensed new or total prescription data and
audited sales data are taken, respectively,
from IQVIA National Prescription Audit
and IQVIA National Sales Perspectives for
the 12 months ended 31 December 2017;
such data is not adjusted for Medicaid and
similar rebates. Except as otherwise stated,
these market share and industry data from
IQVIA have been derived by comparing our
sales revenue with competitors’ and total
market sales revenues for that period,
and 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 IQVIA database,
which amounted to approximately 96%
(in value) of the countries audited by IQVIA.
AstraZeneca websites
Information on or accessible through our
websites, including www.astrazeneca.com,
www.astrazenecaclinicaltrials.com and
www.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.
240
AstraZeneca Annual Report & Form 20-F Information 2017 / Additional Information Design and production
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Addison Group), London.
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Board photography
Marcus Lyon
SET photography
Scott Nibauer
Graham Carlow
This Annual Report is printed on Heaven
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The pulp is a mix; partly bleached using
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partly bleached using a Totally Chlorine
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Registered office and
corporate headquarters
AstraZeneca PLC
1 Francis Crick Avenue
Cambridge Biomedical Campus
Cambridge CB2 0AA
UK
Tel: +44 (0)20 3749 5000
This Annual Report is also available on our website,
www.astrazeneca.com/annualreport2017