What science can do
AstraZeneca Annual Report and Form 20-F Information 2018
Welcome
We are a global, science-led pharmaceutical
business, and in this Annual Report we report
on the progress we made in 2018 in pushing
the boundaries of science to deliver life-changing
medicines and demonstrating what science can do.
can
Science
deliver value to patients,
payers and society
Innovative Value
Strategies and indication-
based pricing
See page 17
Innovative ideas in
healthcare
See page 37
deliver complete disease
management in China
improve the diagnosis
and treatment of cancer
Searching for new
treatment options
See page 49
help find a cure
for ovarian cancer
Pioneering the use of
circulating tumour DNA
See page 28
New ways of treating
heart disease
See page 61
help people undergoing
heart bypass surgery
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.
Front cover image:
Circulating tumour DNA
AstraZeneca has pioneered
the use of circulating tumour
DNA (ctDNA) in the diagnosis
of cancer. Pieces of DNA break
off from a tumour and circulate
in the bloodstream where they
can be analysed to give genetic
information about a patient’s
tumour. This allows healthcare
professionals to determine the
right treatment for the patient
using a minimally invasive
blood test.
Contents
Contents
Financial highlights
Total Revenue*
Down 2% to $22,090 million at actual rate
of exchange (down 2% at CER), comprising
Product Sales of $21,049 million (up 4%;
4% at CER) and Externalisation Revenue
of $1,041 million (down 55%; 55% at CER)
Net cash flow from operating activities
Down 27% at actual rate of exchange
to $2,618 million
2018
2017
2016
$22.1bn
$22,090m
$22,465m
$23,002m
2018
2017
2016
$2.6bn
Reported operating profit
Down 8% at actual rate of exchange
to $3,387 million (down 7% at CER)
Core operating profit
Down 17% at actual rate of exchange
to $5,672 million (down 17% at CER)
2018
2017
2016
$3.4bn
$3,387m
$3,677m
$4,902m
2018
2017
2016
$5.7bn
Reported EPS
Down 28% at actual rate of exchange
to $1.70 (down 29% at CER)
Core EPS
Down 19% at actual rate of exchange
to $3.46 (down 19% at CER)
2018
2017
2016
$1.70
$1.70
$2.37
$2.77
2018
2017
2016
$3.46
$2,618m
$3,578m
$4,145m
$5,672m
$6,855m
$6,721m
$3.46
$4.28
$4.31
Denotes a scale break. Throughout this Annual Report,
all bar chart scales start from zero. We use a scale break
where charts of a different magnitude, but the same unit
of measurement, are presented alongside each other.
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, see the Financial Review from page 74.
* As detailed on page 154, 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
Business model and
life‑cycle of a medicine 8
Marketplace 11
Strategy 18
Key Performance
Indicators 20
Business Review 24
Therapy Area Review 50
> Oncology 50
> Cardiovascular, Renal and
Metabolism 56
> Respiratory 62
> Other Disease Areas 67
Risk Overview 70
Financial Review 74
Corporate Governance
Chairman’s Introduction 92
Corporate
Governance Overview 93
Board of Directors 94
Senior Executive Team 96
Corporate
Governance Report 98
Science Committee Report 107
Nomination and Governance
Committee Report 108
Audit Committee Report 110
Directors’
Remuneration Report 120
Financial Statements
Auditors’ Report 144
Consolidated Statements 149
Group Accounting Policies 153
Notes to the Group
Financial Statements 160
Group Subsidiaries
and Holdings 201
Company Statements 205
Company Accounting
Policies 207
Notes to the Company
Financial Statements 208
Group Financial Record 210
Additional Information
Development Pipeline 212
Patent Expiries of Key
Marketed Products 217
Risk 220
Sustainability: supplementary
information 231
Shareholder Information 232
Trade Marks 238
Glossary 239
Index 243
Cautionary statement
regarding forward‑looking
statements 244
This Annual Report is also available on our website,
www.astrazeneca.com/annualreport2018
AstraZeneca Annual Report & Form 20‑F Information 2018 / Contents
1
1
Strategic Report
AstraZeneca
at a glance
A global science‑led 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
A science‑led
innovation strategy
Strategy from page 18 and
Key Performance Indicators
from page 20.
Broad R&D platform in
three main areas
Achieve Scientific Leadership
from page 25 and Therapy Area
Review from page 50.
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
push the boundaries
of science to change
the practice of
medicine, transform
the lives of patients
living with cancer,
and ultimately
eliminate cancer
as a cause of death
8
new molecular entities (NMEs) in Phase III/
pivotal Phase II or under regulatory review,
covering 15 indications
2018
2017
2016
2015
8
11
12
15
Other Disease Areas
We are also
selectively active
in the areas of
autoimmunity,
neuroscience
and infection
Cardiovascular, Renal
and Metabolism
As science uncovers
commonalities
between
cardiovascular,
renal and metabolic
diseases and their
associated
complications, we
aim to transform how
they are understood
and treated
Respiratory
Our research focuses
on the underlying
causes of respiratory
diseases, using
new modalities to
pursue previously
hard‑to‑reach targets,
with the ambition
of achieving
remission or even
cures for patients
Portfolio of specialty and
primary care products
(Product Sales)
$6,028m
29% of total
2017: $4,024m
2016: $3,383m
$6,710m
32% of total
2017: $7,266m
2016: $8,116m
$4,911m
23% of total
2017: $4,706m
2016: $4,753m
$3,400m
16% of total
2017: $4,156m
2016: $5,067m
Product Sales declined
by 18% (19% at CER) and
represented 16% of total
Product Sales, down from
21% in 2017
Sales growth of 50%
(49% at CER), including:
Sales decline of 8%
(8% at CER), including:
Imfinzi sales of $633 million,
reflecting ongoing launches
Lynparza sales of $647
million, representing growth
of 118% (116% at CER),
driven by expanded use
in the treatment of ovarian
cancer and first approvals
for breast cancer
Tagrisso sales of $1,860
million, representing growth
of 95% (93% at CER)
Crestor sales of $1,433
million, down 39% (40%
at CER) reflecting generic
competition
Brilinta sales of $1,321
million, representing growth
of 22% (21% at CER), due to
continued market penetration
Farxiga sales of $1,391
million, with growth of 30%
(30% at CER), including a
sales increase of 45% in
Emerging Markets (52% at
CER) to $336 million
Sales growth of 4% in the
year (3% at CER), including:
Fasenra sales of $297 million,
performing exceptionally
well in the countries where
it was launched
Pulmicort sales growth of 9%
(8% at CER) to $1,286 million
Symbicort sales decline
of 9% (10% at CER) to
$2,561 million, as
competitive price pressures
in the US continued
2
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report Oncology. See page 50.
Cardiovascular, Renal and Metabolism. See page 56.
Respiratory. See page 62.
Global commercial
presence, with strength
in Emerging Markets
(Product Sales)
Return to Growth
from page 29.
Emerging Markets
US
Europe
$6,891m
33% of total
2017: $6,149m
2016: $5,794m
$6,876m
33% of total
2017: $6,169m
2016: $7,365m
$4,459m
21% of total
2017: $4,753m
2016: $5,064m
Established Rest
of World
$2,823m
13% of total
2017: $3,081m
2016: $3,096m
Our talented employees
Committed to attracting,
retaining and developing a
talented and diverse workforce
united in the pursuit of our
Purpose and living our Values
Be a Great Place to Work
from page 38.
A sustainable business
Committed to operating in
a way that recognises the
interconnection between
business growth, the needs
of society and the limitations
of our planet
Sustainability from page 42.
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 74.
Product Sales increased
by 12% (13% at CER). New
Medicines represented 15%
of Emerging Market sales in
the year, up from 10% in 2017
Product Sales increased
by 11%. New Medicines
represented 48% of Product
Sales, up from 26% in 2017
Product Sales declined by
6% (10% at CER), reflecting
the entry of generic Crestor
medicines in various
markets in 2017 and
continued competitive
and price pressures
Product Sales declined by 8%
(9% at CER). New Medicines
represented 24% of sales in
the year, up from 13% in 2017.
Performance reflected, in
particular, the success of
Tagrisso and Forxiga
64,600
employees
2017: 61,100
2016: 59,700
44.6%
of our senior
roles are filled
by women
102
manuscripts published by
our scientists in high‑impact
peer‑reviewed journals
3
6
1
4
5
2
8
7
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
Priority
Priority
Priority
1
Broadening access
to healthcare
2
Furthering ethics
and transparency
3
Protecting the
environment
100%
of employees trained
in Code of Ethics
Distributions to
shareholders
Dividends
Proceeds from issue
of shares
Total
Dividend per
Ordinary
Share for 2018
$3,484m
2017: $3,519m
2016: $3,561m
$(34)m
2017: $(43)m
2016: $(47)m
$3,450m
2017: $3,476m
2016: $3,514m
1st interim
dividend
$0.90
Pence: 68.4
SEK: 7.92
Payment date:
10 September 2018
2nd interim
dividend
$1.90
Pence: 146.8
SEK: 17.46
Payment date:
27 March 2019
Total
$2.80
Pence: 215.2
SEK: 25.38
2017: $2.80
2016: $2.80
AstraZeneca Annual Report & Form 20‑F Information 2018 / AstraZeneca at a glance
3
Strategic Report Chairman’s
Statement
In 2013, your Board chose a very clear strategic
route to follow. It was a strategy rooted in our
heritage as a company focused on innovative
science to deliver great medicines.
“ We succeeded because we
have been true to our Value
of following the science.
We also succeeded because
we put patients first.”
In 2018, under the leadership of Pascal Soriot,
and together with the entire talented
AstraZeneca team, we delivered on our
promise and returned a reinvigorated
AstraZeneca to Product Sales growth.
Delivering for patients
We succeeded because we have been true to
our Value of following the science. We also
succeeded because we put patients first. This
will become increasingly important as more
people take an active role in managing their
health and new technologies empower them
to make their own health choices. In visits
around the world, I have seen how digital
technology is transforming the way we work
and has the potential to help us develop better
medicines, faster and with clearer benefits for
patients and value for society.
A changing world
We also need to show leadership in responding
to other ways in which our world is changing:
the increasing burden of non-communicable
diseases, especially in poorer parts of the
world; growing and ageing populations; and,
notably, society’s growing expectations of
business. At the same time, we face more
immediate challenges: the uncertainties
surrounding the UK’s impending departure
from the EU, the trade dispute between the US
and China, and other countries where we see a
rise in disruptive politics.
Sustainable health
I believe that being a sustainable business is
fundamental to overcoming these challenges,
as well as our ability to deliver innovative
medicines to patients and ensure people have
access to them. We are committed to our role
in delivering sustainable health and maximising
the benefit of what we do for patients, broader
society and the planet. I’m pleased that, once
again, our efforts have been recognised by, for
example, the Dow Jones Sustainability and
World Indices and Access to Medicine Index.
Returns to shareholders and outlook
While we returned to Product Sales
growth in 2018, that has yet to be reflected
in our profitability, with Reported earnings
per share (EPS) of $1.70 representing a
decline of 28% (29% at CER) compared with
2017. This reflected a decline in Total Revenue
and the Reported Gross Margin. Core EPS
declined by 19% to $3.46, also driven by
the investments we made in launching our
new medicines. Core EPS for the final
quarter rose, however, by 22% compared
with the prior year quarter, reflecting Product
Sales growth, higher ongoing Externalisation
Revenue and a favourable adjustment
to deferred taxes arising from recently
announced reductions in Dutch and
Swedish corporate income tax rates.
Our guidance for 2019 is for an increase
in Core EPS at CER to $3.50-3.70 as we
anticipate a high single-digit percentage
increase in Product Sales to underpin
improved profitability.
In light of this, the Board reaffirmed its
commitment to the progressive dividend
policy, with a second interim dividend for
2018 of $1.90 per share, taking the unchanged
full-year dividend per share to $2.80.
Appreciation
I would like to thank Pascal and everyone at
AstraZeneca for all they have done to bring
us to this point in our strategic journey.
I am looking forward to the coming years
when, by continuing to push the boundaries
of science, we can bring more medicines
to more patients and make a difference to
more lives.
Leif Johansson
Chairman
4
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report Chief Executive
Officer’s Review
As we enter the next phase in our journey, the
fundamentals of our strategy and plans remain
unchanged, with Product Sales growth driving
improved profitability and the generation of
increasing levels of cash.
New medicines
launched since 2013
Oncology
> Imfinzi for lung and bladder
cancer
> Lynparza for ovarian and
breast cancer
> Tagrisso for lung cancer
> Calquence for mantle cell
lymphoma
> Lumoxiti for hairy cell
leukaemia
CVRM
> Lokelma for hyperkalaemia
> Qtern for diabetes
Respiratory
> Fasenra for severe asthma
> Bevespi Aerosphere for chronic
obstructive pulmonary disease
“ …in 2018, after the previous six
years in which revenues had fallen
by more than one third, we turned
the corner and returned to Product
Sales growth.”
In March 2013, shortly after I joined
AstraZeneca, we set out our strategy to
Achieve Scientific Leadership, Return to
Growth and ensure we are a Great Place to
Work. Five years on, thanks to the great work
of every single one of my colleagues, we have
made remarkable progress: our science-led
strategy and our open and entrepreneurial
culture are underpinning a resurgence in
innovation that is fuelling sustainable Product
Sales growth and delivering medicines that
patients and society value and can access.
Achieve Scientific Leadership
Our first priority for achieving scientific
leadership was to focus on innovative
science in three main therapy areas:
Oncology; Cardiovascular, Renal and
Metabolism (CVRM); and Respiratory.
This has been our driving force all along,
a focus reinforced by our recent
organisational changes. In other disease
areas, we have sought to maximise the
value of our portfolio through licensing,
collaboration and externalisation activity.
Product Sales growth
The first phase in our journey provided focus
and galvanised the organisation behind
rebuilding our pipeline. Having regained our
scientific edge, the second stage was crucial
as we drove our Growth Platforms forward,
launched new medicines and made them
available to patients. I am pleased to report
that, in 2018, after the previous six years in
which revenues had fallen by more than one
third, we turned the corner and returned to
Product Sales growth, driven by a new
generation of medicines from our therapy areas.
As we look ahead through 2019 and beyond,
continued investment in our product launches
and pipeline should keep us on track to deliver
sustainable and profitable growth in line with
our targets. Consistent with this, we are
reshaping the way we undertake research and
development to bring new focus and impetus,
accelerate the launches of new medicines and
consolidate what is already one of the most
exciting and productive pipelines in the
industry. We are also reorganising our
commercial operations to reflect our therapy
area focus, maximise collaboration with our
R&D organisation, and strengthen strategic
planning and field force integration to support
delivery of our medicines to patients.
We also said we would rebuild our pipeline
and, by 2015, had 15 new molecular entities
(NMEs) in Phase III/Pivotal Phase II or under
regulatory review compared with a target,
set in 2013, of 10 by the end of 2016. In 2018,
we had eight NMEs in Phase III/Pivotal Phase
II or under regulatory review. The same year,
we also made 28 regulatory submissions in
major markets and received 23 approvals
for our medicines. Both are record numbers
for AstraZeneca. Of course, we know that in
pushing the boundaries of science we will
sometimes experience setbacks. In 2018,
for example, there were disappointing
Phase III trial results for six projects, including
the MYSTIC trial of Imfinzi and tremelimumab
in stage 4 non-small cell lung cancer (NSCLC).
However, we remain confident in Imfinzi as
the cornerstone of our immuno-oncology (IO)
programme and continue to evaluate its
potential in ongoing NSCLC trials, including
Imfinzi and Imfinzi plus tremelimumab in
combination with chemotherapy. Overall,
we are on target for sustainably delivering
two NMEs annually by 2020.
AstraZeneca Annual Report & Form 20-F Information 2018 / Chief Executive Officer’s Review
5
Strategic Report Chief Executive
Officer’s Review
continued
23
23 NME and major LCM
regional approvals – a record
84%
Five Growth Platforms represent
84% of Total Revenue
84%
84% of employees understand
how they can contribute to our
sustainability priorities
“ ...we are well on our way
to exceeding our target of
launching 10 major new
medicines by 2020.”
6
Additionally, we wanted to shift to a balance
of specialty and primary care medicines.
Specialty care medicines now comprise all
our Oncology medicines and Fasenra. They
represented 30% of Product Sales in 2018
and sales increased by 57% in the year
(56% at CER) to $6,325 million.
Be a Great Place to Work
Underpinning everything is our dedication to
being a great place to work, with a talented
and diverse team committed to living our
Values and supported by an inclusive, learning
culture. It is that team of people who drive our
progress, and our employee (Pulse) surveys
show that 94% of employees understand our
strategy, 89% believe in it and 83% would
recommend AstraZeneca as a great place to
work – all statistics that place us among the
leading companies in the world.
While there is always more we can do, 2018
also saw continued employee development
and an increase in the representation of
women in senior roles. More generally, we
have implemented numerous initiatives, such
as unconscious bias training, across the globe
as part of our commitment to inclusion and
diversity. We are therefore particularly proud
to have been recognised as the only
pharmaceutical company selected for the
2019 Bloomberg Gender-Equality Index
which distinguishes companies committed
to transparency in gender reporting and
advancing women’s equality.
More widely, 84% of employees understand
how they can contribute to our sustainability
priorities where our achievements include
reaching 12 million people through
our access to healthcare programmes and
winning Ethical Corporation’s Community
Investment Program of the year award for
Young Health – our global disease prevention
programme. We know we can’t achieve our
goals alone. As a sustainable organisation
we have an unwavering commitment to
being a trusted partner for stakeholders,
an excellent investment for shareholders,
and an indispensable ally in the quest to
meet the global healthcare challenge.
Finally, we are well on our way to exceeding
our target of launching 10 major new
medicines by 2020. The panel on the previous
page shows how, since 2013, nine medicines
have been launched from our three main
therapy areas which are making a real
difference to the lives of patients around
the world. In 2018 alone, we delivered three
new medicines – Lumoxiti, Lokelma and
roxadustat. Roxadustat, for the treatment
of chronic kidney disease (CKD) anaemia,
is particularly noteworthy as it is the first
time that a first-in-class medicine has
been approved first in China. We expect
it to be launched later in 2019.
Above all, we believe in what science can
do. And it is a testament to the strength of our
science that, in 2018, AstraZeneca scientists
published 102 manuscripts (another record
number) in ‘high-impact’ peer-reviewed
journals – a 14-fold increase since 2012.
Return to Growth
In support of our Return to Growth priority,
we said we would focus on five Growth
Platforms: Oncology, New CVRM, Respiratory,
Japan and Emerging Markets. In 2013, they
represented less than half of sales and this
had grown to 84% of Total Revenue by 2018.
Overall, as shown in the table opposite,
Product Sales in 2018 increased by 4% to
$21,049 million (4% at CER), driven by strong
growth in the last two quarters of the year –
8% and 5% respectively (9% and 8% at CER).
This reflected the performance of our New
Medicines1, up by 81% (at CER) and adding
$2.8 billion in incremental sales, as well as the
sustained strength of Emerging Markets, up
by 12% (13% at CER). Product Sales in China
increased by 28% (25% at CER) in the year.
Externalisation Revenue declined by 55% in
the year to $1,041 million, partly driven by the
impact of $1,247 million of income received
during 2017 as part of our collaboration with
MSD for Lynparza. Total Revenue declined
by 2% (2% at CER) to $22,090 million.
We also said that we would leverage our
global commercial presence and our strength
in Emerging Markets. After four years of
decline, the US returned to sales growth
in 2018 while Product Sales in Emerging
Markets, which represented 21% of sales
in 2013, amounted to 33% of Product Sales.
Emerging Markets now represent our largest
Region by Product Sales.
1
Tagrisso, Imfinzi, Lynparza, Calquence, Lumoxiti, Brilinta,
Farxiga, Lokelma, Bevespi and Fasenra. These New
Medicines are pillars in the three main therapy areas
and important platforms for future growth.
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report Global Product Sales by therapy area
Oncology
Cardiovascular, Renal
& Metabolism
Respiratory
Other Disease Areas
Sales
$m
6,028
6,710
4,911
3,400
Actual
growth
%
2018
CER
growth
%
Sales
$m
Actual
growth
%
2017
CER
growth
%
Sales
$m
Actual
growth
%
2016
CER
growth
%
50
49
4,024
19
19
3,383
20
20
(8)
4
(8)
3
(18)
(19)
7,266
4,706
4,156
(10)
(1)
(18)
(5)
(10)
(1)
(17)
8,116
4,753
5,067
(5)
21,319
(14)
(5)
(20)
(10)
(13)
(3)
(19)
(8)
Total
21,049
4
4
20,152
Before this, we said goodbye to Bahija Jallal,
EVP MedImmune, and Mark Mallon, EVP
Global Product and Portfolio Strategy, Global
Medical Affairs and Global Corporate Affairs,
whose moves to become CEOs at two
exciting biotech companies illustrated the
talent that we have in AstraZeneca and how
highly other companies regard our people.
Sean Bohen, EVP for Global Medicines
Development and Chief Medical Officer
will also be leaving following the leadership
structure changes. I would like to thank Bahija,
Mark and Sean for the important roles they
played in AstraZeneca’s return to growth.
Finally, my thanks go to all my colleagues in
AstraZeneca. We have been on an incredible
journey. None of this would have been
possible without the talented people we
have in the organisation. I thank them all
for everything they have done as, together,
we embark on the next phase in this great
Company’s journey.
Pascal Soriot
Chief Executive Officer
Seizing the opportunities ahead
As we enter the next phase in our journey,
the fundamentals of our strategy and plans
remain unchanged, with Product Sales
growth driving improved profitability and
the generation of increasing levels of cash.
Our focus will continue to be on innovative
science and leadership in our three main
therapy areas. And we will carry on leveraging
our global presence and strength in emerging
markets, while pursuing the development of
strong, balanced portfolios of both specialty
and primary care medicines.
As the Chairman indicated, the world around
us is changing, so we too are shifting the way
in which we deliver our strategy. Our emphasis
is on growth through innovation – being
more patient-centric, doing more with digital
technology and data, and advancing more
innovative science.
The new organisational structure we
announced in January 2019 supports the
next phase in our journey and is intended to
enhance scientific innovation and commercial
success. The changes further increase focus
on our main therapy areas, integrate R&D
functions for agile decision making and
more flexible resource allocation, as well
as increasing collaboration between our
R&D and commercial units.
My colleagues
At the same time as making these changes,
we announced the appointment of Dr José
Baselga to lead our R&D unit for Oncology.
José is an outstanding oncology leader
with vast experience in the development
of innovative cancer therapies. His research
and clinical achievements have led to the
development of several innovative medicines,
and he is an international thought leader in
cancer care and clinical research. José’s
expertise adds further scientific and
leadership excellence to our already strong
team and will help us to continue building
a world-class R&D unit for Oncology.
AstraZeneca Annual Report & Form 20-F Information 2018 / Chief Executive Officer’s Review
7
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 pharmaceutical business which has:
> A science-led innovation strategy
> An R&D platform across small molecules and biologics
> Three main therapy areas: Oncology; Cardiovascular,
Renal and Metabolism; and Respiratory
> A portfolio of specialty care and primary care medicines
> A global footprint
Who we are
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 are committed to operating in a way that recognises the
interconnection between business growth, the needs of society
and the limitations of our planet.
Our sustainability priorities in health, ethics and the environment
support the delivery of our business strategy.
Business Review from page 24.
8
AstraZeneca Annual Report & Form 20-F Information 2018 / 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
n
o
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 patents.
Life-cycle of a medicine
Investment in dis
Research and d
e
v
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
+
0
2
1
2
9
8
Our
Purpose
3
4
7
5
6
s
r
a
e
y
5
1
–
5
e
s
a
h
h p
c
n
Lau
i
t
a
r
e
n
e
e g
u
tected medicines Reven
ate
nt-p
r
o
p
m
e
n
t
p
h
a
s
e
e
v
e
l
o
p
m
e
n
s
t
5
–
1
5
y
e
a
r
s
,
m
a
n
u
f
a
c
t
u
r
i
n
g
a
n
d c
o
m
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.
> Determine likely efficacy, side effect profile
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.
> Determine approximate dosage and identify
side effects.
> 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
> Engage in studies in a larger group of
patients to gather information about
effectiveness and safety of the medicine
and evaluate the overall benefit/risk profile.
> Initiate branding for the new medicine in
preparation for its launch.
6. Regulatory submission and pricing
> Seek regulatory approvals for
manufacturing, marketing and
selling the medicine.
> 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.
> 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
> Conduct studies to further understand the
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.
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.
AstraZeneca Annual Report & Form 20-F Information 2018 / Business model and life-cycle of a medicine
9
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 38.
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 25.
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 35.
64,600
employees
$5.9bn
invested in our science
>630
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 29.
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.
See Intellectual Property from page 35.
A robust supply chain
We need a supply of high-quality medicines,
whether from one of the 29 Operations sites
in 17 countries in which we manufacture or
the $13 billion we spend on the purchase of
goods, services and active pharmaceutical
ingredients (APIs).
See Operations and Supply chain management from page 33.
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 74.
>100
countries where we
obtain patent protection
$13bn
spent with suppliers
$2.6bn
net cash flow from
operating activities
10
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 74.
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report Marketplace
Economic growth, an expanding global population
and technological change are expected to contribute
to growth in the pharmaceutical industry. However,
social, economic and political challenges remain in
meeting unmet medical need.
S
t
r
a
t
e
g
i
c
R
e
p
o
r
t
A changing world
> NCDs kill 41 million people each year, disproportionately affecting
low- and middle-income countries
> Growing and ageing populations, with increasing urbanisation
> Breakthroughs in digital and other technologies transforming the
pharmaceutical industry
Increasing demand for healthcare
> The US is the largest pharmaceutical market, with 47% of global sales
> Pharmaceutical sales growth of 4.4% in 2018, led by emerging markets
> Expected growth to 2022 will be led by the US and developing
markets but with slower growth in China
Pharmaceutical sector opportunities and challenges
> Pricing, regulation and patent exclusivity present opportunities as
well as challenges
> The sector is reshaping itself at the same time as it seeks to develop
trust with key stakeholders
A changing world
Society is changing
Increasing burden of chronic disease
An ageing population and changes in society are contributing to steady
increases in non-communicable diseases (NCDs) with developing
countries particularly affected as their populations grow. As the
burden of NCDs grows, so do public expectations while governments’
ability to meet them is constrained as finances are under stress. Low-
and middle-income countries are also disproportionately affected by
issues such as air pollution and climate change, thereby exacerbating
social, economic and demographic inequalities.
Growing societal expectation of businesses
Society’s views of business are changing with organisations no
longer valued solely on the quality of products and services and
financial performance, but also their engagement with employees,
customers, communities and society as a whole. Workforce dynamics
are also changing for many as working for a single employer is
replaced by working independently in a number of different roles.
$47tn
The WHO estimates that NCDs
kill 41 million people each year
and could cost the global
economy $47 trillion by 2030.
75%
NCDs disproportionately affect
people in low- and middle-
income countries where more
than three quarters of global
NCD deaths – 32 million – occur.
57%
Between 2001 and 2020, the
WHO estimates that chronic
diseases will have increased
by 57%.
AstraZeneca Annual Report & Form 20-F Information 2018 / Marketplace
11
Strategic Report
Marketplace
continued
A changing world continued
Global growth is shifting
Growing and ageing populations, increasing urbanisation
As shown on the right, patient populations are expanding. For
example, the world’s population is rising and more people are living in
cities, with an estimated three million people a week moving to cities in
2015. Urbanisation presents opportunities, such as greater wealth and
access to better healthcare, but also new hazards and healthcare
challenges, such as an increase in the prevalence of NCDs. These
diseases include cancer and cardiovascular, metabolic and
respiratory diseases which are often associated with urban lifestyle
choices, including smoking, diet and lack of exercise. NCDs are also
associated with ageing and, with the majority of the world’s
workforce rapidly ageing, healthcare costs are rising as people are
living longer. In many markets, ageing populations mean the size of
the labour force will stagnate or decline, resulting in a potential
shortage of labour compared with the abundance of labour that has
fuelled growth since the 1970s. On the other hand, and as outlined
below, technology is transforming the workplace.
Strong global economic growth, driven by Eastern economies
With the rapid urbanisation of developing markets, such as China and
India, economic growth is shifting east and away from advanced
economies such as North America, Western Europe and Japan. By
some estimates, Africa could represent the fourth largest economy in
the world by 2040 and, by 2050, India could overtake the US as the
second largest economy. So far as shorter-term economic trends are
concerned, the October 2018 World Economic Outlook of the
International Monetary Fund (IMF) continued to forecast strong
economic growth. However, it cautioned that “the balance of risks…
has shifted to the downside in a context of elevated policy uncertainty”.
Digital and technical breakthroughs
Advances in digitisation, analytics, artificial intelligence (AI) and
automation are redefining how business and industries work. They
will transform the workplace and business processes as people
interact with increasingly smarter machines.
New entrants from the technology sector are bringing different
competencies to healthcare, applying their knowledge to accelerate
scientific discovery, improve health through technology and better
understanding the consumer. At the same time, and enabled by
technology, patients are becoming more engaged and willing to
take greater control of their health and treatment choices.
12
Estimated world
population (UN, bn)
2100
2050
2030
2018
Estimated population
over the age of 60 (WHO, bn)
2050
2015
Denotes a scale break.
11.2
9.8
8.6
7.6
2.0
0.9
3m
Three million people per week
estimated to have moved to
cities in 2015.
80%
By 2050, 80% of all older
people will live in low- and
middle-income countries.
“ New entrants from the technology sector
are bringing different competencies to
healthcare… and enabled by technology,
patients are becoming more engaged
and willing to take greater control of
their health and treatment choices.”
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report Increasing demand for healthcare
Global pharmaceutical sales
As shown in the chart on the
right, global pharmaceutical
sales grew by 4.4% in 2018.
Established Markets saw an
average revenue increase of
3.9% and Emerging Markets
revenue grew at 6.4%. The US,
China, Japan, Germany and
France are the world’s top five
pharmaceutical markets by 2018
sales. In 2018, the US had 47.2%
of global sales (2017: 47.2%;
2016: 47.7%).
World ($bn)
US ($bn)
Europe ($bn)
2018
2017
2016
982
940
916
2018
2017
2016
464
444
437
2018
2017
2016
196
187
182
$982bn (4.4%)
$464bn (4.5%)
$196bn (4.8%)
Established ROW ($bn)
Emerging Markets ($bn)
Denotes a scale break.
2018
2017
2016
World ($bn)
$110bn (0.1%)
2018
2017
2016
110
110
113
982
940
916
2018
2017
2016
US ($bn)
$211bn (6.4%)
2018
2017
2016
211
199
185
464
444
437
Data based on world market sales using
AstraZeneca market definitions as set out in
the Market definitions on page 239. Source:
IQVIA, IQVIA Midas Quantum Q3 2018
(including US data). Reported values and
Europe ($bn)
growth are based on CER. Value figures are
rounded to the nearest billion and growth
196
2018
percentages are rounded to the nearest tenth.
187
2017
2016
182
$982bn (4.4%)
North America
$464bn (4.5%)
EU
$196bn (4.8%)
Other Europe (Non-EU countries)
Established ROW ($bn)
$635bn
5.4%
Emerging Markets ($bn)
$280bn
3.1%
2018
2017
Japan
2016
$110bn (0.1%)
110
110
113
$90bn
-1.5%
2018
2017
Oceania
2016
$211bn (6.4%)
211
199
185
$16bn
1.1%
Estimated pharmaceutical sales and market growth – 2022
The table on estimated
pharmaceutical sales and
market growth to 2022 on the
right also illustrates that we
expect the established markets
in North America and developing
markets, including Africa, CIS,
Indian subcontinent and Latin
America, to fuel pharmaceutical
growth. Market growth in China
is expected to remain below
historical levels at a compound
annual growth rate of 4.6%. This
is due to the continued slowdown
of the major hospital sector.
Latin America
North America
Middle East
Japan
Africa
EU
Indian subcontinent
Oceania
$78bn
7.8%
$635bn
5.4%
$23bn
3.9%
$90bn
-1.5%
$26bn
7.3%
$280bn
3.1%
$38bn
10.0%
$16bn
1.1%
Latin America
Africa
CIS
$78bn
7.8%
Middle East
Indian subcontinent
$23bn
3.9%
$26bn
7.3%
$38bn
10.0%
South East Asia and East Asia
CIS
Other Europe (Non-EU countries)
$25bn
10.3%
$206bn
4.9%
$29bn
8.0%
$25bn
Estimated pharmaceutical sales – 2022.
Data is based on ex-manufacturer prices
at CER. Source: IQVIA.
10.3%
South East Asia and East Asia
Estimated pharmaceutical market growth.
Data is based on the compound annual
growth rate from 2017 to 2022. Source: IQVIA.
$206bn
4.9%
$29bn
8.0%
Estimated pharmaceutical sales – 2022.
Data is based on ex-manufacturer prices
at CER. Source: IQVIA.
Estimated pharmaceutical market
growth. Data is based on the compound
annual growth rate from 2017 to 2022.
Source: IQVIA.
AstraZeneca Annual Report & Form 20-F Information 2018 / Marketplace
13
Strategic Report Marketplace
continued
Pharmaceutical sector opportunities and challenges
In addition to the global trends set out on the previous pages, we also face a number of
opportunities and challenges within the pharmaceutical sector, as set out below. Our strategy
reflects our response to this environment and, where applicable, the relevant strategic
response to each trend is highlighted below.
For more information, see Strategy from
page 18, Key Performance Indicators
from page 20, Achieve Scientific
Leadership from page 25, Return to
Growth from page 29 and Be a Great
Place to Work from page 38.
Advances in science and medicine
Scientific innovation is critical to addressing
unmet medical need. The delivery of new medicines
will rely on a more advanced understanding of the
underlying biology of the disease, and the use of new
technology and approaches. These include genomics
and digital healthcare. Scientific and technological
breakthroughs in small molecules and in biologics
are also helping accelerate innovation. Innovation
will be accelerated through the use of large volumes
of biological data from disease biology and genomics
which is driving precision medicine, while advances
in data management and data integration are
improving the speed and quality of clinical trial
processes. Such advances have resulted in
increased numbers of FDA Priority Reviews
and Breakthrough designations.
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. Examples include the 21st Century Cures
Act of 2016 and the FDA Reauthorization Act of 2017
in the US, a new conditional early approval system in
Japan and proposed changes to regulations in China.
In addition, 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 planned exit
from the EU, the approach the UK will take to
establishing its own regulatory system outside
the EU, and the relocation of the EMA from
London to Amsterdam, Netherlands (and the likely
disruption this will cause to regulatory processes).
14
The cost of developing new medicines continues to
rise with annual global R&D investment estimated
to be $150-160 billion. 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 59 novel drugs in 2018 compared
with 46 in 2017 and 22 in 2016. Nevertheless, the
risk of any products failing at the development
or launch stages, or not securing regulatory
approvals, continues.
$150-160bn
Annual global R&D
investment estimated
to be $150-160 billion.
59
The FDA approved 59 novel
drugs in 2018 compared with
46 in 2017 and 22 in 2016.
The implementation of the EU Clinical Trials
Regulation has also been delayed. Nevertheless,
paediatrics and use of digital tools in clinical
development, as well as patients’ access to
innovative medicines and stakeholders’
interactions to improve drug development,
are high on the EU agenda.
In biosimilar development, regulatory
requirements for the registration of biosimilar
products are becoming better defined. However,
significant areas of regulatory policy are still
evolving. Among these are transparency of data
regarding the 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.
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. It
has recently attracted interest elsewhere, such as
in Canada. We believe that transparency enhances
the scientific understanding of how our medicines
work and is in the medical interest of our patients.
Link to strategy
Achieve Scientific Leadership
For more information,
see Risk from page 220.
“ We believe that
transparency
enhances the scientific
understanding of how
our medicines work
and is in the medical
interest of our
patients.”
Link to strategy
Achieve Scientific Leadership
For more information, see
Risk from page 220. For more
information about biosimilars,
see Loss of exclusivity and
genericisation opposite.
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report 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.
The need and desire for payers to manage drug
expenditure has been heightened by the shift over
the last decade from a primary care to a specialty
care focus. Specialty drugs are used for the
treatment of complex, chronic or rare conditions
such as cancers, and 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.
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 2018,
generics constituted 84.8% of the market by
volume (2017: 84.9%).
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.
“ 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.”
Link to strategy
Return to Growth
For more information, see
Risk from page 220.
84.8%
For prescriptions dispensed
in the US in 2018, generics
constituted 84.8% of the market
by volume (2017: 84.9%).
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 the EU
has committed to introducing a harmonised HTA
review. In other markets, there has been a trend
towards rigorous and consistent application of
pricing regulations, including reference pricing
and group/alliance purchasing.
There is also pressure on pricing in the US. For
example, federal and state policymakers are
considering legislative and regulatory efforts to
lower drug prices and to implement transparency
measures. While legislative efforts to repeal and
replace the Affordable Care Act (ACA) have not been
successful, the current administration and members
of Congress remain focused on healthcare policy
priorities, including efforts to increase competition
and generic drug use in government programmes,
which could create downward pressure on pricing.
The healthcare industry may also be used as a
means to offset government spending. US federal
agencies continue to propose and implement policies
and programmes with the goal of reducing costs,
increasing transparency, transforming the delivery
system, and improving quality and patient
outcomes.
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.
Like 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.
Link to strategy
Return to Growth
For more information, see
Intellectual Property from page 35.
AstraZeneca Annual Report & Form 20-F Information 2018 / Marketplace
15
15
Strategic Report Marketplace
continued
Pharmaceutical sector opportunities and challenges continued
Trust
The pharmaceutical industry continues to
face 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 government and regulatory authorities.
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
US Department of Justice (DOJ) and Securities
and Exchange Commission (SEC) under the
Foreign Corrupt Practices Act continue, as
do investigations by the UK Serious Fraud
Office under the UK Bribery Act.
To address these challenges, companies are
seeking to:
> embed a culture of ethics and integrity
> adopt higher governance standards
> promote sustainability programmes,
particularly focused on access to healthcare
> improve relationships with employees,
shareholders and other stakeholders.
Companies are also adopting more ‘patient-centric’
approaches that go ‘beyond the pill’ to encompass
all aspects of disease management – prevention,
screening, diagnosis, treatment and rehabilitation.
More generally, to be trusted by stakeholders,
companies need to operate in a way that meets
their expectations.
“ The pharmaceutical
industry continues
to face challenges
in building and
maintaining its
reputation and
the trust of its
stakeholders.”
Link to strategy
Be a Great Place to Work
For more information, see Ethics and
transparency from page 43.
Reshaping of the sector
Our competitors include large, research-based
pharmaceutical companies (like AstraZeneca) that
discover, develop and sell innovative, patent-
protected prescription medicines and vaccines,
smaller biotechnology and vaccine businesses, and
companies that produce generic medicines. The
pharmaceutical market is highly competitive. For
example, the global respiratory market is likely to see
changes with new branded or generic products with
new combinations and devices. 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 and
opportunities, they approach 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,
consolidation, business development deals
(including licensing and collaborations) and
competition for business development
opportunities have continued.
1616
The speed of technological change may also
transform current business models. Existing
and new entrants to the sector, for example from
the technology sector, are focusing on patient
outcomes rather than just products and services,
prediction and prevention rather than just
diagnosis and treatment. This may also
entail new ways of competing.
The sustainability and growth of a more ‘patient-
centric’ pharmaceutical industry is predicated on
organisations being able to take full advantage of
these breakthroughs in digital and other
technologies.
“ Existing and new
entrants to the sector
are focusing on patient
outcomes rather than
just products and
services, prediction
and prevention rather
than just diagnosis
and treatment.”
Link to strategy
Global, science-led
pharmaceutical company
For more information, see Risk
from page 220.
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report ~75%
of oncology medicines
are expected to have
multiple indications
by 2020
50%
this is a 50%
increase vs 2014
One of the approaches we are
adopting to payment for our medicines
is the implementation of Innovative
Value Strategies, which link payment
for a medicine to its effectiveness and
the outcomes it achieves for patients,
payers and society. For example,
in the US we have entered into
37 agreements that span across
each of our main therapy areas.
Scientific advances have led to a
new era of medicines that have the
potential to be used across different
disease areas and patient populations.
Value delivered by a medicine may
differ across different indications
and may not align to a single price.
Additive pricing of combinations
may also present an access
challenge for health systems.
As part of our Innovative Value
Strategies, we are working with
payers and healthcare systems to
introduce indication-based pricing
(IBP) which aligns payment to value at
the indication level. This development
is part of our commitment to working
with all stakeholders to improve
patient health and adding value to
the health system through innovative
personalised medicines that are
both accessible and affordable.
IBP requires three elements: a system
of value assessment at the individual
indication level; appropriate evidence
that allows usage per indication to be
linked to payment; and an ability to
implement confidential commercial
agreements that recognise the
different value of individual
indications. A number of countries
have already implemented various
IBP approaches, including the US,
Australia, Italy and Switzerland.
Science
deliver value to patients,
payers and society
can
For more information on the principles
on which we base the price of our
medicines, see page 30.
AstraZeneca Annual Report & Form 20-F Information 2018 / Marketplace
17
Strategic Report Strategy
18
18
We announced our strategy for returning to growth in 2013. The first phase in our
journey was focused on rebuilding our pipeline. The second stage was crucial as we
drove our Growth Platforms forward, continued to launch new medicines and made
them available to patients. We returned to Product Sales growth in 2018 and, as we
look ahead to 2020 and beyond, continued investment in our product launches and
pipeline will keep us on track to deliver sustainable growth in line with our targets.
Our strategic priorities
We are a ‘pure-play’, global, science-led pharmaceutical company. We are focused on the discovery,
development and commercialisation of prescription medicines, primarily for the treatment of unmet
medical need in three main therapy areas: Oncology; Cardiovascular, Renal and Metabolism; and
Respiratory. In 2018, our strategic priorities were focused under the three pillars listed below.
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.
How we report our progress
Key Performance Indicators (KPIs)
The following pages present our KPIs for 2018. 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.
Strategic Report
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 and our
Principal Risks:
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.
For more information, see the Directors’ Remuneration Report
from page 120.
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 which
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 2018, as well as what is in the pipeline.
Risks
We also review the risks that might challenge the delivery
of our strategy.
For more information, see Business Review from page 24, Therapy
Area Review from page 50 and Risk Overview from page 70.
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report How our current strategy responds to market trends
Our strategy reflects the way we have
chosen to respond to the opportunities
and challenges posed by the
environment in which we operate,
together with our competition, as
outlined in Marketplace from page 11.
Strategic Priority
How are we responding to our environment?
1. Achieve Scientific
Leadership
2. Return to Growth
3. Be a Great Place to Work
> Focus on innovative science in three therapy areas, a range of drug modalities,
emerging drug platforms and new technologies.
> Strengthen our ability to match targeted medicines to patients who need them most.
> Drive R&D productivity by focusing on quality rather than quantity at all stages of
drug discovery and development, and leveraging technology including the provision
of enhanced data and clinical insights.
> Partner with academia, governments, industry and scientific organisations to:
– allow us to access the best and most advanced science and technology, and
drive innovation
– streamline regulatory processes, define and clarify approval requirements
for innovative drug and biologic products.
> Maintain effective working relationships with health authorities worldwide, including
the FDA in the US, the EMA in the EU, the PMDA in Japan, ANVISA in Brazil and the
NMPA in China.
> Make information about our clinical research publicly available and work with
regulators and other stakeholders to ensure the appropriate level of data transparency.
> Engage with policymakers to support improvements in access, coverage, care delivery,
quality of care and patient care outcomes.
> Leveraging technology across prevention and awareness, diagnosis, treatment and
wellness to deliver better patient outcomes more efficiently.
> Enable our Emerging Markets to deliver better and broader patient access through
innovative and targeted equitable pricing strategies and practices.
> Partner with industry, governments and academia to find ways to bring new medicines
to market more quickly and efficiently.
> Evaluate the use of real-world evidence to further bolster the evidence base around
therapeutic and economic value.
> Base pricing policy on four principles: value, sustainability, access and flexibility.
> Consider innovative outcomes contracts with payers as a mechanism to pay for value.
> Pursue a strong patent strategy – from building robust patent estates that protect
our pipeline and products to defending and enforcing our patent rights.
> Our Code of Ethics is built on a refusal to tolerate bribery or any other form
of corruption.
> Further ethics and transparency, and broaden access to healthcare: two of our
sustainability priorities.
> As a values-led organisation, we are able to recruit the best talent which underpins
our innovation and growth.
> Engender a high-performing culture and lifelong learning.
> Harness different perspectives, talents and ideas as well as ensuring that our
employees reflect the diversity of the communities in which we operate.
Looking ahead – Beyond 2020
As we deliver the science-led transformation
of our Company, developments are taking
place that are changing the world in which
our patients and employees live, and the
environment and sector in which we operate.
Looking to the future, we are considering the
opportunities and challenges that these
developments present and factoring them
into our plans. For example, how do we:
> respond to an increased prevalence
in NCDs, urbanisation and economic
growth shifting east?
> maximise the opportunities arising
from changing workforce dynamics
and improve productivity with an
ageing workforce?
> capitalise on digital and
technological advances?
> connect better with patients who are
taking a more active role in managing
their own health?
> meet the challenges posed by the rise
of social enterprise and sustainable
development?
Questions such as these were among
those discussed at our Board’s formal
annual strategy review day as they
considered the fitness for purpose of our
strategy beyond 2020. The preparation
for this year’s review included the
crowdsourcing of ideas from employees
as an input into those deliberations.
For more information on Board engagement
with employees, see page 99.
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategy
19
19
Strategic Report
Key Performance
Indicators
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, Renal
and Metabolism; 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 2018, eight NMEs
were in Phase III/pivotal Phase II or under
regulatory review, covering 15 indications.
Three NMEs were approved in 2018. Having
met the targets for 2016 we had set ourselves
in 2013, we are now on target to meet our
longer-term goal of sustainably delivering
two NMEs annually by 2020.
Strengthen our early-stage pipeline through
novel science and technology.
NME Phase II starts/progressions
Phase III investment decisions
9
2018
2017
2016
1
15 for determining annual bonus.
See from page 127.
19
9
14
16
2018
2017
2016
19
9
7
NME or LCM project regulatory
submissions in major markets
NME and major LCM regional approvals
28
2018
2017
2016
1
2
3
24 for determining annual bonus.
13 for determining annual bonus.
13 for determining annual bonus.
See from page 127.
23
28
18
14
2018
2017
2016
23
19
11
“ We delivered three new molecular entities
(NMEs) in 2018 and are on target to meet
our goal of sustainably delivering two
NMEs annually by 2020.”
Note: The Clinical-stage strategic transactions
KPI, covering acquisition, licensing and
divestment deals, has been removed from
Achieve Scientific Leadership. 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.
Achieve Scientific Leadership from page 25;
Therapy Area Review from page 50;
Development Pipeline from page 212.
20
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report 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. Includes all
respiratory brands.
New CVRM – Since 2017, New CVRM
Growth Platform includes Brilinta, Onglyza
franchise (Onglyza and Kombiglyze), Farxiga
franchise (Farxiga and Xigduo), Exenatide
Total (Byetta and Bydureon), Symlin, Qtern,
roxadustat, Epanova and Lokelma.
Japan – Strengthen our Oncology franchise
and work to maximise the success of our
Diabetes medicines.
Oncology – Aim to deliver six new cancer
medicines to patients by 2020. Since 2014, we
have delivered five Oncology medicines to
date: Lynparza, Tagrisso, Imfinzi, Calquence
and Lumoxiti that make a meaningful
difference to patients.
Emerging Markets
$6,891m
Product Sales
Respiratory
$4,911m
Product Sales
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.
2018
2017
2016
$6,891m
$6,149m
$5,794m
2018
2017
2016
$4,911m
$4,706m
$4,753m
Actual growth
2018 +12%
2017 +6%
2016 0%
CER growth
2018 +13%
2017 +8%
2016 +6%
Actual growth
2018 +4%
2017 -1%
2016 -5%
CER growth
2018 +3%
2017 -1%
2016 -3%
New CVRM
$4,004m
Product Sales
Japan
$2,004m
Product Sales
2018
2017
2016
$4,004m
$3,567m
$3,266m
2018
2017
2016
$2,004m
$2,208m
$2,184m
Actual growth
2018 +12%
2017 +9%
2016 +15%
CER growth
2018 +12%
2017 +9%
2016 +17%
Actual growth
2018 -9%
2017 +1%
2016 +8%
CER growth
2018 -11%
2017 +4%
2016 -3%
Oncology²
$6,028m
Product Sales
2018
2017
2016
$6,028m
$4,024m
$3,383m
Actual growth
2018 +50%
2017 +19%
2016 +20%
CER growth
2018 +49%
2017 +19%
2016 -20%
1
2
Total removes the effect of certain Product
Sales which are included in more than
one Growth Platform. Reconciliation to
the number used for calculating annual
bonus is shown from page 127.
In 2018, Oncology Growth Platform
included the entire Oncology portfolio.
Prior years have been revised on
this basis.
Return to Growth from page 29;
Therapy Area Review from page 50.
$18,464m
Revenue from Growth Platforms of
$18,464 million1 in 2018 represented
84% of Total Revenue
AstraZeneca Annual Report & Form 20-F Information 2017 / Strategy and Key Performance Indicators
AstraZeneca Annual Report & Form 20-F Information 2018 / Key Performance Indicators
21
Strategic Report Key Performance
Indicators continued
Strategic priorities
Key Performance Indicators
Be a Great Place to Work*
Evolve our culture
Improve our employees’ engagement with
our Purpose and Values and promote greater
understanding of, and belief in, our strategy.
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
An inclusive environment that enhances
our ability to attract and retain diverse
talent with critical capabilities.
Be a Great Place to Work from page 38.
Do business sustainably†
Making science accessible
Deliver our business strategy in a way
that brings wider benefits to society
and the planet.
Focus on:
> increasing access to healthcare
for more people
> furthering ethics and transparency
in everything we do
> reducing environmental impacts on
human health and the natural world.
Connect our work with the
UN Sustainable Development Goals
and integrate our commitments into
day-to-day business activities.
Sustainability from page 42.
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
89%
2018
2017
2016
72%
89%
88%
80%
2018
2017
2016
83%
72%
70%
82%
2018
2017
2016
83%¹
81%²
74%³
1 Source: December 2018 Pulse survey
across a sample of the organisation.
2 Source: December 2017 Pulse survey
across a sample of the organisation.
3 Source: December 2016 Pulse survey
across a sample of the organisation.
1 Source: December 2018 Pulse survey
across a sample of the organisation.
2 Source: December 2017 Pulse survey
across a sample of the organisation.
3 Source: December 2016 Pulse survey
across a sample of the organisation.
Ethics: Non-compliance with our
Code of Ethics
Health: Reaching people through our
Access to Healthcare programmes
Environmental protection: Operational
greenhouse gas (GHG) footprint¹
56.6
per 1,000 employees in
Commercial Regions
2018
2017
2016
12.0m
people
1,769 kt COe
56.6
41.4
50.7
2018
2017
2016
12.0m
7.2m
4.2m
2018
2017
2016
1,769 kt COe
1,705 kt COe
1,684 kt COe
There were 2,042 instances, most of them
minor, of non-compliance with our Code
of Ethics or supporting requirements in
our Commercial Regions by employees
and third parties.
Our Access to Healthcare programmes,
including Healthy Heart Africa, Healthy
Lung, and Phakamisa, have reached
12.0 million people through education,
screenings, diagnosis and treatment
cumulatively since the start of each
programme.
1 Operational GHG footprint is emissions
from all Scope 1, 2 and selected Scope 3
sources. See page 231.
Our 2018 operational GHG footprint met
our target of progressing our Science Based
Targets and represents a 0.4% 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.”
* We will review the Be a Great Place to
> We changed the title of our Environmental
Work KPIs in 2019 to evaluate appropriate
representation of the strategy. Where
possible, we will continue to make updates
on current indicators publicly available.
† As disclosed in the 2017 Annual Report,
we reassessed our Do business sustainably
KPIs in 2018:
> We added an Ethics & Transparency
KPI to measure progress for our
third sustainability focus area.
> We expanded the Access to
Healthcare KPI to incorporate
more of our programmes.
protection KPI. In line with World
Resources Institute GHG Protocol, a
carbon dioxide equivalent (CO2e) number
can be used to report on GHGs, and it is
commonly called ‘carbon’. At AstraZeneca,
the majority of our operational GHG
footprint is from non-CO2 GHGs so we
are now using the better representation
of ‘GHG’. There is no change in the
content of our CO2e reporting.
> The retired KPIs are reported for continuity
in the 2018 Sustainability Report on
www.astrazeneca.com/sustainability.
The retired KPIs are the Dow Jones
Sustainability Index rating and number
of people reached through only our
Healthy Heart Africa programme.
22
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report Strategic priorities
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.
Product Sales1,²
$21,049m
Net cash flow from operating activities²
$2,618m
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.
2018
2017
2016
$21,049m
$20,152m
$21,319m
2018
2017
2016
$2,618m
$3,578m
$4,145m
Actual growth
2018 +4%
2017 -5%
2016 -10%
CER growth
2018 +4%
2017 -5%
2016 -8%
Denotes a scale break.
Reported EPS
$1.70
2018
2017
2016
Actual growth
2018 -27%
2017 -14%
2016 +25%
Core EPS²
$3.46
$1.70
$2.37
$2.77
2018
2017
2016
$3.46
$4.28
$4.31
Actual growth
2018 -28%
2017 -14%
2016 +24%
CER growth
2018 -29%
2017 -15%
2016 +9%
Actual growth
2018 -19%
2017 -1%
2016 +1%
CER growth
2018 -19%
2017 -2%
2016 -5%
Dividend per share³
$2.80
2018
2017
2016
$2.80
$2.80
$2.80
1 The Total Revenue KPI has been replaced
by Product Sales which aligns with our
external guidance and focus on commercial
execution to drive Product Sales growth.
Product Sales and Externalisation Revenue
make up Total Revenue.
2 Reconciliation to the number used for
calculating annual bonus is shown from
page 127.
3 First and second interim dividend for
the year.
Financial Review from page 74.
“ The Board reaffirms its commitment
to the progressive dividend policy.”
AstraZeneca Annual Report & Form 20-F Information 2018 / Key Performance Indicators
23
Strategic Report
Business Review
The first phase in AstraZeneca’s strategy focused on strengthening
and accelerating our pipeline. In the second phase, it was on driving
our Growth Platforms and launching new products. Following our
return to Product Sales growth, our focus is now on delivering
sustainable growth through innovation.
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
Our operating model includes our Research &
Development (R&D), Commercial and Operations
functions, together with our Enabling Units. It is
outlined below.
areas. We want AstraZeneca to be more agile,
collaborative and focused on bringing innovative
medicines to patients.
In January 2019, we announced organisational
changes to support continued scientific innovation
and commercial success as we enter the next phase in
our strategic development. The changes are designed
to further integrate R&D and accelerate decision
making and the launches of new medicines,
consolidating what we believe is already one of the
most exciting and productive pipelines in the industry.
We are also enhancing our commercial functions to
increase collaboration with our R&D organisation,
enabling greater commitment to our main therapy
The functions will share many common areas,
including basic biology and science platforms
as well as medicine supply, manufacturing and
IT infrastructure to improve efficiency. These
resources will continue to be allocated on a
Group-wide basis, according to the overall
therapy-area considerations and strategy.
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 74.
Research & Development
Our R&D activities focus on three strategic R&D
centres: Gaithersburg, MD, US; Gothenburg,
Sweden; and Cambridge, UK, which is also our
global HQ.
In 2018, we managed our R&D activities with two
discovery and early-stage biotech units
(Innovative Medicines and Early Development,
and MedImmune) and one late-stage development
unit (Global Medicines Development – GMD).
From January 2019, we are creating therapy
area-focused R&D units that are responsible for
discovery through to late-stage development – one
for BioPharmaceuticals (CVRM and Respiratory)
and one for Oncology. This is designed to enable
us to follow the science by accelerating promising
early-stage assets and life-cycle management
programmes, as well as providing new
opportunities for combinations.
Operations
Our Operations function plays a key role in development, manufacturing, testing and delivery
of our medicines to our customers.
Commercial
In 2018, our sales and marketing functions were
grouped into regions: North America (US and
Canada); Europe; and International (Emerging
Markets, including China, and Australia and
New Zealand).
From January 2019, we are creating two commercial
units – one for BioPharmaceuticals and one for
Oncology. The creation of the BioPharmaceuticals
commercial unit aligns product strategy, previously
undertaken by our Global Product and Portfolio
Strategy group (GPPS), and commercial delivery
across CVRM and Respiratory in the US and
Europe. These responsibilities mirror the Oncology
Business Unit, formed in April 2017, and sharpen
our focus on our main therapy areas as we bring
new medicines to patients. The International
commercial organisation remains unchanged
and Japan is categorised separately, being one
of our Growth Platforms.
Enabling Units
Finance, Human Resources, Legal, Sustainability, Information Technology.
24
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report 1. Achieve Scientific Leadership
We are using our distinctive scientific
capabilities, as well as investing in
key programmes and focused
business development, to deliver a
pipeline of life-changing medicines.
Overview
During 2018, we had:
> 23 approvals of NMEs or major LCM
projects in major markets
– 13 Oncology approvals for Imfinzi,
Lumoxiti, Lynparza and Tagrisso
– 6 CVRM approvals for Bydureon,
Bydureon BCise, Lokelma and
roxadustat
– 3 Respiratory approvals for Bevespi
and Fasenra
– 1 Other approval for Nexium
> 28 NME or major LCM regulatory
submissions in major markets
> 19 Phase III NME investment decisions
> 9 Phase II starts
> Accelerated reviews included
– 1 Breakthrough Therapy designation
– 3 Orphan Drug designations
– 3 Priority Review designations
> 18 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 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 102 manuscripts (up by
20 compared with 2017, 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
955 in total. This represents a fourteen-fold
improvement since 2012.
Early science
During 2018, both IMED and MedImmune
worked to strengthen our early-stage product
portfolio by exploring novel biology across
our disease areas and developing the best
molecules to address unmet medical need.
The diversity of technologies applied in our
early pipeline is exemplified by the increased
number of new modalities entering clinical
development: 12 in 2018 compared to six in
2012. For example, our collaboration with
Moderna is exploring the use of modified
ribonucleic acid (mRNA) for cardiac
regeneration in patients undergoing coronary
artery bypass graft surgery (AZD8601) as well
as an additional programme where we are
evaluating anti-cancer T cell responses with
mRNA therapies in patients with solid tumours.
With Ionis Pharmaceuticals, Inc., we are
investigating an antisense oligonucleotide in
immuno-oncology (danvatersin), in combination
with Imfinzi. With Pieris Pharmaceuticals,
AZD1402 entered clinical development in 2018
as a novel inhaled drug for asthma based
on its proprietary bicyclic peptide platform.
In addition, we continue evaluation of our
DNA-based cancer vaccine targeting HPV-16
and HPV-18 (MEDI0457) in collaboration with
Inovio Pharmaceuticals, Inc.
Since 2014, we have had 26 diagnostic tests
approved in the US, EU and Japan. They
support four precision medicines for patients
with some of the most challenging diseases of
our time, including three for lung and ovarian
cancers: therapies that target the epidermal
growth factor receptor (EGFR), including the
T790M resistance mutation; the poly ADP
ribose polymerase (PARP) pathway; and the
programmed death-ligand (PD-L1) pathway.
Approximately 90% of our pipeline now has
a precision medicine approach and reflects
the broad range of cutting-edge technologies,
tissue diagnostics, next-generation
sequencing and point of care diagnostics
we have introduced.
For more information, see Therapy Area Review from
page 50.
Transforming medical science
We are determined to advance our
understanding of disease biology to uncover
novel drivers for the diseases we aim to treat,
prevent, and even cure. We aim to foster an
environment where our scientists can freely
share their ideas and collaborate with the best
external partners. Our approach to science is
exemplified by the number of joint research
facilities we have established with leading
scientific centres, such as the Karolinska
Institutet in Sweden and the CRUK Cancer
Institute in Cambridge. In 2018, we extended
our joint research facility at the Max Planck
Institute to include the Chemical Genomics
Centre III, focused on novel basic research
in the biosciences and chemical biology.
With the Swedish Innovation Bridge Company
(SWIBCo), we established a partnership
with Procella Therapeutics and Smartwise
to develop novel stem cell-based therapies
for heart failure. The Blue-Sky fund we
established with the MRC Laboratory of
Molecular Biology (LMB) is now in its fourth
year of funding projects which involve 40% of
LMB’s Principal Investigators. A recent project
breakthrough uncovered the first protein
structures for human ataxia telangiectasia
mutated (ATM), a key trigger protein in the
DNA damage response (DDR) and a prime
therapeutic target in cancer. In 2018, we
announced a collaboration to develop and
commercialise a gene therapeutic for patients
with chronic lung disease, utilising 4D
Molecular Therapeutics’ novel discovery
platform to generate optimised adeno-
associated virus (AAV) vectors. We also
continue to advance our strategic research
collaboration with Ethris GmbH where we
are evaluating mRNA-based therapies in
pulmonary diseases.
Innovating in drug discovery
We are also exploring emerging technologies
to accelerate the design and testing of
tomorrow’s medicines. For example, artificial
intelligence (AI) is being used increasingly in
the pharmaceutical sector building on the
emergence of novel computing technologies,
the exponential increase in data and deep
learning algorithms. Our teams are looking
across the discovery and development
process, from target identification to clinical
trials, to understand where we can harness
new technologies and further automate
processes, freeing up more time for
discovering and delivering as many new
medicine programmes as we can from our
pipeline. In Drug Discovery, our teams are
facilitating rapid, unbiased drug design and
speeding up compound synthesis through
improvements in AI algorithmic processes.
In the previous two years, our scientists
have published more than 20 scientific
publications showing improvements in
algorithmic processes in drug design. We
are also collaborating with the University of
Bern and University of Bonn in ExCAPE, an
EC-funded project that harvests the power of
supercomputers to speed up drug discovery
using machine learning. Through the
acquisition of Definiens in 2014, we are
AstraZeneca Annual Report & Form 20-F Information 2018 / Business Review
25
Strategic Report Accelerating the pipeline
GMD is prioritising its investment in specific
programmes 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 2018, including Lynparza
in 1st line BRCA-mutated advanced ovarian
cancer (SOLO-1), Imfinzi OS results in
unresectable stage 3 NSCLC, the Farxiga
cardiovascular outcomes trial in adults with
type-2 diabetes (DECLARE) and the Fasenra
Phase III extension trial evaluating long-term
safety and efficacy (BORA). Our teams have
also been quick to turn positive clinical trial
data into regulatory submissions. In 2018, we
made submissions in the US, EU, Japan and
China for Lynparza for 1st line maintenance
treatment for advanced BRCA-mutated
ovarian cancer, and Bevespi for Chronic
Obstructive Pulmonary Diseases (COPD) in
the EU, Japan and China. We also received
approval in the US and EU for Lokelma for the
treatment of adults with hyperkalaemia,
Lumoxiti in the US for the treatment of adults
with relapsed or refractory hairy cell
leukaemia (HCL), roxadustat for the treatment
of anaemia in Chronic Kidney Disease (CKD)
in China, Fasenra for severe asthma in the EU
and Japan, and US approval for Lynparza for
1st line maintenance treatment for advanced
BRCA-mutated ovarian cancer.
In 2018, we presented scientific rationale that
resulted in four regulatory designations for
Breakthrough Therapy or Priority Review
for new medicines which offer the potential
to address unmet medical need in certain
diseases, including tezepelumab in patients
with severe asthma, Lynparza for ovarian
cancer (SOLO-1), Tagrisso in 1st line EGFR
mutated NSCLC (FLAURA) and Lumoxiti
in 3rd line HCL (PLAIT). We also secured
Orphan Drug designation for the development
of three medicines to treat very rare diseases
including Lynparza for treatment of pancreatic
cancer (POLO), selumetinib for the treatment
of neurofibromatosis type 1 (SPRINT) and
Fasenra for the treatment of eosinophilic
granulomatosis with polyangitis (EGPA).
We also collaborate 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
We also drive 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 in the
EU to extend treatment into breast cancer;
Farxiga for type-1 diabetes in the US, EU
and Japan; and saxagliptin + dapagliflozin +
metformin for type-2 diabetes in the US and
EU. We also secured approvals for important
life-cycle programmes such as Imfinzi in the
US, EU and Japan for 1st line treatment of
stage 3 NSCLC; Lynparza for BRCA-mutated
metastatic breast cancer in the US and Japan;
Lynparza for platinum-sensitive relapsed
ovarian cancer in the EU, China and Japan;
Tagrisso for 1st line treatment of EGFR
mutated NSCLC; and Bydureon BCise, a
new formulation of once-weekly Bydureon
in a single-dose, pen-filled device.
R&D resources
We have approximately 8,900 employees in
our R&D organisation, working in various sites
around the world. We have three strategic R&D
centres: Cambridge, UK; Gaithersburg, MD,
US; and Gothenburg, Sweden. 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 Poland (Warsaw) that
focuses on late-stage development.
In 2018, R&D expenditure was $5,932 million
(2017: $5,757 million; 2016: $5,890 million),
including Core R&D costs of $5,266 million
(2017: $5,412 million; 2016: $5,631 million).
In addition, we spent $476 million on acquiring
product rights (such as in-licensing) (2017:
$404 million; 2016: $821 million). We also
invested $94 million on the implementation
of our R&D restructuring strategy (2017: $201
million; 2016: $178 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
Discovery and
early-stage
development
Late-stage
development
2018
2017
2016
37%
36%
36%
63%
64%
64%
Business Review
Achieve Scientific
Leadership continued
developing new AI approaches to evaluate
complex morphology, such as in the tumour
microenvironment. In Early Development, we
are starting to connect high-density datasets,
from imaging, biosensors, multiomics and
quality-of-life information, to inform earlier
decision making in clinical trials. In a recent
publication in Lancet Respiratory Medicine,
we describe a novel modelling tool that has
the potential to reduce the time of Phase II
trials in respiratory by half.
Late-stage development
During 2018, GMD delivered clinical trial data
and submissions that resulted in 23 approvals
for new medicines in the US, EU, China and
Japan. As shown in the table opposite, our
pipeline includes 149 projects, of which 131
are in the clinical phase of development,
and we are making significant progress in
advancing our late-stage programmes through
regulatory approval with 28 NME or major
LCM regulatory submissions during 2018.
At the end of the year, we had eight NME
projects in pivotal studies or under regulatory
review (covering 15 indications), compared
with 11 at the end of 2017.
Also in 2018, 20 NMEs progressed to their
next phase of development and 18 projects
were discontinued: 15 for poorer than
anticipated safety and efficacy results;
and three 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 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 overall survival
(OS), and the Phase III EAGLE trial of Imfinzi
and tremelimumab did not meet the primary
endpoints of improving OS in advanced head
and neck cancer relative to standard of care
chemotherapy. Along with Lilly, we also
discontinued development of lanabecestat
for Alzheimer’s disease after an independent
data monitoring committee concluded that
the trials were unlikely to meet their primary
endpoints and recommended the trials
be stopped for futility.
26
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report Development pipeline overview (as at 31 December 2018)
Phase I
38
Phase II
43
Late-stage
development*
22
Life-cycle
management
projects*
46
> 38 projects in Phase I, including:
> 43 projects in Phase II, including:
> 22 projects in late-stage
> 46 LCM projects*
– 26 NMEs
– 12 oncology combination projects
– 25 NMEs
– 6 significant additional
indications for projects that have
reached Phase III
development, either in Phase III/
pivotal Phase II studies or under
regulatory review:
– 8 NMEs not yet approved in
– 12 oncology combination
any market
projects
– 7 projects exploring additional
indications for these NMEs
– 7 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.
8,900
We have approximately
8,900 employees in our
R&D organisation
$5.9bn
$5,932 million invested in
our science
Costs for the project have risen since our
original cost projection due to the complexity
of the build, construction cost inflation,
including the impact of a weakening pound
sterling, and increased investment in new
technologies and equipment (for example
genomics, screening lab) as part of our
ongoing investment in R&D in the UK. The
new construction manager is reviewing cost
estimates but our current cost projection
for the project is in the region of £750 million.
The project is being funded out of
operational cash flows.
Our longer-term vision is to have our non-
laboratory-based Cambridge colleagues
co-located on the CBC and near our key
scientific, research and clinical partners.
We are now updating the overall master
plan for the site and the next stage will
be the development of an office building
opposite our R&D centre that can
accommodate an additional 1,000 people.
Cambridge
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. With around
2,500 AstraZeneca and MedImmune staff now
located in the city, we are already seeing the
impact of significant scientific and strategic
collaborations within the Cambridge cluster.
Construction began in April 2015 and during
2018, the focus of our activities at the site on
the Cambridge Biomedical Campus (CBC)
shifted from the base building infrastructure
and exterior towards the fit-out of laboratory
and scientific support spaces, interior design
of the office areas and landscaping. Reflecting
this shift of focus, we changed construction
manager with effect from November 2018.
We remain committed to the design principles
of the site and making it a great place to work.
The complexity of the building project is
reflected in the updated schedule, in which
we are expected to start occupation of the
building from 2020 rather than have it fully
operational in that year as reported in our
previous Annual Report. We believe that with
our staff in Cambridge already delivering the
strategic goals around our decision to locate
ourselves in the city, we do not need to
press for earlier occupation by adjusting
the building programme.
AstraZeneca Annual Report & Form 20-F Information 2018 / Business Review
27
Strategic Report “ AstraZeneca is partnering with
world-leading diagnostic developers
to deliver complete disease profiling
with a single ctDNA test continuing
to improve outcomes for patients.”
can
Science
improve the diagnosis
and treatment of cancer
30%
Some 30% of biopsies
can ‘fail’
AstraZeneca has pioneered the use of
circulating tumour DNA (ctDNA) for
the detection of biomarkers in cancer.
Pieces of DNA are shed from a tumour
and circulate in the bloodstream
where they can be analysed to give
genetic information about a patient’s
tumour. The world’s first ctDNA
diagnostic test was associated with
Iressa for specific mutations in the
epidermal growth factor receptor
(EGFR), namely Exon 19 deletions
and L858R in patients with non-small
cell lung cancer. It is an approach
that allows healthcare professionals
to determine the right treatment for
a patient using a minimally invasive
blood test in place of a biopsy, a more
invasive method that can ‘fail’ in
some 30% of cases. AstraZeneca
is partnering with world-leading
diagnostic developers to deliver
complete disease profiling with a
single ctDNA test continuing to
improve outcomes for patients.
Circulating tumour DNA also has
an important role to play if we are to
realise our ambition of eliminating
cancer as a cause of death. We believe
it has the potential to improve drug
development by identifying patients
who are at risk of relapse and enabling
rapid changes in therapy to address
this. For example, in early-stage lung
cancer, the majority of patients are
cured by surgery and chemoradiation
therapy. The key to improving overall
survival in these stages is to identify
those patients at high risk of early
relapse and an emerging potential
way to do this is by detecting the
failure to clear ctDNA from the blood
once curative intent treatment has
been completed. Investigating the
clinical utility and validity of ctDNA
in this setting is an active area of
research. For example, for these
high risk patients, we can test in a
minimally invasive manner whether
three months’ intervention with
investigational compounds removes
residual disease as evidenced by the
clearance of ctDNA, and whether this
ultimately impacts long-term outcomes.
Circulating tumour DNA – see
caption on inside front cover.
28
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report Business Review
Return to Growth
Our plans for growth
Our Commercial teams, which comprised
around 36,100 employees at the end of 2018,
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. We market our
products largely to primary care and
specialty care physicians.
Our return to Product Sales growth was
underpinned by our Growth Platforms. As
shown on page 21 and above, these comprise
our three main therapy areas, together with
Emerging Markets and Japan. In 2018 they
grew by 13% (12% at CER) and represent 84%
of Total Revenue.
Sales of our New Medicines1 generated
incremental sales of $2.8 billion at CER and
represented 30% of Total Revenue. These New
Medicines are important platforms for future
growth. In Emerging Markets, they represented
15% of sales, up from 10% in 2017 and, in the
US, they represented 48% of Product Sales,
up from 26%. US performance reflected, in
particular, the success of the new Oncology
medicines plus the strong performance of
Fasenra. In Europe, the decline in Product
Sales reflected the impact of generic Crestor
medicines in various markets in 2017 and
continued competitive and price pressures.
New Medicines represented 28% of Product
Sales, up from 18% in 2017. In Established
Rest of World, New Medicines represented
24% of sales in the year, up from 13% in 2017.
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.
2. Return to Growth
Our return to Product Sales growth
was underpinned by our focus 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.
Overview
> Product Sales of $21,049 million (up 4%
at actual rate of exchange; 4% at CER) and
Externalisation Revenue of $1,041 million
(down 55%; 55% at CER), resulting in
Total Revenue of $22,090 million (down
2%; 2% at CER)
> Growth Platforms revenue of $18,464
million, up 13% (12% at CER)
– Emerging Markets: Sales growth of
12% (13% at CER) to $6,891 million.
China sales in the year grew by 28%
(25% at CER), supported by the
launches of new medicines
– Respiratory: Sales grew by 4% (3%
at CER). Symbicort sales declined
by 9% (10% at CER), Pulmicort sales
rose by 9% (8% at CER) and Fasenra
performed well in the countries where
it had been launched
– New CVRM: Sales growth of 12% (12%
at CER). Strong performances from
Farxiga and Brilinta, with sales of
each exceeding $1.3 billion in 2018
– Japan: Sales decline of 9% (11% at
CER). The impact of generic Crestor
was felt faster than expected and
the biennial price reduction also
impacted sales
– Oncology: Sales growth of 50% (49%
at CER). Sales of Tagrisso reached
$1,860 million to become AstraZeneca’s
largest-selling Oncology medicine
> US revenue was up by 11% to
$6,876 million; Europe was down
by 6% (10% at CER) to $4,459 million;
and Established ROW was down by 8%
(9% at CER) to $2,823 million
> 81% increase in New Medicines1 revenue
(81% at CER), contributing 30% of
Total Revenue
1
Tagrisso, Imfinzi, Lynparza, Calquence, Lumoxiti, Brilinta,
Farxiga, Lokelma, Bevespi and Fasenra.
AstraZeneca Annual Report & Form 20-F Information 2018 / Business Review
29
Strategic Report Business Review
Return to Growth
continued
Regional Product Sales
1. Emerging Markets
3. Europe
12%
12% growth in the year
(13% at CER) to
$6,891m
(6)%
6% decline in the year
(10% at CER) to
$4,459m
2. US
11%
11% growth in the year
(11% at CER) to
$6,876m
4. Established
Rest of World
(8)%
8% decline in the year
(9% at CER) to
$2,823m
All numbers as at 31 December 2018.
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.
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.
30
4
2
3
1
> 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.
By way of example of our approach, we apply
Tiered Pricing Principles globally. This defines
price levels commensurate with affordability
based on a country’s ability to pay. We
believe that this approach to pricing is
sustainable and fair, and that it will increase
access and improve patient outcomes in
Emerging Markets.
More generally, we remain committed to
exploring innovative solutions to improve
patient access and affordability, focusing on
the value our medicines bring to patients and
the healthcare system. We are collaborating
with payers to conclude value-based pricing
solutions that improve patient outcomes and
have entered into 37 such agreements across
our therapy areas. For more information, see
the case study on page 17.
4
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 2018, Product Sales in the US
increased by 11% to $6,876 million
(2017: $6,169 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 a
percentage of the patient’s out-of-pocket costs
during the ‘coverage gap’ portion of their
benefit design. From the beginning of 2019, the
mandatory coverage gap discount increased to
70% from its former amount of 50%, as a result
of the passage of legislation in 2018. As part of
the Affordable Care Act (ACA), we also pay a
portion of an overall industry Patient Protection
and Affordable Care Act Branded Prescription
Drug Fee.
In 2018, 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 $432 million (2017:
$119 million; 2016: $471 million).
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report 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 2018, 84.8% of
prescriptions dispensed in the US were generic,
compared with 84.9% in 2017. 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. In May 2018, the Trump Administration
issued its ‘Blueprint to Lower Drug Prices and
Reduce Out-of-Pocket Costs’, which included
a wide range of policy proposals that would
impact the US pharmaceutical industry if
implemented. Proposed changes under
consideration include, but are not limited to,
fundamentally changing the role of rebates in
the pharmaceutical supply chain, reforms to
the 340B Drug Pricing Program, and policies
to increase competition in the Medicare
programme and encourage generic drug use.
The Trump Administration has already taken
action on several of the policies discussed
in the Blueprint, and more policy actions are
pending. 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.
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.
We understand that our medicines will not
benefit patients if they are unable to afford
them and that is 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 four million patients across the US
and Puerto Rico over the past 10 years.
For more information, see Community investment
on page 48.
Europe
The total European pharmaceutical market was
worth $196 billion in 2018. We are the fifteenth
largest prescription-based pharmaceutical
company in Europe (see Market definitions
on page 239) with a 2.0% market share of
pharmaceutical sales by value.
In 2018, our Product Sales in Europe
decreased by 6% at actual rate of exchange
(10% at CER) to $4,459 million (2017: $4,753
million). Key drivers of the decline, leaving
aside the impact of divestments such as
Seloken, Atacand, Nexium and Zomig,
were continued competition from Symbicort
analogues, loss of exclusivity for Crestor,
and the continued impact of early generic
entry in certain markets for Faslodex,
which we expect to continue in 2019. 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 encouraging performance for certain
products across our Growth Platforms, in
particular with Forxiga, Brilinta, Fasenra,
Lynparza and Tagrisso. Oncology sales in
Europe grew by 19% (14% at CER), partly
driven by the approval of Tagrisso for the
treatment of patients in the 1st line EGFRm
setting in June 2018. Lynparza sales grew by
46% (41% at CER), partly benefiting from the
approval in May 2018 for its use as a tablet-
based treatment for platinum-sensitive ovarian
cancer, regardless of BRCA status. Brilique
sales growth of 18% (13% at CER) was
accompanied by Forxiga sales growth of
30% (24% at CER). Fasenra was successfully
launched in several European countries,
with a strong initial uptake.
Established Rest of World (ROW)*
In 2018, Product Sales in Japan decreased by
9% at actual rate of exchange (11% at CER) to
$2,004 million (2017: $2,208 million), as a result
of the biennial government price cuts and
increased intervention from the government
to rapidly increase the volume share of generic
products. In September 2017, a Crestor
authorised generic entered the market and
in December 2017 we saw more than 20
generic companies enter the Japanese statin
market with generic rosuvastatin which has
strongly impacted Crestor Product Sales
with a decrease of 60%. Leaving aside these
generic restraints, Japan is presenting strong
growth from the brands in our Growth
Platforms and Nexium. In addition, there
were particularly strong performances from
Tagrisso, Fasenra, Imfinzi, Lynparza and the
Diabetes franchise. We now hold twelfth
position in the ranking of pharmaceutical
companies by sales of medicines in Japan.
Japan remains an attractive market for
innovative pharmaceuticals.
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 62% funded by
private payers and 38% by public plans.
Our sales in Australia and New Zealand
declined by 16% at actual rate of exchange
(14% at CER) in 2018. This was primarily
due to the continued erosion of Nexium and
Seroquel by generic medicines, further price
reductions on established brands and entry
of an analogue for Symbicort in Australia,
which had an impact on both price and
volume. Consequently, sales in 2018 declined
at a greater rate compared to that seen in
2017. However, the pace of generic erosion
has moderated notably with Crestor and
Atacand, 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 4% at actual rate of exchange (6% at CER),
41% at actual rate of exchange (43% at CER)
and 4% at actual rate of exchange (6% at
CER), respectively.
*
Established ROW comprises Australia and New Zealand,
Canada and Japan.
AstraZeneca Annual Report & Form 20-F Information 2018 / Business Review
31
Strategic Report Business Review
Return to Growth
continued
11%
11% increase in Product Sales in
the US in 2018 (11% at CER) to
$6,876 million
28%
28% increase in Product Sales in
China in 2018 (25% at CER) to
$3,795 million
“ AstraZeneca was
the fastest-growing
top 10 multinational
pharmaceutical
company in Emerging
Markets in 2018.”
32
Emerging Markets
Emerging Markets, as defined in Market
definitions on page 239, comprise various
countries with dynamic, growing economies.
As outlined in Marketplace from page 11,
these countries represent a major growth
opportunity for the pharmaceutical industry
due to high unmet medical need 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 Oncology, CVRM
and Respiratory portfolios. To educate
physicians about our broad portfolio, we
are selectively investing in sales capabilities
where opportunities from unmet medical
need exist. We are also expanding our
reach through multi-channel marketing
and external partnerships.
With revenues of $6,891 million, AstraZeneca
was the fourth largest multinational
pharmaceutical company, as measured by
prescription sales, and the fastest-growing
top 10 multinational pharmaceutical company
in Emerging Markets in 2018.
China
In China, AstraZeneca is the second largest
pharmaceutical company by value in the
hospital sector, as measured by sales. Sales
in China in 2018 increased by 28% at actual
rate of exchange (25% at CER) to $3,795
million (2017: $2,955 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
channel expansion programmes in our main
therapy areas. In addition, Tagrisso was listed
in the National Reimbursed Drug List (NRDL)
and we launched Lynparza during 2018.
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. In
addition, the planned roll-out of the Generics
Quality Consistency Evaluation (GQCE) will
have an impact on pharmaceuticals budgets
and pricing through setting new standards for
bioequivalence that generic products must
adhere to. The outcome of the latest round
of tenders involving Crestor and Iressa
were announced in December 2018 with
implementation from early 2019. This is
expected to result in a level of sales decline
for both brands in 2019. This evaluation is
being applied retrospectively, so several
existing generic products may fail and
be withdrawn which could lead to a
consolidation in the sector. This would leave
fewer, higher-quality generics in the market
thereby putting pressure on any originator
brand price premiums and driving a
reduction in overall medical costs.
The industry-wide growth rate is expected
to be a moderate single digit percentage,
following the updates 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 such
as Tagrisso and Lynparza.
For more information on our work in China, see page 37.
Emerging market 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, Karta Zdorovia in Russia
and FazBem in Brazil. Through these
programmes, we help qualifying patients
with discounts and donations. We provide
these programmes in markets with limited or
no public reimbursement system, no coverage
beyond the most basic therapies, or where
it is unlikely or only after an extended
period that public reimbursement is a
possible consideration.
AstraZeneca also aims to partner with countries’
healthcare systems to optimise access to
healthcare. For example, in South Africa,
Phakamisa supports the 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 through the promotion of
primary prevention and early detection.
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report In 2017, we launched the Healthy Lung Asia
programme, focusing on improving care for
asthma, COPD and lung cancer across nine
Asian countries (India, Indonesia, Malaysia,
Philippines, Singapore, South Korea, Taiwan,
Thailand and Vietnam). The Healthy Lung
initiative aims to support: increased
awareness; earlier diagnosis; improved
treatment; better disease management; and
establishing standards of care and initiatives
in line with international best practice.
So far, we have initiated 28 formal
partnerships and signed 13 memoranda of
understanding with national and regional
governments, professional organisations
and NGOs to drive care improvement,
which has enabled Healthy Lung to:
> Support the training of more than 25,000
healthcare professionals.
> Enable diagnosis of more than 500,000
cases of asthma.
> Activate more than 900 Respiratory Centres.
> Align 10 national care guidelines and care
pathways to international best practice (GINA).
In 2018, the programme was extended with
launches in Latin America, the Middle East
and Africa.
Healthy Heart Africa was launched in Kenya in
2014, Ethiopia in 2016 and Tanzania in 2018,
supporting the countries to address the
burden of NCDs. Since launching, the
programme has:
> Conducted 9.97 million blood pressure
screenings in the community and in
healthcare facilities.
> Trained over 5,800 healthcare workers,
including doctors, nurses, community
health volunteers and pharmacists, to
provide education and awareness,
screening and treatment services for
hypertension.
> Activated over 700 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 1.86 million people living
with high blood pressure.
In 2018, AstraZeneca began a pilot of clean
biogas cooking in Western Kenya. This is
enabling the local community to process
waste into clean energy, while improving
respiratory health of nearby communities by
replacing wood-burning fires with alternative
fuel sources. The pilot is in partnership with
the Cambridge Institute for Sustainability
Leadership who will study the environmental
impact of this intervention.
For more information on Broadening access to healthcare
as one of our sustainability priorities, see page 43.
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 pharmaceutical
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.
To ensure compliance with global Good
Manufacturing Practice regulations, the
Operations Quality team continuously reviews
and strengthens the Quality Systems at our
manufacturing sites through internal audit
programmes, external intelligence and sharing
learnings between sites. In 2018, these
measures helped us successfully achieve zero
critical observations from 48 independent
inspections. We reviewed observations from
these inspections together with the outcomes
of internal audits and, where necessary,
implemented improvement actions.
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
The integration of our Pharmaceutical
Technology & Development (PT&D) group
into our Operations organisation has been
completed, ensuring a seamless transfer of
manufacturing technology and processes from
our late-stage development group to our
commercial manufacturing sites and external
partners. PT&D now has a physical presence
at our major manufacturing facilities supporting
successful product launches, including
Lokelma, Bydureon BCise and Lynparza tablets
and providing technical leadership for our
commercial portfolio throughout the product
life-cycle. PT&D is also accountable for the
development and introduction of new
manufacturing, packaging and analytical
technologies across the AstraZeneca small
molecule network.
In collaboration with our R&D groups, PT&D
is accountable for the development of
commercial pharmaceutical products across
our pipeline of innovative, small molecule
projects. PT&D’s core capabilities in chemical
development, and oral, inhaled and sterile
product development, and digital therapeutics
are focused on the development of
sustainable processes for medicines
designed to meet patients’ needs. The clinical
operations capability in PT&D works closely
with our partners in R&D to design and supply
early- and late-stage clinical material and is
accountable for the worldwide supply of 260
AstraZeneca sponsored studies.
Supply chain management
We need an uninterrupted supply of high-
quality raw materials and active
pharmaceutical ingredients (APIs) and, with
most of our API manufacturing outsourced,
we place great importance on our global
external sourcing and procurement
organisations and policies, as well as our
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.
As a consequence of the UK’s decision to
leave the EU, which is anticipated to become
effective from 29 March 2019, we have also
been working closely with our suppliers
on their readiness for the impact this will
have, with a view to mitigating the effect
on our business.
Since late 2017, we have completed a detailed
assessment of approximately 400 suppliers
across all areas of our supply chain, including
our major and critical suppliers. During 2018,
we saw a decline in the overall level of
supplier-related risk due to various mitigations,
including revised logistics channels, additional
warehousing, the potential to move clinical trial
related activities, stock building of product and
manufacturing related goods, movement of
AstraZeneca Annual Report & Form 20-F Information 2018 / Business Review
33
Strategic Report 29
We have 29 Operations sites in
17 countries
260
Completed more than 260 major
or strategically important business
transactions in the last three years,
including 80 in 2018
630
We have more than 630
collaborations worldwide
“ As part of our planning
to manage the impact
of the UK leaving the
EU, we have engaged
with regulators and
government to ensure
they have a clear view
on the potential impact
on pharmaceutical
supply chains.”
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 and Brazil. 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 APIs 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), 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 Sweden, our new
biologics drug product manufacturing facility
became available at the end of 2018.
As part of our ongoing review of
manufacturing capabilities and capacity,
in January 2019, we made the decision to
discontinue operations at the Boulder and
Longmont, CO manufacturing facilities to
increase efficiencies in our global biologics
supply chain. This step will consolidate our
biologic drug substance manufacturing
network to one large-scale drug substance
facility, the Frederick Manufacturing Center,
MD. The closure of the sites is expected to
be completed by the end of 2019 and will not
impact the supply or global availability of any
of our biologic medicines. We will be working
with the impacted employees to provide
outplacement and transition support.
For small molecules we have constructed
a new small-scale development and launch
facility alongside our existing manufacturing
facility in Wuxi, China. This investment
supports the acceleration of delivery of new
innovative medicines to patients in China and
completes our ability to execute across the
whole life-cycle of medicines from discovery
to commercialisation.
At the end of 2018, approximately 13,000
people were employed at 29 Operations
sites in 17 countries.
Business Review
Return to Growth
continued
stock locations, and assessment of the
opportunity for supplier substitution. We
continue to consider further mitigation activities
with a focus on clinical trials and manufacturing
given the risk arising from the mix of goods and
services, and the associated cross-border UK/
EU and EU/UK movements. While we continue
to make progress, it is possible that adverse
events will impact supplier activities. Issue
management may therefore play a key element
in our ability to maintain safe supply of our
medicines and ongoing business operations
more generally.
In addition, as part of our planning to manage
the impact of the UK leaving the EU, we have
engaged with regulators and government to
ensure they have a clear view on the potential
impact on pharmaceutical supply chains. We
have made significant efforts to duplicate our
UK testing capability within the EU and to
implement system changes necessary to
facilitate compliance with EU law once the
UK becomes a third country. Furthermore,
we have revised our logistics plans (including
shipping routes) and built additional inventory
in anticipation of some level of border
congestion to reduce the risk of disruption
of supply to patients.
Supply chain financing
AstraZeneca has a supply chain finance
programme to support the cash flow of its
supply base. This programme, in partnership
with Taulia Inc. and Greensill Capital, provides
suppliers with visibility of invoices and
payment dates. Suppliers can access
this platform free of charge and have full
optionality and flexibility on an invoice by
invoice basis to request early payment of
invoices. On election of an early payment,
a charge is incurred by the supplier based
on the period of acceleration, central bank
interest rate, and the rate agreed between
Taulia Inc. and each supplier. All early
payments are paid by Greensill Capital, and
AstraZeneca settles the original invoice
amount with Greensill Capital at maturity
of the original invoice due date.
We believe this programme offers a benefit
to our suppliers, as it provides visibility and
flexibility to manage their cash flow, and the
rates offered can be preferential to their cost
of funding. The programme is currently live in
the US, UK, Sweden and Germany. As of
December 2018, the programme had 2,548
suppliers enrolled, and a potential early
payment balance of $166 million.
For more information on supply chain financing,
see Note 19 on page 177.
For more information on Ethical supply chain
management, see from page 45.
34
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report 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 pharmaceutical
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 630 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 2018.
Over the past three years, we have completed
more than 260 major or strategically important
business development transactions, including
some 80 in 2018. Of these transactions,
eight were related to pre-clinical assets or
programmes and 38 to precision medicine and
biomarkers associated with small molecule and
biologics programmes. Thirteen transactions
helped expand our biologics capabilities.
Of particular note, we announced a new
agreement with Innate Pharma under
which we will exercise our existing option to
obtain full oncology rights to monalizumab,
a first-in-class humanised anti-NKG2A
antibody which has demonstrated positive
Phase II results in head and neck cancer
and presents opportunities in colorectal
cancer and haematological malignancies
as well (see Oncology therapy area review,
from page 50 for further details). The agreement
also provides us with access to Innate Pharma’s
anti-CD39 mAb, IPH5201, plus four additional
immuno-oncology molecules, increasing the
breadth and depth of our immuno-oncology
portfolio. As part of this transaction, we also
licensed US commercial rights for Lumoxiti to
Innate Pharma.
In addition, we entered into an agreement
under which AstraZeneca will gain the
exclusive rights from Zambon to import,
distribute and promote Fluimucil ampoules,
a medicine which treats respiratory disease,
for inhalation in China (excluding Hong Kong,
Macau and Taiwan).
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:
> collaborations that help us access therapy
area expertise
> 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.
Details of significant business development
transactions which give rise to Externalisation
Revenue are included in the Financial Review
from page 74. The Externalisation Revenue
generated in 2018 is provided in Note 1
from page 160. There were no significant
transactions during 2018.
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 2018, we divested European rights for
Atacand to Cheplapharm; European rights for
Nexium to Grünenthal; rights for Seroquel in
all except the US and European markets to
Luye Pharma; rights for Vimovo, excluding the
US and Japan, to Grünenthal; and rights to
Alvesco, Omnaris and Zetonna in all markets
except the US to Covis. We also entered
into an agreement with Sobi to divest the
US rights for Synagis, the agreement was
signed in November 2018 and the transaction
completed in January 2019. In addition, we
spun out six molecules from our early-stage
inflammation and autoimmunity programmes
into an independent biotech company, Viela
Bio (see Other Disease Areas therapy area
review, from page 67 for further details). 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. A total of 15 transactions that
contribute to Externalisation Revenue or
generate income through divestment or
out-licensing were completed in 2018.
More information on our partnering activity in 2018 can
be found in the Financial Review from page 74 and Notes
1 and 2 to the Financial Statements from page 160.
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 term 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 29 to the Financial
Statements from page 194.
For more information on the risks relating to patent
litigation and early loss and expiry of patents, see Risk
from page 220.
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
(PTEs) 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 2018 / Business Review
35
Strategic Report Our ‘Defense in depth’ strategy has focused
on enhancing multiple levels of protection
and detection as well as introducing additional
third-party cybersecurity intelligence with an
appropriate response from our 24x7 Security
Operations Centre. Cybersecurity testing via
both internal and external cybersecurity teams
will continue to validate our cyber maturity
and risk. We continue to develop our
relationships with government agencies,
third-party cybersecurity professionals,
and many cybersecurity-related peer
groups. Cybersecurity within our third-party
vendors and supply chains is a focus area for
AstraZeneca. As an ongoing process, we are
evaluating reasonable levels of security and
associated controls, requiring contractors,
vendors and critical supply chain partners to
meet or exceed our cybersecurity standards.
For more details, including the risks relating
to information technology and cyber threats,
see Risk from page 220.
Business Review
Return to Growth
continued
Patent expiries
The table on pages 217 to 219 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
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’ market exclusivity.
In the US, new chemical entities (NCEs) are
entitled to a period of five years of 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.
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.
36
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 2018, we continued to sharpen our
focus on running IT with high quality
performance – improving IT cost
efficiency, systems performance and
delivering higher levels of support
for business priorities.
With the IT foundation now firmly in place
and operating at high levels of efficiency,
we have started to shift our focus to drive
more transformative and digital capabilities
to support the evolving needs of the business.
We have a growing programme portfolio
which will see us take advantage of data and
analytics, artificial intelligence, digital and the
Internet of Things – all of which are key to
support our overall business transformation.
In order to deliver on these commitments, IT
has actively been strengthening its capabilities
through recruiting key external talent into the
organisation, as the expertise to succeed in
some of these technologies was not internally
present at the levels needed. In addition to
recruiting leaders in new technologies, the
IT organisation continues to harness internal
capabilities, enabling us to accelerate drug
development, revenue growth and profitability.
Cybersecurity
The cybersecurity threat landscape
continues to grow in both volume and
complexity, with the healthcare industry
increasingly becoming a target of cyber
criminals. Protecting our IT systems, IP
and confidential information against cyber
crimes continues to be a critical area of focus
and investment. Our implementation of the
National Institute of Standards & Technology
(NIST) risk framework allows us to understand
cyber resilience and risk positioning,
improving our ability to prevent attacks and
minimise damage and data loss should a
breach occur. We have seen success with
our mandatory employee cybersecurity
awareness training programme, which helps
employees recognise and defend against
common and high-risk cyber threats.
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report can
Science
deliver complete disease
management in China
593
Pulmonary and critical
care medicine centres
We currently have eight models for
disease management which continue
to be rolled out, not only across Wuxi,
but across the whole of China:
> Chronic disease management –
42 centres
> China chest pain – 783 centres
> Metabolic management –
200 centres
> Gastrointestinal cancer –
66 centres
> Integrated centre for lung
cancer treatment – 20 centres
> Integrated centre for prostate
cancer diagnosis and
treatment – 200 centres
> Paediatric nebulisation –
15,000 centres, including
4,200 smart centres
> Pulmonary and critical care
medicine – 593 centres
Opened in 2017, and jointly developed
with partners from government,
industry and academia, as well
as with research and medical
institutions, our China Commercial
Innovation Centre in Wuxi in Jiangsu
Province is designed as a showcase
for innovative ideas in healthcare. It
uses the Internet of Things (IoT), big
data, artificial intelligence and other
digital technologies to meet the needs
of patients in disease prevention,
screening, diagnosis, treatment and
rehabilitation.
We collaborate with companies
who use advanced technologies
to make diagnosis more precise,
effectively combine drugs with
medical devices for better treatment,
and integrate online and offline
healthcare resources to make
information more accessible. In
this way, we can develop complete
disease management solutions that
deliver better outcomes for patients,
make healthcare more accessible,
and improve the understanding
and management of diseases.
AstraZeneca Annual Report & Form 20-F Information 2018 / Business Review
37
37
Strategic Report Business Review
Be a Great Place to Work
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 foster 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
> Published new Global Standards on
inclusion and diversity, sexual harassment
and bullying, reinforced by training
> Continued focus on workforce planning
to attract critical capabilities and manage
retention risks
> Maintained listing in Pharmaceuticals,
Biotechnology and Life Sciences industry
group of Dow Jones Sustainability Index
> Materiality assessment reaffirmed focus
and used to refine our sustainability
priorities
> Sustainability Advisory Board met twice
in 2018 to guide, recommend opportunities
and provide external feedback
> Continued progress towards our target to
source 100% renewable power by 2025
38
Employees
To achieve our strategic priorities, we
continue to attract, 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 developing strategic workforce
plans to ensure we can attract the critical
capabilities required to deliver our long-term
strategic priorities. These plans are
underpinned by predictive analytics, meaning
workforce decisions are data-driven. We also
use workforce analytics to ensure that we
manage our global workforce optimally. In
addition, we have implemented a significant
number of automation initiatives to allow our
workforce to spend a higher proportion of
their time on higher-value activity.
We have implemented a talent scout model to
enhance our ability to attract key talent into
senior roles. This has been successful,
demonstrating our ability to hire best-in-class
critical capability at a reduced cost. This has
been supported by an enhanced employee
referral scheme, which has become an
increasingly important source of hire. This
scheme won a significant external award.
We are working to attract emerging talent,
as well as investing in internships and
recruitment opportunities globally. For
example, we conduct a global programme
to hire recent graduates for pharmaceutical
technology and development, procurement,
quality, engineering, IT, supply chain, and
biometrics and information sciences
functions. We also ran 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 therapy area.
Gender diversity
Board of Directors of the Company
Directors of the Company’s subsidiaries*
Men 58%
Women 42%
Men 62.1%
Women 37.9%
Senior Executive Team*
AstraZeneca employees
Men 64%
Women 36%
Men 49.9%
Women 50.1%
* For the purposes of section 414C(8)(c)(ii) of the Companies Act 2006, ‘Senior Managers’ are the Senior Executive Team (SET),
the directors of all of the subsidiaries of the Company and other individuals holding named positions within those subsidiaries.
All numbers as at 31 December 2018.
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report
During 2018, we hired 13,000 permanent
employees. Hiring over recent years means
that employees with less than two years’
service now represent 33% of our global
workforce (up from 20% in 2012). This
provides a greater balance in terms of
refreshing talent and retaining organisational
experience. The majority of this hiring has
been focused in our Emerging Markets, in
particular China, as we continue to reshape
our workforce footprint to support our
strategic objectives and to position us well for
the future. Our data indicates that these
recent hires are performing strongly, although
in some areas of the business retention of this
population is challenging.
Voluntary employee turnover increased
slightly to 10.2% (2017: 9.7%). The voluntary
employee turnover rate among our high
performers decreased in 2018 to 6.6%
(2017: 7.1%), while the voluntary employee
turnover of recent hires increased to 14.5%
(2017: 12.2%). 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 could have an impact on hiring and
retaining staff in some business-critical areas.
Consequently, we are providing extensive
support and information to employees
who might be impacted, monitoring trends
in recruitment and resignation closely, and
also guiding new hires through our
recruitment process.
Drive a vibrant, high-performing culture
Continuing our emphasis on high performance,
in 2018, 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 90% of
employees (2017: 87%). We encourage
participation in various employee share plans,
some of which are described in the Directors’
Remuneration Report from page 120, and also
in Note 28 to the Financial Statements from
page 192. Additionally, in the UK, we are making
changes to the way we reward, provide benefits
and support our people. These changes are
designed to rebalance the reward mix, improve
understanding of benefits and simplify our
processes.
Our salary and bonus budgets are distributed
in line with our principles, allowing us
to clearly differentiate reward according
to performance.
We are committed to hiring and promoting
talent ethically and in compliance with
applicable laws. Our Code of Ethics 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. Our Global Standard
for Inclusion and Diversity sets out how we
A global business
Employees by reporting region
By geographical area
Emerging Markets 43.7%
Europe 29.0%
US 19.8%
Established Rest
of World 7.5%
64,600
employees
Co-locating around three
strategic R&D centres
1. Gaithersburg, MD, US
3,200
2. Cambridge, UK
2,500
3. Gothenburg, Sweden
2,200
All numbers as at 31 December 2018.
8
2
3
7
6
4
1
5
11
10
9
12
1. US
12,800
19.8%
2. UK
7,400
11.4%
3. Sweden
6,300
9.8%
4. Canada
800
1.3%
5. Central and
South America
3,100
4.9%
6. Middle East
and Africa
1,700
2.6%
7. Other Europe
7,400
11.5%
8. Russia
1,000
1.6%
9. Other Asia
Pacific
6,900
10.6%
10. China
13,200
20.5%
11. Japan
3,000
4.6%
12. Australia and
New Zealand
1,000
1.6%
AstraZeneca Annual Report & Form 20-F Information 2018 / Business Review
39
Strategic Report Business Review
Be a Great Place to Work
continued
foster an inclusive and diverse workforce
where everyone feels valued and respected
because of their individual ability and
perspective. 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. More
information on our Global Policy framework
can be found on page 43, our Code of Ethics
on page 105, and our Global Policies and
Standards can be found on our website,
www.astrazeneca.com/sustainability.
Employee opinion surveys help us measure
employee satisfaction and engagement,
and progress in our aim of being a great
place to work. Comparing our most recent
survey (December 2018) to the previous year
(December 2017), of the 17 items common
to both surveys, we improved in 11 items,
remained stable for four and saw minor
reductions (-1%) in the score for two
items. Importantly, we scored highly for
‘understanding of the future direction and
strategy’, and we saw good progress in
‘opportunities for personal development
and growth’ and items around inclusion
and diversity (where we are above the global
high-performing norm). We also exceeded
our scorecard target for ‘I would recommend
AstraZeneca as a great place to work’. Despite
progress in the latest survey, there remains
further opportunity for improvement around
leadership communication and prioritisation.
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 inclusion
and diversity, 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
updated recruitment standards to ensure
diverse candidate lists.
Our commitments include a goal to increase
the number of women on our leadership
teams. As shown in the gender diversity figure
on page 38, women comprise 50.1% of our
global workforce. There were five women on
our Board (42% of the total) at the end of 2018
(Shriti Vadera retired with effect from
1 January 2019). 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 44.6% in
2018 (2017: 44.4%), which exceeded our
40
scorecard target of 44.4% 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 2018, AstraZeneca was
ranked 12th in the FTSE 100 for Women on
Boards and seventh for Women on Executive
Committees and Direct Reports.
Our Women as Leaders programme aims to
encourage more women into senior roles
– approximately 600 women had completed
the programme by the end of 2018. Of those
who provided feedback, 55% have either
been promoted, or had their remit expanded,
or been identified for future promotions. In
addition, we have developed women’s
networks in most countries, continued to hold
women’s summits in various locations around
the world and continued to support mentoring
relationships, for example introducing
mentoring by senior women for emerging
talent in Operations.
In 2018, 80% of vacancies across the
top three levels of our organisation were
filled internally, reflecting our long-term
commitment to develop high-quality leaders
and the rigour of our leadership succession
planning. 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
2018, 19.4% of employees who are either
members of the SET, or their direct reports,
have a country of origin that is an Emerging
Market or Japan (an increase from 5% in 2012
and ahead of our 2018 target of 15%).
Diversity is integrated into our Code of Ethics
and associated workforce policy. In addition to
the two diversity metrics tracked in the
AstraZeneca scorecard (representation of
women in senior roles and senior leadership
country of origin that is an Emerging Market or
Japan), on a bi-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.
In addition to the Global Standard on Inclusion
and Diversity, in 2018 we published new Global
Standards on sexual harassment and bullying.
Drawing on our commitment to respect and
equal opportunity, we aim to build a culture
where everyone feels safe to ‘speak up’. This is
Sales and Marketing workforce composition
Emerging Markets 59%
Established Markets 41%
important, not just for those who feel they have
seen or experienced unwelcome attention or
behaviour, but also to ensure that colleagues
recognise the value they bring when they share
their different perspectives and ideas. This is
integral to making the most of our diversity of
thought, because it is the foundation of our
ability to innovate. The Standards are being
reinforced by specific training and education
across the organisation on the importance of
speaking up (which includes challenging
behaviours that are inconsistent with our
Values and Code of Ethics), demonstrating
inclusive leadership and responding to
allegations of misconduct. We have multiple
channels available for reporting. Allegations are
taken very seriously and handled in a manner
that is sensitive to the confidentiality and
security of those making a report and will be
subject to global oversight.
Generate a passion for
people development
We encourage employees to take ownership
of their own development and expect 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 22,000 applications from
internal candidates through this platform
in 2018.
In 2017, we implemented a best-practice
cloud-based global learning management
system to ensure that opportunities to learn
are available to all employees. In 2018, we
continued to leverage this technology as part
of our ambition to continuously transform the
learning culture in AstraZeneca.
Following the successful launch of ‘Leading
People’ in 2017 (a social online learning
platform aimed at managers), ‘Leading Self’
was rolled out across the organisation aimed at
employees below manager level. Over 5,400
employees have accessed this innovative,
social online learning experience. In 2018, we
piloted our ‘Leading Business’ programme,
connecting 100 managers from all areas and
regions of AstraZeneca to develop their
leadership capability. We continue to see a
positive impact of these experiences in
engagement and retention measures.
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report Collisions
per million km
Target
3.74
4.05
4.66
4.13
3.58
3.76
4.00
Year
2018
2017†
2016†
2015 baseline
Work-related injuries
Year
2018
2017†
2016†
2015 baseline†
† Data re-stated.
Reportable injury rate
per million hours worked
Target
1.31
1.48
1.57
1.78
1.50
1.60
1.69
As shown above, we made further progress
against our strategic targets in 2018, achieving
a 26% reduction in the work-related injury rate
and a 9% reduction in vehicle collision rate
from the 2015 baseline. In addition, there were
no work-related fatalities during 2018. 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 65% of our sites.
In 2018, we carried out several activities
and initiatives focused on continuous
improvements in key risk areas, including
driver safety (our highest risk for significant
injury and fatalities), behavioural safety,
ergonomics, office safety, fall prevention,
workplace pressure management and
work-life balance.
As outlined in the Manufacturing capabilities
section on page 34, in January 2019 we made
the difficult decision to discontinue operations
at our biologics manufacturing facilities at
Boulder and Longmont CO, US.
Safety
Vehicle collisions
Human rights
Our Code of Ethics 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 have been members
of the United Nations Global Compact on
Human Rights since 2010.
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 about the assurance provided
by Bureau Veritas, see page 231.
In 2017, we signed up to the ‘Fair Wage’
database. These data are being used in our
end of 2018 survey to measure performance
more independently and to inform future
direction in the fair/living wage space.
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, of the more than 2,500
employees working in Cambridge, 569 have
relocated from other sites in the UK. In
addition to the 1,100 employees hired
between 2015 and 2017, we hired a further
452 permanent employees in Cambridge in
2018. We are using interim infrastructure in
and around Cambridge to house these
employees until our new site on the
Cambridge Biomedical Campus 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 this move,
see Cambridge on page 27.
In January 2019, we announced plans to
realign R&D and parts of our Commercial
business to ensure we can execute on our
priorities and strategy. We have established
dedicated teams who, guided by a clear set of
People Principles, will ensure the transition is
executed as quickly as possible, keep our
employees regularly informed and treat them
fairly, and comply with local legislative and HR
policies and practices, including consulting
with employee representatives as required.
For more information on our restructuring programme,
see the Financial Review from page 74.
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. Our most recent survey
commenced in October 2018, with
conclusions due at the end of February 2019.
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 Code of Ethics available
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 in
the Sustainability Data Summary available on
www.astrazeneca.com/sustainability and is
assured by Bureau Veritas.
For more information about the assurance provided by
Bureau Veritas, see page 231.
AstraZeneca Annual Report & Form 20-F Information 2018 / Business Review
41
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
Our sustainability strategy is aligned with our
Purpose and business strategy, allowing us
to maximise the benefit for our patients, our
business, broader society and the planet.
In late 2018, a structured sustainability
materiality assessment that engaged external
and internal stakeholders reaffirmed our
direction and refined the priority areas. We
measure our progress through annual and
long-term targets. We show performance in
our Sustainability Data Summary located on
www.astrazeneca.com/sustainability.
Learn more in our 2018 Sustainability Report available
on our website, www.astrazeneca.com/sustainability.
42
1. Broadening access to healthcare
We aim to improve lives by increasing access to health
Priority areas
Information in this Annual Report
> Disease prevention and treatment
> Affordability
> Investments in health systems
> Responsible R&D
> The environment’s impact on health
> Emerging market healthcare, from page 32
> Broadening access to healthcare, on page 43
2. Furthering ethics and transparency
We commit to furthering ethics and transparency in everything we do
Priority areas
Information in this Annual Report
> Ethical business culture
> Inclusion & diversity
> Talent & workforce evolution
> Workforce wellbeing and safety
> Responsible supply chain
> Human rights
> Code of Ethics and policy framework, on page 43
> Bioethics and responsible research, from page 44
> Develop a strong and diverse pipeline of leaders, on page 40
> Managing change and Employee relations, on page 41
> Safety, health and wellbeing, on page 41
> Ethical supply chain management, from page 45
> Human rights, on page 41
> Community investment, on page 48
3. Protecting the environment
We strive to reduce environmental impacts on human health
and the natural world
Priority areas
Information in this Annual Report
> Greenhouse gas emissions
> Waste
> Water
> Product environmental stewardship
> Pharmaceuticals in the environment
> Greenhouse gas, on page 46
> Waste, on page 47
> Water, on page 47
> Product environmental stewardship, on page 47
> Pharmaceuticals in the environment, on page 47
Benchmarking and assurance
Recognition of our work in sustainability
DJSI
> Named in the Dow Jones Sustainability World and
Europe Indices
> Attained industry-best scores for: Environmental Reporting,
Labour Practice Indicators and Health Outcome Contribution
ATMI
CDP
> Ranked ninth overall in the 2018 Access to Medicine Index
> Recognised for a Best Practice in Pricing and one of nine
companies recognised for an Innovative Practice
> Water A List – among the top 1.5% of companies
participating in CDP’s water security programme for our
commitment to transparency around environmental risks and
demonstration of sustainable water management
> Climate change B List – in recognition of our strategy and
actions to reduce emissions and mitigate climate change
> Supplier Engagement leader board – among the top 3% of
companies assessed by CDP to be awarded a position on the
leader board in recognition of our actions to reduce emissions
and lower climate-related risks in the supply chain
ISAE3000 Assured
> 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, see Sustainability: supplementary
information on page 231 and the letter of assurance available
on www.astrazeneca.com/sustainability.
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report 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. Our ambition is to be a leader in
sustainability by delivering the strategy from
the materiality assessment. Every member of
the SET is accountable for a specific
sustainability initiative and Katarina Ageborg
is responsible for the global strategy.
Our Sustainability Advisory Board (SAB)
comprises five SET members and four
external sustainability experts. It met twice in
2018 to provide guidance on strategic
direction, recommendations for opportunities,
and insights and feedback. Throughout the
year, we engaged with employees and
external stakeholders, including investors,
Ministries of Health, healthcare providers,
NGOs, patients and suppliers.
1. Broadening access to healthcare
Marketplace from page 11 demonstrates the
burden of NCDs, with 41 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 29, 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.
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. Through
partnerships with government and NGOs,
we develop health systems’ infrastructure
by building capacity to help improve access
to medical treatment and care.
Disease prevention is the focus of the Young
Health Programme (YHP), our award-winning
global disease prevention programme.
For more information on YHP, see page 48.
To address local needs, our programmes are
typically governed by their respective
commercial markets. The process 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 see
page 231.
2. Ethics and transparency
We want to be valued not only for our
medicines but also for the way we work. We
seek to operate in a transparent and ethical
way and expect the same high standards from
our suppliers and partners. Whether it is
investing in technological alternatives to
animals in science for our research or refusing
to tolerate bribery or any other form of
corruption, we aim to go beyond what is
required of us to be an example of how good
business is done.
Code of Ethics and policy framework
We are committed to employing high ethical
standards when carrying out all aspects of our
business globally. Our Code of Ethics (the
Code) is based on our 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 2018, 100% of all active
employees completed the annual training on
the Code of Ethics.
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.
Our Internal Audit Services, in partnership
with external audit experts, also conduct
compliance audits on selected marketing
companies. Our reporting in relation to ethical
sales and marketing is assured by Bureau
Veritas.
For more information about the assurance provided by
Bureau Veritas, see page 231.
Approximately 36,100 employees are engaged
in our commercial activities and, in 2018, we
identified four confirmed breaches of external
sales and marketing regulations or codes
(2017: six). There were 2,042 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 (2017: 1,431). We
removed a total of 169 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
534 others and provided further guidance or
coaching on our policies to 1,865 more. The
Audit Committee are provided with the breach
statistics on a quarterly basis. Further
commentary on the most serious breaches
is also provided to the Audit Committee.
The Code includes four high-level Global
Policies covering Science, Interactions,
Workplace and Sustainability. These Global
Policies will continue to be complemented by
underlying Global Standards and will, over
time, replace the current suite of 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.
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. We conveyed
our commitment to ethical behaviour in the
2018 annual Code training, reinforced through
anti-bribery/anti-corruption training materials
delivered and made available to relevant
employees and third parties.
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 105, our compliance programme
is delivered by dedicated compliance
professionals who advise on and monitor
adherence to our policy framework.
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 only with
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.
AstraZeneca Annual Report & Form 20-F Information 2018 / Business Review
43
Strategic Report Business Review
Be a Great Place to Work
continued
100%
100% of all active employees
completed training on our
Code of Ethics
“ Our commitment
to working in a
transparent and
ethical manner is
essential to achieving
scientific leadership
and delivering life-
changing medicines.”
44
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 2018, we conducted a range of clinical trials
across regions as shown in the charts on 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
contract research organisations (CROs) on our
behalf and we require these organisations to
comply with our global standards.
As of 31 December 2018, we shared
anonymised individual patient-level data
from 136 studies with 37 research teams
and responded to 111 requests from
external researchers using our portal,
http://astrazenecagroup-dt.pharmacm.com
to request our clinical data and reports to
support additional research. In 2018, we
continued to participate in the industry-wide
portal www.trialsummaries.com where we
publish Trial Result Summaries in easy-to-
understand language and translate these
to the local language for all sites where a
study is conducted. As of 31 December 2018,
we published Trial Result Summaries for 66
AstraZeneca studies.
For more information, see our website,
www.astrazeneca.com, or our clinical trials website,
www.AstraZenecaClinicalTrials.com.
Transparency reporting
AstraZeneca is committed to the highest
standards of conduct in all our operations,
including the disclosure of payments to
healthcare practitioners (HCPs), healthcare
organisations (HCOs) and patient groups,
with full transparency where recipients have
provided consent and in accordance with all
current obligations covering the 43 markets
with reporting requirements. 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.
Further, we have progressive plans to expand
our disclosure activities in another six markets
across Canada, Latin America, Asia Pacific,
North Africa and the Middle East regions over
the next two years. We are progressively
heading towards increased disclosure in
additional markets globally and, in all locations,
we are committed to ensuring payments are
justified and reasonable.
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 Bioethics Policy sets out our
principles in key subject matter areas. These
principles 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 the main 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, responds to requests for advice and
support from the business, and carries out
horizon-scanning activities to identify emerging
scientific, technological and regulatory issues.
BAG met six times in 2018. Ethical discussions
in 2018 included the potential therapeutic use
of human stem cells in patients, the
implications of continuing advances in precise
genome editing technologies, and issues
around consent and withdrawal of consent for
use of patient samples and data.
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report Clinical trials by region
Small molecule studies
Biologics studies
Europe 16%
US/Canada 22%
Asia Pacific 20%
Central/Eastern
Europe 26%
Japan 3%
Latin America 10%
Middle East
and Africa 3%
Europe 24%
US/Canada 21%
Asia Pacific 22%
Central/Eastern
Europe 17%
Japan 5%
Latin America 9%
Middle East
and Africa 2%
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 an upgraded
safety signal management platform to provide
risk oversight for all our products. Following an
extensive pilot test phase during 2018, we
launched the platform across all marketed
products and continue to seek refinements to
make it an industry leader in pharmacovigilance.
We also began exploring the use of emerging
technologies, such as automation support,
machine learning and digital communication
interfaces. These tools will have the potential to
enhance our product safety evaluation,
communication and risk mitigation capabilities.
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).
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 2018, an additional research proposal that
includes use of cells derived from hFT was
approved, resulting in three projects using
hFT having progressed as at 31 December.
An additional three projects using hESC were
approved in 2018, resulting in nine projects
using 13 different hESC lines or derived cells
having been approved to date.
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. Our
Chief Veterinary Officer leads the Council for
Science and Animal Welfare (C-SAW), which
is 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. C-SAW drives
initiatives on the 3Rs, openness about our use
of animals, and promotes a culture of care in
the way we conduct our research. For
example, C-SAW runs an annual global
awards scheme recognising excellence in the
3Rs, achievements in openness about the use
of animals and the best examples of a caring
research culture. Each year, one of the 3Rs
award winners is further selected to receive a
CEO Award for the 3Rs. In 2018, this went to a
group who achieved a six-fold reduction in the
numbers of mice needed for particular studies
by the application of novel experimental
design. C-SAW also promotes global learning
and continuing professional development
opportunities for employees working with
animals and provides general information
and education opportunities both within
and outside AstraZeneca.
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 2018,
animals were used for in-house studies
121,8231 times (2017: 131,615). In addition,
animals were used on our behalf for CRO
studies 29,853 times (2017: 28,545). 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 ensure our animal studies are properly
justified, conducted and reported.
1 2018 figure includes some animals used only for breeding.
For more information, see our 2018 Sustainability Report
available on our website, www.astrazeneca.com/
sustainability.
Ethical 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.
Our ethical standards are integral to our
procurement and partnering activities and we
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
AstraZeneca Annual Report & Form 20-F Information 2018 / Business Review
45
Strategic Report Business Review
Be a Great Place to Work
continued
12,967
12,967 assessments of suppliers
in 2018 to ensure they meet our
ethical standards
$19m
$19 million committed to
resource efficiency projects at
our manufacturing and R&D
sites in 2018
“ We follow the science
to protect the planet
by managing our
impact on the
environment across
all our operations.”
46
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.
for previous years. 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 2018, $19 million
(2017: $19 million) was committed to resource
efficiency projects at our manufacturing and
R&D sites, and a further $15 million has been
committed for 2019.
We conducted a total of 12,967 assessments
in 2018, taking our total number of
assessments to 27,257 since we established
this process in May 2014. Of the assessments
undertaken in 2018, 3,390 were in the Asia
Pacific region, 4,035 in Europe and 3,965 in
the Americas. The remaining 1,577
assessments relate to global suppliers and
those based in the Middle East and Africa.
In 2018, we conducted 45 audits on high-risk
suppliers (external manufacturing partners),
seeking to ensure that they employ
appropriate practices and controls. Eighty
six percent of these suppliers met our
expectations, with a further 14% implementing
improvement plans to address minor
instances of non-compliance. Through our
due diligence process, we rejected seven
suppliers because of reputational concerns
due to high anti-bribery/anti-corruption risk.
3. Protecting the environment
We follow the science to protect the planet by
managing our impact on the environment across
all our operations. Our Code of Ethics 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 and internal
auditing. We are on track to deliver our 2016
to 2025 natural resources targets.
Our 2018 targets (against a 2015 baseline)
included:
> reducing our operational greenhouse gas
(GHG) footprint in line with our approved
Science Based Target
> limiting the increase in our energy
consumption to no more than 2% to
1,841 GWh
> limiting the increase in our waste generation
to less than 7% to 32,811 tonnes
> reducing water use by 7% to 4.03 million m3.
The table opposite provides data on our global
GHG emissions, energy use, waste production
and water consumption for 2018. 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
Greenhouse gas
We are working to reduce our GHG 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
avoiding emissions where possible, reducing
emissions from necessary activities, and
substituting our energy sources for lower
carbon alternatives. During 2018, 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 and procurement of
electricity from certified renewable sources
increasing to represent 69% of total electricity
imports. Our total Scope 1 and Scope 2
emissions have been reduced by 31% 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 and improved accounting of
our Scope 3 footprint that will lead to future
efficiency improvements. Including emissions
from patient use of our inhaler therapies, our
operational GHG footprint totalled 1,769,110
metric tonnes in 2018, a reduction of 0.4%
from our 2015 baseline.
For more information on our pressurised metered dose
inhaler (pMDI) therapies, see the Product environmental
stewardship section opposite.
Energy use
To reduce GHG emissions, 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. Due to anticipated net increase
in activity across our site network in 2018,
we aimed to limit increases in total energy
consumption to 2% above our 2015 baseline.
Over the same period, we completed seven
in-depth energy audits to identify new
opportunities for energy efficiency that will
be implemented over the next three years.
In 2018, our energy use was 1,854 GWh,
an increase of 3%. We have made further
progress on our target to use 100% renewable
power by 2025. In 2018, we used certified zero
emission power equivalent to 61% of total
power consumption, including 3,358 MWh
of renewable power generated on our sites.
For more information on GHG emissions reporting, see
Sustainability: supplementary information on page 231.
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report Operational greenhouse gas
footprint emissions (tonnes COe)¹
2018
2017
2016
2015
1,769,110
1,705,047
1,683,959
1,776,508
1,769,110 tonnes COe
Energy consumption (MWh)¹
2018
2017
2016
2015
1,853,813 MWh
% total energy from renewables¹
2018 29%
2017 27%
2016 25%
2015 6%
Waste production (tonnes)
2018
2017
2016
2015
31,500 tonnes
Water use (million m³)
2018
2017
2016
2015
4.01 million m³
1,853,813
1,745,547
1,785,357
1,805,236
31,500
31,063
31,791
30,665
4.01
3.89
4.02
4.34
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 majority of adjustments made are not
material individually, except for business air travel (new
data supplier, leading to restated baseline) and product
use phase (recalculated using improved life-cycle
emissions data). The data quoted in this Annual
Report are generated from the revised data.
Waste
Waste management is another key aspect of
our commitment to minimise environmental
impact. Due to anticipated growing activity
across our site network in 2018, we aimed to
limit increases in our waste volumes to a 7%
increase from our 2015 baseline. In 2018, our
total waste was 31,500 metric tonnes, a 3%
increase on 2015. As waste generation is
linked to production volumes, our waste
reduction ambitions are going to be
challenged as our business grows. However,
we are focusing on processes to boost our
operational efficiency and investing in waste
reduction projects to help us reach our target
to reduce waste generation by 10% by 2025.
While waste prevention is an essential goal,
we seek to maximise treatment by material
recycling and avoiding landfill disposal when
prevention is impractical.
Water
We recognise the need to use water
responsibly and, where possible, to minimise
water use in our facilities. In 2018, we targeted
a 7% reduction from our 2015 water use. In
2018, our water footprint was 4.01 million m3,
an 8% reduction. Water reduction and reuse
projects throughout our site network have
improved the efficiency of water use across
our operations. Our major sites and those in
water-stressed areas work to 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.
Product environmental stewardship
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 API production
and formulation processes, devices and
packaging through distribution, patient use
and final disposal.
As part of our progress towards our 2025
environmental targets, our 2018 targets
included:
> Safe API discharges for AstraZeneca sites
(100%) and globally managed first tier
suppliers (>90%). Target met – safe API
discharges confirmed.
Our pMDI therapies rely on hydrofluoroalkane
(HFA) propellants, which are emitted during use
and disposal, and contribute to our Scope 3
GHG footprint. While HFAs have no ozone
depletion potential and a third or less of the
global warming potential than the
chlorofluorocarbons they replaced, they are
still potent greenhouse gases. During 2018, we
initiated a project spanning all key functions in
the business to investigate options available
from an environmental, technical, regulatory,
medical and commercial viewpoint. The
environmental review includes life-cycle
assessment (LCA) of current products and
potential options, ecotoxicity and fate studies
of alternative propellants and an initial pilot
study for pMDI take-back and recycling
programmes. It is imperative that decisions to
address the product use phase GHG footprint
do not substitute the climate impact for another
environmental impact.
Pharmaceuticals in the environment
We aim to lead our industry in understanding
and mitigating the effects of pharmaceuticals
in the environment (PIE). 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 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. A thorough
assessment of the environmental risks
resulting from the patient use of all our APIs
has indicated that all our medicines currently
pose low or insignificant environmental risk.
We also conduct collaborative research to
understand the fate, behaviour and impact of
pharmaceuticals on the environment. In 2018,
we co-authored 21 peer-reviewed
publications to enhance our knowledge of
the risks associated with this emerging issue.
As part of our progress towards our 2025
environmental targets, our 2018 targets
included:
> management of PIE through our
ecopharmacovigilance programme.
Target met – programme delivered.
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 2018 / Business Review
47
Strategic Report Business Review
Be a Great Place to Work
continued
Community investment
Wherever we work in the world, we aim to
make a positive impact on our communities.
Our Global Standard on Contributions
encompasses community investment and
provides guidance to ensure a consistent,
transparent and ethical approach around the
world, based on local need. Our activities are
focused on healthcare in the community and
supporting science education. They include
financial and non-financial contributions.
In 2018, we gave more than $57 million
(2017: $25 million) through our community
investment activities to more than 1,000
non-profit organisations in 70 countries.
The increase reflects a change in practice
with more large multi-year agreements with
payments being made in the first year of the
agreement. The amount includes more than
$17.5 million (2017: $4 million) for product
donations that were given in support of public
health needs and disaster relief. The increase
reflects changes in the volume and mix of
product donated. In addition to these
community investments, we also donated
more than $686 million (2017: $401 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 about AZ&Me, see page 31.
Our global disaster relief partner is the
British Red Cross. In 2018, we entered into
a two-year partnership that will support
humanitarian aid to people affected by
armed conflict in Northern Nigeria. Our global
product donation partners are Americares,
Direct Relief International and Health Partners
International of Canada.
In 2018, we launched the Step Up! Young
Health Global Grants Programme. Designed to
complement our work in the field of adolescent
health and NCD prevention, this programme
offered grants of up to $10,000 to non-profit
organisations that are innovating to improve
the health and wellbeing of young people. A
total of $160,375 of funding was committed
through this programme in 2018 for 17 projects
in 14 countries.
We continue to support Connections for
Cardiovascular HealthSM, a programme of
the AstraZeneca HealthCare Foundation
that was launched in 2010 to address heart
health in the US. In 2018, the AstraZeneca
HealthCare Foundation provided $1.16 million
in grants to 11 non-profit organisations for
programmes that aim to help prevent, better
manage and reduce cardiovascular disease.
48
Donation programmes
In some countries, such as the US, where
many individuals remain without insurance
and cannot afford our medications, we offer
a free drug patient assistance programme –
AZ&Me – for qualifying patients. In other
countries with evolving health systems, we
partner to address challenges in access with
a combination of donated products and
financial support to build capacity and
support patient needs. In Cambodia, since
2010, our partnership with Americares and the
Sihanouk Hospital Centre of Hope (SHCH) has
supported the Cambodia Breast Cancer
Initiative. The partnership aims to strengthen
existing treatment services while expanding
in scale to reach additional patients. In 2018,
the programme screened 963 new patients;
provided information on early detection and
screening to more than 14,700 individuals;
diagnosed 93 cases of breast cancer and
continued to treat 661 patients who were
previously diagnosed; and administered
more than 24,000 units of free AstraZeneca
medicines to post-menopausal breast cancer
patients in the SHCH’s treatment cohort.
For more information about AZ&Me, see page 31.
Non-Financial Information Statement
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. As required by the Regulations,
the Strategic Report contains information on
the following matters:
> Environmental matters on pages 46-47
and page 231
> Employees from page 38
> Social matters from page 42
> Respect for human rights on page 41
> Anti-corruption and anti-bribery matters
from page 43
References to our policies, due diligence
processes and information on how we are
performing against various measures in
these areas, are contained throughout the
Strategic Report. Information on the Group’s
Principal Risks are included in Risk
Overview from page 70 and information on
the non-financial key performance indicators
relevant to our business is included in Key
Performance Indicators from page 20.
A description of our business model is
contained in Business model and life-cycle
of a medicine from page 8.
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 community
service. In 2018, our employees volunteered
more than 39,000 hours on community
projects in countries around the world.
For more information on the Step Up! Young
Health Global Grants Programme, visit
www.younghealthprogrammeyhp.com.
For more information on the AstraZeneca HealthCare
Foundation’s Connections for Cardiovascular HealthSM
programme, visit www.astrazeneca-us.com/foundation.
For more information on the AstraZeneca HealthCare
Foundation, see the Glossary on page 240.
Young Health Programme
Non-communicable disease (NCD) prevention
among young people continued to be an
area of focus as we mark the ninth year of
our award-winning Young Health Programme
(YHP). Despite the fact that more than two
thirds of premature deaths from NCDs can
be linked to behaviours that first began in
adolescence, young people and their health
continues to be an under-recognised,
under-served and under-researched
component of the global health agenda.
In 2018, we reached nearly 335,000 young
people with health information on NCDs
and risk behaviours and trained more than
5,500 peer educators and healthcare workers.
In partnership with local governmental and
non-governmental groups, we launched
new programmes in Indonesia, Serbia, Turkey
and Australia and approved the development
of new programmes in Vietnam, Myanmar,
Mexico and Panama. This brings the total
number of developing and active YHP
initiatives to 20.
We supported our partners, NCD Child and
Plan International, as they advocated for
the inclusion of adolescent health and NCD
prevention in the Political Declaration on
NCDs and at the United Nation’s Third High
Level Meeting on NCDs. We invested in
new research on adolescent risk behaviours,
policy recommendations and health economic
analyses to support the argument for additional
investment in and attention to NCD prevention
among young people. We continued to mentor
and support the development of young global
health leaders by sending a delegation of
20 young people to the One Young World
Summit in The Hague, Netherlands.
YHP was named Community Investment
Program of the Year by Ethical Corporation’s
2018 Responsible Business Awards.
Further information on YHP can be found on its
website, www.younghealthprogrammeyhp.com.
Learn more in our 2018 Sustainability Report
on www.astrazeneca.com/sustainability.
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report Since the initial approval of Lynparza
four years ago, the ovarian cancer and
overall PARP inhibitor environment
has become increasingly competitive
but, with SOLO-1, AstraZeneca and
MSD have the potential to transform
the standard of care for women
with advanced BRCA-mutated
ovarian cancer, while reinforcing
the importance of testing for BRCA
mutations at the time of diagnosis.
There is a critical unmet need in
the treatment of advanced ovarian
cancer: only 20% of women will be
cured and more than 70% will relapse
within three years following their
initial therapy. The best opportunity
to achieve sustained remission, with
potential for a cure, is to treat patients
when they are newly diagnosed.
However, current treatment options
only provide a modest improvement
in time to relapse. Once a patient
relapses their disease is considered
incurable and, for the majority of
women, they go on to receive multiple
lines of treatment.
By using Lynparza maintenance
therapy earlier in the treatment
pathway, the SOLO-1 trial results
show that 60% of newly-diagnosed
patients with a BRCA mutation
remain progression-free at three years
compared to 27% of patients receiving
placebo. At 41 months, the median
progression-free survival (PFS – see
Glossary on page 241) had not been
reached for patients treated with
Lynparza, compared to 13.8 months
for patients treated with placebo,
indicating that there may be a group
of patients who continue to remain
progression-free for a long time or,
perhaps, are cured.
20%
Only 20% of women
will be cured of
ovarian cancer
>70%
will relapse within
three years following
their initial therapy
Science
help find a cure
for ovarian cancer
can
A portfolio of DNA damage
response inhibitors that
selectively kill cancer cells
while minimising the impact
on normal cells.
AstraZeneca Annual Report & Form 20-F Information 2018 / Business Review
49
Strategic Report Therapy Area Review
Oncology
Our ambition is to push the boundaries of science
to change the practice of medicine, transform the
lives of patients living with cancer, and ultimately
eliminate cancer as a cause of death. To do this,
we focus on R&D and on our commercial capabilities
to deliver a new generation of medicines that have
the potential to redefine the treatment of cancer.
Unmet medical need and world market
> Cancer is the second leading
cause of death globally.
> Lung cancer has the highest
cancer mortality rate, responsible
for the deaths of 1.7 million
people worldwide in 2018,
followed by colorectal, stomach,
liver and breast cancer.
> Breast cancer is among the
most common types of cancer,
affecting 4.6 million people
worldwide. Other common
cancers include prostate and
ovarian cancer.
Estimated annual cancer cases (m)
2040
2030
2018
29.5
22
18
1.7m
Lung cancer was responsible
for the deaths of 1.7 million
people in 2018.
70%
Approximately 70% of the world’s
cancer deaths occur in low-
and middle-income countries.
Therapy area world market
(MAT/Q3/18)
$106.6bn
Annual worldwide market value
Chemotherapy $22.5bn
Hormonal therapies $12.5bn
Monoclonal antibodies (mAbs) $27.3bn
Small molecule targeted agents $30.1bn
Immune checkpoint inhibitors $14.2bn
Other oncology therapies $0.1bn
Source: IQVIA.
AstraZeneca focuses on specific segments
within this overall therapy area market.
Part of AstraZeneca’s
antibody-drug conjugate
scientific platform to target
specific leukaemia cells.
50
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report Product
Disease area
Revenue
Commentary
Tagrisso
(osimertinib)
Lung cancer
$1,860m,
up 95% (93%
at CER)
Approved in more than 55 countries, including the US, Japan
and EU, for 1st line EGFRm advanced non-small cell lung
cancer (NSCLC), and more than 80 countries, including the
US, Japan, China and the EU, for 2nd line use in patients with
EGFRm T790M mutation-positive advanced NSCLC.
Lynparza
(olaparib)
Ovarian cancer
Breast cancer
$647m, up 118%
(116% at CER)
Approved in more than 60 countries for advanced ovarian
cancer and approved in the US and Japan for metastatic
breast cancer.
Imfinzi
(durvalumab)
Lung cancer
Bladder cancer
$633m,
movement n/m
Approved in more than 40 countries, including the US, EU
and Japan, for locally advanced, unresectable, stage 3 NSCLC
and in the US, Canada, Brazil, Israel, Australia, Hong Kong,
the United Arab Emirates and India for locally advanced or
metastatic urothelial carcinoma.
Calquence
(acalabrutinib)
Mantle cell
lymphoma (MCL)
$62m,
movement n/m
Approved in the US, the United Arab Emirates and Brazil for
previously treated MCL.
Lumoxiti
(moxetumomab
pasudotox-tdfk)
Hairy cell
leukaemia (HCL)
Approved in the US for ≥3rd line relapsed or refractory
HCL. In 2018, the commercialisation rights of Lumoxiti were
licensed to Innate Pharma for the US and EU.
Legacy
Iressa
(gefitinib)
Faslodex
(fulvestrant)
Zoladex
(goserelin
acetate implant)
Lung cancer
$518m, down 2%
(4% at CER)
Breast cancer
$1,028m, up 9%
(9% at CER)
Approved in combination with CDK4/6 inhibitors.
Prostate cancer
Breast cancer
$752m, up 2%
(2% at CER)
Arimidex
(anastrozole)
Breast cancer
$212m, down 2%
(3% at CER)
Casodex/Cosudex
(bicalutamide)
Prostate cancer
$201m, down 7%
(8% at CER)
Others
Full product information from page 217.
$115m, up 1%
(down 1%
at CER)
These franchises enable us to best deliver
against four strategic priorities we have
embraced in order to achieve our ambition
of eliminating cancer as a cause of death.
1. Focus research on four scientific
platforms: Our broad pipeline of next-
generation medicines is aimed at expanding
our treatment options for solid tumours and
haematological cancers. We are exploring
several monotherapy and combination
approaches across four scientific platforms:
> Tumour drivers and resistance:
Developing therapies that target specific
molecular mutations to attack cancer cells.
> Immuno-oncology: Using the body’s
immune system to help fight cancer.
> DNA damage response: Targeting the
DNA repair process to block tumour
cells’ ability to reproduce.
> Antibody-drug conjugates: Arming
antibodies with cancer-killing agents
for specific tumour targeting.
2. Focus on early stages of disease and
relapsed or refractory patients: To move
the current cancer treatment paradigm, we
recognise we must both identify and treat
patients earlier in their disease progression
when there is a possibility of cure, and
also improve the treatment of relapsed or
refractory patients to extend survival and
deliver the most transformative outcomes.
3. Lead precision medicine in the most
prevalent and deadly tumour types: On
our path to eliminating cancer as a cause
of death, we have set ourselves the goal of
improving five-year survival in tumour types
where mortality remains high, such as ovarian
and NSCLC. We also continue to concentrate
on biomarker-driven indications where the
benefits to patient populations are tangible
and significant.
4. Leverage our global footprint: To deliver
these treatment-changing solutions to as many
patients in need as possible, we are building
capacity across all geographies. In addition,
through our Oncology Business Unit we are
increasing focus and improving response
time in key markets such as the US, UK, Italy,
France, Germany, Spain, Japan and China.
AstraZeneca Annual Report & Form 20-F Information 2018 / Therapy Area Review
51
Key marketed products
and revenues 2018
The continued renewal of our
commercial portfolio, the
regulatory approvals of new
indications for several established
brands, and the rapid geographic
expansion of our launches drove
Oncology performance in 2018.
Oncology revenue
$6,028m
29% of total
2017: $4,024m
2016: $3,383m
Our strategy for Oncology
In 2018, we divided our Oncology
business into five franchises
that reflect both our commercial
priorities and our key scientific
platforms:
> Tagrisso and tumour drivers
and resistance mechanisms
> Imfinzi and immuno-oncology
> Lynparza and DNA damage
response (DDR)
> Calquence and haematology
> Mature portfolio
Strategic Report Therapy Area Review
Oncology continued
2018 pipeline highlights
Our robust pipeline includes 83
projects in various stages of clinical
development, from recently approved
products to earlier-stage molecules
in clinical trials.
In 2018, we presented new clinical data at
major medical congresses and secured
multiple regulatory milestones, reflecting
our continuing investment in oncology as one
of our key growth drivers. Highlights include:
> Important new data from the pivotal Phase
III PACIFIC trials in NSCLC, demonstrating
a statistically significant benefit in overall
survival with Imfinzi.
> Results from the Phase III SOLO-1 trial,
investigating Lynparza in 1st line
maintenance therapy for advanced
ovarian cancer.
> Results from the Phase III MYSTIC
and EAGLE trials exploring Imfinzi as
monotherapy or in combination with
tremelimumab respectively in 1st line
setting of metastatic NSCLC and in
recurrent or metastatic head and neck
squamous cell carcinoma (HNSCC).
Full details are given in the Development Pipeline from
page 212 and highlights from the progress our Oncology
pipeline made in 2018 against our KPIs are shown below.
Imfinzi + tremelimumab
1st line limited disease small cell lung cancer (SCLC) (ADRIATIC)
Imfinzi + tremelimumab + CTx
1st line urothelial cancer (NILE)
Lynparza + abiraterone
All-comers 1st line metastatic castration resistant prostate cancer (PROpel)
Tagrisso
EGFRm leptomeningeal cancer (BLOSSOM)
Plus eight projects where investment decisions have been made but clinical trials have yet to start.
Life-cycle phases – R&D
New molecular entity (NME) Phase II
starts/progressions
Product
AZD2811
Over 20 clinical trials in Phase II explore
combination and monotherapy approaches
for tumours where high unmet medical need
persists, like head and neck, gastric, breast,
lung and ovarian cancers.
NME and major life-cycle management
(LCM) positive Phase III investment
decisions
Life-cycle management is critical to realising
the full potential of our medicines and
establishing sustainable franchises. In 2018,
we started 10 new Phase III trials bringing the
total number of ongoing Phase III trials to 29.
Imfinzi + Lynparza
Imfinzi + monalizumab
Oleclumab + Imfinzi
Product
Imfinzi + CTx
Imfinzi + CTx
Imfinzi + TACE
NME and major LCM regional
submissions
In 2018, positive pivotal trial data from our
oncology pipeline fuelled regulatory
submissions. We received three Orphan
Drug designations for Lynparza in pancreatic
cancer (POLO) in the US and selumetinib in
neurofibromatosis type 1 (SPRINT) in the US and
EU, and benefited from three Priority Reviews.
Life-cycle phases – approvals
NME and major LCM regional
approvals
In the US, EU, Japan and China, we secured
13 new regional approvals in 2018, underlining
our commitment to providing patients with
access to life-changing medicines globally.
Product
Imfinzi
Lumoxiti
Lynparza
Lynparza
Tagrisso
Product
Imfinzi
Lumoxiti
Lynparza
Lynparza
Lynparza
Tagrisso
Discontinued projects
Product
Calquence + vistusertib
Imfinzi + tremelimumab
Imfinzi + tremelimumab
Imfinzi + tremelimumab
Cancer type
Solid tumours
Bladder cancer (BAYOU)
Solid tumours
Solid tumours
Cancer type
Muscle invasive bladder cancer (NIAGARA)
Neoadjuvant NSCLC (AEGEAN)
Locoregional hepatocellular carcinoma (HCC) concurrent (EMERALD-1)
Cancer type
Stage 3 NSCLC (PACIFIC)
3rd line HCL (PLAIT)
Region
China
US
1st line ovarian cancer (SOLO-1)
US, EU, China, Japan
gBRCA metastatic breast cancer (OlympiAD)
EU
1st line NSCLC (FLAURA)
China
Cancer type
Region
Unresectable stage 3 NSCLC (PACIFIC)
US, Japan, EU
3rd line HCL
1st line ovarian cancer (SOLO-1)
US
US
2nd line ovarian cancer (SOLO-2)
Japan, EU, China
gBRCA metastatic breast cancer (OlympiAD)
US, Japan
1st line NSCLC (FLAURA)
US, EU, Japan
Cancer type
Reason
BTK + mTor haematalogical tumours
Safety/efficacy
PD-L1 + CTLA-4 3rd line NSCLC (ARCTIC)
Safety/efficacy
2nd line HNSCC (EAGLE)
1st line NSCLC (MYSTIC)
Imfinzi or Imfinzi + (tremelimumab or danvatirsen) Diffuse large B-cell lymphoma (DLBCL)
Imfinzi + MEDI0562
Imfinzi + MEDI9197
MEDI-565
MEDI0562
MEDI1873
MEDI4276
MEDI9197
Selumetinib
Solid tumours
Solid tumours
CEA BITE GI tumours
Solid tumours
Solid tumours
HER2 solid tumours
Solid tumours
Differentiated thyroid cancer (ASTRA)
For more information on the
life-cycle of a medicine, see page 9.
Tremelimumab + MEDI0562
Solid tumours
Vistusertib
mTOR stage 1/2 solid tumours
52
Safety/efficacy
Safety/efficacy
Safety/efficacy
Safety/efficacy
Safety/efficacy
Safety/efficacy
Safety/efficacy
Strategic
Safety/efficacy
Safety/efficacy
Safety/efficacy
Safety/efficacy
Safety/efficacy
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report can
can
Science
Science
improve patient outcomes in lung cancer
Twenty percent of all cancer deaths
are caused by lung cancer, the
biggest cancer killer worldwide.
For too long our ability to improve
patient outcomes has been hindered
both by our limited understanding
of the disease, and by an absence of
treatments that could fundamentally
shift the status quo.
However, in recent years, significant
scientific advances in targeted
treatments and in immuno-oncology
(IO) have led to new treatment
options. While the market has
focused on leveraging these
advances to improve outcomes
for late-stage patients, we have
leveraged our heritage in EGFRm
non-small cell lung cancer
(NSCLC) and our broad IO pipeline
to expand research into earlier stages
of the disease, and to emerging
patient populations.
In 2018, this approach proved to be
successful, delivering clinical
evidence that could significantly
impact the treatment of NSCLC. With
the PACIFIC study, Imfinzi became
the first IO therapy to demonstrate
a benefit in stage 3 NSCLC where
there is curative possibility. In
addition, further data from the
FLAURA study not only reaffirmed
Tagrisso’s place in 1st line, but they
also provided new insights into
optimising treatment for metastatic
EGFRm NSCLC, where five-year
survival rates remain at less than 15%.
2018 review – strategy in action
Oncology is one of our main therapy areas
and has a major role to play in our Return to
Growth, with an aim of launching six new
oncology medicines between 2014 and 2020.
In 2018, Tagrisso was approved for 1st line
EGFRm advanced NSCLC, based on the
positive results from the Phase III FLAURA trial.
The approval was granted in the US in April,
in the EU in June and in Japan in August.
In 2015 and 2016, we continued to build
our oncology business by investing in a
robust clinical development programme
and by making strategic partnerships and
acquisitions, such as acquiring a majority
equity stake in Acerta Pharma to establish
our footprint in haematology.
In 2017, we created the Oncology Business
Unit (OBU) focused on eight key markets,
with the aim of accelerating the uptake of our
new medicines through strategic focus, quick
decision making, and adequate investments.
In 2018, based on the commercial uptake of
our new medicines, and the maturity of their
late-stage clinical programmes, we organised
the OBU into five franchises: Tagrisso, Imfinzi,
Lynparza, Calquence and our mature portfolio.
Tagrisso and tumour drivers and
resistance mechanisms
Tagrisso is our best-in-class, highly-selective,
irreversible inhibitor of the activating sensitising
EGFR mutation (EGFRm) and the resistance
mutation T790M.
Our tumour drivers and resistance (TDR) mechanisms
platform explores the inhibition of genetic disease drivers
as a clinically validated approach to shrink tumours and
improve progression-free survival (PFS) and overall survival
(OS). 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.
By December 2018, it was approved in
more than 55 countries for 1st line EGFRm
advanced NSCLC, and in more than
80 countries for 2nd line use in patients
with EGFRm T790M mutation-positive
advanced NSCLC.
In October 2018, new data from the FLAURA
Phase III trial presented at the European
Society for Medical Oncology (ESMO) 2018
Congress provided insights on the resistance
mechanisms observed after treatment with
1st line Tagrisso in patients with previously
untreated EGFRm NSCLC who experienced
disease progression during the trial period.
As expected, there was no evidence of the
acquired EGFR T790M mutation and the
most frequently experienced resistance
mechanisms – MET (mesenchymal epithelial
transition factor) amplification and C797X
mutations – were confirmed.
Based on these findings, we announced
the initiation of ORCHARD, an open-label,
multi-centre, multi-drug Phase II platform trial
in patients with advanced NSCLC who have
experienced disease progression following
1st line therapy with Tagrisso.
During 2018, we also confirmed our
commitment to tackling earlier stages of
EGFRm NSCLC with the ADAURA and LAURA
clinical trials. ADAURA will assess the efficacy
and safety of Tagrisso in EGFRm stage Ib-3A
NSCLC, following complete tumour resection
with or without adjuvant chemotherapy, and
LAURA will assess the efficacy and safety of
Tagrisso following chemoradiation in patients
with stage 3 unresectable EGFRm NSCLC.
Our next generation of TDR projects
continued to progress in 2018:
> Savolitinib, a selective inhibitor of
c-MET receptor tyrosine kinase, is being
investigated in partnership with Chi-Med in
combination with Tagrisso in EGFR mutated
lung cancers which also have amplification
of MET, a common resistance mechanism
in patients progressing on Tagrisso. It is
also being explored as monotherapy in
NSCLC patients with MET Exon 14 skipping
mutations, and in combination with Imfinzi
in renal cancer.
> Selumetinib, an MEK inhibitor, part of the
portfolio agreement with MSD, continued
to be investigated in the SPRINT trial for
neurofibromatosis type 1. Selumetinib was
granted Orphan Drug designation in the
US and Europe for this potential indication
in 2018. Promising early combination
data of novel ERK inhibitor AZD0364 and
selumetinib in KRAS-mutated tumours was
presented at the American Association for
Cancer Research annual meeting in April
2018. However, in the second quarter of
2018, after the ASTRA trial failed to meet
its primary endpoint, further Phase III
development of selumetinib in thyroid
cancer was discontinued.
> Capivasertib (AZD5363) had promising
Phase II data presented at the American
Society of Clinical Oncology (ASCO)
conference in June 2018 showing an OS
improvement in combination with paclitaxel
in patients with 1st line metastatic triple
negative breast cancer. Capivasertib is also
in Phase II trials in ER+ breast cancer in
combination with Faslodex and in prostate
cancer in combination with enzalutamide.
AstraZeneca Annual Report & Form 20-F Information 2018 / Therapy Area Review
53
Strategic Report Therapy Area Review
Oncology continued
Other agents in early development include:
AZD9496 and AZD9833, selective oestrogen
receptor degraders (SERD) in Phase I
development for the treatment of oestrogen
receptor positive (ER+) breast cancer;
AZD5153, a bromodomain 4 inhibitor in Phase I
for solid tumours; and AZD8186, an inhibitor of
PI3 kinase β and δ in Phase II for solid tumours.
Imfinzi and immuno-oncology
Imfinzi, a human mAb that binds to PD-L1 and
blocks the interaction of PD-L1 with PD-1 and
CD80, is the cornerstone of our extensive IO
programme. In 2018, it received approval for
locally-advanced, unresectable, stage 3
NSCLC in more than 40 countries, including
the US, EU and Japan. It also secured
approval for locally-advanced or metastatic
urothelial carcinoma (bladder cancer) in
Canada, Brazil, Israel, Hong Kong, Australia,
the United Arab Emirates and India.
Immuno-oncology (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.
In 2018, our comprehensive IO clinical
programme continued to provide insights
on the clinical potential of Imfinzi in a variety
of different clinical settings, both as a
monotherapy as well as in combination
with chemotherapy and tremelimumab.
Early-stage NSCLC
In May 2018, we announced positive topline
OS results for the Phase III PACIFIC trial of
Imfinzi in patients with unresectable stage
3 NSCLC. Data that show Imfinzi reduced
the risk of death by nearly one third were
subsequently presented on 25 October
during the Presidential Symposium of the
International Association for the Study of
Lung Cancer 19th World Conference on Lung
Cancer. With the PACIFIC trial results, we are
the first company to demonstrate the benefits
of treating NSCLC patients with an immuno-
therapy where curative intent is the treatment
goal, ie before the disease has spread to
multiple organs.
Lung cancer is a key area of focus for our
IO portfolio and in 2018 we announced our
commitment to investigate the full potential of
Imfinzi in early-stage NSCLC with the Phase
III ADJUVANT (BR.31), PACIFIC-2 and
PACIFIC-5 trials:
> ADJUVANT will explore the benefits of
treatment with Imfinzi following complete
tumour resection.
> PACIFIC-2 will assess efficacy and safety
of Imfinzi given concurrently with platinum-
based chemotherapy radiation in stage 3
NSCLC patients.
> PACIFIC-5 will assess the efficacy and safety
54
of Imfinzi as consolidation therapy in patients
with locally-advanced, unresectable NSCLC.
Late-stage NSCLC
In April 2018, we announced the results of
the Phase III ARCTIC trial exploring Imfinzi
and tremelimumab in monotherapy or in
combination in 3rd line locally-advanced
or metastatic NSCLC. The data, presented
on 22 October at the ESMO 2018 Congress,
demonstrated that Imfinzi monotherapy
provided a clinically meaningful reduction of
the risk of death compared to chemotherapy
in patients with PD-L1 high/positive tumours
and that the combination did not significantly
improve PFS or OS compared to
chemotherapy in patients with PD-L1
low/negative tumours.
In November 2018, the final analysis of the
MYSTIC trial showed that for patients with
stage 4 (metastatic) NSCLC, whose tumours
express PD-L1 on 25% or more of their cancer
cells, Imfinzi monotherapy and the combination
of Imfinzi plus tremelimumab did not meet the
primary endpoints of improving OS compared
to the current standard of care (SoC)
chemotherapy. The results presented at the
December ESMO-IO Congress showed that
Imfinzi monotherapy demonstrated meaningful
clinical activity in patients whose tumours
express PD-L1 on 25% or more of their cancer
cells, but this result did not meet statistical
significance. The data support further analysis
in exploratory subgroups, including blood
tumour mutational burden (bTMB) analyses.
We also continued our efforts to explore ways
to improve outcomes for patients who have
relapsed or are diagnosed with metastatic
disease. In this setting, Imfinzi is being
investigated as a monotherapy and in
combination with tremelimumab and/or
chemotherapy in the PEARL, NEPTUNE
and POSEIDON trials.
Beyond NSCLC
In December 2018, the final data from the
EAGLE study showed Imfinzi monotherapy
and the combination of Imfinzi plus
tremelimumab did not meet the primary
endpoints of improving OS compared to
SoC chemotherapy in patients with recurrent
or metastatic HNSCC who experienced
disease progression following platinum-based
chemotherapy. We continue to explore the
potential of Imfinzi and tremelimumab in
HNSCC in the ongoing KESTREL trial, in
patients with 1st line recurrent or metastatic
disease, with data expected in the first half
of 2019. Our extensive IO programme also
includes ongoing Phase III trials in small cell
lung cancer (SCLC) with CASPIAN, in bladder
cancer (POTOMAC, NIAGARA, DANUBE, NILE)
and in hepatocellular carcinoma (HIMALAYA).
In addition to these major clinical trials, our
IO pipeline, one of the largest in the industry,
continued to progress:
> MEDI9447: In June 2018, data from the
Phase I study of oleclumab (MEDI9447),
targeting ecto-5’-nucleotidase (CD73),
in combination with Imfinzi in advanced
pancreatic cancer and colorectal cancer
was presented at the ASCO annual meeting.
> AZD9150: In October 2018, data from the
SCORES Phase II study in patients with
2nd line HNSCC showed encouraging
tumour response rate for the combination
of danvatirsen (AZD9150, STAT3 antisense
oligonucleotide) with Imfinzi, including
biopsy data showing modulation of
the tumour microenvironment.
> Monalizumab: In October 2018, we
announced a new agreement with Innate
Pharma in which we will exercise our existing
option to obtain full oncology rights to
monalizumab, a first-in-class humanised
anti-NKG2A antibody which has
demonstrated positive Phase II results
in head and neck cancer and presents
opportunities in colorectal cancer and
haematological malignancies as well. The
agreement also provided us with access to
Innate Pharma’s anti-CD39 mAb, IPH5201,
plus four additional IO molecules, increasing
the breadth and depth of our IO portfolio.
> AZD4635, an Adenosine 2A receptor
(A2AR) inhibitor is being explored as
monotherapy and in combination with
Imfinzi in solid tumours in Phase II trials.
In addition, combination trials of AZD4635
with oleclumab (anti-CD73 Ab), and with
oleclumab and Imfinzi are ongoing with
the goal of testing increased adenosine
axis blockade, a key immunosuppressive
mechanism.
> MEDI0680, an anti-programmed cell death
protein 1 (PD1) mAb that blocks interactions
with PD1 and its ligands, is being
investigated in combination with Imfinzi
in a Phase II study to treat solid tumours.
> MEDI0457, a DNA vaccine against human
papilloma virus (HPV) 16/18 is being
investigated in combination with Imfinzi
in a Phase II study in patients with
HPV-associated head and neck tumours.
> Potential new products in Phase I include
MEDI5752, a novel bispecific antibody
designed to target dual checkpoints on
immune cells, and MEDI5083 targeting
CD40 receptor. These agents are in Phase I
development for a range of solid tumours and
have the potential for combination with other
molecules in the portfolio, including Imfinzi.
Lynparza and DNA damage response
Lynparza is our best-in-class oral poly ADP
ribose polymerase (PARP) inhibitor, the
flagship of our DDR programme.
Our DNA damage response (DDR) platform exploits
mechanisms that selectively damage tumour cell DNA to
shrink tumours and improve Progression Free Survival
(PFS) and Overall Survival (OS). Our market-leading
programmes focus on multiple ways to identify and exploit
vulnerabilities to kill the tumour cells, while minimising
toxicity to the patient.
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report In 2018, Lynparza became the first and only
PARP inhibitor approved beyond ovarian
cancer for the treatment of germline BRCA-
mutated (gBRCAm) HER2- metastatic breast
cancer in the US and Japan. The US approval
in January 2018 and the Japan approval in
July 2018 were based on the Phase III
OlympiAD trial which demonstrated the
benefits of Lynparza over chemotherapy for
patients with gBRCAm HER2- metastatic
breast cancer.
2018 has been a significant year for Lynparza
as it fully benefited from the global strategic
oncology collaboration with MSD to co-
develop and co-commercialise the product,
both as a monotherapy and in combination
with other medicines, for multiple cancer
types. In addition, new market entries, the
tablet formulation (now approved in all major
regions) and new indications in advanced
breast cancer and for a broad label in
platinum-sensitive relapsed ovarian cancer
regardless of BRCA status also expanded
the medicine’s availability to new patients.
By December 2018, Lynparza had been
approved in more than 60 countries.
In October 2018, the SOLO-1 Phase III trial
data demonstrated the significant benefit
of extending PFS much earlier in the patient
journey, bringing the goal of long-term
remission and cure in ovarian cancer even
closer. The results of SOLO-1, presented
as part of the Presidential Symposium at
the ESMO 2018 Congress, and published
simultaneously in the New England Journal
of Medicine, showed that 60% of women with
newly diagnosed advanced BRCA-mutated
ovarian cancer treated with Lynparza for
1st line maintenance therapy remained
progression-free at three years compared to
26.9% with placebo following platinum-based
chemotherapy. At 41 months of follow-up, the
median PFS was not reached in the Lynparza
arm, while it had been reached at 13.8 months
within the placebo arm. In December 2018,
just a few weeks after the filing submission in
the US, the FDA approved Lynparza for 1st
line maintenance therapy in patients with
BRCAm advanced ovarian cancer.
Our combination approach of Lynparza
with other small molecules and biologics has
significantly expanded in 2018. Cediranib, our
orally administered multi-vascular endothelial
growth factor receptor (VEGFR) inhibitor, is
currently being tested in combination with
Lynparza in the Phase IIb CONCERTO trial
in patients with platinum-resistant recurrent
ovarian cancer. Results are expected late in
2019. The DUO programme of Lynparza with
Imfinzi has been extended to new potential
indications (bladder cancer, NSCLC, ovarian
cancer). Building on the PROfound Phase III
trial that explores the efficacy and safety of
Lynparza versus enzalutamide or abiraterone
in subjects with metastatic castration-resistant
prostate cancer, we started the Phase III
PROpel trial that will assess the combination of
Lynparza with abiraterone in 1st line metastatic
castration-resistant prostate cancer.
In addition, from our extensive DDR portfolio,
five other products continued to advance
through early development. These include:
> AZD1775, a Wee1 inhibitor in Phase II
development for ovarian and other solid
tumours in combination with Lynparza,
in combination with chemotherapy, and
as monotherapy.
> AZD6738, an Ataxia Telangiectasia and
Rad3 related (ATR) serine/threonine protein
kinase inhibitor in Phase II development
in combination with Lynparza for 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.
> AZD2811 an Aurora Kinase inhibitor
in development for Phase II in SCLC
and acute myeloid leukaemia.
> AZD0156 and AZD1390, ATM
inhibitors in Phase I for solid tumours.
Calquence and haematology
Calquence is our irreversible oral Bruton’s
tyrosine kinase (BTK) inhibitor.
The use of antibody-drug conjugates (ADC) is a clinically
validated, highly potent approach that selectively targets
cancer cells by combining innovative antibody engineering
capabilities with cytotoxic drug molecules, to attack and
kill the tumour while minimising toxicity to the patient.
In 2018, Calquence experienced encouraging
early uptake in the US market following an
October 2017 approval for the treatment of
adult patients with mantle cell lymphoma (MCL)
who have received at least one prior therapy.
In December 2018, at the American Society of
Hematology congress, we presented the
two-year follow-up results of the ACE-LY-004
Phase II trial showing sustained benefits for
patients treated with Calquence in relapsed or
refractory MCL. In addition, the updated results
of the Phase I/II ACE-CL-001 trial, assessing the
long-term safety and efficacy of Calquence in
a cohort of previously untreated patients with
chronic lymphocytic leukaemia (CLL), showed
high response rates and demonstrated an
acceptable safety profile. The median time on
study was 33 months, with 91% of patients
remaining on treatment with Calquence at
the time of analysis.
In September 2018, Lumoxiti became the first
medicine from our ADC scientific platform to
get approved, and our fifth new oncology
medicine since 2014.
Lumoxiti is a first-in-class anti-CD22
recombinant immunotoxin and the first new
treatment option for hairy cell leukaemia (HCL)
in over 20 years. It was approved in the US for
the treatment of adult patients with relapsed
or refractory HCL who have received at least
two prior systemic therapies, including
treatment with a purine nucleoside analogue.
In October 2018, we announced we will license
the US commercial rights of Lumoxiti to Innate
Pharma. Innate Pharma, with our support,
will continue EU development and
commercialisation, pending regulatory
submission and approval. Innate Pharma will
recognise revenues and co-commercialise
Lumoxiti with us in the US and will take full
responsibility by mid-2020. In addition, as part
of the Innate Pharma agreement, we acquired
monalizumab, a first-in-class, humanised
anti-NKG2A antibody with a novel mode of
action that is being investigated in several
haematological malignancies and solid tumours.
In 2018, we also continued to advance our
haematology early-phase clinical programme,
with AZD5991, an MCL1 inhibitor, and
AZD4753, a CDK9 inhibitor, both being
investigated as part of our cell death
programme, and ADCs, MEDI7247
and MEDI2228.
Mature portfolio
In 2018, our established oncology brands –
Faslodex, Zoladex and Iressa – delivered
good sales.
Faslodex continued to benefit from several
2017 1st line label extensions, based on the
Phase III FALCON trial, for the treatment of
post-menopausal women with oestrogen
receptor positive, locally-advanced or
metastatic breast cancer, not previously
treated with endocrine therapy. In addition,
the body of evidence supporting the use of
Faslodex as a backbone therapy for use in
combination in the treatment of advanced
breast cancer continued to grow. All major
CDK4/6 inhibitors, a new class of medicine
for ER+/HER2- breast cancer, now include
use with Faslodex in their labels.
Zoladex returned to value growth in 2018
following a six-year period of slowly declining
sales across Europe and Japan. The growth
was based on increased access to medical
castration and ovarian suppression, as well
as earlier detection and diagnosis in prostate
and breast cancers, predominantly in China
and the Emerging Markets.
Iressa sales declined slightly following
generic entries in select markets and the
initial uptake of Tagrisso in 1st line EGFRm
advanced NSCLC.
AstraZeneca Annual Report & Form 20-F Information 2018 / Therapy Area Review
55
Strategic Report Therapy Area Review
continued
Cardiovascular, Renal
and Metabolism
Cardiovascular, renal and metabolic (CVRM) diseases
combined are killing more than 20 million people each year.
Yet, in many cases, each condition is managed in isolation.
As science uncovers commonalities between these diseases
and their associated complications, we aim to transform
how CVRM diseases are understood and treated.
Unmet medical need
and world market
20m
Number of deaths from
CVRM diseases worldwide
every year.
>93%
Proportion of people with
type-2 diabetes that have at
least one other CV, renal or
metabolic condition.
Therapy area world market
(MAT/Q3/18)
$183.8bn
Annual worldwide market value
High blood pressure $33.3bn
Abnormal levels of blood cholesterol $17.7bn
Diabetes $82.5bn
Thrombosis $7.7bn
CKD $6.5bn
CKD associated anaemia $2.0bn
Hyperkalaemia $0.3bn
Other CV $38.8bn
Source: IQVIA.
AstraZeneca focuses on specific segments
within this overall therapy area market.
CVRM total sales excludes partial double
counting of hyperkalaemia and CKD associated
anaemia market sales, which results from
definitions overlapping with CKD and other CV.
Nucleotide therapies –
antiMRNA.
56
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report Product
Disease area
Revenue
Commentary
Approved in more than 100 countries for ACS and more
than 60 countries for high-risk patients with history
of heart attack; included in major guidelines. Brilinta
delivered consistent quarter-over-quarter growth
in 2018 in all regions.
Approved in more than 90 countries to improve
glycaemic control in adult patients with type-2 diabetes;
included in major guidelines. It had a solid performance
in 2018, driven by strong volume growth in a highly
competitive market.
Approved in more than 85 countries for the treatment
of adults with type-2 diabetes; included in guidelines.
Onglyza maintained a strong performance in 2018 in
Emerging Markets, driven by China, while facing
US price pressure.
Approved in more than 70 countries to improve
glycaemic control in adults with type-2 diabetes;
included in major guidelines. In 2018, Bydureon
continued launch progress with BCise in a highly
dynamic GLP-1 class.
Acute coronary
syndromes (ACS) and
high-risk patients with
history of myocardial
infarction (MI)
Type-2 diabetes
Brilinta/Brilique
(ticagrelor)
Farxiga/
Forxiga
(dapagliflozin)
$1,321m, up 22%
(21% at CER)
$1,391m, up 30%
(30% at CER)
Onglyza
(saxagliptin)
Type-2 diabetes
$543m, down 11%
(11% at CER)
Type-2 diabetes
$584m, up 2%
(1% at CER)
Type-2 diabetes
$126m, down 28%
(28% at CER)
Diabetes
$34m, down 29%
(29% at CER)
Bydureon
(exenatide XR
injectable
suspension)
Byetta
(exenatide
injection)
Symlin
(pramlintide
acetate)
Legacy
Crestor
(rosuvastatin
calcium)
Dyslipidaemia
Hyper-
cholesterolaemia
$1,433m, down
39% (40% at CER)
Financial impact following the 2017 expiries in the US,
EU and Japan receded in second half of 2018.
Licensed from Shionogi. The extension of the global
licence agreement with Shionogi for Crestor and the
modification of the royalty structure became effective
1 January 2014.
Seloken/
Toprol-XL
(metoprolol
succinate)
Atacand/
Atacand HCT/
Atacand Plus
(candesartan
cilexitil)
Others
Hypertension
Heart failure
Angina
$712m, up 2%
(4% at CER)
Divested rights in Europe to Recordati in May 2017.
Divested US rights to Aralez effective 4 October 2016.
Hypertension
Heart failure
$260m, down 13%
(12% at CER)
Divested rights to Cheplapharm in 28 European markets
in July 2018. Licensed from Takeda Chemicals
Industries Ltd.
$306m, down 11%
(12% at CER)
We have a three-pronged science-driven
strategy to address this extended CVRM risk:
1. Today, we are delivering life-changing
results in the discrete core cardiovascular (CV)
disease areas and their complications, with
medicines already being used or in late-stage
development:
> Metabolic disease: Farxiga, Bydureon,
Onglyza, Qtern
> Heart failure: Farxiga
> Renal: Lokelma, roxadustat, Farxiga
> Atherosclerosis: Brilinta, Epanova,
Crestor.
2. For the future, 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.
Our new approach to care
Our aim is to improve care for CVRM patients
by adopting a holistic approach to each
patient and finding a seamless way in which to
treat their diseases. We want to promote
interdisciplinary collaboration among CV,
renal and diabetes specialists and primary
care physicians in order to change clinical
practice and provide complete care for CVRM
patients. Our approach is exemplified by:
1. Partnerships: We are actively seeking
broader and stronger collaborations with
respected academic institutions, research
organisations, patient advocacy groups
and healthcare companies.
2. Research: By taking risks, we can study
compounds and treatments across diseases
and combinations. We are seeking not only to
understand the development and implications
of each condition, but the interactions between
two or more conditions, and how deterioration
in one could adversely affect the others.
3. Real-world settings: Using data from
real-world studies, we are better able to
evaluate the connections between CVRM
conditions and follow-up on patient outcome
measures. For example, recent research
collected multi-national real-world evidence
(RWE) from more than 300,000 patients
across six countries.
AstraZeneca Annual Report & Form 20-F Information 2018 / Therapy Area Review
57
Key marketed products and
revenues 2018
CVRM supported AstraZeneca’s
Return to Growth by achieving
blockbuster status for two of its
main innovative medicines,
Farxiga and Brilinta. Overall
CVRM Product Sales were
$6,710 million for 2018, down
8% on 2017 (8% at CER).
CVRM revenue
$6,710m
32% of total
2017: $7,266m
2016: $8,116m
Our strategy for CVRM
CVRM diseases often coexist and
many patients have symptoms or
underlying pathologies associated
with more than one CVRM
disease. We are therefore focusing
our efforts on the commonalities
between these diseases and their
underlying mechanisms to better
understand how our portfolio
might be used to address multiple
risk factors or co-morbidities, and
whether combinations of
medicines might offer unique
patient benefits.
Strategic Report
Therapy Area Review
Cardiovascular, Renal and
Metabolism continued
2018 pipeline highlights
We have 29 potential medicines
and medicine combinations in our
pipeline, including small molecules
and biologics, to address cardiac
regeneration and individual
conditions, such as chronic kidney
disease (CKD), acute coronary
syndromes (ACS), heart failure (HF)
and non-alcoholic steatohepatitis
(NASH) as well as in the broader
CVRM disease context.
Full details are given in the Development
Pipeline from page 212 and highlights from
the progress our CVRM pipeline made in
2018 against our KPIs are shown below.
Life-cycle phases – R&D
New molecular entity (NME) Phase II
starts/progressions
Our pioneering approach to exploring
CV disease and heart regeneration saw
advances in three Phase II clinical trials.
Product
AZD4831
AZD8601
MEDI6012
Disease
Heart failure
CV disease
CV disease
Product
Farxiga/Forxiga
Disease
Heart failure (DELIVER)
Plus one project where investment decision has been made but clinical trial has yet to start.
NME and major life-cycle management
(LCM) positive Phase III investment
decisions
We broadened our HF research to include a
Phase III trial evaluating the effects of Farxiga
on reducing CV death or worsening HF in
patients with HF and a preserved ejection
fraction (HFpEF), alongside functional and
systematic studies for patients with both
preserved and reduced ejection fraction
(HFpEF/HFrEF).
NME and major LCM regional
submissions
Our metabolism portfolio made significant
regulatory strides, with five regulatory filings
for our oral medicines and combination
oral medicines, plus three major market data
submissions from our injectables medicines.
Product
Bydureon
Bydureon BCise
Bydureon BCise
Farxiga/Forxiga
Disease
Region
Type-2 diabetes cardiovascular outcomes trial
(CVOT) (EXSCEL)
EU, US, China
Type-2 diabetes CVOT
(DURATION programme harmonisation)
Type-2 diabetes CVOT (EXSCEL)
US
US
Type-1 diabetes (DEPICT)
EU, Japan, US
Farxiga/Forxiga combination: saxagliptin +
dapagliflozin + metformin
Type-2 diabetes
Qtern
Dual add-on type-2 diabetes
Plus two projects where submissions have been made but have yet to be accepted.
Product
Bydureon
Bydureon
Bydureon BCise
Lokelma
Roxadustat1
Disease
Add-on to insulin (DURATION 7)
CVOT (EXSCEL)
Type-2 diabetes weekly auto-injector
Hyperkalaemia
Chronic kidney disease anaemia
EU, US
US
Region
US
EU
EU
EU, US
China
1 Development and commercialisation collaboration with FibroGen in China. FibroGen holds the NDA.
Product
None
Disease
–
Reason
–
Life-cycle phases – approvals
NME and major LCM regional
approvals
We made important progress in advancing
new molecules like Lokelma and roxadustat to
address unmet needs of renal patients, as well
as adding clinical evidence on clinically
relevant CV outcomes alongside device
enhancements of our established medicine,
Bydureon, in the EU.
Discontinued projects
For more information on the life-cycle of a medicine,
see page 9.
58
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report can
Science
help address the early complications
of type-2 diabetes
People with type-2 diabetes have a
two to five times greater risk of heart
failure plus an increased risk of a
heart attack or stroke.
In November 2018, we announced
the full results from the DECLARE-
TIMI 58 SGLT-2 inhibitor cardiovascular
outcomes trial (CVOT) for Farxiga.
The trial included more than 17,000
patients with type-2 diabetes across
33 countries, more than four years of
follow-up and included those with
multiple CV risk factors and those
with established CV disease. This trial
showed that Farxiga significantly
reduced the risk of hospitalisation for
heart failure or CV death by 17%. It also
demonstrated a strong safety profile
in a medicine class where some
physicians have had concerns.
Farxiga has the potential to further
transform the management of all
patients with type-2 diabetes. We
are moving towards doctors being
able to choose treatment beyond
control of blood-glucose to cardio-
renal protection.
Heart failure
> Continues to have a worse survival
rate than some cancers following
diagnosis with a 50% survival rate
after five years.
> Is the most common cause of
hospitalisation in patients older
than 65.
> Represents a considerable societal
and economic burden: 25% of
hospitalised patients are readmitted
within 30 days and, at six months,
readmission rates are almost 50%.
We presented results of a new analysis of
the PLATO trial at the American College of
Cardiology meeting in March 2018, showing
total mortality was reduced by 51% and CV
death was reduced by 48%, when patients with
ACS were treated with Brilinta within seven
days prior to having heart bypass surgery,
compared to patients treated with clopidogrel.
At the European Society of Cardiology (ESC)
Congress, real-world data further reinforced
the need to manage persistent ischaemic risk
in patients, especially those with additional
risk factors. PRECLUDE-2, an analysis of data
from the ongoing SWEDEHEART quality
registry involving more than 100,000 patients,
found that the majority of post-myocardial
infarction (MI) patients who have at least two
CV disease risk factors, showed a marked but
gradual increase in incidence of CV death, MI
or stroke. The CV risk in patients with type-2
diabetes in the ATHENA study involving more
than 300,000 patients demonstrated that
diabetic patients who also have coronary
artery disease, or who have experienced a
prior heart attack or a stroke, are at greater
risk of future CV death, heart attack and
stroke than patients with just diabetes alone.
major trial due to read out, studying the
benefit of Brilinta for the prevention of CV
events in patients with type-2 diabetes
and coronary artery disease.
We continue to advance our large-scale
CV outcomes trial (CVOT) (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
CVOT of any prescription omega-3 and
completed enrolment in April 2017, with
approximately 13,000 patients. Results
are expected in 2020.
We are investigating the role of SGLT-2
inhibition in patients with heart failure as
part of our DapaCare programme overleaf.
Crestor is approved in over 115 countries
for the treatment of dyslipidaemia and
hypercholesterolaemia (elevated cholesterol).
The financial impact following the 2017 patent
expiries in the US, EU and Japan receded in
the second half of 2018. Crestor is now subject
to generic competition in a number of markets.
During the year, the first patient was enrolled
into THALES, a new randomised, placebo-
controlled Phase III dual antiplatelet therapy
trial in stroke. This study forms part of
PARTHENON, our largest ever CV outcomes
programme involving more than 80,000
patients, within which THEMIS is the next
In July 2018, we announced an agreement
with Cheplapharm for the rights in Europe to
Atacand (candesartan cilexetil) and Atacand
Plus (fixed-dose combination of candesartan
cilexetil and hydrochlorothiazide). Atacand is
a prescription medicine for the treatment of
heart failure and hypertension.
AstraZeneca Annual Report & Form 20-F Information 2018 / Therapy Area Review
59
2018 review – strategy in action
We have adopted a unique CVRM strategy
which includes investing in rigorous clinical
programmes evaluating the use of our
medicines in large patient populations in both
Established and Emerging Markets. These
trials include ambitious global randomised
clinical trials (RCTs) that are as close as
possible to clinical practice, as well as
transformational RWE research.
> Randomised clinical trials: More than
60,000 patients are currently participating
in our R&D-led CV trials at more than 6,000
sites worldwide. Our focus on diabetes
research includes almost 50 clinical trials
worldwide, with an enrolment target of
56,000 patients. These RCTs include the
DapaCare Programme, OLYMPUS and
ROCKIES, and THEMIS.
> Real-world evidence data: Our RWE
studies include CVD-REAL and PRACTICAL,
which both set out to deliver innovative
data from large-scale settings.
Cardiovascular disease
Brilinta 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 more than 100 countries, and is
included in major ACS treatment guidelines
globally. In its indication for the long-term
prevention of CV death, heart attack and
stroke for patients with a history of heart
attack, since approval in 2016, Brilinta
60mg is now approved in over 70 countries.
Strategic Report blood sugar remains uncontrolled with other
treatments, supported by our Phase III trial,
EXSCEL, the largest and longest CVOT on the
GLP-1 class. Additionally, Bydureon BCise,
a new formulation in an easy-to-use, once-
weekly device that does not require titration,
was approved by the EC. With 3Sbio Inc.,
we also gained approval for Bydureon across
China, making it the first once-weekly GLP-1
in a nation with an estimated 114 million
patients living with diabetes.
We are also advancing promising
investigational agents that bring new
approaches to metabolic diseases and
their complications. In June, the first clinical
results from a Phase IIa study conducted on
MEDI0382, our oxyntomodulin-like peptide
molecule being studied for patients with
type-2 diabetes, were presented at the
American Diabetes Association and
simultaneously published in The Lancet,
demonstrating the potential to become a
first-in-class treatment for type-2 diabetes,
NASH and obesity.
We follow the science to new clinical solutions
for metabolic diseases and are working with
leaders in the global diabetes community
to overcome obstacles to optimal care. Led
by Primary Care Diabetes Europe, we have
partnered to launch Early Action in Primary
Care to address clinical inertia and resistance
to early use of innovative treatments like
SGLT-2s and GLP-1s. In addition, with the
research group, Health Economics and
Outcomes Research, we will issue a first-of-
its-kind predictive analysis on the economic
value to health systems across Europe and the
US of treating diabetes and CV complications
together, with the goal of improving
reimbursement policy and patient outcomes.
Therapy Area Review
Cardiovascular, Renal and
Metabolism continued
Renal diseases
Our ambition is to revolutionise the treatment of
chronic kidney disease (CKD). We are investing
in therapies across the continuum of CKD care,
from disease modification during an early-
stage diagnosis to managing life-threatening
complications as patients progress to dialysis
and end-stage renal disease.
Roxadustat is a first-in-class oral hypoxia-
inducible factor prolyl hydroxylase inhibitor
(HIF-PHI) that could transform the
management of anaemia of CKD for patients
both on dialysis and not on dialysis. We
are collaborating in the development and
commercialisation of roxadustat in the US,
China and other markets not covered by an
agreement between FibroGen and Astellas. In
December 2018, we announced with FibroGen
the approval of roxadustat by the National
Medical Products Administration, marking
the first time that a first-in-class medicine
was approved first in China. Later in
December 2018, we announced that the
primary endpoints were met in OLYMPUS
and ROCKIES, two AstraZeneca-sponsored
trials within the global Phase III programme
for roxadustat conducted by AstraZeneca,
FibroGen and Astellas. These trials will
contribute to a pooled safety analysis, which
is anticipated during the first half of 2019 and
will inform the US regulatory submission.
We are preparing for a broad launch of
Lokelma, a best-in-class treatment for
hyperkalaemia, in major markets. In March
2018 Lokelma was approved by the EMA
and in May 2018, Lokelma was approved
by the FDA. Subsequently, our focus was on
ensuring broad availability to patients at
launch in the US and Europe in 2019. In
October 2018, we presented positive Phase III
data from HARMONIZE Global, a Lokelma trial
whose data will support future registrations
in Japan, Russia, Korea and Taiwan.
We are exploring whether the medicines in
our portfolio could modify the progression
of CKD or offer organ protection as part of
our DapaCare programme (see below).
Metabolic diseases
We are focused on redefining how diabetes
is treated in unison with CV and renal
diseases and the risk factors, harnessing
complementary mechanisms of action and
focusing on diverse populations with
significant co-morbidities, such as CV disease
(particularly heart failure), obesity, NASH, as
well as diabetic nephropathy and CKD. Our
global clinical research programmes seek
to advance understanding of the treatment-
effects of our diabetes medicines on these
co-morbidities across broad patient
populations that represent today’s clinical
practice in order to help more patients achieve
treatment goals earlier in their disease.
Our industry-leading DapaCare clinical trial
programme will enroll nearly 30,000 patients
in RCTs and mechanistic studies exploring
new ways to extend the therapeutic value of
Farxiga to patients with and without type-2
diabetes, many of whom have not seen
treatment advances in decades. DapaCare
is our answer to the need for comprehensive
research and treatment at a time when there
is a fundamental shift in how diabetes, CV
and renal diseases are managed.
In addition to our leading CVOT, DECLARE
(see case study on page 59), and our RWE
study, CVD-REAL, we have invested in two
pivotal Farxiga outcomes trials in HF,
evaluating patients with reduced ejection
fraction (HFrEF) and preserved ejection
fraction (HFpEF), both in patients with and
without type-2 diabetes. These, along with
several mechanistic studies, make Farxiga
a potential first-in-class treatment to address
a significant unmet need in HF. Further
research from the DapaCare programme is
investigating renal outcomes and CV mortality
in patients with CKD, the natriuretic effect
and volume changes in type-2 diabetes with
preserved or impaired renal function, and
changes in proteinuria in non-diabetes and
kidney diseases.
In type-1 diabetes, final results from the
DEPICT programme trials were presented and
published in 2018, and formed our regulatory
submissions currently under review in the EU
(EMA), Japan (PMDA) and the US (FDA), for
Farxiga as an adjunct treatment to insulin
for adults with type-1 diabetes. If approved,
Farxiga may be the first selective SGLT-2
inhibitor with this indication, representing an
important advancement for people with type-1
diabetes who have not seen meaningful
treatment progression in decades. In February
2019, the Committee for Medicinal Products
for Human Use (CHMP) of the EMA issued
a positive recommendation from the EMA
to use Farxiga in adults with type-1 diabetes
as an adjunct to insulin in patients with BMI
≥ 27 kg/m2, when insulin alone does not
provide adequate glycaemic control despite
optimal insulin therapy. Regulatory decisions
for the type-1 indication are expected in the
first half of 2019 in the EU and Japan. The US
regulatory decision is expected in the second
half of 2019.
Bydureon, our glucagon-like peptide-1 (GLP-1)
receptor agonist for type-2 diabetes, has
become more convenient and available this
year to patients in multiple countries whose
60
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report can
Science
advance our understanding
of the repair and regeneration
of tissues
For the estimated 26 million people
worldwide with heart failure, recent
scientific progress in blood vessel
and heart muscle regeneration may
lead to new ways of treating their
disease. Not so long ago, we assumed
that heart failure was an almost
inevitable consequence of damage
to or death of cells in the heart’s main
pumping chamber, the left ventricle,
caused by lack of oxygen due to an
impaired blood supply. However, we
now know that there may be ways
to help regeneration of blood vessels
around heart muscle cells that
are damaged by a heart attack,
by high blood pressure or other
cardiovascular problems that
occur as people get older.
Our pioneering research is based on:
> Advances in understanding of
vascular biology and the biological
action of vascular endothelial
growth factor A (VEGF-A) in
stimulating formation of new
blood vessels and helping to
repair damaged heart muscle.
> Developments in messenger
ribonucleic acid (mRNA)
technology to boost production
of VEGF-A in areas of the heart
(mRNA is an essential part
of the process by which genes
in the form of DNA are decoded
to make proteins).
The vascular and cardiac
regeneration initiative brings
together the complementary skills
and expertise of scientists from
AstraZeneca and Moderna. This
important collaboration, which began
in 2013, is advancing the science of
tissue regeneration for cardiovascular
and metabolic diseases and in other
therapy areas. It is rapidly translating
laboratory findings into clinical trials
of novel therapeutic modalities,
for example patients undergoing
coronary artery bypass graft
surgery (AZD8601).
26m
26 million people
worldwide with
heart failure
Stem cell differentiating
into heart muscle
(cardiac regeneration).
AstraZeneca Annual Report & Form 20-F Information 2018 / Therapy Area Review
61
Strategic Report Therapy Area Review
continued
Respiratory
We aim to transform the treatment of asthma and
COPD with our growing portfolio of inhaled and
biologic medicines. Our research focuses on the
underlying causes of respiratory diseases, using
new modalities to pursue previously hard-to-reach
targets, with the ambition of achieving remission
or even cures for patients.
Unmet medical need and world market
Today, more than 700 million
people have asthma or chronic
obstructive pulmonary disease
(COPD). About 250 million of
these people are in our 12 largest
commercial markets, but more than
175 million of these individuals do
not receive maintenance treatment
for these chronic diseases. Despite
currently available medicines,
therapeutic advances are needed
to reduce morbidity and mortality.
We estimate that new medicines
and Emerging Markets will drive
7% annual growth over the next
decade, reaching $47 billion
by 2028.
339m
Some 339 million individuals
worldwide have asthma, with
prevalence expected to rise.
Severe asthma accounts for
about 10% of asthma patients
but 50% of the physical and
socio-economic burden of asthma.
Millions of patients underuse their
anti-inflammatory maintenance
controller treatments (which treat
the underlying inflammation
of the disease) and are reliant
on reliever medications.
384m
Globally, some 384 million people
have COPD, and it is predicted to
be the third leading cause of death
by 2020. COPD exacerbations
represent a significant burden
for patients, carers and society.
Even one severe exacerbation
can significantly reduce lung
function and is associated with
higher mortality.
Therapy area world market
(MAT/Q3/18)
$68.4bn
Annual worldwide market value
Asthma $20.5bn
COPD $16.2bn
Other $31.7bn
Source: IQVIA.
AstraZeneca focuses on specific segments
within this overall therapy area market.
Cilia wafting in the
lung with a small
molecule overlay.
62
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report Key marketed products and
revenues 2018
Our Respiratory business returned
to growth in 2018, with sales of
$4,911 million, up 4% (3% at CER).
Symbicort held its position as the
leading inhaled corticosteroid (ICS)/
long-acting beta2-agonist (LABA)
in volume sales. Pulmicort continued
to deliver strong revenue growth,
led by Emerging Markets in which
China stood out. In biologics,
Fasenra had strong launches in 35
markets and achieved leadership in
new prescriptions in the IL-5 severe
asthma class in the US and Japan.
Respiratory revenue
$4,911m
23% of total
2017: $4,706m
2016: $4,753m
Our strategy for Respiratory
Respiratory is one of our main
therapy areas, and our medicines
reached more than 18 million
patients as maintenance therapy
in 2018. We have a strong pipeline
with more than 33,000 patients
participating in Phase I-IV
respiratory clinical trials across
the world.
Product
Disease area
Revenue
Commentary
Symbicort
(budesonide/
formoterol)
Asthma
COPD
$2,561m,
down 9%
(10% at CER)
Continued leadership of ICS/LABA class with revenue
impacted by expected pricing pressure; AstraZeneca’s largest
medicine by sales.
Pulmicort
(budesonide)
Asthma
$1,286m, up 9%
(8% at CER)
Brand growth led by Emerging Markets with leadership
in China.
Fasenra
(benralizumab)
Severe asthma
$297m,
movement n/m
Successful first year launch; leading the IL-5 class in new
prescriptions (US and Japan).
Daliresp/Daxas
(roflumilast)
COPD
$189m, down 5%
(5% at CER)
250mcg tablet approved as a starting dose in the US
and Europe.
Tudorza/Eklira
(aclidinium)
COPD
Duaklir
(aclidinium/
formoterol)
COPD
Bevespi Aerosphere
(glycopyrrolate/
formoterol)
COPD
$110m,
down 27%
(29% at CER)
Reflects the flat long-acting muscarinic antagonist (LAMA)
market. Sales in the US declined by 62% reflecting the impact
of federal purchases.
$95m, up 20%
(14% at CER)
Growth in Europe is in line with expectations.
$33m, up 106%
(106% at CER)
Bevespi Aerosphere revenue and growth is in line with
expectations based on focused investment in 2018, reflecting
low class growth.
Others
Asthma
COPD
$340m, up 20%
(18% at CER)
Mature portfolio. Divestment of rights to Alvesco, Omnaris
and Zetonna to Covis.
Our ambition is to transform outcomes for
patients with respiratory diseases through:
1. Our strength in inhaled combination
medicines.
2. A leading biologics portfolio.
3. A robust early pipeline where our goal
is to achieve disease modification,
early intervention and cure.
In inhaled medicine, our focus is on two
key areas of clinical care. In asthma, we
are working to prevent attacks by reducing
over-reliance on reliever monotherapy and
advancing anti-inflammatory reliever therapy,
which is now under regulatory review for a
licence extension based on the landmark
Symbicort Turbuhaler SYGMA trials. We
continue to invest in Symbicort given its value
in the treatment of asthma and COPD, also
reflected by its continued leadership in the ICS/
LABA class. In COPD, we are advancing our
next generation inhaled Aerosphere portfolio
with the ambition of reducing exacerbation
rates using our investigational triple therapy,
PT010, earlier in the course of the disease
than recommended in guidelines today.
In biologics, we aim to transform outcomes
among patients with the greatest unmet
medical need and relegate chronic oral
steroid use to last resort, given its association
with adverse events. Our first respiratory
biologic, Fasenra, is for severe eosinophilic
asthma and is being investigated for other
eosinophil-driven diseases. Approved in
November 2017, Fasenra already leads
the IL-5 class in new prescriptions in the
US and Japan. In the future, tezepelumab,
a potential first-in-class anti-thymic stromal
lymphopoietin (TSLP) mAb that blocks a key
upstream driver of inflammation in asthma,
has the potential to become “the broadest
biologic for the treatment of persistent
uncontrolled asthma seen to date”* if the
Phase III programme reflects the positive
Phase IIb data, as noted in the New England
Journal of Medicine.
Our early pipeline continues to grow and
includes new drug modalities allowing us
to address hard-to-reach targets in the lung
that were previously seen as inaccessible, for
example: the Anticalin protein AZD1402, an
inhaled IL4R antagonist currently in Phase
I development for asthma, in collaboration
with Pieris Pharmaceuticals.
Our respiratory market leadership in China
positions us well to support improvements
in acute treatment using our leading
nebulisation portfolio and establishing
maintenance inhaled treatment as the
standard of care in asthma and COPD. Each
day the paediatric nebulisation programme
we support treats 300,000 patients, enabling
them to receive guideline-recommended
acute care for their condition.
*
Elisabeth H. Bel. Moving Upstream – Anti-TSLP in
Persistent Uncontrolled Asthma. New England Journal
of Medicine. 2017; 377:10.
AstraZeneca Annual Report & Form 20-F Information 2018 / Therapy Area Review
63
Strategic Report Therapy Area Review
Respiratory continued
2018 pipeline highlights
The progress of our pipeline in
2018 reflects our commitment to
transforming critical areas of care
in respiratory.
We advanced Symbicort Turbuhaler and
PT027 (ICS/SABA combination) as anti-
inflammatory reliever therapies in asthma.
With PT010, our inhaled triple therapy, we
made our first regulatory submissions and
published positive Phase III KRONOS data
that demonstrated its potential to improve
lung function in patients with COPD. KRONOS
data also demonstrated the potential to
significantly reduce exacerbation risk versus
LAMA/LABA in a patient population that was
not required to have had an exacerbation in
the previous 12 months (a population
classified as GOLD B in international
guidelines, where triple therapy is currently
not recommended). In line with our strategy to
transform outcomes with respiratory
biologics, Fasenra was granted additional
regulatory approvals around the world for
severe, eosinophilic asthma, while our
anti-TSLP biologic, tezepelumab, was granted
US FDA Breakthrough Therapy designation
(our first for a respiratory medicine) for severe
asthma patients without an eosinophilic
phenotype, including those who are ineligible
for biologic therapies today.
Full details of our pipeline are given in the
Development Pipeline from page 212 and
highlights from the progress our Respiratory
pipeline made against our KPIs in 2018 are
shown below.
Life-cycle phases – R&D
New molecular entity (NME) Phase II
starts/progressions
Product
None
Product
PT027*
NME and major life-cycle management
(LCM) positive Phase III investment
decisions
Our co-development partner, Avillion,
achieved first subjects in the PT027 Phase III
programme. PT027 is an investigational
fixed-dose combination of budesonide
(an inhaled corticosteroid) and albuterol
(a short-acting beta2-agonist).
Disease
–
Disease
Asthma
Plus one project where investment decision has been made.
* Led by partner Avillion.
NME and major LCM regional
submissions
Product
Bevespi Aerosphere
Key regulatory acceptances included our first
filings for PT010 (triple therapy) in COPD in
Japan and China, and Symbicort as an
anti-inflammatory reliever in mild asthma in
the EU.
Fasenra
PT010
Symbicort
Disease
COPD
Self administration, autoinjector
(GRECO/GREGALE)
COPD
Mild asthma
Life-cycle phases – approvals
NME and major LCM regional
approvals
Further regional approvals were seen with
Fasenra for severe asthma in Japan and
severe eosinophilic asthma in the EU – with
the product now launched in more than 35
markets and Bevespi Aerosphere for COPD
in the EU.
Discontinued projects
Product
Bevespi
Fasenra
Disease
COPD
Severe asthma
Region
Japan, China
EU, US
Japan, China
EU
Region
EU
EU, Japan
Product
AZD7594 + abediterol
Disease
COPD
Reason
Safety/efficacy
For more information on the life-cycle of a medicine, see page 9.
64
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report can
Science
help patients with severe asthma
Eosinophils, a type of white blood
cell, are a normal part of the body’s
immune system, but for some people
with severe asthma, they can make
inflammation in the airways worse.
Fasenra is the only biologic to directly
target the IL-5 receptor and deplete
eosinophils by recruiting natural
killer cells. Early clinical trials show
Fasenra depletes blood eosinophils
within 24 hours after a single dose.
Fasenra is now approved and
launched in 35 markets as an add-on
maintenance treatment for patients
with severe, eosinophilic asthma.
Patients receive Fasenra as a
fixed-dose subcutaneous injection
via a pre-filled syringe every eight
weeks after initial loading doses.
Fasenra has been investigated for
self-administration and in an
autoinjector device; regulatory
submissions were made in 2018
and we anticipate decisions in 2019.
In addition, Fasenra is being
investigated for indications in other
eosinophil-driven diseases, including
severe nasal polyposis, and has been
granted Orphan Drug designation
by the FDA for the treatment of
eosinophilic granulomatosis with
polyangiitis and more recently,
hypereosinophilic syndrome.
Since its approval in November 2017,
more than 21,000 asthma patients
have received Fasenra, which
now leads the IL-5 class in new
prescriptions in the US and Japan.
A feature of Fasenra’s launch has
been the anecdotal stories clinicians
have shared with us about the
positive difference it is having on
their patients’ lives. Severe asthma
is a debilitating disease, which
impacts many aspects of a patient’s
life and these stories reflect the
difference an effective biologic
medicine can have for these patients.
The launch success of Fasenra
also supports our view that
biologic treatment rates will
significantly increase in the
coming years in line with the
evolution of treatment in other
inflammatory diseases.
controller treatments, resulting in preventable
exacerbations. In China, the Chinese Journal
of General Practitioners guidelines were
updated to incorporate the SYGMA data.
This update recommended Symbicort as a
potential treatment for all asthma severities.
We significantly progressed all Phase III trials
supporting PT010 – KRONOS, SOPHOS,
TELOS and ETHOS. The Phase III KRONOS
trial was published in September in The
Lancet Respiratory Medicine. KRONOS
evaluated the efficacy and safety of triple
combination therapy, PT010, versus dual
combination therapies Bevespi Aerosphere,
Symbicort Turbuhaler and PT009. In the trial,
PT010 met six of seven primary endpoints
versus dual comparators and PT009 met two
non-inferiority endpoints to support the
qualification of PT009 as an active
comparator. In a key secondary endpoint,
PT010 showed a statistically significant 52%
reduction in the rate of moderate or severe
COPD exacerbations compared with Bevespi
Aerosphere in a patient population that was
not required to have had an exacerbation in
the previous 12 months. The adverse events
profile was consistent with that observed in
previous trials and the incidence of
adjudicated pneumonia was low and
comparable in all treatment arms.
During the first half of 2018, the Phase III
SOPHOS trial read out, which compared
two doses of PT009 to PT005. PT009 met
its primary endpoint and delivered superior
efficacy to PT005 at morning pre-dose
through forced expiratory volume (FEV) 1
at Week 24. In September 2018, the TELOS
Phase III trial, which investigated the efficacy
and safety of PT009 in patients with moderate
to very severe COPD, regardless of whether or
not they had had an exacerbation in the prior
year, showed that PT009 is an effective
maintenance treatment for patients with
COPD and a suitable comparator for PT010.
The data were presented at the European
Respiratory Society Congress and were
published in the European Respiratory
Journal. SOPHOS and TELOS were designed
to qualify PT009 as an active comparator in
the PT010 clinical trial programme.
In July 2018, the ETHOS Phase III trial, which
further investigates the efficacy and safety of
PT010, completed enrolment of 8,400 patients
across 28 countries.
In addition, during the second half of 2018,
the regulatory submissions for PT010 were
accepted by the Japan MHLW and the China
NMPA, based on the KRONOS Phase III trial.
In January 2019, PT010 received Priority
Review designation from China’s NMPA.
AstraZeneca Annual Report & Form 20-F Information 2018 / Therapy Area Review
65
2018 review – strategy in action
Strength in inhaled combination medicines
Our strength in inhaled combination medicines
was reflected in 2018 with Symbicort, which
retained its position as the number one ICS/
LABA combination globally in volume terms
and is a cornerstone of current asthma and
COPD care. We continue to invest in
Symbicort, which remains AstraZeneca’s
number one medicine in Product Sales in 2018.
Pricing pressure continues to impact
Symbicort performance but was in line with
expectations as prices rebase ahead of
anticipated generic entries. This trend
continues to be offset by Emerging Market
growth, led by demand for acute and
maintenance care in China. In March, the
NMPA approved Symbicort Turbuhaler as a
maintenance and reliever therapy, designed
for the treatment of asthma in adolescent
patients (12-17 years) in China.
In May 2018, positive results from the Phase III
SYGMA trials of Symbicort Turbuhaler were
published in the New England Journal of
Medicine and presented at the American
Thoracic Society International Congress.
The trials, which met their primary objectives,
evaluated the efficacy of Symbicort
Turbuhaler, taken only as needed without
maintenance therapy, as an anti-inflammatory
reliever compared with standard of care
medicines for mild asthma. In November,
we announced that the Swedish Medical
Products Agency had accepted our
regulatory submission for the EU to expand
the indication for Symbicort Turbuhaler, as
an anti-inflammatory reliever as needed, in
patients with mild asthma. Millions of patients
with asthma are reliant on their reliever
medications, which improve symptoms but do
not treat the inflammation of this disease, and
they underuse anti-inflammatory maintenance
Strategic Report Therapy Area Review
Respiratory continued
Bevespi Aerosphere’s progress also
continued in 2018 with regulatory approvals in
Canada and Australia. In December 2018, the
European Commission approved Bevespi
Aerosphere in a pressurised metered-dose
inhaler (pMDI) as a maintenance dual
bronchodilator treatment to relieve symptoms
in adult patients with COPD. In Japan and
China, the regulatory submissions for Bevespi
Aerosphere were accepted during the third
quarter of the year.
In August 2018, we announced top-line results
from the AERISTO Phase IIIb trial for Bevespi
Aerosphere in patients with moderate to very
severe COPD. In the trial, Bevespi Aerosphere
demonstrated non-inferiority to umeclidinium/
vilanterol on peak FEV1 but did not
demonstrate superiority on peak FEV1 or
non-inferiority on trough FEV1. The efficacy
and safety of Bevespi Aerosphere has been
established by the Phase III PINNACLE trial
programme involving more than 5,000 patients.
Our medicines partnered with Circassia also
made progress. In the second half of 2018, the
FDA accepted the Duaklir NDA for the
maintenance treatment of patients with
COPD. We anticipate a Prescription Drug User
Fee Act action date in the first half of 2019. In
the first half of 2018, on behalf of Circassia,
we submitted an sNDA for Tudorza to the
FDA. The submission was based on the
results from the ASCENT trial, which achieved
its co-primary endpoints for safety (no
increase in cardiovascular risk MACE) and
efficacy (COPD exacerbation reduction). It is
anticipated that the US label will be updated
accordingly in the first half of 2019. In
December 2018, Circassia announced plans
to acquire the full rights to Tudorza in the US.
In addition, a 250mcg tablet for Daliresp/Daxas
was approved by the FDA in January 2018 and
the EMA in April 2018 to be used as a starting-
dose treatment for the first four weeks, followed
by an increase to the maintenance dosage of
500mcg. Daxas is indicated for maintenance
treatment of severe COPD associated with
chronic bronchitis in adult patients with a
history of frequent exacerbations, as an
add-on to bronchodilator treatment.
In May 2018, Phase IIa data for AZD8871 were
presented in a late-breaking oral presentation
at the American Thoracic Society International
Congress 2018. AZD8871 is an inhaled
long-acting dual muscarinic antagonist/ 2
adrenoceptor agonist under development for
the treatment of COPD.
Biologic medicines
Our first respiratory biologic, Fasenra,
continued to receive product approvals in
2018 with launches in more than 35 countries.
In January 2018, the EMA approved Fasenra
as an add-on maintenance treatment in adult
patients with severe, inadequately controlled
eosinophilic asthma, despite their treatment
with high-dose ICS plus LABA. In Japan,
Fasenra was approved as an add-on
treatment for bronchial asthma in patients
who continue to experience asthma
exacerbations despite treatment with
high-dose ICS and other asthma controller(s).
Currently only 10% of eligible patients in our
top 12 commercial markets receive a biologic
treatment, whereas biologic treatment rates in
more mature inflammatory disease markets,
such as rheumatoid arthritis and psoriasis, are
30–50% and growing. The main factors that
will drive the rate of growth include: availability
of effective medicines; improved clinical
capabilities and capacity for severe asthma;
and administration of biologics and evidence
enabling the reduction or discontinuation
of maintenance oral corticosteroid use.
AstraZeneca is investing to accelerate these
drivers ‘beyond the medicine’ which should
support biologics having the kind of impact
that they have had in other inflammatory
diseases. The opportunity to transform
more lives is significant.
In May 2018, we announced top-line results
from two Phase III trials, GALATHEA and
TERRANOVA, for Fasenra in patients with
moderate to very severe COPD. The trials
did not meet their primary endpoints of
a statistically significant reduction of
exacerbations. We are reviewing the full
data set and do not currently intend to
make a regulatory submission in COPD
based on these data.
In September 2018, results from the BORA
Phase III extension trial evaluating the long-term
safety and efficacy of Fasenra as an add-on
maintenance treatment in patients with severe
eosinophilic asthma who had previously
completed one of the two pivotal placebo-
controlled SIROCCO or CALIMA Phase III
trials, were presented in a late-breaking oral
presentation at the European Respiratory
Society International Congress 2018, and
subsequently published in The Lancet
Respiratory Medicine in November. In BORA,
Fasenra showed a safety and tolerability profile
similar to that observed in the predecessor
trials, with no increase in the frequencies of
overall or serious adverse events.
Improvements in efficacy measures observed
with Fasenra in SIROCCO or CALIMA were
maintained over the second year of treatment.
During the first quarter of 2018, we also
commenced a Phase III trial of Fasenra for
the treatment of nasal polyposis. During the
second quarter, we commenced the Phase IIIb
PONENTE trial further evaluating Fasenra’s
potential to eliminate maintenance oral
corticosteroid use in patients with severe
refractory eosinophilic asthma.
During the third quarter of 2018, the SOLANA
Phase IIIb trial did not meet its primary
endpoint. SOLANA is a randomised, double-
blinded, parallel group, placebo-controlled
Phase IIIb trial. The trial is designed to
evaluate the onset and maintenance of
effect and the safety of Fasenra in patients
with severe, eosinophilic asthma. We are
evaluating the full data set and anticipate
the results will be submitted for publication
in a medical journal.
In November 2018, the FDA granted
Orphan Drug designation for Fasenra for the
treatment of eosinophilic granulomatosis with
polyangiitis. In February 2019, Fasenra was
also granted Orphan Drug designation for the
treatment of hypereosinophilic syndrome.
In the fourth quarter of 2018, we submitted
regulatory filings in the US and the EU for
the addition of self-administration and an
autoinjector device for Fasenra in severe
asthma. Decisions are anticipated in 2019.
In September 2018, with our partner Amgen,
we announced that the FDA had granted
Breakthrough Therapy designation for
tezepelumab in patients with severe asthma
without an eosinophilic phenotype, including
those who are ineligible for biologic therapies
today. This was the seventh Breakthrough
Therapy designation we have received from
the FDA since 2014, and the first in respiratory
medicine. Tezepelumab is currently in
development in the Phase III PATHFINDER
clinical trial programme.
66
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report Other Disease Areas
We have medicines and vaccines in other disease areas
that have an important impact for patients. As such,
we are selectively active in the areas of autoimmunity,
infection, neuroscience and gastroenterology, where
we follow an opportunity-driven approach and often
work through partnerships.
Unmet medical need
and world market
The WHO estimates that
seasonal influenza may result
in 290,000 to 650,000 deaths
each year due to respiratory
diseases alone.
Key marketed products
and revenues 2018
Nexium is continuing to
perform strongly in China,
while sales for the rest of
the world are in line with
expectations given pressures
from generic competition.
Following the renewed
recommendation from the
Advisory Committee on
Immunization Practices of
FluMist Quadrivalent in the
US, FluMist returned to the
US market in the third quarter.
Revenue from other products
$3,400m
16% of total
2017: $4,156m
2016: $5,067m
Product
Infection
Fluenz Tetra/
FluMist
Quadrivalent
(live attenuated
influenza vaccine)
Synagis
(palivizumab)
Neuroscience
Disease area
Revenue
Commentary
Influenza
$110m, up 41%
(44% at CER)
Approved in the US, EU, Canada,
Israel and Hong Kong. FluMist
returned to the US market in the third
quarter of 2018, in time for the
2018-2019 influenza season. Daiichi
Sankyo holds rights to Fluenz Tetra/
FluMist Quadrivalent in Japan.
Respiratory
syncytial virus
(RSV)
$665m, down
3% (3% at CER)
Divested US rights to Sobi. AbbVie
holds rights to Synagis outside
the US.
Movantik/
Moventig (naloxegol)
Opioid induced
constipation
$109m, down
11% (11% at
CER)
Seroquel IR/
Seroquel XR
(quetiapine fumarate)
Schizophrenia
Bipolar disease
$361m, down
29% (31% at
CER)
Vimovo
(naproxen and
esomeprazole)
Osteoarthritic
pain
$70m, down
11% (13% at
CER)
Licensed from Nektar Therapeutics.
Kyowa Hakko Kirin has held rights
in the EU since March 2016. Knight
Therapeutics Inc. has held rights in
Canada and Israel since December
2016. Co-commercialisation in the
US with Daiichi Sankyo.
Luye Pharma holds rights to Seroquel
and Seroquel XR in the UK, China
and other international markets. The
rights to Seroquel and Seroquel XR in
Japan are partnered with Astellas.
Licensed from Pozen and divested
worldwide rights (ex-US) to
Grünenthal in October 2018. Divested
US rights to Horizon Pharma Inc.
since November 2013.
Gastroenterology
Losec/
Prilosec
(omeprazole)
Nexium
(esomeprazole)
Proton pump
inhibitor to treat
acid-related
diseases
Proton pump
inhibitor to treat
acid-related
diseases
$272m, flat
(down 2%
at CER)
$1,702m, down
13% (14%
at CER)
Divested European rights to
Grünenthal in October 2018.
AstraZeneca Annual Report & Form 20-F Information 2018 / Therapy Area Review
67
Strategic Report
Therapy Area Review
Other Disease Areas
continued
Our strategy for Other Disease Areas
and 2018 pipeline highlights
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 stake in the most
promising assets.
Full details of our pipeline are given in the
Development Pipeline from page 212 and
highlights from the progress of our Other
Disease Areas pipeline made in 2018
against our KPIs are shown below.
Life-cycle phases – R&D
New molecular entity (NME) Phase II
starts/progressions
NME and major life-cycle management
(LCM) positive Phase III investment
decisions
NME and major LCM regional
submissions
Life-cycle phases – approvals
NME and major LCM regional
approvals
An additional regional approval was seen
with Nexium in Japan, which enables and
increases patient access to this medicine.
Discontinued projects
Product
AZD9567
MEDI7352
Product
None
Product
None
Product
Linzess*
Nexium
* Approved in January 2019.
Disease
Rheumatoid arthritis
Painful diabetic neuropathy
Disease
–
Disease
–
Region
–
Disease
Region
Irritable bowel syndrome with constipation
China
Paediatric and sachet gastroesophageal
disease (GERD)
Japan
Product
Lanabecestat
MEDI9314
Disease
BACE early Alzheimer’s disease
IL4R atopic dermatitis
Reason
Safety/efficacy
Strategic
For more information on the life-cycle of a medicine, see page 9.
2018 review – strategy in action
Infection
Seasonal influenza is a serious public health
problem that causes severe illness and death in
high-risk populations. In 2018, the US Advisory
Committee on Immunization Practices, under
the Centers for Disease Control and
Prevention, reinstated its recommendation that
FluMist Quadrivalent (live attenuated influenza
vaccine – LAIV) should be used in the US for
the 2018-2019 influenza season. The
recommendation followed a presentation of
positive results from a US study in children
between the ages of 2 to <4 years evaluating
the shedding and antibody responses of the
H1N1 strain in FluMist Quadrivalent. The study
demonstrated that the new 2017-2018 H1N1
LAIV post-pandemic strain (A/Slovenia)
performed significantly better than the
2015-2016 H1N1 LAIV post-pandemic strain
(A/Bolivia), which was previously associated
with reduced effectiveness. The antibody
response induced with the new H1N1 LAIV
strain was comparable to earlier data seen with
the highly effective H1N1 LAIV strain
included in the vaccine before the 2009
influenza pandemic.
In 2018, Public Health England released
provisional vaccine effectiveness (VE) data
from the recent 2017-2018 influenza season.
VE across all vaccine types was low against
the circulating A/H3N2 virus, and all influenza
manufacturers are continuing to work with
public health authorities to optimise protection
against influenza. These latest data also
demonstrated Fluenz Tetra provided good
protection against H1N1 post-pandemic and
influenza B strains during the 2017-2018
season, further supporting the improvements
made in characterising and selecting H1N1
post-pandemic LAIV strains following our
recent investigation into reduced effectiveness.
FluMist Quadrivalent/Fluenz Tetra continues to
be licensed in multiple markets, including the
US, Canada, EU, Israel and Hong Kong, and it
remains a central part of the UK and Finnish
paediatric national influenza vaccination
programmes. We also have an ongoing
agreement with the WHO to donate and
supply stock at reduced prices in the
event of an influenza pandemic.
MEDI8852, an investigational human mAb
for the treatment of patients hospitalised
with Type A strain influenza, obtained a
grant from the US Department of Defense
to conduct a Phase I/IIa study in September
2018. It received Fast Track designation
from the FDA in March 2016.
Respiratory syncytial virus (RSV) is a common
seasonal virus and the most prevalent cause
of lower respiratory tract infections (LRTI)
among infants and young children. It is the
leading cause of hospitalisations and
admissions to paediatric intensive care units
and leads to nearly 150,000 deaths globally
in children under five years of age, with the
majority of deaths occurring in developing
countries. Since its initial approval in 1998,
68
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report Synagis has become the global standard of
care for RSV prevention and helps protect at
risk babies against RSV. Synagis is approved
in more than 80 countries and we continue to
work with our worldwide partner, AbbVie,
outside the US, to protect vulnerable infants.
In November 2018, we announced the
divestment of Synagis’ US rights to Sobi.
Sobi will commercialise Synagis in the US
and around 130 AstraZeneca employees will
transfer to Sobi as part of the transaction.
Sobi also has the right to participate in
payments from the US profits and losses
for MEDI8897.
MEDI8897, an extended half-life RSV mAb
being investigated for the prevention of LRTI
caused by RSV in infants and young children,
is progressing in collaboration with Sanofi.
It is being developed for use among a
broad population of late pre-term and healthy
full-term infants, so that they may only require
one dose during an RSV season. In November
2018, we announced that the primary analysis
for the pivotal, Phase IIb trial to evaluate the
safety and efficacy of MEDI8897 showed that
the trial met its primary endpoint. Following
these results, in January 2019, the EMA
granted MEDI8897 access to its PRIME
(PRIority MEdicines) scheme and in February
2019, the FDA granted Breakthrough Therapy
designation for MEDI8897.
Neuroscience
In June 2018, we announced with Lilly, the
discontinuation of the Phase III clinical trials of
lanabecestat, an oral beta secretase cleaving
enzyme (BACE) inhibitor, for the treatment of
Alzheimer’s disease. The decision was based
on recommendations by an independent data
monitoring committee, which concluded that
both the AMARANTH trial, in early Alzheimer’s
disease, and the DAYBREAK-ALZ trial, in
mild Alzheimer’s disease dementia, were not
likely to meet their primary endpoints upon
completion and therefore should be stopped
for futility. As a result of this decision, the
related AMARANTH extension trial was also
discontinued. High-level results in December
2018 of the AMARANTH and DAYBREAK-ALZ
trials confirmed no significant disease slowing
was observed in any of the Phase III trials,
confirming that the action to discontinue
the trials was the correct decision.
We also collaborate with Lilly on MEDI1814,
an antibody selective for amyloid-beta 1-42
(A 1-42) that is currently in Phase I trials as
a potential disease-modifying treatment for
Alzheimer’s disease.
We are progressing MEDI7352 in painful
diabetic neuropathy, which is in Phase II and
continue our collaboration with Takeda on
MEDI1341 for Parkinson’s disease, which
is in Phase I.
In May 2018, we announced an agreement
with Luye Pharma for the sale and licence
of the rights in the UK, China and other
international markets to Seroquel and
Seroquel XR. We had previously partnered
the rights to Seroquel and Seroquel XR in
Japan and Venezuela under prior agreements.
Seroquel, used primarily to treat
schizophrenia and bipolar disease, has
lost its compound patent protection globally.
The Seroquel XR formulation patents have
now also expired in the majority of markets.
Autoimmunity and inflammation
In February 2018, six molecules from our
early-stage inflammation and autoimmunity
programmes were spun out into an
independent biotech company, Viela Bio.
The new company will focus on developing
medicines for severe autoimmune diseases
by targeting the underlying causes of each
disease. The molecules include inebilizumab,
currently in Phase II trial development for the
treatment of neuromyelitis optica spectrum
disorder, a rare condition that affects the optic
nerve and spinal cord in approximately five
in 100,000 people.
We announced in August 2018 that
anifrolumab, a developmental mAb that
inhibits the activity of all type I interferons
(IFN), did not meet the primary endpoint in
the TULIP 1 Phase III trial in systemic lupus
erythematosus (SLE). A full evaluation of the
combined TULIP 1 and TULIP 2 data will be
conducted to determine next steps for
anifrolumab in SLE. The Phase II trials in
lupus nephritis and for a subcutaneous route
of administration in SLE remain ongoing, as
does the long-term extension trial in SLE.
In April 2016, AstraZeneca licensed its US
rights to develop and commercialise Zurampic
and Duzallo to Ironwood. In August 2018,
Ironwood notified AstraZeneca of its intent
to terminate the licence for convenience. In
November 2018, Ironwood notified the FDA
that it had discontinued the manufacturing
of the products and contemporaneously
informed AstraZeneca that it is working on
withdrawing the NDAs for these products and
terminating the FDA required post-marketing
study. This process is expected to take
several months.
Gastrointestinal
Use of Nexium continued to grow in a limited
number of markets such as China and Japan
in 2018. This growth is expected to continue
following additional approvals in China for
high-dose treatment of peptic ulcer bleeding
and in Japan for paediatric patients from the
age of one, with the innovative Nexium sachet
formulation. The re-examination periods for
adult indications/dosage of Nexium capsules
and Nexium sachets have been extended for
two years in Japan, until 30 June 2021. This
enables the completion of another clinical trial
for long-term treatment in the new paediatric
population. Nexium is subject to generic
competition globally, except for Japan.
In October 2018, we announced that we had
entered into an agreement with Grünenthal
for the rights to Nexium in Europe and Vimovo
worldwide (excluding the US).
In January 2019, Ironwood announced they
had received marketing authorisation from the
NMPA in China for Linzess for the treatment
of patients with irritable bowel syndrome with
constipation. We entered into a collaboration
in China with Ironwood in 2012.
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 52, 58, 64
and 68 and the Development Pipeline
table from page 212. For information on
Patent Expiries of our Key Marketed
Products, see from page 217.
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 29 to the Financial Statements
from page 194.
Details of relevant risks are set out in
Risk from page 220.
AstraZeneca Annual Report & Form 20-F Information 2018 / Therapy Area Review
69
Strategic Report
Risk Overview
We face a diverse range of risks and uncertainties.
Those risks which have the potential to have a material
impact on our business or results of operations are 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 ongoing 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 220 to 230 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.
Progress in the delivery of Group-wide
restructuring initiatives has been sufficient for
the Board to determine that the risk ‘Delivery
of Gains from Productivity Initiatives’
(previously listed as a Principal Risk) is no
longer a Principal Risk. The Board will,
however, continue to monitor strategic
initiatives and their impact on employee
engagement.
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 220 to 230.
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
70
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report advising on policy and standard setting,
monitoring and auditing, and 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 from page 91.
Viability statement
In accordance with provision C.2.2 of the
2016 UK Corporate Governance Code, the
Board has determined that a three-year
period to 31 December 2021 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 assesses
the Company’s prospects using a 10-year
long-range projection but, given the inherent
uncertainty involved, believes that the
three-year statement presents readers of
this 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. The following
scenarios have been applied to this analysis
to create a severe downside reflecting some of
the Principal Risks detailed on pages 72 to 73.
> Scenario 1 Principal Risk: demand, pricing,
market access and competitive pressures;
quality and execution of commercial
strategies; secure and protect product IP.
Lower than anticipated growth rates,
adverse impact of generic competition and
greater than anticipated pressure on pricing
across multiple products and markets.
> Scenario 2 Principal Risk: delivery of
pipeline and new products. Assumes no
launches of new products.
> Scenario 3 Principal Risk: maintain supply
of compliant, quality product. Regulatory
observation or other equipment failure
results in a 12-month outage at one of our
key manufacturing sites.
> Scenario 4 Principal Risk: achieve strategic
plans and meet targets and expectations.
Income from divestment of core assets
reinvested into core therapy areas and new
products reduced by half.
> Scenario 5 Principal Risk: externally driven
demand, pricing, access and competitive
pressures. Failure to establish EU-based
regulatory testing and release capability for
a product leads to inability to supply
impacted products into the EU following a
‘no deal Brexit’ outcome.
> Scenario 6 Principal Risk: meet regulatory
and ethical expectations on commercial
practices including bribery and corruption
and scientific exchanges. Legal, regulatory
non-compliance or cyber incident causes
reputational damage in a key market
resulting in a significant and ongoing
reduction in market share.
In addition, 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 or
combination of scenarios above, 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 and the ratification of
the outcome of those negotiations by the UK
and EU parliaments 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 and parliamentary
ratification processes are 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 and
implementation committee to understand,
assess, plan and implement operational
actions that may be required. Many of these
actions are being implemented based on
assumptions rather than defined positions so
that the Group is able to mitigate the risks
arising from variable external outcomes. The
Group has adopted a base case planning
assumption of hard Brexit/No deal since the
time of the referendum and has taken
appropriate actions to date based on those
assumptions. Currently, many actions have
been implemented or are in process including,
but not limited to: engagement with
government and regulators; duplication of
release testing and procedures for products
for the EU27 and the UK markets; transfer of
regulatory licences, re-design of packaging
and labelling, additional inventory builds and
changes to logistics plans and shipping
routes; customs and duties set up for
introduction or amendment of existing tariffs
or processes; associated IT systems
reconfigurations; and banking arrangement
changes. The Board reviews the potential
impact of Brexit regularly as an integral part of
its Principal Risks (as outlined overleaf) rather
than as a standalone risk. The Board most
recently reviewed the Group’s Brexit readiness
plans at its meeting in December 2018 and
continues to assess its impact.
AstraZeneca Annual Report & Form 20-F Information 2018 / Risk Overview
71
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
Our pharmaceutical products and commercialisation
processes are subject to extensive regulation. 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
72
Global economic and
political conditions placing
downward 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
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report
Risk category and Principal Risks
Context/potential impact
Management actions
Trend versus prior year
Supply chain and business execution continued
Information
technology,
data security
and privacy
Attract, develop,
engage and
retain talented
and capable
employees
at all levels
Significant disruption to our IT systems, cybersecurity
incidents including breaches of data security, or data
privacy failure, 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
> Cybersecurity framework and dashboard
> Privacy office oversees compliance with data
privacy legislation
> Disaster and data recovery plans
> Strategies to secure critical systems and
processes
Growing multi-faceted cyber
threat. Tougher legislative
environment governs data
protection following
introduction of new EU
GDPR legislation
> Regular cybersecurity and privacy training for
employees
Failure to attract and retain highly skilled personnel may
weaken our succession plans for critical positions in the
medium term. Employee uncertainty as a result of, for
example, Brexit or organisational change may result in a
lower level of employee engagement which could impact
productivity and turnover. Both could adversely affect the
achievement of our strategic objectives
> Targeted recruitment and retention strategies
deployed
> Identification and active support of staff
potentially impacted by Brexit
> Development of our employees
> Evolve our culture
> Focus on simplification
Legal, regulatory and compliance
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
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
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
Economic and financial
Achieve strategic
plans and meet
targets and
expectations
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 2018 / Risk Overview
73
Strategic Report
Financial
Review
2018 marked our return to Product Sales growth
with strong performance from Growth Platforms
and New Medicines more than offsetting the
continued impact from patent expiries.
“ Product sales grew 4% to $21.0 billion
driven by outstanding performance of
our Oncology medicines; Emerging
Markets sales continued to grow; and
New CVRM grew by 12% (CER:12%).”
The Reported tax rate of (3)% and Core tax
rate of 11% for the year benefitted from a
favourable net adjustment of $0.3 billion to
deferred tax, reflecting the recently announced
reductions to the Dutch and Swedish income
tax rate. Additionally, there was a $0.2 billion
benefit to the Reported and Core tax rates
resulting from a reduction in tax provisions.
Reported operating profit declined by 8%
(CER: 7%) to $3.4 billion and Core operating
profit decreased by 17% (CER: 17%) to $5.7
billion in the year. Reported EPS was $1.70
and Core EPS was $3.46.
We generated a net cash inflow from
operating activities of $2.6 billion in the year
and we maintained a strong, investment-
grade credit rating. During the year, we issued
new bonds totalling $3.0 billion and repaid
$1.4 billion of maturing bonds. We ended the
year with total gross debt of $19.1 billion, $6.1
billion of cash, investments and derivatives,
with net debt of $13.0 billion.
Marc Dunoyer
Chief Financial Officer
In 2018, Product Sales grew 4% to $21.0 billion
driven by outstanding performance of our
Oncology medicines, which grew 50% (CER:
49%), led by Tagrisso, Lynparza and Imfinzi.
Emerging Markets sales continued to grow,
especially in China, and it is now our largest
region by total Product Sales. New CVRM grew
12% (CER:12%) to $4.0 billion with both Farxiga
and Brilinta delivering sales over $1.3 billion
annually. Total Revenue was $22.1 billion, a 2%
decline led by lower Externalisation Revenue of
$1.0 billion, a 55% reduction from 2017. In
2018, $0.8 billion of Externalisation Revenue
was received as part of our collaboration with
MSD on Lynparza and selumetinib.
Reported R&D expenses increased by 3% as a
result of higher intangible asset impairment
charges. Core R&D expenses declined by 3%
with focus on resource prioritisation,
productivity improvements and improved
development processes all delivering cost
reductions whilst maintaining high levels of
activity. Reported SG&A expenses declined by
2% (CER: 3%) primarily due to the decrease in
fair value of contingent consideration liabilities.
Core SG&A expenses increased by 10% (CER:
9%) due to commercial and medical affairs
support for New Medicines and to drive growth
in China.
Reported other operating income was $2.5
billion in the year and included income from
various disposal transactions, including the sale
of the rights to Nexium in Europe to Grünenthal
and the sale of the rights to Seroquel and
Seroquel XR in UK, China and other
international region markets to Luye Pharma.
74
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report Contents
Introduction 74
Business background
and results overview 75
Measuring performance 76
Results of operations –
summary analysis of year
ended 31 December 2018 77
Cash flow and liquidity –
for the year ended
31 December 2018 82
Financial position –
31 December 2018 83
Capitalisation and
shareholder return 86
Future prospects 86
Financial risk
management 86
Critical accounting
policies and estimates 87
Sarbanes-Oxley Act
Section 404 90
The purpose of this Financial Review is to
provide a balanced and comprehensive analysis
of the financial performance of the business
during 2018, 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 11, the Therapy
Area Review from page 50 and describes in
detail the developments in our products.
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 217.
> 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 Chinese
renminbi, euro, Japanese yen, pound
sterling and Swedish krona.
> Macro factors such as greater demand
from an ageing population and increasing
requirements of Emerging Markets.
> Supply chain risks including the failure
of third parties to supply timely quality
products, such as raw materials, and the
risk of catastrophic failure of critical internal
processes leading to an inability to research,
manufacture or supply products to patients.
Further details of the risks faced by the
business are given in Risk Overview from
page 70 and Risk from page 220.
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 the scale and timing of
outcomes and their transition to saleable
products.
The most significant features of our financial
results in 2018 are:
> Total Revenue down 2% to $22,090 million
(CER: 2%). Product Sales were up 4%
(CER: 4%) reflecting the performance of
New Medicines and the ongoing growth in
Emerging Markets.
– Oncology sales increased by 50%
(CER: 49%) with Tagrisso up 95% (CER:
93%) to $1,860 million, Imfinzi sales
reaching $633 million arising primarily in
the US and Lynparza sales of $647 million
representing growth of 118% (CER:
116%), driven by expanded use in the
treatment of ovarian cancer and first
approval in the treatment of breast
cancer.
– New CVRM sales increased by 12%
(CER: 12%) to $4,004 million and
included Farxiga sales of $1,391 million
with growth of 30% (CER: 30%) including
a sales increase of 45% (CER: 52%) in
Emerging Markets and Brilinta sales of
$1,321 million representing growth of
22% (CER: 21%).
– Respiratory was up 4% (CER: 3%)
reflecting growth for Pulmicort and the
success of the 2017 launch of Fasenra,
offset by a continued fall in US Product
Sales of Symbicort.
– Emerging Markets grew by 12% (CER:
13%) to $6,891 million, making it the
Group’s largest region by Product Sales
for the first time. China sales increased
by 28% (CER: 25%) to $3,795 million.
Oncology sales in China were up 44%
(CER: 41%) partly underpinned by the
2017 launch of Tagrisso.
> Reported operating profit was down 8%
(CER: 7%) to $3,387 million (2017: $3,677
million) driven by declines in Total Revenue
and the increase to Reported R&D
expenses.
> Core operating profit was also down 17%
(CER: 17%) to $5,672 million (2017: $6,855
million). The difference between Core and
Reported operating profit is largely driven
by the impact of non-core amortisation
and impairment of intangibles. The
decrease from prior year was driven by
a credit to core adjustments from the
release of legal provisions.
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial Review
75
Strategic Report Financial Review
continued
> Reported operating margin of 15% of Total
Revenue was one percentage point down
on 2017 (CER: one percentage point). Core
operating margin was 26% of Total Revenue
(2017: 31%).
> Reported EPS was down 28% (CER: 29%)
to $1.70. Core EPS was also down 19%
(CER: 19%) to $3.46.
> Dividends paid amounted to $3,484 million
(2017: $3,519 million).
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 manufacturing facilities
and 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 2018 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, share
of after tax losses of 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 78 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 82
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 point in time control is transferred).
Ongoing Externalisation Revenue comprises,
among other items, milestones, profit
sharing and royalties. Reference should be
made to the Externalisation Revenue table
on page 78 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
2018 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 allow 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 and trends 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.
76
AstraZeneca Annual Report & Form 20-F Information 2018 / 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 2018 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.
Readers should also refer to our Reported
financial information in the 2018 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 2018
2018 Reported operating profit
2018
Growth
due to
exchange
effects
$m
Reported
$m
CER
growth
$m
2017
Percentage of
Total Revenue
Reported 2018
compared
with Reported 2017
Reported
$m
Reported
2018
%
Reported
2017
%
Actual
growth
%
CER
growth¹
%
Product Sales
21,049
733
164
20,152
Externalisation Revenue
1,041
(1,274)
2
2,313
Total Revenue
Cost of sales
Gross profit
22,090
(4,936)
(541)
(542)
17,154
(1,083)
Distribution expenses
(331)
(20)
166
(76)
90
(1)
22,465
(4,318)
(22.3)
(19.2)
18,147
(310)
77.7
(1.5)
80.8
(1.4)
Research and
development expenses
Selling, general and
administrative expenses
Other operating
income and expense
Operating profit
2,527
3,387
Net finance expense
(1,281)
Share of after tax
losses of joint ventures
and associates
Profit before tax
Taxation
Profit for the period
Basic earnings
per share ($)
(113)
1,993
57
2,050
1.70
(5,932)
(151)
(24)
(5,757)
(26.9)
(25.6)
(10,031)
310
(108)
(10,233)
(45.4)
(45.5)
11.4
15.3
8.1
16.4
697
(247)
(27)
(58)
(332)
(574)
(906)
–
(43)
141
–
98
(10)
88
1,830
3,677
(1,395)
(55)
2,227
641
2,868
2.37
4
(55)
(2)
14
(5)
7
3
(2)
38
(8)
4
(55)
(2)
13
(6)
6
3
(3)
38
(7)
(10)
(14)
(28)
(29)
Product Sales
gross margin %2
Distribution expenses
Research and
development
expenses
Selling, general and
administrative
expenses
Other operating
income and expense
Operating profit
Operating margin as
a % of Total Revenue
1
Asdetailedonpage76,CERgrowthiscalculatedusingprioryearactualresultsadjustedforcertainexchangeeffects
including hedging.
2018 Reconciliation of Reported results to Core results
2018
Reported
$m
Restructuring
costs
$m
Intangible
amortisation
and
impairments
$m
Diabetes
Alliance4
$m
Other3
$m
2018
Core¹
$m
Core 2018
compared with
Core 2017¹
CER
growth
%
Actual
growth
%
Gross profit
17,154
432
187
76.6
(331)
(5,932)
–
94
–
572
–
–
–
–
17,773
(4)
(4)
79.5
(331)
–
7
6
–
(5,266)
(3)
(3)
(10,031)
181
1,582
(60)
(323)
(8,651)
10
9
2,527
3,387
15.3
(10)
697
–
(146)
4
–
(374)
2,147
2,345
(60)
(697)
5,672
10
(17)
10
(17)
–
(487)
337
(73)
208
109
25.7
(736)
(540)
0.43
1.47
0.16
(0.30)
3.46
(19)
(19)
Net finance expense
(1,281)
Taxation
Basic earnings
per share ($)
57
1.70
1 Each of the measures in the Core column in the above table is a non-GAAP measure.
2 Grossmarginasa%ofProductSalesreflectsgrossprofitderivedfromProductSales,dividedbyProductSales.
3 See page 81 for further details of other adjustments.
4 Relating to the 2014 acquisition of BMS’s share of Global Diabetes Alliance.
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial Review
77
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
2018
$m
1,993
1,281
113
3,753
7,140
2017
$m
2,227
1,395
55
3,036
6,713
Actual
growth
%
CER
growth
%
(10)
(8)
104
24
6
(14)
2
104
24
7
Growth Platforms
Emerging Markets
Respiratory
New CVRM1
Japan
Oncology²
2018
Product Sales
$m
2017
Product Sales
$m
Actual
growth
%
CER
growth
%
6,891
4,911
4,004
2,004
6,028
6,149
4,706
3,567
2,208
4,024
12
4
12
(9)
50
13
13
3
12
(11)
49
12
Total Growth Platform Product Sales3
18,464
16,396
1 New Cardiovascular, Renal & Metabolic Diseases, incorporating Brilinta and Diabetes.
2 Oncology comprises total Oncology Product Sales.
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
Crestor (Almirall)
Lynparza/selumetinib (MSD)
Zoladex (TerSera)
MEDI8897 (Sanofi)
Other
Total Initial Externalisation Revenue
Ongoing Externalisation Revenue
Lynparza/selumetinib (MSD) – option exercised
Lynparza/selumetinib (MSD) – milestone
Zoladex (TerSera) – milestone
Global non-US anaesthetics portfolio (Aspen) – milestone
brodalumab (Valeant) – milestone
AZD3293 (Lilly) – milestone
Royalties
Other
Total Ongoing Externalisation Revenue
Total Externalisation Revenue
2018
$m
61
–
–
–
51
112
400
390
35
–
–
–
49
55
929
1,041
2017
$m
–
997
250
127
118
1,492
250
–
–
150
130
50
108
133
821
2,313
Financial Review
continued
Total Revenue
Total Revenue for the year was down 2%
(CER: 2%) to $22,090 million, comprising
Product Sales of $21,049 million up 4% (CER:
4%) and Externalisation Revenue of $1,041
million, a decrease of 55% (CER: 55%).
By Geography
Product Sales in Emerging Markets continued
to increase with growth of 12% (CER: 13%)
to $6,891 million in 2018, including growth in
China of 28% (CER: 25%) to $3,795 million.
Sales of Tagrisso in Emerging Markets
increased by $212 million in the year to $347
million, an increase of 157% (CER: 159%).
US Product Sales were up 11% (CER: 11%)
to $6,876 million, reflecting the success of
the new Oncology medicines and the strong
performance of Fasenra. In Europe, Product
Sales declined by 6% (CER: 10%) to $4,459
million, reflecting the continued impact from
generic competition on Crestor. Established
Markets sales declined 8% (CER: 9%) to
$2,823 million with sales in Japan down 9%
(CER: 11%) to $2,004 million largely driven by
the decline in Crestor sales, which declined by
66% (CER: 67%) to $166 million in the year as
the impact of generic competition from 2017
took effect.
By Product
Our largest selling products in 2018 were
Symbicort ($2,561 million), Tagrisso ($1,860
million), Nexium ($1,702 million) and Crestor
($1,433 million). Global sales of Symbicort
declined by 9% (CER: 10%) with 13% growth
in Emerging Markets (CER: 14%) being more
than offset by declines in US and Europe due
to the impact of a competitive environment on
net pricing. Tagrisso sales grew by 95% (CER:
93%) reflecting strong market penetration
following 2017 approvals in US and China.
Nexium sales were down 13% (CER: 14%)
reflecting continued lower demand as a result
of the loss of exclusivity from 2015, however
the decline in sales has been slower than
expected. Crestor sales declined by 39%
(CER: 40%) as the impact of generic
competition continued to take effect. There
were also continued strong performances in
the year from Farxiga and Brilinta, with Farxiga
growing by 30% (CER: 30%) and Brilinta by
22% (CER: 21%).
78
AstraZeneca Annual Report & Form 20-F Information 2018 / 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 13% (CER: 12%), representing 84% 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
12% compared to 2017 (CER: 13%) to $6,891
million partly driven by a strong performance
from Tagrisso with growth of 157% (CER:
159%). Product Sales in China increased by
28% in 2018 (CER: 25%), representing 55% of
Emerging Markets Product Sales in the year.
Product Sales of Respiratory medicines
increased by 4% (CER: 3%), with the impact of
pricing pressure in the US for Symbicort being
more than offset by a strong performance by
Respiratory in Emerging Markets and higher
demand for Pulmicort in China.
New CVRM grew by 12% (CER: 12%) with
revenue of $4,004 million (2017: $3,567
million). Within New CVRM, sales of Brilinta in
the year were $1,321 million, an increase of
22% (CER: 21%). Brilinta sales in the US were
up 16% to $588 million, as it remained the
branded oral anti-platelet market leader.
Our Diabetes Product Sales were 8% higher
than in 2017, driven primarily by growth of
30% on Farxiga (CER: 30%) with global sales
of $1,391 million as it continued to be our
largest-selling Diabetes medicine and SGLT-2
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 declined by 9% (CER:
11%) with growth on Tagrisso and Forxiga,
outweighed by the impact of the entry of
generic competition to Crestor in 2017.
Product Sales of Oncology medicines
increased to $6,028 million in 2018 (2017:
$4,024 million), $1,860 million of which came
from Tagrisso (2017: $955 million), which
continues to be our leading medicine for the
treatment of lung cancer and received
regulatory approval in more than 55 countries
by the end of 2018.
Externalisation Revenue
Details of our significant business
development transactions which give rise
to Externalisation Revenue are given below:
> In November 2018, AstraZeneca entered
into an agreement with Swedish Orphan
Biovitrum AB (Sobi) to sell the US rights to
Synagis. Under the agreement Sobi will also
have the right to participate in AstraZeneca’s
share of US profits and losses related to
MEDI8897. The deal was completed on 23
January 2019 and AstraZeneca received an
upfront consideration of $1.6 billion, including
cash of $966 million and ordinary shares in
Sobi with an initial market value of $600
million. This income was recorded in 2019.
AstraZeneca will also receive up to $470
million in sales-related payments for Synagis,
$175 million following the submission of the
Biologics License Application (BLA) for
MEDI8897, potential net payments of $110
million for other MEDI8897 profit-related
milestones and $60 million in non-contingent
payments for MEDI8897 during the period
from 2019 to 2021.
> In December 2017, AstraZeneca entered
into an agreement effective January 2018
with Almirall, under which Almirall is granted
an exclusive and perpetual licence to
distribute and undertake certain
manufacturing activities related to Crestor
and Provisacor in Spain. Almirall made an
upfront payment of €51 million on
completion of the deal and will pay
additional sales-related milestones of up to
€55 million plus a royalty for ten years.
> 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
in 2017, 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.
> In November 2017, MSD exercised the first
licence option resulting in Externalisation
Revenue of $250 million.
> In January 2018, the FDA expanded the
approved use of Lynparza to include the
treatment of patients with certain types of
breast cancer. The approval triggered a $70
million milestone payment from MSD to
AstraZeneca.
> In June 2018, net sales of Lynparza reached
$250 million cumulative sales threshold,
triggering a sales-related milestone of $100
million to fall due to AstraZeneca.
> In November 2018, MSD exercised the
second licence option resulting in
Externalisation Revenue of $400 million. In
addition to the exercise of this option, net
sales of Lynparza reached the $500 million
cumulative sales threshold, triggering a
sales-related milestone of $150 million to
fall due to AstraZeneca.
> In December 2018, AstraZeneca was notified
of an FDA approval of Lynparza, which
triggered the SOLO-1 $70 million milestone
payment to AstraZeneca.
> 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. The US element
of this collaboration is the subject of a
participation agreement with Sobi, entered
into in November 2018 and effective
23 January 2019.
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial Review
79
Strategic Report Financial Review
continued
> 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
December 2018, TerSera paid a sales-
related milestone of $35 million to
AstraZeneca.
> 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 May 2018, Aralez
announced a change in strategic direction
and the closure of their US commercial
operations and this was followed shortly
afterwards by an announcement that they
had formally moved in bankruptcy
proceedings. A provision of $14 million has
been recorded for overdue receivables.
> 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 and
income under this arrangement is now
recorded in Other operating income and
expense, in line with our definition of
Externalisation Revenue in the Accounting
Policy note on page 155.
> 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
80
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.
As detailed in Risk from page 220, 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 5% (CER:
6%) to $17,154 million. Core gross profit
declined by 4% (CER: 4%) to $17,773 million.
The declines primarily reflected the lower level
of Externalisation Revenue and an adverse
impact from an increase in the Cost of Sales.
The difference between Reported and Core
Gross Margin arose predominantly on the
$0.3 billion restructuring costs associated
with the impairment of site-related assets and
inventory from the US Biologics site closures
in Longmont and Boulder, CO.
Reported R&D expenses in the year increased
by 3% (CER: 3%) to $5,932 million as a result of
increased intangible asset amortisation and
impairment. Intangible asset impairment
charges of $539 million were recorded
following analysis of relevant clinical trial data.
Core R&D expenses declined by 3% to $5,266
million reflecting the continued focus on
resource prioritisation and productivity
improvements.
Reported SG&A expenses decreased by 2%
(CER: 3%) to $10,031 million primarily due to
the revaluation of contingent consideration
liabilities arising on business combinations.
Core SG&A expenses increased by 10%
(CER: 9%) to $8,651 million reflecting
investment in the launch of new medicines.
Reported Other operating income and expense
in the year was up 38% (CER: 38%) at $2,527
million which includes $695 million from the
sale of the rights to Nexium in Europe to
Grünenthal, $527 million on the sale of the
rights to Seroquel and Seroquel XR in UK,
China and other international region markets to
Luye Pharma, $210 million from the sale of
rights to Atacand in Europe to Cheplapharm,
milestone receipts of $172 million from the
disposal of the anaesthetics portfolio outside
the US to Aspen, and $139 million from the sale
of global rights to Alvesco, Omnaris and
Zetonna to Covis. As these elements of our
income arose from product divestments, where
we no longer retain significant ongoing
economic interest, in accordance with our
Externalisation Revenue definition in the
Accounting Policy note on page 155 and the
requirements of IFRS 15 ‘Revenue from
Contracts with Customers’, proceeds from
these divestments are recorded as other
operating income.
Reported operating profit declined by 8%
(CER: 7%) to $3,387 million in the year. The
Reported operating margin declined by one
percentage point (CER: one percentage point)
to 15% of Total Revenue. The decrease was
primarily driven by declines in Total Revenue
and Reported gross margin as well as the
aforementioned increase in Reported R&D
expenses. Core operating profit declined by
17% (CER: 17%) in the year to $5,672 million.
The Core operating profit margin decreased by
five percentage points to 26% of Total Revenue.
Reported net finance expense decreased by
8% (CER: increased 2%) in the year to $1,281
million (2017: $1,395 million) reflecting the
effect of higher Net debt and an adverse
movement in the fair value of bonds and
derivative instruments and offset by lower
levels of discount unwind on Acerta Pharma
liabilities. Core net finance expense increased
by 13% (CER: 11%) in the year to $736 million.
Reported profit before tax declined by 10%
(CER: 14%) in the year to $1,993 million (2017:
$2,227 million), reflecting the lower level of
Externalisation Revenue, lower Reported
gross margin and the increase in Reported
R&D expenses. Pre-tax adjustments to arrive
at Core profit before tax amounted to $2,830
million in 2018 (2017: $3,923 million),
comprising $2,285 million adjustments to
operating profit (2017: $3,178 million) and $545
million to net finance expense (2017: $745
million). EBITDA increased by 6% (CER: 7%)
to $7,140 million.
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report Excluded from Core results were:
> Restructuring expenses totalling $697
million (2017: $807 million) were largely
driven by $252 million fixed asset
impairment and $75 million inventory write
off resulting from the announcement of the
US Biologics site closures in Longmont and
Boulder, CO.
> Amortisation totalling $1,663 million (2017:
$1,319 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 169.
> Intangible impairment charges of $683
million (2017: $488 million) excluding those
related to IT. Further details relating to
intangible asset impairments are included
in Note 9 to the Financial Statements
from page 169.
> Costs associated with our acquisition of
BMS’s share of our Global Diabetes Alliance
in February 2014 amounting to $277 million
(2017: $954 million) and included a fair value
credit of $482 million, amortisation charges
of $422 million and discount unwinds in
Sweden and US of $337 million.
> Other charges which includes net legal
provisions amounted to a credit of $489
million (2017: $355 million) and was primarily
driven by a $352 million settlement of legal
action in Canada in relation to patent
infringement of Losec/Prilosec, recognised
in other income. Further details of legal
proceedings in which we are currently
involved are contained within Note 29 to the
Financial Statements from page 194.
> Also included in other charges are a $208
million discount unwind charge (2017: $305
million) and a $126 million credit (2017: $309
million) for net fair value adjustments relating
to contingent consideration and the Acerta
Pharma put option arising on our other
business combinations as detailed in Note 19
to the Financial Statements from page 177.
> Additionally in 2017 a one-off adjustment of
$617 million reflecting adjustments to
deferred tax in line with the reduction to the
US federal tax rate.
Reported EPS of $1.70 in the year represented
a decline of 28% (CER: 29%). The performance
was driven by a decline in Externalisation
Revenue and increased Cost of Sales, partly
offset by an increase in other operating income
and expense. Core EPS in the year declined by
19% (CER: 19%) to $3.46.
The Reported tax rate of (3)% and the Core
tax rate in the year of 11% benefited from a
favourable adjustment of $297 million to
deferred taxes, reflecting the recently-
announced reductions in Dutch and Swedish
corporate income tax rates and a $188 million
benefit from reductions of tax provisions.
Excluding these benefits, both the Reported
and Core tax rates would have been 21%.
The income tax paid for the year was $537
million (27% of Reported profit before tax). This
was $594 million higher than the tax charge for
the year as a result of certain items with no
cash impact including $297 million deferred tax
credit reflecting the reduction in Dutch and
Swedish income tax rates, $509 million of other
deferred tax credits, $188 million provision
releases relating to the expiry of the statute of
limitations and on the conclusion of tax
authority review, other net increases 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. We pay corporate income taxes,
customs duties, excise taxes, stamp duties,
employment and many other business taxes
in all jurisdictions where applicable. In addition,
we collect and pay employee taxes and indirect
taxes such as value added tax. The taxes we
pay and collect represent a significant
contribution to the countries and societies
in which we operate.
Total comprehensive income decreased by
$2,516 million from the prior year, resulting
in a net income of $991 million for 2018.
The decrease in other comprehensive income
included foreign exchange losses arising
on designating borrowings in net investment
hedges of $520 million (2017: gains of
$505 million), foreign exchange losses arising
on consolidation of $449 million (2017: gains
of $536 million) and net losses on equity
investments measured at fair value through
other comprehensive income of $171 million
(2017: $nil), offset by a gain on fair value
movements on cash flow hedges
transferred to profit and loss of $111 million
(2017: $315 million).
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 is now $1.3 billion to be
incurred by the end of 2019, with benefits
expected to be $1.1 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
2018, 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 2021, 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
the end of 2019. By the end of 2018, these
programmes had incurred costs of $304 million
with total expected costs rising to $376 million.
The aggregate restructuring charge incurred in
2018 across all our restructuring programmes
was $697 million (2017: $807 million), including
the US Biologics site closures at Longmont
and Boulder, CO, 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.
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial Review
81
Strategic Report Financial Review
continued
Brexit readiness preparations and planning
Following the UK referendum outcome in June
2016 for the UK to leave the EU, the UK
Government and European Commission have
been negotiating the terms on which the UK
would leave the EU and the framework for the
future relationship. While a draft Withdrawal
Agreement has been agreed between the UK
government and the EU, at this time it remains
unclear whether this will be ratified by the UK
parliament in its current form, amended or if
the UK will leave the EU without a deal. In the
absence of a ratified agreement, it is unclear
what trading relationships the UK will have
with the EU and other significant trading
partners after 29 March 2019 given the range
of political and legal options. Until the Brexit
negotiation process is completed, it is difficult
to anticipate the potential impact on our
market share, sales, profitability, cashflows
and results of operations.
In response to this situation, the Group has
taken the decision to implement appropriate
actions to mitigate where possible the
potential risk of disruption to the supply of
medicines (including potential new medicines
currently undergoing clinical trials) 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
reconfiguration. In addition, the Group has
engaged with its major suppliers to assess
their readiness and continues to work with
them to mitigate the risk of disruption to
supply chains.
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. The
current estimate of these costs is around $40
million. However, until the Brexit process is
concluded by the UK and EU parliaments and
the impacts of transition to any new
arrangement between them are known with
clarity, it is difficult to anticipate the overall
potential impact on the Group’s operations
and hence the final expected costs to be
incurred.
82
Cash flow and liquidity – for the year ended 31 December 2018
Summary cash flows
2018
$m
2017
$m
Net debt brought forward at 1 January
Profit before tax
(12,679)
(10,657)
1,993
2,227
2016
$m
(7,762)
3,552
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
5,147
(639)
(537)
(676)
4,486
3,707
(50)
(454)
(698)
926
(412)
(677)
Gains on disposal of intangible assets
(1,885)
(1,518)
(1,301)
Fair value movements on contingent consideration arising
from business combinations
Non-cash and other movements
Net cash inflow 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 investments1,2
Cash and investments
Overdraft and short-term borrowings
Finance leases
Current instalments of loans
Loans due after one year
Loans and borrowings
Net derivative financial instruments
Net debt
(495)
(290)
2,618
2,010
–
(349)
(1,218)
443
(3,484)
34
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
(3,450)
(3,476)
(3,514)
65
(3)
177
(13,003)
(12,679)
(10,657)
2018
$m
4,831
895
5,726
(755)
–
2017
$m
3,324
1,300
4,624
(845)
(5)
2016
$m
5,018
898
5,916
(451)
(93)
(999)
(1,397)
(1,769)
(17,359)
(15,560)
(14,495)
(19,113)
(17,807)
(16,808)
384
504
235
(13,003)
(12,679)
(10,657)
1
Other investments in 2018 include $46 million (2017: $70 million) of non-current Treasury investments.
2 Other investments include non-current investments, which are included within the balance of $833 million (2017: $933 million)
intheStatementofFinancialPositiononpage150.TheequivalentGAAPmeasuretoNetdebtis‘liabilitiesarisingfromfinancing
activities’,whichexcludestheamountsforcashandoverdrafts,otherinvestmentsandnon-financingderivativesshownabove
and includes the Acerta Pharma put option of $1,838 million (2017: $1,823 million) shown in non-current other payables.
Bonds issued in 2018 and 2017
Bonds issued in 2018:
3.5% USD bond
Floating rate USD notes
4% USD bond
4.375% USD bond
Total 2018
Bonds issued in 2017:
2.375% USD bond
Floating rate USD notes
3.125% USD bond
Total 2017
Repayment
dates
Face value
of bond
$m
Net book
value of
bond at 31
December
$m
2023
2023
2029
2048
2022
2022
2027
850
400
1,000
750
3,000
1,000
250
750
845
400
992
736
2,973
994
250
743
2,000
1,987
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report Cash flow and liquidity
Net cash generated from operating activities
was $2,618 million in the year ended 31
December 2018, compared with $3,578 million
in 2017. The 2018 operating cash inflows
reflected the increase in the movement of
working capital and short-term provisions
impacted by the reduction of provisions
relating to legal settlements, as well as
launch support for new medicines.
Net investment cash inflows were $443 million
(2017: outflow of $2,121 million).
Investment cash outflows for 2018 include
$349 million (2017: $434 million) of payments
against contingent consideration arising on
business combinations and $328 million
(2017: $294 million) for the purchase of other
intangible assets. 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.
Investment cash inflows include $2,338 million
(2017: $1,376 million) from the sale of intangible
assets, including $700 million on sale of
Nexium rights in Europe to Grünenthal, $482
million relating to the 2017 sale of our remaining
anaesthetic portfolio to Aspen, $354 million on
the sale of Alvesco, Omnaris and Zetonna
rights outside the US to Covis Pharma, $275
million from the sale of UK, China and other
international regions rights to Seroquel XR and
Seroquel IR to Luye Pharma and $205 million
from the sale of European rights to Atacand to
Cheplapharm. The comparative period in 2017
included $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 to Pfizer.
Net cash distributions to shareholders were
$3,450 million (2017: $3,476 million), including
dividends of $3,484 million (2017: $3,519
million). Proceeds from the issue of shares on
the exercise of share options amounted to $34
million (2017: $43 million).
In August 2018, we issued $3.0 billion of
bonds in the US dollar debt capital markets
with maturities of five, ten and 30 years and
repaid a $1.0 billion 1.75% bond and a $0.4
billion floating rate bond, both of which
matured in November 2018.
At 31 December 2018, outstanding gross debt
(interest-bearing loans and borrowings) was
$19,113 million (2017: $17,807 million). Of the
gross debt outstanding at 31 December 2018,
$1,754 million is due within one year (2017:
Financial position – 31 December 2018
All data in this section is on a Reported basis.
Summary statement of financial position
Property, plant and equipment
2018
$m
7,421
Movement
$m
(194)
2017
$m
7,615
Movement
$m
767
2016
$m
6,848
Goodwill and intangible assets
33,666
(4,347)
38,013
(1,231)
39,244
Assets held for sale
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 $46m in 2018 (2017: $70m))
Investment in associates
and joint ventures
Net debt
Net assets
982
2,890
6,089
(19,611)
(891)
(957)
(907)
(2,511)
787
89
(13,003)
982
(145)
233
(130)
577
(131)
899
72
–
3,035
5,856
(19,481)
(1,468)
(826)
(1,806)
(2,583)
–
701
382
493
(50)
128
1,048
(397)
(76)
863
150
–
2,334
5,474
(19,974)
(1,418)
(954)
(2,854)
(2,186)
713
99
(14)
(324)
103
4
(12,679)
(2,022)
(10,657)
14,044
(2,598)
16,642
(27)
16,669
$2,247 million). Net debt at 31 December 2018
was $13,003 million, compared to $12,679
million at the beginning of the year, as a result
of the cash flows as described above. At 31
December 2018, cash, cash equivalents and
liquid investments totalled $4.8 billion and
undrawn committed cash facilities totalled
$4.1 billion.
Property, plant and equipment
In 2018, Property, plant and equipment
decreased by $194 million to $7,421 million.
Additions of $1,034 million (2017: $1,311
million) were offset by depreciation of $614
million (2017: $624 million), impairments of
$291 million (2017: $78 million), exchange
adjustments of $301 million (2017: $352
million) and disposals and other movements
of $22 million (2017: $194 million).
Business combinations
In 2016, we acquired a majority equity stake in
Acerta Pharma. No business acquisitions were
made in 2018 or 2017. Further details of our
business combinations are contained in Note
26 to the Financial Statements from page 186.
Goodwill and intangible assets
Our goodwill of $11,707 million (2017: $11,825
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 $21,959 million
at 31 December 2018 (2017: $26,188 million).
The decrease was mainly driven by
amortisation in the year of $2,165 million (2017:
$1,829 million) and the reclassification of
assets held for sale of $982 million in respect
of Synagis. Intangible asset additions were
$513 million in 2018 (2017: $441 million).
Impairment charges in the year amounted to
$683 million (2017: $491 million) including
impairments on MEDI0680 and Eklira.
Disposals of intangible assets totalled $339
million in the year (2017: $307 million).
Further details of our additions to intangible
assets, and impairments recorded, are
included in Note 9 to the Financial Statements
from page 169.
Receivables, payables and provisions
Trade and other receivables decreased by
$233 million with trade receivables increasing
by $193 million to $2,995 million principally as
a result of higher invoiced sales in the US.
Trade and other payables increased by $130
million in 2018 to $19,611 million. The increase
was due to higher rebates in the US and China,
partially offset by a deferred income release on
the Lynparza and selumetinib collaboration.
The decrease in provisions of $577 million in
2018 included a $456 million reduction on
legal provisions and a $132 million reduction
to severance provisions. Further details of the
charges made against provisions are
contained in Notes 20 and 29 to the Financial
Statements on page 178 and from page 194,
respectively.
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial Review
83
Strategic Report Financial Review
continued
Contingent consideration
The majority of our business acquisitions 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 and 2018.
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 $0.6 billion for future
development, launch, and various other
sales-related milestone payments, and
sales-related royalty payments as detailed in
Note 19 to the Financial Statements from
page 177.
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 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’. The calculation of the fair
value is considered to be a key estimate.
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 2018, we
recorded an interest charge of $416 million on
the discount unwind on contingent
consideration arising on our business
combinations, and a net fair value decrease
on contingent consideration of $495 million
(which resulted in a credit to our income
statement for the same amount) driven,
principally, by revised forecasts for revenues
for our Diabetes franchise. At 31 December
2018, our contingent consideration liability
was $5,106 million (2017: $5,534 million) with
the movements of the balance detailed in the
table to the right.
84
Tax payable and receivable
Net income tax payable has increased by
$131 million (2017: decrease of $128 million) to
$957 million, principally due to the receipt of
cash in the year following a previously
disclosed agreement of inter-government
transfer pricing arrangements and other cash
tax timing differences, offset by tax provision
releases following expiry of statute of
limitations and on conclusion of tax authority
review. The tax receivable balance of $207
million (2017: $524 million) principally relates to
cash tax timing differences.
Net deferred tax liabilities decreased by $899
million (2017: $1,048 million) in the year mainly
reflecting adjustments to deferred tax arising
from the Dutch and Swedish income tax rate
reductions and deferred tax associated with
movements in intangible assets. The decrease
in net deferred tax liabilities in 2017 reflected
adjustments to deferred taxes in line with the
reduction to the 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 163.
Retirement benefit obligations
In terms of the Group’s major defined benefit
plans, approximately 91% of our total retirement
defined benefit obligations (or around 80% of
net obligations) are concentrated in the UK, the
US and Sweden. The UK and US are now
largely legacy arrangements as they have been
closed to new entrants since 2000. In line with
local regulations the collectively bargained
Swedish plan is still open to employees born
before 1979.
Net retirement benefit obligations decreased
by $72 million in 2018 (2017: increase of $397
million) to $2,511 million. Net re-measurement
adjustments of $46 million arose principally
from higher discount rate assumptions in the
UK and US driven by rises in long-term bond
yields which lowered the present value of the
liabilities, offset by lower than expected
investment performance and lower discount
rate assumptions in Sweden, where bond
yields have fallen. A positive $124 million
impact of exchange rate movements also
arose in the year as the US dollar
strengthened against pound sterling and
Swedish krona, reducing liability obligations in
US dollar terms. Employer contributions to the
pension schemes of $174 million also
contributed to the reduction in the net
retirement benefit obligation. Benefits paid
amounted to $620 million (2017: $581 million).
In the UK, a High Court judgement issued on
26 October 2018 relating to Guaranteed
Minimum Pensions (GMPs) is expected to
create a precedent for other UK defined
benefit pension schemes and therefore is
expected to increase the liabilities of the UK
Pension Fund. The ruling requires the
equalisation of member benefits to address
Contingent consideration arising on business combinations
Acquisition of
BMS’s share
of Diabetes
Alliance
$m
Other
business
combinations
$m
4,477
1,057
(349)
(482)
337
–
(13)
79
2018
Total
2018
$m
5,534
(349)
(495)
416
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
3,983
1,123
5,106
4,477
1,057
5,534
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
Total
2018
$m
Total
2017
$m
2,403
4,233
3,882
17,405
27,923
25,879
–
188
625
3,216
–
261
–
–
99
–
–
136
–
–
684
625
5
614²
570
4,494
3,981
17,541
29,232
27,068
1
2
Bank loans and other borrowings include interest charges payable in the period, as detailed in Note 27 to the Financial
Statements on page 188.
TheGrouphasrevisedthepresentationofoperatingleasesfrom2017toincludeoperatingleasesthathavebeenidentified
during the transition to IFRS 16 as having previously been omitted from this disclosure. This resulted in an increase in 2017
from $523 million to $614 million.
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report gender inequality in instances where GMP
benefits are currently unequal. The estimated
impact based on the broad profile of the UK
Pension Fund results in a past service cost
of £17 million ($23 million) and has been
recognised in the income statement for 2018.
The Group has undertaken several initiatives to
reduce our net defined benefit pension
obligation exposure and manage the
associated long-term financial risks. As well as
paying cash contributions when required, in the
UK, a freeze on pensionable pay has been in
effect from 30 June 2010. In the US, both the
qualified and non-qualified US pension plans
were closed to future accrual in December
2017. Furthermore, liability management
exercises have been carried out in the UK,
including a Pension Increase Exchange
exercise in 2016/2017 along with improvements
to the ‘at retirement’ process to better support
members in their retirement decisions.
Further details of our accounting for post-
retirement benefit plans are included in Note
21 to the Financial Statements from page 178.
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 153.
We also have taxation contingencies. These
are described in the Taxation section in the
Critical accounting policies and estimates
section on page 90 and in Note 29 to the
Financial Statements from page 194.
Off-balance sheet transactions
and commitments
We have no off-balance sheet arrangements
and our derivative activities are non-speculative.
The table on page 84 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 29 to the
Financial Statements on page 194. As detailed
in Note 29, 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 260 major or
strategically important business development
transactions over the past three years, one
of which was accounted for as business
acquisitions under IFRS 3 ‘Business
Combinations’, being the majority
investment in Acerta Pharma in 2016.
In addition to the business development
transactions detailed under Externalisation
Revenue from page 79 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 October 2018, we exercised our option
over IPH2201, and simultaneously entered
into a further multi-element transaction with
Innate Pharma. Under the agreement, we
paid $50 million to collaborate on, and
acquire an option to license, IPH5201, a
first-in-class anti-CD39 mAb. Additionally,
we paid $20 million to acquire options over
four future programmes currently being
developed by Innate Pharma, and paid €62.6
million to acquire a 9.8% stake in Innate
Pharma. The $100 million option fee and $50
million have been capitalised as intangible
assets, along with the premium paid over
market price for the investment in Innate
Pharma. The payment for future
programmes will be expensed as research
and development expenditure over four
years. At the same time, we licensed the EU
and US rights to Lumoxiti to Innate Pharma
for $50 million upfront plus future milestone
payments of up to $25 million.
> 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 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 CVRM
and Oncology. Utilising both companies’
expertise, significant progress has also
been made with the technology platform,
with the focus on formulation, safety, and
drug metabolism and pharmacokinetics.
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial Review
85
Strategic Report Financial Review
continued
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 determination of the
significance. 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.
Capitalisation and shareholder return
Capitalisation
The total number of shares in issue at 31
December 2018 was 1,267 million (2017: 1,266
million). 0.8 million Ordinary Shares were
issued upon share option exercises for a total
of $34 million. Shareholders’ equity decreased
by $2,492 million to $12,468 million at the year
end. Non-controlling interests were $1,576
million (2017: $1,682 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 (146.8 pence, 17.46
SEK) to be paid on 27 March 2019. This brings
the full-year dividend to $2.80 (215.2 pence,
25.38 SEK). Against Core earnings per share
the Group had a dividend cover ratio of 1.2:1
in 2018 (2017: 1.5:1).
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 2012.
86
Dividends for 2018
First interim dividend
Second interim dividend
Total
$
0.90
1.90
2.80
Pence
68.4
146.8
215.2
SEK
7.92
17.46
25.38
Payment date
10 September 2018
27 March 2019
The Board reviews the level of distributable
reserves of the parent company annually and
aims to maintain distributable reserves that
provide adequate cover for dividend
payments. Subject to the filing of these
Financial Statements with the UK Companies
House, the distributable reserves of the parent
company as at 31 December 2018 amounts to
$13,443 million (2017: $16,715 million), details
are included in the Consolidated Statement
of Changes in Equity on page 151. The
distributable reserves are sufficient to pay
dividends for a number of years, as, when
required, the parent company can receive
dividends from its subsidiaries to increase
distributable reserves.
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:
> 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 2019: additional commentary
In 2019, the sum of Externalisation Revenue
and Core other operating income and
expense is anticipated to decline versus 2018.
Core operating expenses are expected to
increase by a low single-digit percentage.
Specific support for medicine launches and
China sales delivered compelling results in
2018 and elements of that support will
continue. The Group will retain flexibility in its
investment approach. Core operating profit is
anticipated to increase, ahead of Product
Sales, by a mid-teens percentage compared
with 2018. Without the impact of the reduction
in initial income from externalisation and
divestment transactions completed in 2018
and 2019, Core operating profit in 2019 is
expected to increase at a significantly higher
rate, reflecting strong expected growth of the
Group’s underlying business. Capital
expenditure is expected to be broadly stable
and restructuring expenses are targeted to
reduce compared with 2018. A Core tax rate
of 18% to 22% is expected for 2019.
These targets represent management’s
current estimates and are subject to
change. Please see the Cautionary
statement regarding forward-looking
statements on page 244.
Financial risk management
Financial risk management policies
Insurance
Our risk management processes are
described in Risk Overview from page 70.
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.
We purchase an external multi-line insurance
programme to mitigate against significant
financial loss arising from business risks
including liability, business interruption,
property damage, and directors’ and officers’
liability. 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
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report to a number of sources of funding to meet
anticipated funding requirements, including
committed bank facilities, cash resources
and use of debt factoring.
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.
The Group utilises factoring arrangements for
selected trade receivables. These factoring
arrangements qualify for full derecognition of
the associated trade receivables under IFRS 9
‘Financial Instruments’.
Our capital and risk management objectives
and policies are described in further detail in
Note 27 to the Financial Statements from
page 187 and in Risk Overview from page 70.
Sensitivity analysis of the Group’s exposure to
exchange rate and interest rate movements is
also detailed in Note 27 to the Financial
Statements from page 189.
Critical accounting policies and estimates
Our Financial Statements are prepared in
accordance with IFRS as adopted by the EU
(adopted IFRS) and as issued by the IASB,
and the accounting policies employed are set
out in the Group Accounting Policies section
in the Financial Statements from page 153. 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 (including
impairment reviews of associated
intangible assets)
> business combinations and goodwill
(and contingent consideration arising
from business combinations)
> litigation and environmental liabilities
> employee 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, which are a
particular feature in the US and are considered
to be key estimates. 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. Sales are recognised
when the control of the goods has 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, which are considered to be
estimates. 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 $9,662 million in
2018 (2017: $8,468 million) with the increase
driven by an overall increase 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. Our
revenue recognition policy is described within
Group accounting policies from page 154.
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, 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.
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial Review
87
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
2018
$m
16,538
(2,224)
(1,304)
(4,600)
(286)
(119)
(140)
(989)
6,876
2017
$m
2016
$m
14,637
19,640
(2,299)
(1,462)
(3,598)
(30)
(37)
3
(1,045)
6,169
(3,449)
(1,903)
(5,219)
(358)
(130)
(145)
(1,071)
7,365
Brought
forward at
1 January
2018
$m
Provision for
current year
$m
Adjustment in
respect of
prior years
$m
Returns and
payments
$m
206
2,220
4
(2,159)
749
1,482
(178)
(1,161)
Carried
forward at
31 December
2018
$m
271
892
1,267
4,685
(85)
(4,325)
1,542
4
386
63
151
286
119
99
989
–
–
41
–
(286)
(144)
(151)
(996)
4
361
52
144
2,826
9,880
(218)
(9,222)
3,266
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
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
88
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 is considered highly probable
not to reverse. 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 2018 net US pharmaceuticals revenue
by 3.2% (2017: 8.9%; 2016: 6.0%). However,
taking into account the adjustments affecting
both the current and the prior year, 2017 revenue
would have been reduced by 4.5% and 2016
revenue would have been increased by 1.4%, by
adjustments between years.
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 8, 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. Details of the
Externalisation Revenue accounting and the
key judgements involved are described within
our Externalisation Revenue accounting policy
on page 155.
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report Research and development
(including impairment reviews of
associated intangible assets)
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 as the higher of value in
use or fair value less costs to sell using a
discounted cash flow calculation, where the
products’ expected cash flows are risk-
adjusted over their estimated remaining useful
economic life. The determination of the
recoverable amounts include key estimates
which are highly sensitive and depend upon
key assumptions as detailed in Note 9 to the
Financial Statements from page 169. 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.
The accounting for our intangible assets is
fully explained in Note 9 to the Financial
Statements from page 169, including details
of the estimates and assumptions we make in
impairment testing of intangible assets.
Business combinations and goodwill (and
contingent consideration arising from
business combinations)
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.
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. Attributing fair values is a key
judgement. 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 26
to the Financial Statements from page 186.
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 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 19 to
the Financial Statements from page 177.
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.
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 168. The Group,
including acquisitions, is considered a single
operating segment for impairment purposes.
No impairment of goodwill was identified.
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 26 to the
Financial Statements from page 186, 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 2018 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
169, including details of the estimates and
assumptions we make in impairment testing of
intangible assets.
Litigation and environmental liabilities
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 29 to the Financial Statements
from page 194.
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.
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial Review
89
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
> Business model and life-cycle
of a medicine
> Marketplace
> Strategy
> 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
14 February 2019
Financial Review
continued
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.
Employee benefits
In relation to the Group’s defined benefit
pension and healthcare arrangements, we
apply IAS 19 ‘Employee Benefits’ and recognise
all actuarial gains and losses immediately
through other comprehensive income. In
respect of defined benefit plans, obligations
are measured at discounted present value
while plan assets are measured at fair value.
Given the extent of the assumptions used to
determine the values, these are considered
to be key estimates.
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
and support 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 mortality, price inflation, and
future salary and pension increases.
Further details of the estimates and
assumptions we make in calculating post-
retirement benefit plans are included in Note
21 to the Financial Statements from page 178.
90
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
probable of not being sustained, 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 29
to the Financial Statements from page 194.
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.
AstraZeneca Annual Report & Form 20-F Information 2018 / Strategic Report Corporate
Governance
Chairman’s Introduction 92
Corporate Governance Overview 93
Board of Directors 94
Senior Executive Team 96
Corporate Governance Report 98
Science Committee Report 107
Nomination and Governance
Committee Report 108
Audit Committee Report 110
Directors’ Remuneration Report 120
AstraZeneca Annual Report & Form 20-F Information 2018 / Corporate Governance
91
Corporate Governance Chairman’s
Introduction
In this Governance Report, we report
on how we ensured that the principles
of good governance applied to everything
we did throughout the year.
“ I too set great store by ensuring
the Board did the right thing as
we oversaw implementation of
our strategy of returning to
sustainable growth.”
The strategy on which we embarked in 2013,
and to which we have been committed in the
years since, bore fruit in 2018 as we returned
to Product Sales growth. Good governance
has underpinned our success and will
continue to do so.
Sound governance and
sustainable growth
Following the science and putting patients first
are two of the AstraZeneca Values. Employees’
commitment to and embodiment of those
Values has been an essential element in the
transformation of the organisation that saw
us return to Product Sales growth. Doing the
right thing is another value espoused by our
employees and, as your Chairman, I too set
great store by ensuring the Board did the right
thing as we oversaw implementation of our
strategy of returning to sustainable growth.
In this Governance Report, we report on
how we ensured that the principles of good
governance applied to everything we did
throughout the year and, where we found
challenges, how we addressed them. We do
so mindful of the enhanced requirements of
the UK Corporate Governance Code which
we will be reporting on in our next Annual
Report. The panel to the left indicates the
enhancements we have made to the
Annual Report in respect of 2018.
A strong Board
Good governance requires a strong board
which we are fortunate to have at AstraZeneca.
On 1 January 2019, we welcomed Professor
Tony Mok to the Board. Tony is a leading
clinical oncologist and world-renowned
expert in precision medicine for lung cancer.
He will make a significant contribution to
AstraZeneca’s science-led transformation.
At the end of 2018, we said farewell to Shriti
Vadera who had served on the Board for
eight years. She was an exceptional colleague
during a period of pipeline renewal. Her
diligence, focus and constant commitment to
our success will be missed. On behalf of all her
Board colleagues, I thank her for her service
and wish her every success in the future.
Transparent leadership
I am grateful to all the members of the
Board for their individual contributions
to what was an eventful and successful
year. I am particularly grateful to those
members of the Board who bear the added
responsibility of chairing its Committees. As
previously announced, Rudy Markham will
be stepping down from the Board at the end
of the Annual General Meeting in April 2019.
As a result, Graham Chipchase became our
senior independent Non-Executive Director on
1 January 2019, in addition to his role chairing
the Remuneration Committee, and Philip
Broadley will become Chairman of the Audit
Committee. Nazneen Rahman became
Chairman of the Science Committee in July 2018.
This year, for the first time, and to enhance
our reporting transparency, each of the
Committee Chairmen is providing their
own report on their activities during 2018
which you can read in this Annual Report.
My thanks to them all.
Leif Johansson
Chairman
Changes to our Governance reporting
This year, we have made a number of
changes to the structure of our reporting
around Governance to make the
information more accessible.
The Corporate Governance Report now
contains the following sections:
> Board of Directors and SET: which
shows the members of the Board, Board
Committees and SET as at 14 February
2019, from page 94.
> Activities of the Board: which describes
the key activities of the Board during
2018, including the Board effectiveness
review conducted in 2018, from page 98.
> Connecting with our stakeholders: which
sets out how the Group has engaged
with its key stakeholders during 2018,
from page 100.
> Compliance with the UK Corporate
Governance Code: which describes
how we have complied with the UK
Corporate Governance Code published
in 2016, from page 102.
> Other Governance information: a
separate section contains other
governance-related disclosures,
including those required as a result
of our listing on the NYSE, as well
as Directors’ Report disclosures,
from page 105.
> Committee Reports: from our four
Board Committees, from page 107.
92
AstraZeneca Annual Report & Form 20-F Information 2018 / Corporate Governance Corporate
Governance
Overview
Delivery
Governance structure
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 seeks to represent 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 on page 98
Audit
Committee
Report from page 110
Remuneration
Committee
Report from page 120
Nomination and
Governance Committee
Report from page 108
Science
Committee
Report from page 107
In addition to the SET, we have two senior level governance bodies:
Senior Executive Team (SET)
Details of our SET on page 96
Early Stage Product Committees
Page 96
Late Stage Product Committee
Page 96
Attendance in 2018
Following the organisational changes announced in January 2019, the future and structure of these governance bodies will be reviewed in the
first quarter of 2019. For more information, see page 96.
Board Committee membership and meeting attendance in 2018
Board or Committee Chairman
Name
Geneviève Berger
Philip Broadley
Graham Chipchase
Deborah DiSanzo
Marc Dunoyer
Leif Johansson
Rudy Markham
Sheri McCoy
Nazneen Rahman
Pascal Soriot
Shriti Vadera – retired 31 December 2018
Marcus Wallenberg
Board
13(13)
13(13)
13(13)
13(13)
13(13)
13(13)
12(13)
13(13)
13(13)
13(13)
13(13)
11(13)
Audit Remuneration
Nomination and
Governance
Science
2(2)
6(6)
2(2)
6(6)
6(6)
1(1)
6(6)
5(6)
5(6)
2(2)
3(3)
6(6)
5(5)
5(5)
5(5)
3(3)
2(2)
2(2)
Note: number in brackets denotes number of meetings during the year that Board members were entitled to attend.
For more information, see Changes to the composition of the Board
and its Committees for the year ended 31 December 2018 on page 94
AstraZeneca Annual Report & Form 20-F Information 2018 / Corporate Governance Report
93
Corporate Governance Board of Directors
as at 14 February 2019
Board composition
as at 14 February 2019
Gender split of Directors
Men 8
Women 4
British 4
French 3
American 2
Swedish 2
Canadian 1
Directors’ nationalities
Length of tenure of Non-Executive Directors
<3 years
6-9 years
5
Philip Broadley
Deborah DiSanzo
Sheri McCoy
Tony Mok
Nazneen Rahman
3-6 years
0
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 2018
Philip Broadley
Became a member of the
Remuneration Committee on
1 December 2018.
Deborah DiSanzo
Became a member of the
Audit Committee on
1 November 2018.
Nazneen Rahman
Became a member of the
Nomination and
Governance Committee and
appointed as Chairman of
the Science Committee on
1 July 2018.
Sheri McCoy
Became a member of the
Remuneration Committee
on 1 July 2018.
Shriti Vadera
Stepped down as a member
of the Audit Committee on
30 June 2018 and retired
from the Board and as a
member of the Remuneration
Committee on 31 December
2018 after eight years
of service.
Graham Chipchase
Became senior independent
Non-Executive Director on
1 January 2019.
94
Committee
Membership Key
Committee
Chairman
A Audit
R Remuneration
NG
Nomination
and Governance
S Science
* Date of first
appointment
or election to
the Board.
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.
Leif was Chairman of global
telecommunications company, LM Ericsson,
from 2011 to 2018. He holds an MSc in
engineering from Chalmers University of
Technology, Gothenburg.
Other appointments: Leif holds board positions
at Autoliv, Inc and Ecolean AB. He has been a
member of the Royal Swedish Academy of
Engineering Sciences since 1994 (Chairman
2012 to 2017). Leif is also a member of the
European Round Table of Industrialists
(Chairman 2009 to 2014) and a Member of the
Council of Advisors, Boao Forum for Asia.
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, Global Product and Portfolio
Strategy (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.
Other appointments: Marc was appointed
to the Board of Orchard Therapeutics in
June 2018.
Graham Chipchase
Senior independent Non-Executive Director
(April 2012*)
NG
R
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.
AstraZeneca Annual Report & Form 20-F Information 2018 / Corporate Governance Geneviève Berger S
Non-Executive Director
(April 2012*)
Philip Broadley A R
Non-Executive Director
(April 2017*)
Deborah DiSanzo A
Non-Executive Director
(December 2017*)
Rudy Markham
Non-Executive Director
(September 2008*)
A
R
NG
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 Université Pierre & Marie Curie,
Paris in 1995. Her previous positions include
Professor and Hospital Practitioner at 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.
Geneviève oversees sustainability matters on
behalf of the Board.
Other appointments: In May 2015, Geneviève
was appointed as a Director of Air Liquide
SA 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. Philip graduated in
Philosophy, Politics and Economics from
St Edmund Hall, Oxford, where he is now
a St Edmund Fellow and holds an MSc in
Behavioural Science from the London School
of Economics.
Other appointments: Philip chairs the Audit
Committees of Legal & General Group plc and
Stallergenes Greer plc. He is a member 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: Deborah is a Harvard
University Advanced Leadership Fellow. Prior
to this, she served as General Manager for IBM
Watson Health, the IBM business unit founded
to advance AI in health. Deborah has a
distinguished career working at the intersection
of healthcare and technology. Prior to IBM, she
was CEO of Philips Healthcare, having
previously held executive roles at Agilent and
Hewlett-Packard. Deborah has been honoured
by multiple organisations as a top health
influencer including Health Data Management,
who named her as one of the top 20 people to
watch in healthcare IT, and Modern Healthcare,
who list her as a Top 25 Women in Healthcare.
She is the recipient of Xconomy’s X of the Year
Award as a Tech and Health Connector.
Babson College recognised Deborah’s impact
in the world as one of the institutions leading
entrepreneurial alumni leaders. Deborah
earned an MBA from Babson College and
a BS from Merrimack College.
Other appointments: Deborah is a Harvard
University Advanced Leadership Fellow.
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.
Appointed post year-end
Sheri McCoy A R
Non-Executive Director
(October 2017*)
Nazneen Rahman S NG
Non-Executive Director
(June 2017*)
Marcus Wallenberg S
Non-Executive Director
(April 1999*)
Tony Mok S
Non-Executive Director
(January 2019*)
Skills and experience: Sheri is retired Chief
Executive Officer of Avon Products, Inc. Prior to
joining Avon in 2012, Sheri 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: Sheri serves on the
boards of Stryker, Kimberly-Clark and
Novocure. She is also an industrial adviser for
EQT partners where she chairs Certara, the
private company, and is a trustee for Stonehill
College, Easton, Massachusetts.
Skills and experience: Nazneen has significant
scientific, medical and data analysis
experience. Her research integrates these 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. She was
Head of the Division of Genetics and
Epidemiology at the Institute of Cancer
Research (ICR), London and Head of Cancer
Genetics at the Royal Marsden NHS
Foundation Trust for 10 years to 2018. Nazneen
was also the founder and Director of the
TGLclinical Genetic Testing Laboratory, which
used new sequencing technologies to deliver
fast, affordable, cancer gene testing to the
NHS. 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.
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: Tony is the Li Shu Fan
Medical Foundation endowed Professor and
Chairman of the Department of Clinical
Oncology at the Chinese University of Hong
Kong. His work includes multiple aspects of
lung cancer research, with his main focus on
biomarker and molecular targeted therapy in
lung cancer. He has led and co-led multiple
international Phase III trials, including as the
principal investigator and first author on the
landmark Iressa Pan-Asia Study, which
confirmed the application of precision medicine
for advanced lung cancer. He has also
contributed to the development of clinical
research infrastructure in China and Asia. Tony
is currently the Treasurer of the International
Association for the Study of Lung Cancer,
having previously served as President, and is
on the Board of Directors of the American
Society of Clinical Oncology. His work has been
recognised by numerous awards including the
ESMO Lifetime Achievement Award in 2018.
Other appointments: Tony is a Non-Executive
Director of Hutchison China MediTech Limited
and a co-founder and the Chairman of
Sanomics Limited.
AstraZeneca Annual Report & Form 20-F Information 2018 / Board of Directors
95
Corporate Governance Senior Executive Team (SET)
as at 14 February 2019
Pascal Soriot
CEO
Marc Dunoyer
CFO
See page 94.
See page 94.
In addition to the SET, we have two senior level governance
bodies accountable for making key decisions regarding our
portfolio and pipeline. Following the organisational changes
announced in January 2019, we are creating two therapy
area-focused R&D units, one for BioPharmaceuticals (CVRM
and Respiratory) and one for Oncology. Consequently, the
future structure and nature of these governance bodies will
be reviewed in the first quarter of 2019.
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 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.
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.
Other SET members during the year were:
Bahija Jallal
During 2018, Bahija Jallal
was Executive Vice-
President, MedImmune.
Bahija left AstraZeneca in
January 2019.
Mark Mallon
During 2018, Mark Mallon
was Executive Vice-
President, Global Product
and Portfolio Strategy, Global
Medical Affairs and Global
Corporate Affairs. Mark left
AstraZeneca in January 2019.
96
Katarina Ageborg
Executive Vice-President, Sustainability
and Chief Compliance Officer
Sean Bohen
Executive Vice-President, Global Medicines
Development and Chief Medical Officer
Katarina was appointed Executive
Vice-President, Sustainability in 2017 and has
been a member of SET since 2011. She has
overall responsibility for the delivery, design and
implementation of the Company’s sustainability
programme, covering three priority areas:
access to healthcare; environmental protection;
and ethics and transparency. She leads the
Global Sustainability function, including teams
focusing on Compliance, and Safety, Health
and Environment. Katarina was also appointed
President of AstraZeneca AB (Sweden) in 2018,
and her role is focused on strengthening
corporate reputation and relations by actively
representing the company in the Swedish
business and academic community. Prior to her
current roles, 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 before taking the role as Chief
Compliance Officer. Katarina holds a Master of
Law Degree from Uppsala University School of
Law in Sweden and ran her own law firm before
joining AstraZeneca in 1998.
Sean has been Executive Vice-President,
GMD since 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 focusing
on three main therapy areas – Oncology,
Cardiovascular, Renal & Metabolic diseases
and Respiratory disease. 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 several senior
leadership roles across various therapy
areas and within early and late development.
Before this, 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-Madison 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 18 years with Merck/MSD in
Global Manufacturing and Supply Chain and
Commercial roles. 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. In addition to
her role at AstraZeneca, Pam serves as a
non-executive Director of the Codexis Inc.
Board (CDXS). Pam also serves as an Advisor
to the International Society of Pharmaceutical
Engineering (ISPE) Board of Directors.
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.
AstraZeneca Annual Report & Form 20-F Information 2018 / Corporate Governance Ruud Dobber
Executive Vice-President,
BioPharmaceuticals Business
David Fredrickson
Executive Vice-President,
Oncology Business
Ruud was appointed Executive Vice-President,
BioPharmaceuticals Business in January 2019
and is responsible for product strategy and
commercial delivery for CVRM and Respiratory.
Prior to this, Ruud held the role of Executive
Vice-President, North America and was
responsible for driving growth and maximising
the contribution of the commercial operations
in North America. Ruud joined Zeneca in 1997
and has held various senior commercial and
leadership roles including Executive
Vice-President, Europe. Ruud was also
responsible for the development of our
late-stage, small molecule antibiotic pipeline as
well as its global commercialisation and was
Regional Vice-President for European, Middle
East and African region, 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 and was previously
Chairman of the Asia division of Pharmaceutical
Research and Manufacturers of America. Ruud
holds a doctorate in immunology from the
University of Leiden, Netherlands and began
his career as a research scientist in
immunology and ageing.
Dave was appointed Executive Vice-President,
Global Head Oncology Business in October
2017 and is responsible for driving growth and
maximising the commercial performance of
the global oncology and haematology
portfolio. In addition, he plays a critical
leadership role in setting the Oncology
portfolio and product strategy for the
organisation. Previously, Dave served as
President of AstraZeneca K.K. in Japan, and
Vice-President, Specialty Care 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.
Menelas Pangalos
Executive Vice-President, Research &
Development BioPharmaceuticals
Mene Pangalos was appointed as Executive
Vice-President, R&D BioPharmaceuticals in
January 2019 and is responsible for R&D from
discovery through to late-stage development
for CVRM and Respiratory. Prior to this, he
served as Executive Vice-President of
AstraZeneca’s IMED Biotech Unit and
Global Business Development. Since
joining AstraZeneca in 2010, Mene has led a
transformation of our R&D productivity and has
championed an open approach to working with
academic and other external partners. Mene
previously held senior R&D roles at Pfizer,
Wyeth and GSK. Mene holds an Honorary
PhD from Glasgow University and is a Fellow
of the Academy of Medical Sciences, the Royal
Society of Biology and Clare Hall, University of
Cambridge. He sits on the Medical Research
Council, co-chairs the Life Sciences Council
Expert Group on Innovation, Clinical Research
and Data and is a member of the Life Sciences
Industrial Strategy Implementation Board
and National Genomics Board. He is also a
Board member of the British Pharmaceutical
Group and Cambridge University’s Judge
Business School.
Iskra Reic
Executive Vice-President, Europe
Iskra was appointed Executive Vice-President,
Europe in April 2017 and is responsible for our
BioPharmaceutical sales, marketing and
commercial operations across our businesses
in 30 European countries. 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-six prescription medicine
pharmaceutical company. Iskra’s
responsibilities were expanded in 2016 to cover
both Russia and the Eurasia Area. Iskra was
appointed Area Vice President of Russia and
Eurasia area in 2016, 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.
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.
Appointed post year-end
José Baselga
Executive Vice-President,
Research & Development Oncology
José joined AstraZeneca in January 2019 as
Executive Vice-President, R&D Oncology and
is responsible for the oncology portfolio from
discovery through to late-stage development.
He was formerly Physician-in-Chief at Memorial
Sloan Kettering Cancer Center, which became
the leader in early-phase clincial trials for
cancer therapies and diagnostic genetic
sequencing under his leadership. In addition,
he was Professor of Medicine at Weill Cornell
Medical College and President of the American
Association for Cancer Research (AACR). José
is an international thought leader on innovation
in cancer care and clinical research. His work
has led to the approval of life-saving cancer
therapies and the creation of several
biopharmaceutical companies. José is an
elected member of the National Academy of
Medicine, the American Society of Clinical
Investigation, the Association of American
Physicians, and an elected Fellow of the
AACR Academy. He is a past President of the
European Society for Medical Oncology and
recently received their Lifetime Achievement
Award. He serves on the Board of Directors
of the American Society of Clinical Oncology
and AACR.
AstraZeneca Annual Report & Form 20-F Information 2018 / Senior Executive Team
97
Corporate Governance Corporate
Governance Report
Activities of the Board
All Directors are collectively responsible
for the success of the Group.
Principal matters considered by the Board in 2018
The principal matters considered by
the Board during 2018 and the link to the
Group’s strategic priorities are set out in
the table. 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.
For more information on the role of the
Board and the Non-Executive Directors,
see Compliance with the UK Corporate
Governance Code from page 102.
Key
Achieve Scientific Leadership
Return to Growth
Be a Great Place to Work
Achieve Group Financial Targets
Area of focus
Strategic priority
Strategic matters
> The Group’s overall strategy, including its long-range plan, annual budget
and strategic options
> The Group’s capital structure, including financing needs, credit rating and
capital 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, the results of key clinical trials, a review of
Operations (global manufacturing and supply chain network) and
a review of Oncology pricing
> 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
> Investor perceptions
> Employee gender data
> Sustainability matters
> Approval of a Board Inclusion and Diversity Policy
> Visits to R&D and Commercial sites in the US and a review of the Group’s
US business
> Participation in employee ‘town hall’ meetings and informal meetings
with groups of ‘high-potential’ employees
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
> Cybersecurity risk 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 discussions between Non-Executive Directors only
98
AstraZeneca Annual Report & Form 20-F Information 2018 / Corporate Governance
Board performance evaluation
2018 Overview
During the year, the Board conducted the
annual evaluation of its own performance
and that of its Committees and individual
Directors. The 2018 evaluation was carried
out internally, although Lintstock Ltd
(Lintstock), a London-based corporate
advisory firm that provides objective and
independent counsel to leading European
companies, provided software and services
for the evaluation questionnaire. Linstock has
no other commercial relationship with the
Company. Based on Board members’
responses to the web-based questionnaire
covering a wide range of topics, Lintstock
prepared a report which was discussed by
the Board at its meeting in December 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 outcomes of the evaluation are set out in
the table.
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.
“ The Board operates
effectively and in a
manner that encourages
open and frank discussion.”
2018 Outcomes
Main areas covered:
> Board composition and
Main conclusions and recommendations:
> The Board operates effectively and in a manner that encourages open and frank
dynamics
discussion.
> Stakeholder oversight
> Board meeting
management and support
> Board Committees
> Board oversight
> Risk management and
> The Board identified certain areas that could be improved, including its understanding
of our competitors’ strategies and performance, careful management of the late stages
of the recruitment process for new Non-Executive Directors and developing and refining
the role of the Science Committee to ensure it meets the needs of the Board.
> The Board should continue to develop a deep understanding of digital technology
and its application in the pharmaceutical industry.
internal control
> The reviews of the Board’s Committees did not raise any significant problems
> Succession planning
and human resource
management
> Priorities for 2019
and concluded that the Committees are operating effectively.
> In respect of the 2018 annual performance evaluation, it was concluded that
each Director continues to perform effectively and to demonstrate commitment
to his or her role.
Chairman evaluation
Process
Overall conclusion
The 2018 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 Chairman’s leadership of the Board
continued to be regarded as excellent. His management of Board meetings was commended.
He created an environment where different views could be freely expressed and enabled
all Directors to contribute to discussion and decision-making. He had a good, open and
transparent relationship with executive management. His generous time commitment
supporting management in other parts of the business was praised. His interactions with
employees of the Company at all levels in various parts of the world were excellent. He
continued to be very active representing the Company in relation to external stakeholders.
The senior independent Non-Executive Director provided feedback to the Chairman after the
review of his performance, including minor suggestions for ways in which he might enhance
the way the Board operated.
Actions against prior year recommendations
2017 evaluation
2018 actions taken
Provide further
opportunities to visit and
learn from different
AstraZeneca teams and sites
to help build a balanced
understanding of the
business.
In September 2018, the Board made a two-day visit to MedImmune in Gaithersburg, MD,
US, our main US hub site, US R&D centre and MedImmune HQ, and to the HQ of our North
American commercial business in Wilmington, DE, US. Numerous interactions with
employees at all levels took place. The April 2018 Science Committee meeting was held at
our R&D site in Gaithersburg, US. In addition, certain Audit Committee members visited
our business in China during the year and individual Non-Executive Directors visited
our business in Brazil, our South San Francisco site and our sites in Cambridge, UK
and Gothenburg, Sweden.
Ensure succession planning
activities for business
critical roles are undertaken
proactively with
opportunities for all Board
members to input.
Each year, the CEO and the EVP, Human Resources make a presentation to the Board about
SET-level succession planning and seek the Board’s views and input. Board members have
the opportunity during the year to meet potential succession candidates for senior, business
critical roles when they make presentations to the Board or, more informally, at dinners or
‘high-potential’ employee meetings. In addition, the CEO keeps the Board updated about
specific SET-level succession plans, seeking Directors’ views and input. In a number of
cases, the Chairman of the Board and other Non-Executive Directors have met potential
candidates and provided feedback ahead of an appointment being made.
Employee engagement: central to AstraZeneca’s progress
In 2018, all employees were invited to help
shape the next phase of AstraZeneca’s
strategic journey through a Group-wide
strategy crowdsourcing event. The two-
week event focused on key themes, including
the changing world, future technology,
next wave of science and patient-centricity,
and generated 56,000 ideas and comments
from employees.
In line with the Group’s commitment to
inclusion, technology was used to enable
employees to participate in any language
and this supported participation from 70
countries. Technology was also used to
help to analyse and prioritise the inputs.
The ideas and comments submitted
by employees helped inform
recommendations that were made
to the AstraZeneca Board as part of the
Group’s annual strategy review process. The
inputs and ideas were also discussed
by the Chairman and CEO during engagement
events, including an all-employee webcast
held across the Group’s internal social media
platform in December.
56,000
56,000 ideas and comments
from employees
AstraZeneca Annual Report & Form 20-F Information 2018 / Corporate Governance Report
99
Corporate Governance
Corporate
Governance Report
Connecting with
our stakeholders
In striving to achieve our Purpose to push the boundaries of
science and deliver life-saving medicines, our business touches
the lives of many people. We exist in a complex and evolving
regulatory and scientific environment and we have a number of
key stakeholder groups.
Connecting with our stakeholders
The Board is supportive of the upcoming
reporting requirements surrounding stakeholder
engagement, against which we will report when
they come into effect in 2019.
When making decisions, we take the course of
action that we consider best leads to the success of
the Company over the long term, and this includes
considering the broad range of stakeholders that
interact with, and are impacted by, our business.
For more information about our Code of Ethics, see page 43.
Our Values and Code of Ethics empower employees
to make the best decisions in the interest of the
Group and our stakeholders, and help to ensure
that these considerations are made not only at
Board level, but throughout our organisation.
The following table summarises our key
stakeholders, as well as the engagement that has
been undertaken across the business during 2018.
A full list of our stakeholders can be found in our 2018
Sustainability Report at www.astrazeneca.com/sustainability.
Shareholders,
Investors & Analysts
The Board is accountable to shareholders,
and, in accordance with section 172 of the
Companies Act 2006, must act in a way
that is likely to promote the success of the
Company for the benefit of its members as
a whole. AstraZeneca aims to ensure that
a good dialogue with shareholders,
investors and analysts is maintained, and
that their issues and concerns are
understood and considered.
Patients
Employees
To achieve our Purpose we need to engage
with and understand the needs of patients.
Our 64,600 employees make AstraZeneca
what it is. We are committed to ensuring
that AstraZeneca is a Great Place to Work
for our employees and we rely on their
commitment to uphold the Values, deliver
the strategic priorities and deliver the
changes necessary to sustain and improve
short- and long-term performance.
> Understanding the strategy and
> Support throughout the entire patient
> Understanding the Group performance
operations of the Group
> Financial performance and commercial
success, including return to sales growth
> Successful development of the pipeline
> Understanding the exposure to
macro-economic risk
> Opportunity for dialogue with
management on key matters, eg
performance and executive remuneration
> Sustainability and the environmental
and ethical impact of the Group
> Annual General Meeting in May 2018
> Board Directors met investors, analysts
and investor bodies
> Quarterly results conference calls for
analysts and investors
> Investor Relations Team and senior
management met regularly with
investors, including office visits,
industry and broker conferences,
roadshows and group meetings
> Comprehensive investor perception
study, the results of which were
presented to the Board
> Hosted an Emerging Markets call in
Shanghai with a focus on China
> The Investor Relations Team has been
recognised for best practice by the
Investor Relations Society
> Following discussions with investors,
there has been an increased focus on
sustainability matters within our
quarterly results announcements
journey – through diagnosis, treatment
and wellness
> Safety and efficacy of medicines
> Access to an uninterrupted supply of
medicines
and the factors that impact this
> Engagement with, and the opportunity
to put questions and ideas to, senior
leaders
> Collaboration across the Group and the
opportunity to learn and share
> Engaged patients in our development
and clinical trial programmes to ensure
a more patient-informed medicine
> Collaboration with patient advocacy
groups and establishment of patient
advisory boards
> CEO and SET provided quarterly
performance reports to employees
> Group-wide strategy crowdsourcing
event generated 56,000 ideas and
comments in two weeks
> All employees invited to participate in
> Established patient support and patient
Pulse survey
affordability programmes
> Organisation of Patient Engagement
Day in the US
> Board and SET conducted site visits,
and in-person and webcast town
hall/Q&A sessions with employees
> Senior Leadership engagement via
Trades Union and Employee
Representative forums
> Patient insight has been integrated into
the development of innovative digital
technologies (iPREDICT) and clinical
trials (study design and protocol
simulation)
> Ideas generated from the
crowdsourcing event reviewed and
incorporated into annual strategy
recommendations to the Board
> Unit action plans developed in response
> Initiated a Group-wide initiative on
to Pulse survey results
patient-centricity and patient-centric
business models
> Increased number of programmes
deployed to support patients throughout
the patient journey
Overview
Significance of the
stakeholder to the business
Issues and factors
Issues and factors which
are most important to the
stakeholder group
Engagement
Examples of engagement
in 2018
Outcomes
Any actions which resulted
100
AstraZeneca Annual Report & Form 20-F Information 2018 / Corporate Governance
Payers
Across the world, patient access to innovative
medicines increasingly depends on public
funding. HTA agencies, national and regional
healthcare insurance funds and government
bodies appraise the clinical and economic
value of our medicines following successful
regulatory approval. Delays in approval by
such bodies could negatively impact market
access. It is important that AstraZeneca
fosters relations with payer organisations
and anticipates relevant trends to respond
effectively to payers’ requirements.
Government –
general business environment
Government policy determines the
business environments in which we
operate. This can be through direct policies
(eg tax and fiscal policy) and indirect
policies that can create a supportive
environment for our operations (eg public
science and infrastructure investments).
Governments may also be responsible for
creating and enforcing regulations which
govern our licence to operate.
Communities
Suppliers
We rely on, and aim to make a positive impact
on, the local communities and environment in
which we operate, as well as the communities
which our medicines reach. Increasingly,
communities expect us to support the issues
and initiatives that intersect with our area of
commercial focus and expertise. Communities
have a direct influence on the health and
wellbeing of patients, caregivers and families.
In 2018, we spent approximately $13 billion
with suppliers on goods or services that are
critical to the effective operation of our entire
value chain; from discovery to development,
manufacturing and supply of our medicines
to patients.
Many of our business-critical operations
(including certain R&D processes, IT
systems, HR, finance, tax and accounting
services) are managed with the support of
our suppliers.
> Access to innovative medicines in a
timely, fair and sustainable manner
> Investment environment
> Research funding and scientific
collaborations
> Medicines pricing and reimbursement
> Trade policy
> Regulatory frameworks
> Price reporting
> Safety and efficacy of drugs
> Patient access
> The impact of the our activities and
plans on the local area and the
environment
> Raising awareness of healthcare
> Promotion of science-based education
and careers
> Investment in local infrastructure and
> Understanding of AstraZeneca’s
strategy and how the supplier can best
navigate the organisation to help create
innovative and new opportunities
> Ability to resolve potential problems
and issues in their relationship with
AstraZeneca
capacity building initiatives
> Creating a trusting environment
> Support for programmes, platforms
and policy that make healthcare
accessible and protects patients
between the supplier and AstraZeneca
> That AstraZeneca acts ethically, fairly
and transparently
> Predictability and containment of
reimbursement expenditure for
pharmaceuticals
> Breakthrough therapies and the cost
impact on public budgets
> Transparency and accountability of
payer organisations
> Management of pricing and generating
savings in established/mature product
markets
> Engaged with HTA agencies over the
need to reform evaluation criteria in
clinical trials
> Contributed to the public debate around
pricing of innovative medicines and
assisted in facilitating a greater
understanding of the clinical and
economic value of such medicines to
society
> Meetings and forum discussions with
governments and policy makers to
increase understanding of supporting
investment in life sciences, regulation of
the pharmaceutical industry and
improving access to new medicines
> In the UK, we engaged extensively on
Brexit, to ensure regulatory and policy
frameworks support patients’ needs and
our operations
> Young Health Programme with its focus
on disease prevention and youth reached
nearly 335,000 young people
> AstraZeneca HealthCare Foundation
provided $1.16 million in grants to 11
non-profit organisations for programmes
to prevent and reduce CV disease
> Donated more than $686 million of
medicines in connection with patient
assistance programmes around the world
> In the US, we engaged in discussions on
> Donations to support more than 1,000
evolving the current reimbursement system
> Hosted site visits for international and
local politicians, including tours of our
manufacturing and R&D facilities
non-profit organisations in 70 countries
for a total of $57 million in 2018
> Engaged in capacity building projects
such as Healthy Lung Asia, Phakamisa
and Healthy Heart Africa
> Engaged with suppliers via summits
and meetings with senior management,
which allows discussion and
partnership between suppliers and
AstraZeneca
> Enabling small and diverse suppliers in
the US access to business opportunities
through our participation in outreach
events, collaborations, and
memberships with various industry
groups and diversity councils
> Third parties and suppliers are provided
access to azethics.com, which allows
them to raise concerns in confidence
> In the UK, we launched a high-level
expert group on Innovation, Research
and Data co-chaired with Ministers to
advise on how to improve the UK
research and clinical trials environment
> Expansion of disease prevention
programming in connection with
government and NGO partnerships in
Asia and Latin America
> Export of Healthy Lung Asia initiative to
Latin America and the Middle East
> Increased investment in public-private
partnerships as a mechanism to address
global and local health issues
> Supplier forums have helped our supply
base gain a better understanding of both
AstraZeneca’s strategy and how we can
work with suppliers to create a closer
connection between our medicines and
the patients we aim to help
> In the US we received several external
industry recognitions and awards for
supporting diverse suppliers
AstraZeneca Annual Report & Form 20-F Information 2018 / Connecting with our stakeholders
101
Corporate Governance Corporate Governance Report
Compliance with the UK
Corporate Governance Code
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.
Our statement of compliance (together with
the Corporate Governance Report and 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.
This statement of compliance should be read
in conjunction with the wider Corporate
Governance Report from page 98, Nomination
and Governance Committee Report from
page 108, the Audit Committee Report from
page 110 and the Directors’ Remuneration
Report from page 120.
The Board discharges its responsibilities as set out in the Corporate
Governance Overview on page 93 through a programme of meetings
that includes regular reviews of financial performance and critical
business issues, review and approval of the Group’s strategy and
long-range plan, and the formal annual strategy review day.
The Board held 13 meetings in 2018, including its usual annual strategy
review. Six took place in London, UK; one was held at AstraZeneca’s
facilities in the US; and six were held as teleconference or
videoconference calls. The Board is currently scheduled to meet six
times in 2019 and will meet at such other times as may be required to
conduct business.
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.
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.
The membership of the Board as at 14 February 2019 and information
about individual Directors is contained in Board of Directors on pages
94 and 95.
The roles of Chairman and CEO are separate. Leif Johansson, our
Non-Executive Chairman, is responsible for leadership of the Board. The
CEO, Pascal Soriot 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.
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.
Leif Johansson was considered by the Board to be independent upon his
appointment as Chairman. In accordance with the April 2016 UK Corporate
Governance Code, the test of independence is not appropriate in relation to the
Chairman after his appointment.
In anticipation of his retirement from the Board at the end of the 2019
AGM, Rudy Markham stepped down from the role of senior independent
Non-Executive Director on 31 December 2018, having held the role since
April 2015. Graham Chipchase, who joined the Board as a Non-
Executive Director in April 2012, was appointed senior independent
Non-Executive Director with effect from 1 January 2019. 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 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.
Leadership
A.1 The role of the Board
A.2 Division of responsibility,
A.3 The Chairman
A.4 Non-Executive Directors
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Effectiveness
B.1 The composition
of the Board
The Board comprises of 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 93.
During 2018, 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). Except for Marcus Wallenberg, the Board
considers that all 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.
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 14 February 2019. For these reasons, the
Board does not believe that he can be determined independent under the UK
Corporate Governance Code. 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.
B.2 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.
During 2018, a Board Inclusion and Diversity Policy was approved, which can
be found on the Company’s website, www.astrazeneca.com.
For more information on the Board’s approach to Inclusion and Diversity,
see the Nomination and Governance Committee Report on page 108.
B.3 Commitment
B.4 Development
For more information on the Board’s succession planning, see the
Nomination and Governance Committee Report on page 108 and the
actions against prior year recommendations in the Board performance
evaluation on page 99.
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 Chairs 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 Chair 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.
The Nomination and Governance Committee Report from page 108
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.
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 expense, should they wish to do so.
B.5 Information and support
B.6 Evaluation
B.7 Re-election
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.
During the year, the Board conducted the annual evaluation of its own
performance and that of its Committees and individual Directors. The
2018 evaluation was carried out internally, although Lintstock Ltd, a
London-based corporate advisory firm that provides objective and
independent counsel to leading European companies, provided support.
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 the Directors will retire at the AGM in April 2019. The
Notice of AGM will give details of those Directors seeking election or
re-election.
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.
For details and the conclusions of the Board performance evaluation,
see page 99.
AstraZeneca Annual Report & Form 20-F Information 2018 / Corporate Governance Report
103
Corporate Governance Corporate Governance Report
Compliance with the UK
Corporate Governance Code continued
Accountability
C.1 Financial and business
reporting
C.2 Risk management and
internal control
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.
The Board as a whole takes a keen interest in the Company’s financial
and business reporting including, in particular, reviewing the Company’s
quarterly financial results announcements and through its oversight of
the Company’s Disclosure Committee.
For more information about the Disclosure Committee, see Other
Governance information on page 105.
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’.
For more information about the ways in which we manage our business
risks and describe our principal risks and uncertainties, see the Risk
Overview from page 70 and Risk from page 220.
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 2018, 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. 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.
C.3 Audit Committee
and Auditors
The Audit Committee spends a significant amount of its time
considering the landscape of enduring risks, specific and current risks,
and emerging risks.
For information on the role and work of the Audit Committee, see the Audit
Committee Report from page 110.
Remuneration
D.1 The level and components
of remuneration, D.2 Procedure
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 120.
Our Remuneration Policy is available on our website at
www.astrazeneca.com.
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.
Relations with shareholders
E.1 Dialogue with
shareholders
The Board aims to ensure that a good dialogue with our shareholders
is maintained and that their issues and concerns are understood
and considered.
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.
E.2 Constructive use
of the AGM
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 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.
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
our 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, Graham Chipchase, 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.
The Company’s 2018 AGM was held in London on 18 May 2018.
The Company’s 2019 AGM will be held on 26 April 2019. 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.
104
AstraZeneca Annual Report & Form 20-F Information 2018 / Corporate Governance Corporate Governance Report
Other Governance information
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 143.
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
of the NYSE. 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 2018 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 Global 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 compliance 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.
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 Executive
and Non-Executive Directors, officers, employees and
temporary staff, in all companies within our Group
worldwide. A Finance Code complements the Code and
applies to 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.
Compliance with the Code is mandatory and every
employee receives annual training on it which they are
required to complete. The Code is designed to support
employee understanding and adherence by outlining our
commitments in simple terms and focusing on why these
commitments matter. The 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 to facilitate
reporting. While telephone lines are listed for 123
countries, local carriers may impose in-country dialling
restrictions, potentially resulting in disruptions to
connectivity. AstraZeneca is updating the AZethics
webpages in all languages to provide enhanced dialling
information and to prompt the use of online reporting
should telephone connectivity be limited. The helpline
is available to both employees and to external parties to
report any concerns or make enquiries. 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 2018 Code training. In addition, in 2018,
428 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 2017 there were 359 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 232.
AstraZeneca Annual Report & Form 20-F Information 2018 / Other Governance information
105
Corporate Governance Corporate Governance Report
Other Governance information
continued
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 subsidiaries and their locations
are set out in Group Subsidiaries and Holdings in the
Financial Statements from page 201.
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, Chile, Costa Rica, Croatia, Cuba, Dubai (branch
office), Georgia, Ghana (scientific office), Jordan,
Kazakhstan, Lebanon, 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 2018
Details of our distribution policy are set out in the Financial
Review from page 74 and Notes 23 and 24 to the Financial
Statements from page 185.
The Company’s dividend for 2018 of $2.80 (215.2 pence, SEK
25.38) per Ordinary Share amounts to, in aggregate, a total
dividend payment to shareholders of $3,548 million. Two
employee share trusts, AstraZeneca Employee Benefit Trust
and AstraZeneca Share Retention Trust, waived their rights to
a dividend on the Ordinary Shares they hold and instead
received nominal dividends.
A shareholders’ resolution was passed at the 2018 AGM
authorising the Company to purchase its own shares. The
Company did not purchase any of its own shares in 2018.
On 31 December 2018, 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 50) and the Directors’ Report.
Information on patent expiry dates for key marketed products
is included in Patent Expiries of Key Marketed Products from
page 217. Our approach to product development and our
development pipeline are also covered in detail with additional
information by therapy area in the Strategic Report.
The financial position of the Group, its cash flows, liquidity
position and borrowing facilities are described in the
Financial Review from page 74. In addition, Note 27 to the
Financial Statements from page 187 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 18
to the Financial Statements from page 174.
Having assessed the principal risks and other matters
considered in connection with the viability statement on page
71, 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
2018, including details of the allotment of new shares under
the Company’s share plans, are given in Note 23 to the
Financial Statements on page 185.
Directors’ shareholdings
A shareholders’ resolution was passed at the 2018 AGM
which updated the Articles and removed the requirement for
a Director to become the beneficial owner, within two months
of the date of their appointment, of Ordinary Shares in the
Company with an aggregate nominal value of $125, which
currently represents at least 500 Ordinary Shares. The
requirement was removed because such qualification
shareholdings are no longer common practice and the cost
of obtaining such shares could hinder the recruitment of
new Directors.
Full details of each Director’s interests in shares of the
Company are set out in Directors’ shareholdings on pages
137 and 138, 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 2018 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 2019 AGM, similar to that passed at the
2018 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 2018, the Group’s US legal entities made
contributions amounting in aggregate to $1,156,800 (2017:
$1,282,250) 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 27
from page 187, include further information on our use of
financial instruments.
External auditor
A resolution will be proposed at the AGM on 26 April 2019 for
the re-appointment of PricewaterhouseCoopers LLP (PwC) as
auditor of the Company. During 2018, 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
31 to the Financial Statements on page 200. 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 110, 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 2018.
Electronic communications with 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.
Insurance and indemnities
The Company maintained Directors’ and Officers’ Liability
Insurance cover throughout 2018. 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.
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 Corporate
Governance Report, Science Committee Report,
Nomination and Governance Committee Report,
and Audit Committee Report
> Directors’ Responsibility Statement
> Development Pipeline
> Sustainability: supplementary information
> Shareholder Information
and has been approved by the Board and signed on its behalf.
On behalf of the Board
A C N Kemp
Company Secretary
14 February 2019
106
AstraZeneca Annual Report & Form 20-F Information 2018 / Corporate Governance Science
Committee Report
Our focus during 2018
> AI, automation, digital
technologies and
analytics
> In vivo biologics;
personalised
immunotherapy;
and biologics device
differentiation
> Achieve Scientific
Leadership targets
> Scientific competitive
intelligence
“ 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.”
Role of the 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. This is done 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
Activities during 2018
The Science Committee met twice in person
in 2018, in London, UK and Cambridge, UK.
Key areas of focus for the Science Committee
in 2018 included:
> Artificial Intelligence, automation, digital
technologies and advanced analytics:
how knowledge graphs, augmented drug
design, AI-led chemical synthesis and
advanced image analytics will contribute to
patient stratification, prediction of disease
progression and therapeutic benefit.
> The future of in vivo biologics: moving
beyond monoclonal antibodies to overcome
the challenges inherent in traditional protein
therapeutics with DNA, RNA, cell and virus
based therapies.
scientific best practice, where appropriate.
> Personalised immuno-therapy: how
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.
Membership of the Committee
During 2018, the members of the Science
Committee, all of whom have a knowledge of,
or an interest in, life sciences, were Nazneen
Rahman, who was appointed permanent
Chair to the Committee in July 2018,
Geneviève Berger 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 2018. The Vice-President, IMED Operations
acts as secretary to the Science Committee.
we are developing the next generation of
antibody-drug conjugates, cell therapies,
and cancer vaccines with the aim of
reducing toxicity and increasing the
survival of patients.
> Biologics device differentiation: how the
current market and technology landscape
is influencing our product portfolio and
development strategies.
> Achieve Scientific Leadership targets:
the scientific and patient centric rationale
for inclusion of new 2018 opportunities
in our corporate scorecard.
> Scientific competitive intelligence:
how analysis of the external environment
enables informed decision making along
the product life-cycle.
Yours sincerely,
Nazneen Rahman
Chairman of the Science Committee
The Science Committee’s terms of reference are available
on our website, www.astrazeneca.com.
AstraZeneca Annual Report & Form 20-F Information 2018 / Science Committee Report
107
Corporate Governance Nomination and
Governance
Committee Report
Our focus during 2018
> Succession planning
for the Board
> Developments in
Corporate Governance
> Inclusion and Diversity
108
“ The Nomination and Governance
Committee recommends to the
Board new Board appointments
and considers, more broadly,
succession plans at Board level.”
Role of the 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. The matrix is set out and further
discussed opposite. 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.
Membership of the Committee
During 2018, the members of the Nomination
and Governance Committee were Leif
Johansson (Chairman of the Committee),
Rudy Markham, Graham Chipchase and
Nazneen Rahman (following her appointment
to the Committee in July 2018). 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 attendance record of the Nomination and
Governance Committee’s members is set out
on page 93. Typically, the Chairman of the
Committee extends an invitation to any Board
member to attend Committee meetings if they
wish and several Directors take advantage of
this and participate in the Nomination and
Governance Committee’s meetings.
The Nomination and Governance Committee
considers both planned and unplanned
(unanticipated) succession scenarios and met
five times in 2018, splitting the majority of its
time between succession planning for
Non-Executive Directors and continued routine
succession planning for the roles of Chairman,
CEO and CFO, in each case with the
assistance of the search firms MWM
Consulting and Korn Ferry (including the
appointment of Tony Mok). Korn Ferry
periodically undertakes executive search
assignments for the Company.
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.
The Nomination and Governance Committee’s terms
of reference are available on our website,
www.astrazeneca.com.
Inclusion and 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
AstraZeneca Annual Report & Form 20-F Information 2018 / Corporate Governance Non-Executive Directors’ experience, as at 1 January 2019
Business
Geographic
Name
Commercial
Financial Managerial
Sales &
Marketing
Tech &
Digital
US
Europe
Asia
Science Regulatory
Industry-specific
Medical
Doctor/
Physician
Biologics
Pre-AZ
Pharma
Leif Johansson
Geneviève Berger
Philip Broadley
Graham Chipchase
Deborah DiSanzo
Rudy Markham
Sheri McCoy
Tony Mok
Nazneen Rahman
Marcus Wallenberg
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.
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 skills matrix used by the
Board and Committee is shown above. The
biographies of Board members set out on
pages 94 and 95 give more information
about current Directors in this respect.
The Board adopted an Inclusion and Diversity
policy (the Policy) in December 2018, which is
applicable to the Board and its Committees.
The Policy reinforces the Board’s ongoing
commitment to all aspects of diversity and
to fostering an inclusive environment in which
each Director feels valued and respected.
Whilst the Board appoints candidates based
on merit and assesses Directors against
measurable, objective criteria, the Board
recognises that an effective Board with a
broad strategic perspective requires diversity.
The Policy sets out the Board’s aim to
maintain a composition of at least 33% female
directors and a commitment to use at least
one professional search firm which has signed
up to the ‘Voluntary Code of Conduct for
Executive Search Firms’, to help recruit
Directors from a broad, qualified group of
candidates to increase diversity of thinking
and perspective. The Board’s approach to
inclusion and diversity continues to yield
successful results. Currently, 40% of the
Company’s Non-Executive Directors are women
and women make up 33% of the full Board.
This meets the Policy’s aim of 33% female
representation on the Board, the same target as
set out in the report from Lord Davies published
in October 2015.
The Board’s Inclusion and Diversity policy can be found
on our website, www.astrazeneca.com.
Information about our approach to diversity in
the organisation below Board level can be
found in Employees from page 38.
Yours sincerely,
Leif Johansson
Chairman
AstraZeneca Annual Report & Form 20-F Information 2018 / Nomination and Governance Committee Report
109
Corporate Governance Audit Committee
Report
110
“ The integrity of AstraZeneca’s
financial reporting is underpinned by
effective internal controls, appropriate
accounting practices and policies,
and the exercise of good judgement.”
In this Report we describe the work of the Audit
Committee (the Committee) and the significant
issues it considered in 2018. Our priorities were
to receive assurance over the soundness of our
financial reporting and internal controls, risk
identification and management, compliance
with the Code of Ethics and relevant legislation,
cybersecurity and information governance, and
business resilience.
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 Group’s significant
accounting matters including contingent
liabilities, revenue recognition and deferred
tax and, where appropriate, challenged
management’s decisions before approving
the accounting treatment applied. During
2018, the Committee reviewed the Group’s
significant restructuring programmes initiated
from 2013 onwards, including accounting
for restructuring charges, and control over
capital expenditure and their projection for
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 79. 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.
PwC were reappointed as the Company’s
external auditor by its shareholders at the
Company’s AGM held in May 2018, serving for
the second successive year. The Committee
continued to oversee the conduct, performance
and quality of the external audit, in particular
through its review and challenge of the
coverage of the external auditor’s audit plan
and subsequent monitoring of their progress
against it. The Committee maintained regular
contact with PwC through formal and informal
reporting and discussion throughout the year.
Risk identification and management
During the year, in addition to its regular
reviews of the Group’s approach to risk
management, the operation of its risk
reporting framework and risk mitigation, the
Committee considered an audit evaluating the
adequacy and effectiveness of the Global Risk
Management Framework, noting strengths
and opportunities to enhance the framework
through targeted improvements. The
Committee invited Nazneen Rahman,
the Chairman of the Company’s Science
Committee, to attend one of its meetings
to deepen its understanding of the clinical
compliance risks facing the Group and to
review the compliance regime for good clinical
and laboratory practice. The Committee also
encouraged the Group’s Internal Audit
Services Function (IA) to engage with the
Science Committee to support its plans for
‘second line defence’ in the Group’s science
functions. The Committee intends to further
strengthen its links with the Science
Committee in 2019.
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
the framework for the Committee’s activities
in 2018 and provided the context for the
AstraZeneca Annual Report & Form 20-F Information 2018 / Corporate Governance Our focus during 2018
> Financial reporting, internal
controls, and the quality
and effectiveness of the
external audit
> Cybersecurity, data
analytics, GDPR and
information governance
> Compliance matters,
including fostering a
‘speaking up’ culture
> Risk management, including
the identification, mitigation,
monitoring and reporting of
risks and lines of
management accountability
> Business continuity
planning and resilience
Committee’s consideration of the Directors’
viability statement. The Directors’ viability
statement is underpinned by the assurance
provided through a ‘stress test’ analysis under
which key profitability, liquidity and funding
metrics are tested against severe downside
scenarios each of which assume that the
significant risks modelled in the planning
process will crystallise and against which
management take mitigating actions. The
Committee considered in detail the authenticity
of each scenario including seeking additional
analysis from management as to the indirect/
unintended consequences of its proposed
mitigating actions, including, for example,
assessing the likely response of a broader range
of stakeholders. The Committee also assessed
the feasibility of the proposed mitigations to the
revised scenarios being effected.
For more information on the Viability statement, please
refer to the Risk Overview from page 71.
The Committee’s consideration of risk
management was supported by ‘deep dive’
reviews of key activities, including:
> cyber defence capability and the
continuous enhancements to safeguard
critical applications, information assets and
business continuity/resilience
> actions to comply with the EU GDPR
obligations, which came into force
in May 2018
> the post-acquisition integration of ZS
Pharma and management of Lokelma
> IA’s use of data analytics in marketing
company audits, and IA’s interaction with
the Global Business Services function
> the evolution of the Group’s Global
Business Services organisation, its key
achievements, challenges and its
management of risks.
In addition to these deep dive reviews, the
Committee periodically assured itself of the
appropriateness of the Group’s planning
for Brexit.
Further information on the deep dive reviews can be found
in the Business updates section on page 114.
As discussed overleaf, in accordance with its
focus on risks arising in key markets and internal
controls, the Committee also visited the Group’s
sites in Shanghai and Wuxi, China, and I visited
our site in Wilmington, US, during the year.
For further information on the Group’s Principal Risks
see the Risk Overview from page 70.
Compliance with the Code of Ethics
The Committee’s priorities continue to include
overseeing compliance with AstraZeneca’s
Code of Ethics, high ethical standards, and
operating within the law in all countries where
we conduct business or have interactions.
The Code of Ethics is written in simple and
accessible language to empower decision
making that reflects AstraZeneca’s Values,
expected behaviours and key policy
principles. During the year the Committee
engaged with HR to support the publication of
new Global Standards of behaviour to counter
the risk of sexual harassment and bullying.
AstraZeneca is committed to ensuring that its
people feel respected through promoting a
culture of inclusion and diversity and fostering
a working environment in which its employees
feel able and safe to ‘speak up’. The
Committee also monitored and reviewed
the effectiveness of our anti-bribery and
anti-corruption controls across the Group,
prioritising its focus on countries/regions
where we have significant operations and
countries in which doing business is generally
considered to pose higher compliance risks.
Further information on our Code of Ethics is set out from
page 105.
Engagement with employees and
other stakeholders
The Committee regularly interacts with
members of management below the SET and
seeks wider engagement with the Group’s
employees and other stakeholders. In March
2018, Marc Dunoyer (CFO) and I visited
AstraZeneca’s US commercial business to
meet with the finance teams and the lead US
external audit partner to discuss continuous
improvement of our financial management
and internal controls systems and the
efficiency of the external audit. In September,
we met again with the teams to discuss
progress made and noted the further
strengthening of the US finance team,
both in number and professional skills,
through external hires. In October, during
the Committee’s visit to Shanghai and Wuxi,
China, Committee members met with many
employees and key stakeholders. Through
this engagement the Committee members
gained invaluable insight into the opportunities
and challenges, and current and emerging
risks associated with our activities in China.
AstraZeneca Annual Report & Form 20-F Information 2018 / Audit Committee Report
111
Corporate Governance Audit Committee
Report continued
Philip Broadley, who will become Chairman
of the Audit Committee in March 2019,
during the Committee’s visit to China.
Committee site visit to Shanghai and
Wuxi, China
In October, members of the Audit
Committee visited the Group’s sites in
Shanghai and Wuxi, China. China is
AstraZeneca’s second-largest national
market, with absolute growth that has
out-performed other multinational
pharmaceutical companies for several
years. We have approximately 13,000
employees in China. The Committee
enjoyed several meetings with our local
management to discuss the opportunities,
challenges and risks being managed by
senior leaders across a range of activities
including R&D, commercialisation,
manufacturing, supply and distribution.
The Committee also undertook a tour of
AstraZeneca’s Wuxi manufacturing plant
and held an informal ‘questions and
answers’ session with a wide group of
employees based in Shanghai.
The Committee met physicians and
patients at a large hospital in Wuxi and
visited the China Commercial Innovation
Centre (an open strategic platform
designed to promote innovative healthcare
practices in China) as well as Dizal
Pharmaceutical, a recently formed joint
venture with the Chinese SDIC Fund
Management Company (an innovative
biopharmaceutical enterprise), which
demonstrated how innovation and its
interconnectivity with smart healthcare
has the potential to transform China’s
healthcare industry.
Further information on the Committee’s visit to
China can be found above. The Committee
also met informally with employees from the
Finance, Investor Relations, Corporate Affairs,
IA, HR and Global Business Services teams.
During 2018, I participated in the UK
Competition and Markets Authority’s statutory
audit market study, which has the objective of
considering whether that market is operating as
well as it should. I also participated in the
Department for Culture, Media and Sport’s
annual FTSE 350 Cyber Security Health Survey.
Changes to the membership
of the Committee
Shriti Vadera stepped down from the Committee
in June 2018, and I thank her for her invaluable
insight and significant contribution since she
joined the Committee in 2011. We welcomed
Deborah DiSanzo as a member of the
Committee in November 2018. While Deborah
has only served for a short period of time, her
long career working at the intersection of
healthcare and technology has been shown to
be of particular benefit to the Committee as it
continues to increase its focus on cybersecurity,
the use of ‘big data’ and privacy matters.
Finally, in light of the fact that I will formally step
down from the Board at the conclusion of the
Company’s AGM in April 2019, the Company
announced that Philip Broadley has been
chosen by the Board to succeed me as
Chairman of the Committee. Philip, who joined
the Board and Committee in April 2017, is
well-attuned to the working of the Committee
and, with his significant international business
and financial experience having served as
Finance Director at large financial institutions,
the Board believes he is well placed to lead the
Committee in the coming years.
We hope that you find this information helpful in
understanding the work of the Committee. Our
dialogue with our shareholders and other
stakeholders is valued greatly and we welcome
your feedback on this Audit Committee Report.
Yours sincerely,
Rudy Markham
Chairman of the Audit Committee
112
AstraZeneca Annual Report & Form 20-F Information 2018 / Corporate Governance Principal activities focused on by the Committee in 2018
During 2018 and in January 2019, the Committee considered and discussed the following items:
Financial
reporting
Risk and
Compliance
> Key elements of the Financial Statements and the estimates
> The adoption, impact and presentation of new financial
standards including IFRS 9 ‘Financial Instruments’ and IFRS
15 ‘Revenue from Contracts with Customers’ in the Group’s
2018 Financial Statements; and impact assessments for IFRS
16 ‘Leases’ and IFRIC 23 ‘Uncertainty over Income Tax
Treatments’ which are effective from 1 January 2019.
> 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.
> 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 that Act.
For more information see Sarbanes-Oxley Act Section 404 in the Financial Review
on page 90.
and judgements contained in the Group’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 87.
> Monitoring the accounting for Externalisation Revenue in
the Group’s Consolidated Statement of Comprehensive
Income arising from externalisation activities, including the
collaboration agreement with Innate Pharma announced in
October and the divestment of the US rights of Synagis to
Sobi which closed in January 2019.
> Robust testing of the appropriateness of management’s
and the external auditor’s analysis and conclusions on
judgemental accounting matters.
> The completeness and accuracy of the Group’s financial
performance against its internal and external key
performance indicators.
> The going concern assessment and 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 154.
> The preparation of the Directors’ viability statement and
the adequacy of the analysis supporting the assurance
provided by that statement.
> The Group’s principal, enduring and emerging risks,
> Quarterly reports from Global Compliance regarding key
including the Group’s risk management approach, risk
reporting framework and risk mitigation. The Committee
also considered how the risk management process was
embedded in the Group and assured itself that
management’s accountability for risks was clear and
functioning. More information about the Principal Risks
faced by the Group is set out in the Risk Overview
section from page 70.
> 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.
> The geographic presence, reach and capabilities of the
IA and Compliance functions and the appropriateness
of the Group’s resource allocation for these vital
assurance functions.
External
audit
> Monitoring the effectiveness and quality of the external
audit process through: examination and testing of the
coverage provided by the external auditor’s audit plan,
and their performance against it; management’s
feedback on the conduct of the audit; and considering the
level of, and extent to which, the auditors challenged
management’s assumptions.
> Reviewing quarterly reports from the external auditor
over key audit and accounting matters, and business
processes, internal controls and IT systems.
compliance incidents (both substantiated and
unsubstantiated), trends arising and the dispersion of incidents
across the Group’s business functions and management
hierarchy 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.
> Progress in remediation of previously identified shortcomings
at AstraZeneca’s Chennai, India, site relating to Health &
Safety, strength of leadership and cultural integration.
> The state of readiness and effectiveness of the Group’s
business continuity testing and resilience framework at its
Global Technology Centres in Chennai, India, and
Guadalajara, Mexico.
> The monitoring, review, education and improvements made to
support assurance that the risk of modern slavery and human
trafficking is eliminated, to the fullest extent practicable, from
AstraZeneca’s supply chain.
> Audit and non-audit fees of the external auditor during the
year, 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
from page 118.
Further information about the audit and non-audit fees for 2018 is disclosed in
Note 31 to the Financial Statements on page 200.
AstraZeneca Annual Report & Form 20-F Information 2018 / Audit Committee Report
113
Corporate Governance Audit Committee
Report continued
Principal activities focused on by the Committee in 2018 continued
Performance
assessment
Business
updates
> An effectiveness review of IA by considering its performance
> The Committee conducted the annual evaluation of its own
against the internal audit plan and key activities. The
Committee noted how IA had continued to deliver value to
the business and acted as a trusted adviser to the Committee
during the year. IA provided 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, strengthened its thematic reporting to
the business, and adapted the audit plan to respond to new
or arising risks. The Committee encouraged IA to consider
the alignment of its global presence to business risks in the
longer term and to more keenly focus on ensuring the timely
remediation of findings by the business.
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’s reporting to the Board commended in particular,
and it was thought that the Committee continued to effectively
challenge management and support the Compliance function.
It was felt that the Committee’s interactions with the Science
Committee could be further strengthened, and the importance of
ensuring an effective transition and handover of the chairmanship
of the Committee was highlighted.
> Regular updates from the IS/IT team on matters including:
the alignment of critical systems and information assets to
the Group’s cyber defence capability; enhancing segregated
networks; and, in particular, the Group’s framework for
identifying, mitigating and remediating cyber-risk and data
breach exposure arising from its use of third-party vendors,
including potential legal and regulatory (GDPR) liability, and
IS/IT’s ability to escalate any associated concerns through
the management chain.
> Updates from HR on the actions taken in response to the
#metoo movement and the publication of Global
Standards on sexual harassment and bullying.
> An overview of the Group’s preparation for GDPR and
> Assessing the performance of, and progress made by, the
Group’s Global Business Services function, including its four
key towers, namely: Global Commercial Operations; Global
Assurance and Reporting Services; Global Finance Services;
and Digital.
> Assessing the Group’s ability to identify patterns of non-
compliant behaviour through IA’s use of data analytics to
develop marketing company audits, and considering how IA
can provide more impactful insights to the business.
> Considering the risks arising from the Group’s third-party
distributor relationships in emerging markets and from its
strategy for market penetration in China through lower-tier
cities, and its management of them.
the progress made since its implementation.
> Considering the circumstances leading to the FDA’s 2017
Complete Response Letters for Lokelma and the accountabilities
for the related remediation actions through a review of the
post-acquisition integration of ZS Pharma and the key learnings.
114
AstraZeneca Annual Report & Form 20-F Information 2018 / Corporate Governance
Significant financial reporting issues considered by the Committee in 2018
Reporting
issue
Revenue
recognition
Valuation of
intangible
assets
Rationale
Committee response
Committee conclusion/
actions taken
Further
information
Financial Review
from page 74
and Note 1 to the
Financial Statements
on page 160.
C
o
r
p
o
r
a
t
e
G
o
v
e
r
n
a
n
c
e
Financial Review
from page 74 and
Note 9 to the Financial
Statements from
page 169.
The Committee receives regular
reports from management and
the external auditor on this
complex area. The US market
remains highly competitive with
diverse marketing and pricing
strategies adopted by the Group
and its peers. The Committee
was satisfied with the progress
made by management to
increase its accuracy in
forecasting for managed market
rebates and excise fees and, in
particular, by managing a
year-on-year decline in the level
of related accounting true-ups.
The Committee assures itself
of the integrity of the Group’s
accounting policy and models
for its assessment and valuation
of its intangible assets, and
related headroom, including
by reviewing the internal and
external estimates and forecasts
for the Group’s cost of capital
relative to the broader industry.
The Committee was satisfied
that the Group had appropriately
accounted for the identified
impairments.
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.
The US is our largest
single market and sales
accounted for 33% of our
Product Sales in 2018.
Revenue recognition,
particularly in the US,
is impacted by rebates,
chargebacks, returns,
other revenue accruals
and cash discounts.
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.
The Committee considered the annual
impairment reviews of the Group’s
intangible assets, including MEDI0680
(a PD-1 monoclonal antibody asset
acquired through the acquisition of
Amplimmune in 2013), Eklira/Tudorza,
Movantik/Moventig, Byetta, Lokelma
and verinurad.
The development programme for
MEDI0680 was discontinued and the
asset fully impaired due to recent trial
data indicating a lower standard of care
than a launched competitor. Partial
impairments were taken on Eklira/
Tudorza as a result of reduced sales
forecasts, and on Movantik/Moventig
following a further review of the
market opportunity in the OIC
indication, respectively.
The Byetta review considered the low
headroom following the impairment
taken in the prior year and sensitivity
arising from anticipated generic
entry in the US. The Committee
also reviewed and agreed with
management’s conclusions that no
impairments were required for
verinurad or Lokelma and that a
reversal of the impairment taken in
2017 for FluMist was not appropriate at
this stage due to continued uncertainty
in relation to FluMist sales in the US.
AstraZeneca Annual Report & Form 20-F Information 2018 / Audit Committee Report
115
Rationale
Committee response
Committee conclusion/
actions taken
Further
information
Audit Committee
Report continued
Significant financial reporting issues considered by the Committee in 2018 continued
Reporting
issue
Litigation and
contingent
liabilities
AstraZeneca is involved in
various legal proceedings
considered typical to its
business and the
pharmaceutical industry as
a whole, including litigation
and investigations relating to
product liability, commercial
disputes, infringement of IP
rights, the validity of certain
patents, anti-trust law and
sales and marketing
practices.
The Committee was regularly informed
by the General Counsel of, and
considered management and the
external auditor’s assessments about,
IP litigation, actions, governmental
investigations, and claims that might
result in fines or damages against the
Group, to assess whether provisions
should be taken and, if so, when and
in what amount.
Of the matters the Committee
considered in 2018, the more
significant included: the
favourable settlement of
long-standing Losec patent
infringement and damages
actions in Canada and the
settlement of Seroquel and
Crestor cases with the State
of Texas in the US. The Group
continues to defend the
allegations arising from the
Nexium and Prilosec product
liability litigation in the US,
and to manage patent validity
challenges to Calquence and
Imfinzi in the US and Brilinta
in China.
The Committee was
assured that the Group
was effectively managing
its litigation risks including
seeking appropriate remedies
and continuing to vigorously
defend its IP rights.
The Committee was satisfied
with the Group’s practices
in regard to tax liabilities,
including, most notably, the
accounting impact of the
reduction in tax rates in the
Netherlands and Sweden
as a result of tax reform,
which resulted in a reduction
of deferred tax balances of
$297 million in 2018.
Note 29 to the
Financial Statements
from page 194.
AstraZeneca’s
‘Approach to
Taxation’, which was
published in
December 2018, and
covers its approach
to governance, risk
management and
compliance, tax
planning, dealing with
tax authorities and the
level of tax risk the
Company is prepared
to accept, can be found
on our website,
www.astrazeneca.com.
Note 4 to the
Financial Statements
from page 163.
The Committee reviews the Group’s
approach to tax including governance,
risk management and compliance, tax
planning, dealings with tax authorities
and the level of tax risk the Group is
prepared to accept.
Tax
accounting
The Group has business
activities around the world
and incurs a substantial
amount and variety of
business taxes. AstraZeneca
pays corporate income taxes,
customs duties, excise taxes,
stamp duties, employment
and many other business
taxes in all jurisdictions
where due. In addition, we
collect and pay employee
taxes and indirect taxes such
as Value Added Tax (VAT).
The taxes the Group pays
and collects represent a
significant contribution to
the countries and societies in
which we operate. Tax risk
can arise from unclear laws
and regulations as well as
differences in their
interpretation.
116
AstraZeneca Annual Report & Form 20-F Information 2018 / Corporate Governance
Significant financial reporting issues considered by the Committee in 2018 continued
Reporting
issue
Retirement
benefits
Rationale
Committee response
Committee conclusion/
actions taken
Further
information
Pension accounting is an
important area of focus
recognising the level of
pension fund deficit and its
sensitivity to small changes
in interest rates.
The Committee monitors, on a
quarterly basis, the Group’s funding
position for its principal defined
benefit pension obligations in Sweden,
the UK and the US, including the
key actuarial and interest rate
assumptions used to determine the
value of the Group’s liabilities and
pension scheme funding requirements.
The Committee also reviews,
annually, the Group’s global funding
objective and principles.
Financial Review
from page 74 and
Note 21 to the
Financial Statements
on page 178.
The Committee considered the
impact of the outcome of the
Guaranteed Minimum Pension
trial and the resulting increase
in the UK liability during 2018.
The Committee was assured by
the Group’s tailored ‘journey
plans’ for the UK and Swedish
funds which target full funding
over the longer term, on a
self-sufficiency funding basis
and which aim to close the
existing funding gap via a
balanced mix of investment
returns on existing assets,
company contributions, and by
hedging the risks inherent in the
liability valuation.
The Committee was satisfied
that the Group’s pension fund
deficits were appropriately
managed during the year.
The role of the Committee and how we have complied
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 Deborah DiSanzo. Shriti Vadera stepped
down as a member of the Audit Committee with effect from
30 June 2018.
In December 2018, the Board determined that, for the
purposes of the UK Corporate Governance Code, at least
one member of the Committee had 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. The Board also
determined that the members of the Committee as a
whole had competence relevant to the sector in which
the Company operates, as Rudy Markham has served as a
Non-Executive Director of the Company for approximately
10 years, Sheri McCoy has had a 30-year career in the
pharmaceutical industry, Deborah DiSanzo has healthcare
sector experience from her role at IBM Watson Health and
Philip Broadley has served as a Non-Executive Director
of the Company since April 2017. The Board of Directors’
biographies on pages 94 and 95 contain details of
each Committee member’s skills and experience.
The Committee held six meetings in 2018 and the
Committee members’ attendance is set out in the table
on page 93.
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 the
following standing items:
> 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 Group’s IA function, its Compliance
function, the external audit process and overseeing the
Group’s relationship with its external auditor
> 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
> monitoring the Company’s response to 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 Vice-President Global Sustainability
and Deputy Chief Compliance Officer; the Vice-President,
IA; the Vice-President Finance, Group 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; the Vice-President
Global Sustainability and the Deputy Chief Compliance
Officer; the General Counsel; the 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.
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 2018.
AstraZeneca Annual Report & Form 20-F Information 2018 / Audit Committee Report
117
Corporate Governance Audit Committee
Report continued
Fair, balanced and
understandable assessment
As in previous years, at the instruction of the
Board, the Committee undertook an
assessment of this Annual Report to ensure
that, taken as a whole, it is fair, balanced and
understandable and provides the information
necessary for shareholders to assess the
Company’s position and performance,
business model and strategy. The Committee
reviewed the Company’s governance
structure and assurance mechanisms for the
preparation of the Annual Report and, in
particular, the contributor and SET member
verification process. The Committee received
an early draft of the Annual Report to review
its proposed content and the structural
changes from the prior year and to undertake
a review of the reporting for the year, following
which the Committee members provided their
individual and collective feedback. In addition,
in accordance with its terms of reference, the
Committee (alongside the Board) took an
active part in reviewing the Company’s
quarterly announcements and considered the
Company’s other public disclosures which are
managed through its Disclosure Committee.
To further aid their review, the Committee also
received a summary of the final Annual
Report’s content, including the Company’s
successes and setbacks during the year and
an indication of where they were disclosed
within the document.
The processes described above allowed the
Committee to provide assurance to the Board
to assist it in making the statement required of
it under the UK Corporate Governance Code,
which is set out on page 104.
Internal controls
The Committee receives a report of the matters
considered by the Disclosure Committee during
each quarter. At the January 2019 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 2018.
Based on their evaluation, the CEO and the
CFO concluded that, as at that date, the
Company maintained an effective system of
disclosure controls and procedures.
There was no change in our internal control
over financial reporting that occurred during
the period covered by this Annual Report that
has materially affected, or is reasonably likely
to materially affect, our internal control over
financial reporting.
For further information on the Company’s
internal controls, please refer to the
Accountability section in the Corporate
Governance Report on page 104.
External auditor
Following a competitive tender carried out in
2015, PwC were appointed as the Company’s
external auditor for the financial year ending 31
December 2017. In May 2018, PwC were
reappointed as the Company’s auditor for the
financial year ending 31 December 2018. Richard
Hughes is the lead audit 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
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 Finance,
Group 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 Group’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 review of
internal controls. 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
Finance, Group 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.
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 2018, PwC provided
non-audit services including an interim review
of the results of the Group for the six months
ended 30 June 2018, and audit-related
assurance services in respect of the Group’s
US debt issuance.
118
AstraZeneca Annual Report & Form 20-F Information 2018 / Corporate Governance
The Committee assessed effectiveness
considering the views of senior management
within the finance function and regular
Committee attendees principally against four
key factors, namely: judgement; mind-set &
culture; skills, character & knowledge; and
quality control. Following the effective
transition of the Group’s external auditor in
2017, the Committee felt that a number of
improvements had been made during 2018
including an overall improvement in planning
for receipt and assessment of audit
deliverables and in communications between
management and the external auditor,
alongside greater oversight of the US.
Accordingly, the Committee concluded that
the PwC audit was effective for the financial
year commencing 1 January 2018.
In January 2019, the Committee recommended
to the Board the reappointment of PwC as the
Company’s auditor for the financial year ending
31 December 2019. Accordingly, a resolution
to reappoint PwC as auditors will be put
to shareholders at the Company’s AGM in
April 2019.
Audit/non-audit services
2018
2017
Statutory audit fees
Assurance services
Taxation services
Other corporate projects
$17.4m
$11.1m
Fees for non-audit services amounted to 7%
of the fees paid to PwC for audit, audit-related
and other services in 2018 (2017: 4%).
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 Pre-Approval 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 31 to the Financial
Statements on page 200.
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.
AstraZeneca Annual Report & Form 20-F Information 2018 / Audit Committee Report
119
Corporate Governance Directors’
Remuneration
Report
TheRemunerationCommitteehastaken
caretoensurethatourremuneration
arrangementsremainalignedtoourstrategy
andtorespondtoshareholders’feedback.
“TheCommitteeisconfidentour
RemunerationPolicyhashelped
to supportourstrategy,which
we believewilldeliverlong-term
sustainablevalueforshareholders.”
As Chairman of the Remuneration Committee
(the Committee), I am pleased to present
AstraZeneca’s Directors’ Remuneration
Report for the year ended 31 December 2018.
Our performance made 2018 a defining year for
AstraZeneca. Over the last six years we have
focused on rebuilding our pipeline, driving our
Growth Platforms and delivering important
New Medicines to patients. In 2018,
AstraZeneca turned the corner and returned
to Product Sales growth, driven by a new
generation of medicines. Our strong pipeline
and financial progress is reflected in our strong
total shareholder return performance this year.
The Committee is confident that our
Remuneration Policy has helped to support
our strategy to deliver long-term sustainable
value to our shareholders. We continue to tie
remuneration outcomes to the acceleration of
innovative science and our Growth Platforms, as
well as other important financial metrics. Annual
bonus and Performance Share Plan (PSP)
measures are closely aligned with our KPIs
set out from page 20 of this Annual Report.
While our Policy was approved by 96% of
shareholders at the 2017 AGM, the advisory
vote on our Remuneration Report at the 2018
AGM received a much lower level of support
than we hoped to achieve. We are committed
to understanding and addressing our
shareholders’ concerns and have sought
feedback from our largest investors, as well
as from proxy voting advisory bodies.
The primary concern we heard related to
annual bonus outturns, with some investors
questioning whether bonus targets were
sufficiently stretching. We were asked for
more information about how we set and
assess performance targets, as well as more
detail on the targets themselves. There was
also a request to simplify our incentive
structures, which some investors perceive to
be complex given the number of metrics used.
We have carefully considered the feedback
received, in addition to the UK Corporate
Governance Code changes and new reporting
regulations that are effective from 1 January
2019, and have made a number of changes to
reflect our commitment to best practice. The
changes are highlighted on page 123.
2018performancehighlightsand
remunerationoutcomes
2018 performance
Our 2018 scorecard focused on our strategic
priorities, Achieving Scientific Leadership,
Return to Growth and Achieving Group
Financial Targets. During 2018, the
commitment of our employees enabled the
Company to deliver a number of important
medicines for serious illnesses such as
Lynparza, which has the potential to change
medical practice for ovarian cancer patients,
and Tagrisso, which may set a new standard of
care for lung cancer patients. We hope that
these achievements will help bring significant
improvement to patients and their families.
More detail on these medicines and other
therapy area achievements can be found from
page 50. Highlights of our 2018 performance
are summarised below.
Achieve Scientific Leadership
Through our continued focus on innovative
science, at the end of 2018 we had eight
NMEs in Phase III/Pivotal Phase II or under
regulatory review, covering 15 indications.
120
OurRemunerationPolicycanbeviewedonourwebsite,
www.astrazeneca.com/remunerationpolicy2017.
AstraZeneca Annual Report & Form 20-F Information 2018 / Corporate Governance
We also made 28 regulatory submissions
in major markets and received 23 approvals
for our medicines – record numbers for
AstraZeneca. These successes are the
product of our high-quality science and
product development.
Our commitment to innovative science
inevitably risks disappointment as well as the
success we strive for. In 2018 we did not have
the success we hoped for during Phase III trial
results for six projects, including the Phase III
MYSTIC trial evaluating Imfinzi and Imfinzi
plus tremelimumab as a 1st line treatment for
patients with metastatic (stage 4) non-small
cell lung cancer (NSCLC). These setbacks
were far outweighed by our successes.
Return to Growth and financial performance
In 2018, we generated less Externalisation
Revenue following the high level seen in 2017
as we focused on supporting reinvestment in
R&D and new product launches. This
impacted Total Revenue, which declined by
2% in the year to $22,090 million.
However, our success in delivering New
Medicines to patients is reflected in strong
commercial performance. Product Sales in
2018 increased by 4% to $21,049 million,
with our New Medicines delivering $2.8 billion
in incremental sales at CER and growth of
81%, and the sustained strength of Emerging
Markets, up by 12% (13% at CER). Product
Sales in China increased by 28% (25%
at CER) in the year.
As anticipated at the start of the year, 2018
saw a decline in Core profits due to: the
ongoing impact of loss of exclusivity on our
legacy products; lower levels of
Externalisation Revenue; and increased
investment in selling and marketing for our
New Medicines and for key markets, such as
China, to support their longer-term success.
Our Core EPS performance was in line with
our expectations as we execute our return to
growth strategy, and in 2019 we anticipate an
increase in Product Sales to underpin
improved Core profitability.
Our cash flow performance was enhanced by
the disposal of intangible assets during the
year, resulting in strong performance against
our scorecard target.
2018 remuneration outcomes
The targets used to assess annual bonus
performance for our executives align with our
Group scorecard. We set stretching targets
after careful consideration of the anticipated
challenges and opportunities faced by the
business, including the continuing impact of
the loss of exclusivity of some of our key
medicines. We are mindful of consensus and
external guidance in determining the
appropriate level of stretch.
PrincipalactivitiesfocusedonbytheCommitteeduring2018
Respondingtoinvestor
feedbackandchanges
totheUKCorporate
GovernanceCode
> Consultationwithshareholdersandshareholderrepresentativebodiesonremunerationfollowing
thelowvoteinfavouroftheDirectors’RemunerationReportattheAGMinMay2018
> Determiningandagreeingchangestorespondtoinvestorconcerns
> ReviewofchangestotheUKCorporateGovernanceCodeandnewreportingregulations
Annualbonus
> Approvalofthe2017GroupscorecardoutcomeanddeterminationofExecutiveDirectors’annual
bonusawardsfor2017
> ReviewofbonusesgrantedtoexecutivesbelowSETlevel
> ApprovalofGroupscorecardtargetsusedtoassess2018annualbonusperformance
Shareplans
> Approvalof2015PSPand2014AZIPperformanceoutcomes
> ApprovalofLTIgrants
> ApprovalofperformancemeasurestobeattachedtoPSPawardsgrantedin2018
> ReviewofprojectedoutcomesforoutstandingPSPandAZIPawards
Othermatters
> Reviewofanin-depthreportsettingoutpaypoliciesandpracticesforemployeesacrossthe
widerGroup
> ApprovalofcompensationarrangementsforExecutiveDirectorsandSETmembersfor2018
> ReviewofAstraZeneca’scompensationstrategy
> ConsiderationofAstraZeneca’sUKgenderpaygapdata
> ReviewofCEOpayratiosvslowerquartile,medianandupperquartileUKworkers
> Discussionofremunerationtrendsandshareholderviews
> ReviewoftheCommittee’sperformance,includingcommentsarisingfromtheannualBoardevaluation
> ReviewoftheCommittee’stermsofreference
> Reviewofremunerationconsultants,andappointmentofWillisTowersWatsonasadviser
The Group scorecard used to assess annual
bonus performance for 2018 was based
70% on financial measures. The progression
of our science through clinical trials to
regulatory approval is a fundamental measure
of performance and represented 30% of
the measures.
Formulaic assessment of the Group scorecard
resulted in an outcome of 190% of target
bonus (95% of maximum). We recognised that
the formulaic outcome for 2018 had been
influenced by a number of significant one-off
events, both positive and negative, which
were unforeseeable at the start of the year
when targets were set. A significant example
being unanticipated reductions in corporate
income tax rates that positively impacted
Core EPS.
Our strategic performance and pipeline
progress has been strong, and shareholders
have benefited from strong total shareholder
return performance over 2018. After careful
consideration of business performance,
overall the Committee judged that the
formulaic Group scorecard outcome should
be adjusted downwards to reflect the financial
outturns and the impact of unforeseen one-off
events during the year. Therefore the final
2018 bonus outcome for each Executive
Director was reduced to 82.5% of maximum.
The range of factors taken into account in our
assessment is described in more detail from
page 129. One third of each Executive
Director’s bonus will be deferred into
AstraZeneca shares to ensure further
alignment with shareholders.
Long-term incentives
The three-year performance period for PSP
awards granted to Executive Directors in 2016
ended on 31 December 2018. Performance
against the targets attached to those awards
will result in the awards vesting at 79% of
maximum, as shown from page 133. This is in
part driven by our strong TSR performance.
TSR increased by 59% over the performance
period, ranking second (upper quartile) in our
comparator group of pharmaceutical peers.
Although Executive Directors no longer receive
awards under the AstraZeneca Investment
Plan (AZIP) as the final award was granted in
2016, outstanding awards remain. The two
performance tests (progressive dividend and
1.5 times dividend cover) attached to AZIP
awards granted in 2015 were met in three of the
four years in the performance period ended 31
December 2018. The Committee considered
concerns raised by some shareholders about
a change to the operation of the AZIP
performance measures, proposed in 2017.
These were balanced against concerns raised
by other shareholders about the potential for
the AZIP, in its previous form, to incentivise a
focus on short-term performance. Taking into
account the differing shareholder views, the
Committee determined that the performance
measures should be applied as proposed in
2017, which will result in 75% of this AZIP award
vesting. The shares are subject to a further
four-year holding period.
The resultant single total figures of
remuneration for Mr Soriot and Mr Dunoyer
are set out on page 126. As can be seen from
the chart on the following page, the majority of
each figure consists of variable pay, which is
dependent on performance of the business
and shareholder experience, and a significant
proportion of the value is attributable to share
price growth and dividends.
AstraZenecaAnnualReport&Form20-FInformation2018/Directors’RemunerationReport
121
Corporate Governance A key principle of our remuneration philosophy
is aligning the focus of our executives and
our employees collectively to drive Group
performance towards the achievement of
the same goals. In 2019, the Committee will
continue its practice of reviewing in-depth
analysis of pay policy and practices for
employees across the wider Company to
ensure that remuneration decisions are
made in the context of pay practices
for our workforce.
The Committee also remains mindful of the
tension between the UK executive pay
environment and the highly competitive global
pharmaceutical market. We aim 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 3%, effective from
1 January 2019. This is in line with the average
increase awarded to the wider UK employee
population. No changes will be made to the
fee structure for Non-Executive Directors in
place during 2019.
Nextsteps
I hope that you find this Remuneration Report
clear in explaining the implementation of our
Remuneration Policy during 2018, and the
meaningful and thorough response we have
made to address investor feedback following
the 2018 AGM. We are focused on adhering to
best practice in our governance of executive
remuneration and will continue to evolve our
approach in line with the expectations of our
shareholders. We trust that we have provided
the information you need to be able to support
the resolution to be put to shareholders on
this Remuneration Report at the Company’s
AGM in April 2019.
Our ongoing dialogue with shareholders and
other stakeholders is valued greatly and, as
always, we welcome your feedback on this
Directors’ Remuneration Report.
Yours faithfully
GrahamChipchase
ChairmanoftheRemunerationCommittee
14February2019
Directors’Remuneration
Reportcontinued
2018 single total figure of remuneration
CEO 16%
57%
27%
£11.4m
CFO
19%
55%
26%
£5.2m
Fixed remuneration
Variable remuneration
Value attributable to share price
appreciation and dividends
Remunerationin2019
We are satisfied that our executive remuneration
arrangements continue to be well aligned with
the delivery of the Company’s strategy and the
creation of long-term value for shareholders.
Incentive opportunities under the annual
bonus and PSP will not be changed for 2019.
However, the Committee has made a number
of changes to performance measures
following investor feedback, for simplicity.
The Achieve Scientific Leadership metrics
will be replaced with two new Accelerate
Innovative Science indices, measuring
progression of medicines through clinical
trials and on to regulatory approval. This
approach simplifies our remuneration
structure, by reducing the total number
of science metrics, whilst continuing to
incentivise performance across the
breadth of the pipeline.
For the annual bonus, the weighting of the
cash flow metric within the Group scorecard
has been increased from 10% to 20%.
Therefore, financial measures now account for
80% of the scorecard and science measures
account for 20%. This change in weightings
reflects the importance of cash flow
generation for the phase our business has
now entered, as we aim to sustain investment
in our pipeline while meeting our capital
allocation priorities.
The Committee has reviewed significant
analysis (including business plans, reports
from the Science Committee and consensus
forecasts) to satisfy itself that the 2019 targets
require the achievement of appropriately
stretching performance. We have disclosed
the Accelerate Innovative Science targets for
PSP awards to be granted in 2019 at the start
of the performance period, as shown on page
135. It should be noted that our science
targets will necessarily vary year-on-year,
given the influence of external regulatory
changes and timing of pipeline progression.
Financial targets are set in line with our
business strategy and are tested to ensure
stretch. For more information on our target
setting approach, see pages 128 and 135.
122
AstraZeneca Annual Report & Form 20-F Information 2018 / Corporate Governance Ourresponseto
shareholderfeedback
Wehaveengagedextensivelywithourshareholderstounderstandthereasons
whysomeshareholdersdidnotsupportourAnnualReportsonRemuneration
whenvotingatthe2017and2018AGMs.
Overthelasttwoyearswehavemadesubstantialchangesto respondto
shareholderfeedback,including:
Structureofthebonusfor
ExecutiveDirectors
For2018,eachperformancemetricwasassessedonastandalonebasis,sothatoverperformanceagainst
onemetriccouldnotcompensateforlowerperformanceagainstanother.Thepayoutrangeforeach
metriciscappedinlinewitheachExecutiveDirector’smaximumbonusopportunity.
Formoreinformation,seepage129.
Simplification
For2018,thenumberofbonusmetricswasreduced.For2019,wehavefurthersimplifiedsciencemetrics
forthebonusandPSP.
Formoreinformation,seepages132and135.
Earlierdisclosure
Wecommittedtodisclosingbonusperformanceandtargetsimmediatelyfollowingtheendofthe
performanceyear,asseeninthe2018Groupscorecarddisclosure.ForPSPawardstobegrantedin
2019,wehavedisclosedsciencetargetsatthestartoftheperformanceperiod.
Formoreinformation,seepages129and135.
Moreclarityonthetargetsetting
process
Indiscussions,someshareholdersaskedformoreinformationabouthowtheCommitteesetstargets
and assessesperformance.WehaveincludedthatadditionalinformationinthisRemunerationReport,
to provideclarityandinsightforallshareholdersandhelpdemonstratetherobustnessofourprocesses.
Formoreinformation,seepage128.
CEOpayratio
WehavedisclosedtheCEOpayratioforthefirsttime,aheadofthenewreportingrequirement
taking effect.
Formoreinformation,seepage139.
Shareholdingguidelinesand
post-employment
shareholdingrequirements
ThisyearExecutiveDirectors’positionsagainsttheirshareholdingguidelineshavebeencalculated
accordingtotheInvestmentAssociation’srecommendedapproach.Apost-employmentshareholding
requirementhasbeenintroduced,requiringExecutiveDirectorsto hold100%oftheirshareholding
guidelinefortwoyearsafterleavingoffice.Thisaimstomaintainalignmentwithshareholdersafteran
ExecutiveDirectorleavesoffice.
Formoreinformation,seepage137.
Pension
Wearecappingpensioncontributionsfornewly-appointedExecutiveDirectors
atalevelinlinewiththewiderworkforce.
Informationtoshareholders
WehavemadechangestotheformatandcontentofthisRemunerationReport,totryandmake
the informationitcontainsasclearaspossibletothereader.
AstraZenecaAnnualReport&Form20-FInformation2018/Directors’RemunerationReport
123
Corporate Governance Remuneration
ataglance
124
“In2018,AstraZenecaturnedthecornerand
returnedtoProductSalesgrowth,driven
by anewgenerationofmedicines.”
Howwehaveperformed
TotalShareholderReturn
350
300
250
200
150
100
12months*
+24%
AstraZeneca
2016-18*
Pharmaceutical peers average
FTSE100
+59%
Jan
09
Jan
10
Jan
11
Jan
12
Jan
13
Jan
14
Jan
15
Jan
16
Jan
17
Jan
18
Dec
18
AstraZeneca
Pharmaceuticalpeersaverage
FTSE100
*
12 month TSR and 36 month TSR have been calculated using three-month calendar averages, from 1 October to 31 December,
prior to the start and at the end of the relevant periods.
Deliveryagainststrategy–2018Groupscorecardperformance
AchieveScientific
Leadership
9
NMEPhaseIIstarts
Target:9
19
NMEandmajorLCM
positivePhaseIII
investmentdecisions
Target:11
24*
NMEandmajorLCM
regionalsubmissions
Target:15
ReturntoGrowth
$17,116m*
ProductSalesfromGrowthPlatforms
Target:$16,381m
23
NMEandmajorLCM
regionalapprovals
Target:18
AchieveGroup
FinancialTargets
$3.9bn*
Cashflow
Target:$3.2bn
$3.60*
CoreEPS
Target:$3.40
$21.1bn*
TotalProductSales
Target:$20.5bn
* For reconciliation with KPIs disclosed from page 20 of this Annual Report and a description of performance measures, see page 130.
AstraZeneca Annual Report & Form 20-F Information 2018 / Corporate Governance WhatourExecutiveDirectorsearned
ExecutiveDirectors’remunerationfor2018
£’000
Pascal Soriot
(CEO)
Marc Dunoyer
(CFO)
Fixed
remuneration
Annual
bonus
Long-term incentive
(PSP – Granted 2016)
Long-term incentive
(AZIP – Granted 2015)
Single
total figure
Change
from 2017
1,747
995
1,858
82.5% of max
919
82.5% of max
6,780
79% of max
2,828
79% of max
888
75% of max
389
75% of max
11,356
+9%
5,190
+5%
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Onethirdofannual
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heldforthreeyears.
PSPawardissubject
toafurthertwo-year
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AZIPawardissubject
toafurtherfour-year
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release.TheAZIPisa
legacyplanunder
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awardsaregranted.
Includes
Otheritems,
seepage126.
2018annualbonus:
pages127to132.
2016PSPand2015AZIP:
pages133to134.
2018annualbonusoutcomes
PascalSoriot
£’000
£’000
2,152
2,152
(294)
(294)
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161
137.5
137.5
% max
% max
82.5
82.5
% max
% max
82.5
82.5
Lookingahead
ExecutiveDirectors’remunerationfor2019
Pascal Soriot
(CEO)
Marc Dunoyer
(CFO)
Change from 2018
Fixed remuneration
Salary: £1,288,530
Benefits fund
Pension: 30% salary
Salary: £765,290
Benefits fund
Pension: 24% salary
Annual bonus
Max: 180% salary
Target: 100% salary
Max: 150% salary
Target: 90% salary
Long-term incentive
PSP
Max: 500% salary
PSP
Max: 400% salary
Salary increase of 3%.
Benefits and pension
in line with 2018
No change to target or max.
No change to max face value.
2019 Group scorecard
measures on page 132
2019 PSP performance
measures on page 135
AstraZenecaAnnualReport&Form20-FInformation2018/Directors’RemunerationReport
125
Corporate Governance
Annual Report
on Remuneration
Key:
Audited information
Content contained within the Audited
panel indicates that all the information within
has been subject to audit.
Audited
Planned implementation for 2019
Content contained within a grey box indicates
planned implementation for 2019.
Executive Directors’ remuneration
This section of the Remuneration Report sets out the Executive Directors’ remuneration for the year ended 31 December 2018 alongside the
remuneration that will be paid to Executive Directors during 2019.
Executive Directors’ single total figure of remuneration for 2018
The single total figure table sets out all elements of remuneration receivable by the Executive Directors in respect of the year ended
31 December 2018, alongside comparator figures from the prior year.
Audited
£’000
Pascal Soriot
Marc Dunoyer
Fixed
(performance related)
Variable
Base
salary
Taxable
benefits
Pension
Annual
bonus
Long-term
incentives
2018
2017
2018
2017
1,251
1,220
743
725
121
122
74
88
375
366
178
174
1,858
1,916
919
1,025
7,669
6,712
3,217
2,916
Other
82
93
59
16
Total
11,356
10,429
5,190
4,944
The following sections provide further detail on the figures in the above table, including the underlying calculations and assumptions and the
Committee’s performance assessments for variable remuneration. The Annual bonus section is set out on pages 127 to 132 and the Long-term
incentives section on pages 133 to 135. Information about the Executive Directors’ remuneration arrangements for the coming year, ending
31 December 2019, is highlighted in grey boxes.
Fixed remuneration
Base salary
When awarding salary increases, the
Committee considers, among other factors,
the salary increases applied across the
UK employee population. Increases in the
Executive Directors’ salaries for 2018 and
2019 were in line with the UK workforce.
£’000
Pascal Soriot
Marc Dunoyer
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 2018,
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
126
Audited
2018
Base
salary
1,251
743
Increase
from 2017
2.5%
2.5%
Increase
from 2018
3%
3%
2019
Base
salary
1,289
765
Audited
2018
Taken in
benefits
Taken
as cash
Total taxable
benefits
15
18
106
56
121
74
2019
Taxable
benefits
in line
with 2018
in line
with 2018
AstraZeneca Annual Report & Form 20-F Information 2018 / Corporate Governance Fixed remuneration continued
Pension
The Executive Directors receive a pension
allowance calculated as a percentage of base
salary. During 2018, 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.
£’000
Pascal Soriot
Marc Dunoyer
Audited
2018
2019
Pensionable
salary
Pension
allowance
Cash in lieu
of pension
Pension
allowance
1,251 30% salary
743
24% salary
375
178
30% salary
24% salary
Other remuneration
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 2014, were
released during 2018, on completion of the
three-year deferral period. The dividend
equivalents accrued on the deferred shares
during the deferral period and paid to the
Executive Directors at the time of release are
included in the Other column.
On 1 December 2018, Marc Dunoyer’s option
under the all-employee SAYE scheme
matured. Details of Mr Dunoyer’s SAYE option
are set out on page 138. The market price on
3 December 2018, the first trading day
following maturity, was 6152 pence which
equated to a gain of 2845 pence per option;
this amount is included in the Other column.
Annual bonus
2018 Annual bonus
Annual bonuses earned in respect of
performance during 2018 are included in the
single total figure table and detailed
information on the Committee’s approach to
target setting and assessment of performance
is set out on the following pages.
Under the Deferred Bonus Plan (DBP) 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, ordinarily subject to continued
employment. Bonuses are not pensionable.
£’000
Pascal Soriot
Marc Dunoyer
Audited
Dividend equivalents
received on
DBP awards
released in year
Gain on SAYE
options maturing
in year
Total Other items
in the nature of
remuneration
82
43
–
15
82
59
£’000
Pascal Soriot
Marc Dunoyer
Audited
Annual bonus in respect of performance during 2018
Bonus potential
as % of salary
Target
Maximum
Bonus
payable in
cash
Bonus
deferred into
shares
100%
180%
1,239
90%
150%
613
619
306
Total bonus
awarded
1,858
82.5% max
919
82.5% max
AstraZeneca Annual Report & Form 20-F Information 2018 / Annual Report on Remuneration
127
Corporate Governance Annual Report
on Remuneration
continued
Annual bonus continued
Our approach to setting targets and assessing performance to determine bonus outturns is thorough, involving the following key stages.
Stage 1 – Group
scorecard target
setting
Stage 2 – Committee
review and approval
of targets
Science metrics: At the beginning of each year a cohort of
scientific opportunities is specified, on which the Science
targets will be based. These opportunities represent
potential achievements at each stage of the pipeline, from
early stage, where our scientists work to discover new
molecules, through to ultimately obtaining approvals and
getting new medicines to patients. Rewarding success at
each stage recognises the importance of creating and
maintaining a long-term sustainable pipeline. The Science
Committee reviews the stretch of proposed targets taking
into account factors such as past performance, the
external regulatory environment and internal resourcing
and efficiencies. The targets for realisation of these
opportunities are ambitious and based on our high
success rate to date.
Financial metrics: The Return to Growth measure and
Achieve Group Financial Targets metrics align directly
with the business’s Long Range Plan (LRP), which sets
out the financial framework for delivering our strategy and
ambitious milestones over the short-, medium- and
long-term. The LRP process includes detailed business
reviews during which business plans and efficiencies of
each unit are reviewed and challenged, leading to a final
LRP for the Board to review, challenge and approve. The
Committee sets targets based on the Board-approved LRP.
As part of the target setting process it also considers
consensus expectations and external guidance, as well as
anticipated challenges and opportunities. This range of
data is used by the Committee to ensure the stretching
nature of performance targets can be robustly tested.
Initial targets are proposed by management, which the
Committee thoroughly reviews and challenges before the
final targets are agreed and approved. Targets are
reviewed in draft form in December, with final target
setting and approval in January, once the prior year’s final
results are available to inform the Committee’s decisions.
For each target, the Committee is provided with
considerable supporting material. For example, for science
measures, the Committee reviews and approves the full
cohort of opportunities and receives briefings from senior
science leaders within the business. These targets are set
with oversight of the Science Committee.
For Return to Growth, the Committee considers year-on-
year projections at brand/product level and growth rates
over a five-year period. Committee members participate in
the full Board discussions on the strategy, LRP and budget
which form the basis for the targets. For the other financial
measures, the Committee considers: how the proposed
target aligns with the LRP and budget; prior years’
outcomes (in absolute terms and against target); how the
ambition has changed from the prior LRP and budget;
external guidance the business has provided or plans to
give; consensus from external financial analysts and
factors it may be impacted by; and the underlying
assumptions. Payout probability analysis conducted by
the Committee’s independent adviser is considered, to
assess the stretch of financial targets.
Stage 3 – Tracking
throughout the
performance period
The Committee reviews the projected Group scorecard
outcome against target at least three times throughout the
performance year to monitor progress against targets.
This allows ongoing scrutiny, highlighting any
significant events which may impact the scorecard
outcome as they arise. It also provides valuable insight for
the Committee on how stretching the targets are which
informs the target-setting process for the following year.
Stage 4 – Group
scorecard
assessment
Following year end, performance against each metric is
assessed. The Group scorecard outcome is calculated from
the combined weighted metric outcomes. Each
performance measure is assessed on a standalone basis
for each Executive Director, so that underperformance
against one measure cannot be compensated for by
overperformance against another.
The Science Committee independently considers science
achievements to ensure these represent a fair and
balanced outcome which reflects genuine achievements
and pipeline progression, and then informs the Committee.
Apart from cash flow, which is set at actual rates of
exchange, the financial metrics are set at budget rates of
exchange and evaluated at those rates at year end which
means they are not directly comparable year-on-year.
However, the Committee is provided with information to
allow it to conduct year-on-year analyses.
Stage 5 –
Determination
of Executive
Directors’ bonuses
128
Once the formulaic Group scorecard outcome has been
calculated, the Committee will consider the outcome in the
context of overall business performance and the
experience of shareholders to determine whether the
outcome is fair. The Committee will consider, for example,
TSR performance over the period, the Executive Director’s
personal impact on the delivery of KPIs and pipeline
performance beyond the scorecard targets, recognising
that the ongoing development of a sustainable pipeline is
critical to future and long-term growth. Organisational
achievements will also be considered, such as inclusion
and diversity targets, and the realisation of technology-
based milestones.
Our Group scorecard closely aligns to the delivery of the
strategy and many of the Executive Directors’ objectives
reinforce aspects of the scorecard. Each year there are
important individual deliverables beyond the scorecard
metrics which the Committee takes into account when
determining individual bonuses.
Having considered the Group scorecard outcome, overall
business performance, the experience of shareholders and
individual performance, the Committee will exercise its
judgement carefully to determine a final bonus outcome for
each Executive Director which is considered fair and
appropriate for the year’s performance and is in the best
interests of shareholders.
AstraZeneca Annual Report & Form 20-F Information 2018 / Corporate Governance Annual bonus continued
2018 Group scorecard assessment
Performance against the 2018 Group scorecard is set out below. As highlighted in the following table, a majority of our performance measures are
based on group KPIs (as indicated by
), which directly relate to strategy. A reconciliation between measures used for the bonus assessment and
the KPIs set out from page 20 can be found on page 130.
Audited
The Group scorecard is used in the determination of bonus payouts for all AstraZeneca employees. Each metric within the scorecard is assessed
on a standalone basis and has a defined payout range. 100% of target bonus will payout for on-target performance. For employees, 200% of
target bonus will payout for the maximum level of performance, however in line with our Remuneration Policy maximum bonus payouts for the
CEO and CFO are capped at 180% and 150% of salary respectively (equivalent to 180% and 167% of target bonus respectively). The payout
range for each metric is capped in line with each Executive Director’s maximum bonus opportunity to ensure underperformance against one
metric cannot be compensated for by overachievement against another. As shown in the table below, this has resulted in a lower scorecard
outcome for the CEO and CFO than the rest of the eligible employee population. Performance below the specified threshold level for a metric will
result in 0% payout for that metric. The Committee adjusted the formulaic Group scorecard outcome for 2018 that is shown below, as described
on page 131.
Formulaic outcomes
(% of target)
2018 Group scorecard performance
measures and metrics
Weighting
Threshold
for payout
Target
Maximum
Outcome1
Group
scorecard
CEO
CFO
Performance
Achieve Scientific Leadership
NME Phase II starts
NME and major life-cycle management
positive Phase III investment decisions
NME and major life-cycle management
regional submissions
NME and major life-cycle management
regional approvals
Subtotal
Return to Growth
Product Sales from Growth Platforms ($m)
Subtotal
Achieve Group Financial Targets
6%
8%
8%
8%
30%
30%
30%
4
6
10
12
9
11
15
18
13
16
19
23
9
19
24
23
6%
6%
6%
16%
14.4%
13.4%
16%
14.4%
13.4%
Our Achieve Scientific
Leadership performance
is described on pages
25 to 28.
16%
14.4%
13.4%
54%
49%
46%
15,562
16,381
17,201
17,116
57%
52%
48%
Our Return to Growth
performance is described
on pages 29 to 37.
57%
52%
48%
Cash flow ($bn)
10%
2.9
3.2
3.8
3.9
20%
18%
17%
Core EPS ($)
20%
3.30
3.40
3.50
3.60
40%
36%
33%
Our Achieve Group
Financial Targets
performance is described
on pages 74 to 90.
Total Product Sales ($bn)
10%
19.9
20.5
21.2
21.1
20%
18%
16%
Subtotal
Total2
40%
100%
80%
72%
66%
190%
172%
161%
Note: bar charts are indicative, scales do not start from zero.
1 Reconciliation with KPI outcomes disclosed from page 20 of this Annual Report and a description of performance measures is shown on the following page.
2 Due to rounding, the total formulaic outcome differs from the arithmetic total of the individual metric outcomes discussed above.
AstraZeneca Annual Report & Form 20-F Information 2018 / Annual Report on Remuneration
129
Corporate Governance Annual Report
on Remuneration
continued
Annual bonus continued
During 2018, AstraZeneca made 28 NME and major life-cycle management regional submissions. However, four of these were discounted when
assessing Group scorecard performance. If we do not have Phase III data for a particular submission opportunity when we set the submissions
target at the start of the year, only the first regional submission is counted, even though multiple submissions may occur later in the year.
The Return to Growth target is set and evaluated at budget exchange rates at the beginning of the year and evaluated at those rates at the end
of the performance period, so that any beneficial or adverse movements in currency, which are outside the Company’s control, do not impact
reward outcomes. The Return to Growth scorecard measure excludes certain medicines that are included in Growth Platform Product Sales
reported elsewhere in this Annual Report, due to differences in definitions. The difference for 2018 primarily arose as the scorecard measure
included only new medicines within the Oncology Growth Platform. 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 and is set and evaluated at the actual
exchange rate. The Core EPS and Total Product Sales measures are evaluated by reference to budget exchange rates, again so that any
beneficial or adverse movements in currency, which are outside the Company’s control, do not impact reward outcomes. The financial
metrics reconcile with other disclosures in this Annual Report as follows:
Group scorecard
outcome
KPI disclosed
on pages 20-23
Exchange
rate impact
Product Sales
excluded
Capital
expenditure
Proceeds from
disposal of
intangible assets
Product Sales from Growth Platforms
$17,116m
$18,464m
($59m)
$1,407m
Cash flow
Core EPS
Total Product Sales
$3.9bn
$3.60
$21.1bn
$2.6bn
$3.46
$21.0bn
($0.14)
($0.1bn)
($1.0bn)
$2.3bn
Overall individual and business performance assessment
Individual assessment
During 2018, the Executive Directors’ individual performance was assessed in the following key areas which align with the Company’s objectives:
Pascal Soriot
Focus on
innovative science
Demonstrating
leadership to support
developments within
UK and global life
sciences industry
Under Pascal Soriot’s leadership, AstraZeneca has turned the corner and returned to Product Sales growth, made
possible by Mr Soriot’s determined focus on the innovative science and investment necessary to deliver a new
generation of medicines for patients, with a rebuilt and sustainable pipeline. Mr Soriot’s exceptional leadership was
also evident throughout 2018 to benefit AstraZeneca’s shareholders, employees and other important stakeholders.
For example, he represented AstraZeneca and the innovative biopharmaceutical industry in meetings with world
leaders and senior politicians in key markets such as China, Russia, France and Germany, as well as the UK.
Following from his Chairmanship of the UK Brexit Industry Group in 2017, Mr Soriot co-chaired the Life Sciences
Council (LSC) with the UK Secretary of State for Business, Energy and Industrial Strategy and the UK Secretary of
State for Health. The LSC, accountable for the strategic direction of life science policy in the UK, developed detailed
strategies to develop the UK life sciences industry, as well as prepare for alternative Brexit scenarios.
Mr Soriot has been influential in supporting industrial developments globally, including attending the CEO Council
with the Chinese President Xi Jinping in June, the China Development Forum Fall Summit, and the WuXi World IOT
(Internet of Things) congress in September 2018 as a keynote speaker.
Embedding a culture
focused on integrity
and sustainability
Through Mr Soriot’s leadership in 2018, AstraZeneca continued to be recognised as a global leader in this important
area. For example, AstraZeneca was ranked third in the Dow Jones Sustainability Index and was ranked third
among all UK companies and 34th overall in the Global 100 Index (a ranking of the world’s most sustainable
companies across all sectors), placing AstraZeneca in the top 2% of companies for sustainability performance.
Making AstraZeneca
a great place to work
– achieve
demonstrable
advances in
inclusion, diversity
and employee
engagement
During 2018, our internal KPIs were exceeded with 19.4% of leaders coming from Emerging Markets, an
improvement from 13.5% in 2017. We also saw an increase in the percentage of senior roles held by women and were
pleased that AstraZeneca was included in the 2018 Hampton-Alexander Review (7th for women in executive
committee roles and their direct reports) and as the only major pharmaceutical company listed in Bloomberg’s
Gender-Equality Index. Employee engagement is high with internal surveys showing 94% of respondents
understand AstraZeneca’s future direction and strategic priorities and 83% would recommend AstraZeneca as a
great place to work (compared with the Global Pharmaceutical norms of 87% and 80% respectively).
130
AstraZeneca Annual Report & Form 20-F Information 2018 / Corporate Governance Annual bonus continued
Marc Dunoyer
Return to Growth
Develop Global
Business Services
function to achieve
cost savings
Achieve Scientific
Leadership – Japan
Embedding a culture
focused on integrity
and sustainability
Mr Dunoyer has sharpened the Company’s focus on driving cash flow and was instrumental in the outperformance
achieved. He has also focused the Company on making productivity improvements as it moves into the next phase of its
strategy which, over time, should result in margin improvements. While maintaining the global organisation’s focus on
delivering AstraZeneca’s 2018 financial objectives, under Mr Dunoyer’s stewardship, Global Finance Services were rolled
out to our top 12 markets providing standardised and centrally managed efficient financial services. This has driven
productivity and created value through robotics and innovation. He has also successfully executed a functional
transformation rebalancing finance resources to Regional Delivery Centres in Kuala Lumpur, Malaysia, Warsaw,
Poland, and San Jose, Costa Rica, improving efficiency and reducing cost.
In addition to his responsibilities as CFO, Mr Dunoyer leads the Company’s Global Business Services (GBS) Function.
GBS is a key enabler of our strategic performance, leveraging digital technology, data analytics and artificial intelligence
to create capacity, to simplify and improve processes, and to provide greater automation and smart analytics. Under Mr
Dunoyer’s leadership, savings of $53 million were realised in 2018 through initiatives such as the expansion of our Global
Content Centre, providing local AstraZeneca commercial markets standard product and promotional materials,
eliminating inefficiencies and duplication.
Mr Dunoyer’s additional responsibilities include leading AstraZeneca in Japan, which delivered a strong performance in
2018 exceeding its performance target overall. Seven successful launches in Japan in 2018, including for Fasenra,
Lynparza, Tagrisso and Imfinzi were significant contributions. An example of the excellent performance delivered under
Mr Dunoyer’s leadership is the fact that two thirds of patients new to biologic treatments had been treated with Fasenra
within five months of its approval.
Mr Dunoyer is the Champion for our Young Health Programme (YHP) which the Board was proud to see named
Community Investment Program of the Year by the 2018 Ethical Corporation Responsible Business awards. YHP reflects
our commitment to building a sustainable future: it’s an investment in young people and an investment in health by
empowering young people with knowledge and skills to make healthy choices and take control of their future. In
September 2018, Mr Dunoyer visited our YHP site in Kenya to provide some direct support on the ground. By mid-
September, the YHP in Kenya had trained 40 peer educators and 54 community-based health workers and volunteers and
was working with 47 primary and secondary schools to operationalise school health clubs. It has also trained 129
community leaders on non-communicable disease risk behaviours, Adolescent Sexual and Reproductive Health and
gender equality.
Business assessment
The Committee then reviewed the formulaic Group scorecard outcome for 2018 in the context of business performance and shareholder
experience over the year. A number of significant events and one-off items, both positive and negative, that were unforeseen when targets were
set were considered. These included: unanticipated reductions in corporate income tax rates (that positively impacted Core EPS); a one-off cash
inflow following the resolution of long-running litigation; and a decision of the European Medicines Agency limiting the approval of Imfinzi in
Europe to a narrower lung cancer patient population than other regulators.
Final determination of Executive
Directors’ bonuses
Having taken into account the Executive
Directors’ personal leadership and
achievements during the year and considered
the Group scorecard outcome in the context
of overall business performance and
shareholder experience, the Committee
determined that it would be fair and
reasonable to make a downwards adjustment
to the Group scorecard outcome of 190% of
target (95% of scorecard maximum).
The final bonus outcomes were set at 148.5%
of target (82.5% of maximum) for Mr Soriot
and 137.5% of target (82.5% of maximum) for
Mr Dunoyer.
Pascal Soriot
£’000
£’000
2,152
2,152
(294)
(294)
1,858
1,858
Marc Dunoyer
£’000
£’000
1,076
1,076
(157)
(157)
919
919
Key:
Achieve Scientific
Leadership
Return to Growth
Achieve Group
Financial Targets
Maximum
Target
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190
% max
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190
161
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137.5
137.5
82.5
82.5
AstraZeneca Annual Report & Form 20-F Information 2018 / Annual Report on Remuneration
131
Corporate Governance
Annual Report
on Remuneration
continued
Annual bonus continued
Deferred Bonus Plan
One third of each Executive Directors’ pre-tax annual bonus is deferred into shares under the Deferred Bonus Plan (DBP). No further performance
conditions apply to DBP shares, but release at the end of the three-year deferral period is ordinarily subject to continued employment. DBP
awards in respect of the deferred portions of bonuses earned in respect of performance during 2018 are expected to be granted in March 2019.
Details of the DBP awards granted during 2018, in respect of bonuses earned in respect of performance during 2017, are shown below.
Pascal Soriot
Marc Dunoyer
Ordinary Shares
granted
Grant date
(pence per share)1
Grant price
13,157
7,037
23 March 2018
23 March 2018
4853
4853
Audited
2018 Grant
Face value
£’000
639
342
2019 Grant
2018 Bonus deferred
£’000
619
306
1 The grant price is the average share price over the three dealing days preceding grant.
2019 Annual bonus performance measures and operation
The Group scorecard measures and weightings for 2019 differ from the 2018 Group scorecard as follows:
> Two new Accelerate Innovative Science indices replace Achieve Scientific Leadership metrics, measuring regulatory milestones (submissions
and approvals) and milestones in clinical trials, reflecting late- and early-stage science progression. Moving to dual indices simplifies our
remuneration structure, by reducing the number of metrics.
> The weighting of the Cash flow metric within the Group scorecard has been increased from 10% to 20%, with financial measures now
accounting for 80% of the scorecard. This change in weightings reflects the importance of cash flow generation for the phase our business
has now entered, as we aim to sustain investment in our pipeline while meeting our capital allocation priorities. The Cash flow metric remains
as net cash flow from operating activities less capital expenditure adding back proceeds from disposal of intangible assets.
> The Return to Growth measure will now be known as ‘Deliver Growth and Therapy Area Leadership’ reflecting the next phase of strategy;
the underlying measure has not changed.
Measure weighting
Underlying metrics (if applicable)
Metric weighting
2019 target
2019 Group scorecard performance measures and metrics
Accelerate Innovative Science
20% Pipeline progression events
Regulatory events
Deliver Growth and Therapy Area Leadership
30% Product Sales from Growth Platforms
Achieve Group Financial Targets
50% Cash flow
Core EPS
Total Product Sales
10%
10%
30%
20%
20%
10%
N
N
C
C
C
C
C
C
Key
Target increased vs 2018 target
Target decreased vs 2018 target
Target constant
N New measure
C Commercially sensitive
We intend to disclose the 2019 Group scorecard outcome, and details of the performance hurdles and targets, in the 2019 Remuneration Report
following the end of the performance period. The performance targets are currently considered to be commercially sensitive as prospective
disclosure may prejudice the Company’s commercial interests. Executive Directors’ individual performance will be assessed by reference to
individual objectives in line with the Company’s objectives for the year.
Retrospective disclosure of 2017 performance hurdles
The threshold, target and maximum hurdles for the Return to Growth part of the 2017 Group scorecard were not disclosed in the 2017
Remuneration Report, as they were deemed to be commercially sensitive. The information is now disclosed below. Performance has been
evaluated by reference to budget exchange rates.
2017 Group scorecard performance measures and metrics not previously disclosed
Weighting
Threshold
Target
Maximum
Outcome
Return to Growth ($m)
New CVMD (including Brilinta)
Respiratory
New Oncology
Emerging Markets
Japan
132
6% per
measure
3,649
4,588
1,142
5,488
2,215
3,841
4,671
1,202
5,777
2,331
4,033
4,904
1,262
6,066
2,448
3,563
4,609
1,330
5,870
2,335
AstraZeneca Annual Report & Form 20-F Information 2018 / Corporate Governance
Long-term incentives
Long-term incentives included in single total figure: 2016 PSP and 2015 AZIP
The Executive Directors’ 2018 single total figures of remuneration include the values of Performance Share Plan (PSP) awards and
AstraZeneca Investment Plan (AZIP) awards with performance periods ended 31 December 2018. These shares will not be released and
the dividend equivalents will not be paid out to the Directors until the awards vest at the end of their respective holding periods.
Audited
The values of the shares due to vest have been calculated using the average closing share price over the three-month period ended
31 December 2018 (5980.11 pence). The table below provides a breakdown showing the face value of these shares at the time they were
granted, the value that is attributable to share price appreciation since grant and the value of dividend equivalents accrued on these shares
over the relevant performance period. Further information about the individual awards and performance assessments follows the table.
Ordinary shares
granted
Performance
outcome
Pascal Soriot
Marc Dunoyer
2016 PSP
2015 AZIP
2016 PSP
2015 AZIP
129,713
17,460
54,101
7,646
79%
75%
79%
75%
Long-term incentive awards with performance periods ended 31 December 2018
Value of shares due to vest
Face value
at time
of grant1
£’000
4,020
624
1,677
273
Value due to
share price
appreciation2
£’000
Dividend equivalent
accrued over
performance period
£’000
2,108
160
879
70
652
105
272
46
Long-term
incentives total
£’000
7,669
3,217
Total
£’000
6,780
888
2,828
389
1 Calculated using the grant price of 3923 pence for 2016 PSP awards and the grant price of 4762 pence for 2015 AZIP awards.
2 Calculated using the difference between the grant price and the average closing share price over the three-month period ended 31 December 2018.
The 2016 PSP awards granted on 24 March 2016 are due to vest and be released on 24 March 2021 on completion of a further two-year holding
period. Performance over the period from 1 January 2016 to 31 December 2018 will result in 79% of the award vesting, based on the following
assessment of performance.
The Aggregate revenue of Growth Platforms
target is set at budget exchange rates at the
beginning of the performance period and
evaluated at those rates at the end of the
performance period, so that any beneficial or
adverse movements in currency, which are
outside the Company’s control, do not impact
reward outcomes.
The Adjusted cumulative cash flow measure
is evaluated by reference to net cash flow
before distributions and other adjustments
required by the performance conditions.
The TSR peer group against which
performance has been assessed for the 2016
PSP was set at the time of grant and
comprised AbbVie, BMS, GSK, Johnson &
Johnson, Lilly, MSD, Novartis, Pfizer, Roche
Holding and Sanofi-Aventis. AstraZeneca
ranked second within the peer group, in the
upper quartile. The Committee determined
87.5% of the TSR part of the award should
vest, having calculated the outcome on a
straight-line basis.
2016 PSP performance measures and metrics
Weighting
Threshold
(20%
vesting)
Maximum
(100%
vesting)
Outcome
Payout
Achieve Scientific Leadership
NME approvals
Major life-cycle management approvals
Phase III/registration NME volume
Prospective peak-year sales from approvals
from NME and life-cycle management approvals
Phase II starts
Subtotal1
5%
5%
5%
5%
5%
25%
5
5
9
6
15
9
11
13
10
22
10
100%
14
11
11
31
100%
75%
100%
100%
95%
Aggregate revenue of Growth Platforms ($bn)
25%
17.0
20.0
17.5
42%
Adjusted cumulative cash flow ($bn)
25%
9.0
13.5
12.8
93%
For more information about the TSR performance of the
Total shareholder return
Company, see page 140.
25%
Median
UQ2
2nd
87.5%
Total1
100%
79%
Note: bar charts are indicative, scales do not start from zero.
1 The subtotal and total reflect the weightings of the individual metrics.
2 UQ = Upper Quartile.
AstraZeneca Annual Report & Form 20-F Information 2018 / Annual Report on Remuneration
133
Corporate Governance Annual Report
on Remuneration
continued
Long-term incentives continued
The AZIP is a legacy plan. The last award under this plan was granted in 2016.
Audited
The 2015 AZIP awards granted on 27 March 2015 are due to vest and be released on 1 January 2023 on completion of a further four-year holding
period. In 2016, the Committee replaced the original cliff vesting approach for outstanding AZIP awards with a sliding scale, whereby 25% of an
award will lapse in respect of any year in the performance period in which either of the performance targets are not achieved.
Performance over the period from 1 January 2015 to 31 December 2018 will result in 75% of the 2015 AZIP vesting, as the dividend cover target
was not met in the fourth year of the performance period.
2015 AZIP performance measures
Annual dividend per share at or above $2.80
Dividend cover of 1.5 calculated on the basis of Core EPS
2015
$2.80
1.52
2016
$2.80
1.54
2017
$2.80
1.53
2018
$2.80
1.24
PSP and AZIP award values included in the 2017 single total figure of remuneration have been recalculated using the average closing share price
over the three-month period ended 31 December 2018 (5890.11 pence). In the 2017 Remuneration Report these figures were calculated using the
average closing share price over the three-month period ended 31 December 2017 (4999.4 pence).
PSP awards granted during 2018
During 2018 conditional awards of shares were granted to Mr Soriot and Mr Dunoyer with face values equivalent to 500% of base salary and
400% of base salary respectively under the PSP. Face value is calculated using the grant price, being the average closing share price over the
three dealing days preceding grant.
Performance will be assessed over the period from 1 January 2018 to 31 December 2020 against the measures outlined below, to determine the
proportion of the award that vests. A further two-year holding period will then apply before vesting, which is scheduled to occur on the fifth anniversary
of grant.
Pascal Soriot
Marc Dunoyer
Ordinary
Shares
granted
128,889
61,240
Grant
date
Grant price
(pence per
share)
Face value
£’000
End of
performance period
End of
holding period
23 March 2018
23 March 2018
4853
4853
6,255
31 December 2020
23 March 2023
2,972
31 December 2020
23 March 2023
The 2018, PSP performance measures focused on scientific, commercial and financial performance over the three-year performance period. The five
equally weighted performance measures attached to the 2018 PSP awards are detailed below. Twenty percent 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 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. More information about TSR performance,
including the peer group, is set out on page 140.
TSR ranking of the Company
Median
Between median and upper quartile
Upper quartile
% of award that vests
20% (threshold for payout)
Pro rata
100%
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.
% of award that vests
20% (threshold for payout)
Pro rata
75%
Pro rata
100%
EBITDA
$13.0bn
Between $13.0bn and $16.0bn
$16.0bn
Between $16.0bn and $18.5bn
$18.5bn
134
AstraZeneca Annual Report & Form 20-F Information 2018 / Corporate Governance Long-term incentives continued
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 vesting under this measure is based on a scale between a threshold target and an upper target.
Audited
Cash flow
$8.0bn
Between $8.0bn and $9.5bn
$9.5bn
Between $9.5bn and $12.0bn
$12.0bn and above
% of award that vests
20% (threshold for payout)
Pro rata
75%
Pro rata
100%
Return to Growth
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 construed to constitute financial guidance, which is not the Company’s intention. The Return to Growth measure is
thus considered to be commercially sensitive and will be disclosed following the end of the performance period. This measure is evaluated by reference
to budget exchange rates.
Achieve Scientific Leadership
The Achieve Scientific Leadership measure includes three equally weighted metrics: NME approvals, major life-cycle management approvals and
Phase III registration. These metrics are an indicator of the Company’s longer-term strategic priorities and are thus considered commercially
sensitive; the metrics will be disclosed following the end of the performance period.
PSP performance measures for 2019 grant
The 2019 PSP measures differ from the 2018 PSP measures as follows:
> Two new Accelerate Innovative Science indices measuring regulatory events and NME Phase III/registrational volume replace the Achieve
Scientific Leadership metrics. Moving to dual indices simplifies our remuneration structure by reducing the number of metrics and allows
disclosure of targets at the beginning of the performance period.
> The Return to Growth measure will now be known as 'Deliver Growth and Therapy Area Leadership' reflecting the next phase of strategy;
the underlying measure, Product Sales from Growth Platforms, has not changed.
PSP performance measure
Measure weighting
Underlying metrics (if applicable)
Metric weighting
Accelerate Innovative Science
20%
NME Phase III/registrational volume
Regulatory events
8%
12%
Deliver Growth and Therapy Area
Leadership
Cash flow
EBITDA
Relative TSR
20%
20%
20%
20%
Threshold
(20%
vesting)
Maximum
(100%
vesting)
5
10
10
19
Commercially sensitive
until end of
performance period
$10bn
$17.5bn
Median
$14bn
$22.5bn
Upper
quartile
Given the proportion of AstraZeneca’s revenue that is now represented by our Growth Platforms, disclosing the threshold and maximum
hurdles for the Deliver Growth and Therapy Area Leadership measure could be construed to constitute financial guidance, which is not the
Company’s intention. The Deliver Growth and Therapy Area Leadership measure is thus considered to be commercially sensitive and will
be disclosed following the end of the performance period.
The Deliver Growth and Therapy Area Leadership 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
shown on page 140.
As described on page 128 in relation to annual bonus targets, the Committee similarly takes into account a wide range of data to ensure that
the stretching nature of PSP hurdles is robustly tested and that financial targets are aligned with the business’s Long Range Plan. While the
adjustments to Reported EBITDA, described above, mean that the PSP hurdles are not directly comparable with market consensus, the
Committee will take consensus into account when determining the appropriate level of stretch.
AstraZeneca Annual Report & Form 20-F Information 2018 / Annual Report on Remuneration
135
Corporate Governance Annual Report
on Remuneration
continued
Non-Executive Directors’ remuneration
Non-Executive Directors’ single total figure of remuneration for 2018
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 2018, alongside comparative figures for the prior year.
Audited
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
Total
2018
Fees
£’000
625
110
108
128
73
178
96
110
113
103
–
–
2017
Fees
£’000
575
87
64
115
25
165
43
61
110
87
78
31
2018
Other
£’000
65
2017
Other
£’000
39
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2018
Total
£’000
690
110
108
128
73
178
96
110
113
103
–
–
2017
Total
£’000
614
87
64
115
25
165
43
61
110
87
78
31
1,644
1,441
65
39
1,709
1,480
The Chairman’s single total figure includes office costs (invoiced in Swedish krona) of £65,000 for 2018 and £39,000 for 2017.
Payments to former Directors
During 2018, no payments were made to former Directors.
Payments for loss of office
During 2018, no payments were made to Directors for loss of office.
Non-Executive Directors’ fee structure
The Non-Executive Directors’ fee structure that applied during 2018 is set out below, alongside the structure that will be in place during 2019.
No changes have been made to fees for 2019. Further information on the Non-Executive Directors’ fee structure can be found within the
Remuneration Policy, available at www.astrazeneca.com/remunerationpolicy2017.
Non-Executive Director fees
Chairman’s fee1
Basic Non-Executive Director’s fee
Senior independent Non-Executive Director
Member of the Audit Committee
Member of the Remuneration Committee
Chairman of the Audit Committee or the Remuneration Committee2
Member 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
88
30
20
15
25
15
15
7.5
2019
£’000
625
88
30
20
15
25
15
15
7.5
Executive Directors' external appointments
Marc Dunoyer was appointed a non-executive director of Orchard Therapeutics on 7 June 2018. During 2018 Mr Dunoyer received a gross fee of
£12,000 from Orchard Therapeutics, which he retained in full.
136
AstraZeneca Annual Report & Form 20-F Information 2018 / Corporate Governance Directors’ shareholdings
Minimum shareholding requirements
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. Shares that count towards these minimum shareholding requirements are
shares beneficially held by the Executive Director and their connected persons and share awards that are not subject to further performance conditions.
Share awards included are DBP shares in deferral periods and PSP and AZIP shares in holding periods, on a net of tax basis.
Audited
On this basis, as at 31 December 2018 Mr Soriot and Mr Dunoyer held shares worth 569% and 808% of base salary respectively and had fulfilled their
minimum shareholding requirements.
The Committee has introduced a further post-employment shareholding requirement for Executive Directors. For two years following cessation of
employment, Executive Directors are required to hold shares to the value of the shareholding guideline that applied at the cessation of their
employment; or, in cases where the individual has not had sufficient time to build up shares to meet their guideline, the actual level of
shareholding at cessation.
Position against minimum shareholding requirement (MSR) as a percentage of base salary
Pascal Soriot
Marc Dunoyer
Held beneficially
12,498
132,243
Shares subject
to deferral and
holding periods
Shares subject
to performance
conditions
229,782
72,309
422,689
191,422
Value of shares
counted towards
MSR as a % of
base salary1
569%
808%
CEO
CFO
1 Value of shares held beneficially and shares subject to deferral and holding periods, calculated net of a theoretical 50% tax rate,
as at 31 December 2018.
300% MSR
200% MSR
569%
808%
Key:
MSR
Shares counted towards MSR
As mentioned in the 2017 Remuneration Report, 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 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 plans is set out on page 138.
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 (£88,000 during 2018) or, in the case of the Chairman, approximately equivalent
to his basic annual fee (£625,000 during 2018). All Non-Executive Directors who had served for a period of three years or more as at
31 December 2018 held sufficient shares to fulfil this expectation.
Directors' interests as at 31 December 2018
The following table shows the beneficial interests of the Directors (including the interests of their connected persons) in Ordinary Shares as at
31 December 2018.
Executive Directors
Pascal Soriot
Marc Dunoyer
Non-Executive Directors
Leif Johansson
Geneviève Berger
Philip Broadley
Graham Chipchase
Deborah DiSanzo
Rudy Markham
Sheri McCoy
Nazneen Rahman
Shriti Vadera
Marcus Wallenberg
Beneficial interest in
Ordinary Shares at
31 December 2018
Beneficial interest in
Ordinary Shares at
31 December 2017
12,498
132,243
39,009
2,090
5,215
3,000
500
2,452
500
500
10,000
63,646
500
127,931
39,009
2,090
4,800
3,100
500
2,452
500
500
10,000
63,646
AstraZeneca Annual Report & Form 20-F Information 2018 / Annual Report on Remuneration
137
Corporate Governance Annual Report
on Remuneration
continued
Directors’ shareholdings continued
Executive Directors’ share plan interests
The following tables set out the Executive Directors’ interests in Ordinary Shares under the Company’s share plans.
Audited
Pascal Soriot
Share scheme interests
DBP
PSP
AZIP
Total
Marc Dunoyer
Share scheme interests
DBP
PSP
AZIP
Total
Grant date
27/03/2015
24/03/2016
24/03/2017
23/03/2018
27/03/2015
24/03/2016
24/03/2017
23/03/2018
11/06/2013
28/03/2014
27/03/2015
24/03/2016
Grant date
27/03/2015
24/03/2016
24/03/2017
23/03/2018
27/03/2015
24/03/2016
24/03/2017
23/03/2018
01/08/2013
28/03/2014
27/03/2015
24/03/2016
Shares
outstanding at
1 January 2018
Grant
price
(pence)
Shares
granted
in year
13,482
17,352
7,968
–
104,764
129,713
125,009
–
89,960
20,677
17,460
21,618
548,003
4762
3923
4880
4853
4762
3923
4880
4853
3297
3904
4762
3923
–
–
–
13,157
–
–
–
128,889
–
–
–
–
Shares outstanding at
31 December 2018
Shares
lapsed
in year
Shares
subject to
performance
Shares
in holding
period
Performance
period end
Vesting and
release date
–
–
–
–
n/a
n/a
n/a
n/a
–
n/a 27/03/20181
17,352
7,968
13,157
n/a 24/03/2019
n/a 24/03/2020
n/a 23/03/20212
24,096
–
80,668 31/12/2017
27/03/20203
–
–
–
–
–
–
–
129,713
125,009
128,889
–
–
17,460
21,618
– 31/12/2018
24/03/2021
– 31/12/2019
24/03/2022
– 31/12/2020
23/03/20234
89,960 31/12/2016
01/01/2021
20,677 31/12/2017
01/01/20225
– 31/12/2018
01/01/2023
– 31/12/2019
01/01/2024
Shares
released
in year
13,482
–
–
–
–
–
–
–
–
–
–
–
142,046
13,482
24,096
422,689
229,782
Shares
outstanding at
1 January 2018
Grant
price
(pence)
Shares
granted
in year
7,111
8,798
4,262
–
45,880
54,101
59,439
–
8,176
8,709
7,646
9,016
4762
3923
4880
4853
4762
3923
4880
4853
3302
3904
4762
3923
–
–
–
7,037
–
–
–
61,240
–
–
–
–
Shares
released
in year
7,111
–
–
–
–
–
–
–
–
–
–
–
Shares outstanding at
31 December 2018
Shares
lapsed
in year
Shares
subject to
performance
Shares
in holding
period
Performance
period end
Vesting and
release date
–
–
–
–
n/a
n/a
n/a
n/a
–
8,798
4,262
7,037
n/a 27/03/20181
n/a 24/03/2019
n/a 24/03/2020
n/a 23/03/20212
10,553
–
35,327 31/12/2017
27/03/20203
–
–
–
–
–
–
–
54,101
59,439
61,240
–
–
7,646
9,016
– 31/12/2018
24/03/2021
– 31/12/2019
24/03/2022
– 31/12/2020
23/03/20234
8,176 31/12/2016
01/01/2021
8,709 31/12/2017
01/01/20225
– 31/12/2018
01/01/2023
– 31/12/2019
01/01/2024
213,138
68,277
7,111
10,553
191,442
72,309
Interests over share options
Grant date
SAYE
Total
28/09/2015
Options
outstanding at
1 January 2018
544
544
Exercise
price
(pence)
3307
Options
granted
in year
–
–
Options
matured
in year
544
544
Options
exercised
in year
544
544
Unexercisable
–
–
Available
to exercise
Maturity date
(first date
exercisable)
Last date
exercisable
– 01/12/2018
31/05/20196
–
Options outstanding at
31 December 2018
1 Market price on release date was 4866 pence.
2 Award granted following deferral of one third of the annual bonus paid in respect of performance during 2017, further detail on page 132.
3 77% of the shares entered the holding period, following assessment of performance over the period to 31 December 2017. The remaining shares lapsed.
4 Details of PSP awards granted during 2018 are shown on page 134.
5 100% of the shares entered the holding period, following assessment of performance over the period to 31 December 2017.
6 Option was exercised on 3 December 2018. The market price on the date of exercise was 6152 pence.
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 2018 and 14 February 2019, there was no change in the interests in Ordinary Shares shown in the tables on pages 137 to 138.
138
AstraZeneca Annual Report & Form 20-F Information 2018 / Corporate Governance
Remuneration in the wider context
When making decisions about executive remuneration and setting the Directors’ Remuneration Policy, the Committee takes into account the
arrangements in place for AstraZeneca’s wider workforce. The Committee undertakes a detailed review of global workforce remuneration data
annually. It also considers data on pay trends and practices, such as gender pay gap information, and this year for the first time, the CEO to
worker pay ratio.
The approach to determining the compensation of employees globally follows the same principles as for our executives. We offer competitive
pay and career opportunities, which attract the best talent; we believe in recognising strong individual performance, and we differentiate
reward accordingly. When determining compensation, managers consider how the employee’s pay compares to the local market alongside
other factors, such as the individual’s experience and sustained performance. Bonus budgets are based on the Group scorecard outcome
and managers will determine final employee bonuses based on individual performance. Around 25% of the global workforce are eligible
for LTI awards.
Being a great place to work is a key pillar of our strategy, and at the heart of our efforts to foster the talents of our people. Pay is just one
factor that helps us to attract, retain and develop a talented and diverse workforce. We encourage employees to take ownership of their own
development, with the support of leaders throughout the business. Initiatives such as our Women as Leaders programme, which aims to
encourage more women into senior roles; tailored online learning platforms for managers and employees covering topics such as unconscious
bias; and employee networks, such as our LGBT+ network, help us to fulfil our commitment to fostering an inclusive and diverse workplace.
Employee surveys show that 83% of our employees would recommend AstraZeneca as a great place to work; more information about this
important part of our strategy is set out on pages 38 to 49.
Change in CEO remuneration compared to other employees
In the table below, changes to the CEO’s salary, taxable benefits and annual bonus are compared to a group of employees over the same period
(2017 to 2018). The comparator group includes employees in the UK, US and Sweden who represent approximately 25% of our total employee
population – we consider that this group is representative of the Group’s major science, business and enabling units. These employee populations
are also well balanced in terms of seniority and demographics. We have used a consistent employee comparator group, so the same individuals
appear in both the 2017 and 2018 figures, allowing a meaningful comparison of salary increases.
Salary
Taxable benefits
Annual bonus
Percentage change for
CEO against 2017
Average percentage change
for employees against 2017
2.5%
(0.4)%
(3.0)%
4.6%
4.6%
13.3%
CEO and employee pay ratios
The table below sets out the ratios of the CEO single total figure of remuneration to the equivalent pay for the lower quartile, median and
upper quartile UK employees (calculated on a full -time equivalent basis). The ratios have been calculated in accordance with the Companies
(Miscellaneous Reporting) Requirements 2018 (the Regulations), which were published during 2018 and will first apply to AstraZeneca’s financial
year beginning 1 January 2019. These pay ratios form part of the information that is provided to the Committee on broader employee pay policies
and practices to inform remuneration decisions for the Executive Directors.
Year
2018
Pay data (£’000)
CEO remuneration
UK employees 25th percentile
UK employees 50th percentile
UK employees 75th percentile
Method
25th percentile pay ratio
50th percentile pay ratio
75th percentile pay ratio
Option A
230:1
160:1
Base salary
1,251
36
50
70
103:1
Total pay
11,356
49
71
110
The comparison with UK employees is specified by the Regulations. This group represents approximately 10% of our total employee population.
The Regulations provide flexibility to adopt one of three methods of calculation; we have chosen Option A which is a calculation based on all UK
employees on a full-time equivalent basis. The ratios are based on total pay which includes base salary, benefits, bonus and long-term incentives.
The CEO pay is as shown in the single total figure of remuneration table, on page 126. For UK employees, quartile data has been determined as at
31 December 2018, with calculations based on actual pay data for January to November 2018. Estimates have been used for December 2018 pay,
annual bonus outcomes and dividend equivalents.
As explained earlier in this Report, the majority of the CEO total pay for the year is driven by performance-related elements, notably the long-term
incentive element and share price growth during the period. The ratios may therefore vary significantly year-on-year depending on bonus and PSP
outcomes and share price movements. The ratio of CEO pay excluding LTI versus median UK employee pay is 51:1.
AstraZeneca Annual Report & Form 20-F Information 2018 / Annual Report on Remuneration
139
Corporate Governance
Annual Report
on Remuneration
continued
Remuneration in the wider context continued
Relative importance of spend on pay
The table below shows the remuneration paid to all employees in the Group, including the Executive Directors, 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 149, or its Consolidated Statement of Cash Flows on page 152. Further
information on the Group’s Accounting Policies can be found from page 153.
Audited
Total employee remuneration
Distributions to shareholders: dividends paid
2018
$m
6,970
3,484
2017
$m
6,486
3,519
Difference
in spend
between
years
$m
Difference
in spend
between
years
%
484
(35)
7.5
(1.0)
Total shareholder return (TSR)
The graph below compares the TSR performance of the Company over the past ten 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. It consists of AbbVie, Amgen, Astellas, BMS, Celgene, Daiichi Sankyo, Lilly, Gilead, GSK, Johnson & Johnson, MSD, Novo Nordisk,
Novartis, Pfizer, Roche, Sanofi, Shire and Takeda. CEO remuneration over the same ten year period is shown after the TSR graph.
AstraZeneca
Pharmaceutical peers average
FTSE100
TSR over a ten-year period
350
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
Dec
18
CEO total remuneration table
Year
2018
2017
2016
2015
2014
2013
2012
2012
2012
2011
2010
2009
CEO
Pascal Soriot
Pascal Soriot
Pascal Soriot
Pascal Soriot
Pascal Soriot
Pascal Soriot
Pascal Soriot – appointed with effect from 1 October 2012
Simon Lowth – acted as interim CEO from June to September 2012 inclusive
David Brennan – ceased to be a Director on 1 June 2012
David Brennan
David Brennan
David Brennan
CEO single
total figure of
remuneration
£’000
Annual bonus
payout against
maximum
opportunity
%
LTI vesting
rates against
maximum
opportunity
%
11,3561
10,4292
14,3423
7,963
3,507
3,344
3,6934
3,289
4,1476
7,863
9,690
5,767
83
87
54
97
94
94
68
86
–7
74
90
100
79
81
95
78
–
–
–
385
38
62
100
62
1 The 2018 single total figure of remuneration table is shown on page 126.
2 This figure has been revised using the average closing share price over the three-month period to 31 December 2018, as explained on page 134.
3 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.
4 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.
5 Mr Lowth’s LTI awards which vested during 2012 were not awarded or received in respect of his performance as Interim CEO.
6 This figure includes Mr Brennan’s pay in lieu of notice of £914,000.
7 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.
140
AstraZeneca Annual Report & Form 20-F Information 2018 / Corporate Governance Governance
Committee membership
During 2018, the Committee members were Graham Chipchase (Chairman of the Committee), Leif Johansson, Rudy Markham, Shriti Vadera,
Sheri McCoy (appointed as a Committee member on 1 July 2018) and Philip Broadley (appointed as a Committee member on 1 December 2018).
Shriti Vadera retired as a Director of AstraZeneca on 31 December 2018. The Deputy Company Secretary acts as secretary to the Committee.
The Committee met six times in 2018 and members' attendance records are set out on page 93. During the year the Committee was materially
assisted, except in relation to their own remuneration, by: the CEO; the CFO; the VP Finance Group Controller; the EVP, GMD; the EVP, Human
Resources; the SVP, Reward and Diversity; the Senior Director Compensation; the Company Secretary; the Deputy Company Secretary and the
Non-Executive Directors forming the Science Committee. The Committee’s independent adviser 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 2018 and recommended certain changes to reflect the revised UK Corporate Governance Code which is effective for
the Company from 1 January 2019. The Board approved the recommendation.
Independent adviser to the Committee
During 2018, the Committee carried out a tender process to select an independent adviser. The process involved submission of written proposals
followed by shortlisted candidates being interviewed by both Committee members and members of the Company’s management. The Committee
selected and appointed Willis Towers Watson (WTW) as its independent adviser with effect from September 2018. WTW’s service to the Committee
was provided on a time-spend basis at a cost to the Company of £56,000, excluding VAT. During 2018, WTW also provided pensions advice and
administration, and advice and support to management including market data to assist in the annual employee pay review and global pay survey
data. The Committee reviewed the potential for conflicts of interest and judged that there were no conflicts.
Prior to WTW’s appointment, the role of independent adviser was held by Deloitte LLP (Deloitte). Deloitte had been reappointed by the Committee
as its independent adviser following a tender process in 2013. Deloitte’s service to the Committee during 2018 was provided on a time-and-
materials basis at a cost of £89,300, excluding VAT. During 2018, Deloitte also provided taxation and legal advice and other non-audit advisory
and assurance services to the Group. The Committee reviewed the potential for conflicts of interest and judged that there were no conflicts. Both
WTW and Deloitte are members 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. WTW and Deloitte adhere to the code.
Shareholder voting at the AGM
At the Company’s AGM on 18 May 2018, shareholders voted in favour of a resolution to approve the Annual Report on Remuneration for the
year ended 31 December 2017. The Directors’ Remuneration Policy was approved by shareholders at the Company’s AGM on 27 April 2017.
The Committee has engaged with shareholders to understand the reasons behind the low vote in favour of the Annual Report on Remuneration
at the 2018 AGM and taken a number of actions to address this. This is discussed in the letter from the Chairman of the Committee from page 120.
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 (2017 AGM)
Ordinary Resolution to approve the Annual Report on
Remuneration for the year ended 31 December 2017 (2018 AGM)
877,620,302
96.08
35,804,933
3.92 913,425,235
72.17
15,539,511
616,320,491
65.08 330,706,327
34.92
947,026,818
74.77
30,798,857
Directors’ service contracts and letters of appointment
The notice periods and unexpired terms of Executive Directors’ service contracts at 31 December 2018 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 2018
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 26 April 2019.
On behalf of the Board
A C N Kemp
Company Secretary
14 February 2019
AstraZeneca Annual Report & Form 20-F Information 2018 / Annual Report on Remuneration
141
Corporate Governance Financial
Statements
Auditors' Report 144
Consolidated Statements 149
Group Accounting Policies 153
Notes to the Group
Financial Statements 160
Group Subsidiaries and Holdings 201
Company Statements 205
Company Accounting Policies 207
Notes to the Company
Financial Statements 208
Group Financial Record 210
142
AstraZeneca Annual Report & Form 20-F Information 2018 / 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
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
14 February 2019
Pascal Soriot
Director
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’ 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 2018 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
2018, 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 2018
and has issued an unqualified report thereon.
143
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial StatementsFinancial 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 2018 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
International Financial Reporting Standards
(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 2018 (the “Annual Report”),
which comprise: the Consolidated Statement
of Financial Position as at 31 December 2018,
the Consolidated Statement of Comprehensive
Income for the year ended 31 December 2018,
the Consolidated Statement of Cash Flows for
the year ended 31 December 2018, the
Consolidated Statement of Changes in Equity
for the year ended 31 December 2018, the
Group Accounting Policies and notes to the
Group Financial Statements, the Company
Balance Sheet as at 31 December 2018, the
Company Statement of Changes in Equity for
the year ended 31 December 2018, the
Company Accounting Policies and notes to
the Company Financial Statements.
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,
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.
144
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.
> Taken together, the above procedures
accounted for 85% of the Group’s revenue
and 70% of the Group’s absolute profit
before tax.
Key audit matters
> Recognition and measurement of accruals
for rebates and returns in the US
> Assessment of the recoverability of the
carrying value of intangible assets (product,
marketing and distribution rights)
> Accounting for externalisation and
collaboration arrangements – in-license
and out-licensing arrangements and other
types of complex development and
collaboration agreements
> Recognition and measurement of litigation
and contingent liabilities
> Recognition and measurement of uncertain
tax provisions
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.
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.
Other than those disclosed in Note 31 to the
Financial Statements, we have provided no
non-audit services to the Group or the Parent
Company in the period from 1 January 2018
to 31 December 2018.
Our audit approach
Overview
Materiality
> Overall Group materiality: $130m (2017:
$160m), based on 5% of profit before tax,
after adding back (i) intangible asset
impairment charges and (ii) fair value
movements and the discount unwind on
contingent consideration, as disclosed in
Notes 9 and 19 respectively.
> Overall Parent Company materiality: $100m
(2017: $75m), 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 the principal operating
units in the US, UK, Sweden, China, Japan,
France, Germany, Russia and Brazil as well
as the Parent Company and AstraZeneca
Treasury Limited.
> 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 and
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, intangible assets and
other investments, and litigation matters,
as well as the consolidation.
Capability of the audit in detecting
irregularities, including fraud
Based on our understanding of the Group and
the industry in which it operates, we identified
that the principal risks of non-compliance with
laws and regulations related to patent protection,
product safety, competition law and
environmental matters (see Note 29), and we
considered the extent to which non-compliance
might have a material effect on the Group
Financial Statements. We also considered those
laws and regulations that have a direct impact on
the financial statements such as the Companies
Act 2006 and tax legislation. We evaluated
management’s incentives and opportunities
for fraudulent manipulation of the financial
statements (including the risk of override of
controls), and determined that the principal
risks were related to posting inappropriate
journal entries to manipulate financial results
and management bias in accounting estimates.
The Group engagement team shared this risk
assessment with the component auditors
referred to in the scoping section of our report
below, so that they could include appropriate
audit procedures in response to such risks in
their work. Audit procedures performed by the
Group engagement team and/or component
auditors included:
> Discussions with management, internal
audit, the Deputy Chief Compliance Officer
and the Group’s legal counsel, including
consideration of known or suspected
instances of non-compliance with laws and
regulations and fraud;
> Evaluation and testing of the operating
effectiveness of management’s controls
designed to prevent and detect irregularities;
> Assessment of matters reported on the
Group’s whistleblowing helpline and results of
management’s investigation of such matters;
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial Statements > Challenging assumptions made by
management in their significant accounting
estimates in particular in relation to estimation
of rebate and return accruals, impairment of
intangible assets, and the recognition and
measurement of litigation and contingent
liabilities and uncertain tax provisions
(see related key audit matters below);
> Identifying and testing journal entries, in
particular any journal entries posted with
unusual account combinations, journals
posted by senior management, journals
posted and reviewed by the same individual
and consolidation journals.
There are inherent limitations in the audit
procedures described above and the further
removed non-compliance with laws and
regulations is from the events and transactions
reflected in the financial statements, the less
likely we would become aware of it. Also, 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.
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
Recognition and measurement of accruals for rebates and returns in the US
Refer to page 115 (Audit Committee Report), page 154 (Accounting Policies) and
Note 19 in the Group Financial Statements.
We evaluated the design and tested the operating effectiveness of controls over
the recognition and measurement of rebates and returns. We determined that we
could rely on these controls for the purposes of our audit.
In the US the Group sells to customers under various commercial and government
mandated contracts and reimbursement arrangements that include rebates 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 material 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 accrued. The directors have determined an accrual of $4,043m
to be necessary at 31 December 2018.
Rebate, discount, allowance and return arrangements are complex and
establishing an appropriate accrual requires significant estimation on the part
of management. Changes in estimates can have a significant financial impact.
Assessment of the recoverability of the carrying value of intangible assets (product,
marketing and distribution rights)
Refer to page 115 (Audit Committee Report), page 155 (Accounting Policies) and
Note 9 in the Group Financial Statements.
The Group has product, marketing and distribution rights and other intangible
assets totalling $21,720m, out of a total intangible asset value of $21,959m at
31 December 2018.
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 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.
Our work on intangible assets focussed on assets that were in development (and
not being amortised) and launched assets which were individually significant,
had lower levels of headroom or where there have been concerns over the
recoverability of the carrying value of specific assets in previous periods.
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 the effect of any adjustments to prior year’s accruals in the current
year’s results. We formed an independent expectation of the largest elements of
the accrual at 31 December 2018 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 accruals.
We evaluated the design and tested the operating effectiveness of controls in
assessing the carrying value of intangible assets. We determined that we could
rely on these controls for the purposes of our audit.
For those assets tested we obtained the Group’s impairment analyses and:
> we tested the accuracy of the impairment models and agreed the cash flow
forecasts used in the impairment models to the Board approved Long Range Plan;
> we tested the reasonableness of key assumptions including revenue and
profit growth or decline, the expected loss of drug exclusivity and the impact
of the expiry of patents including comparing certain assumptions to industry
and economic forecasts;
> for higher risk assets we performed sensitivity analysis focusing on what we
consider to be reasonably possible changes in key assumptions; and
> we assessed the historical accuracy of forecasts to assess management’s
forecasting ability.
We utilised our in-house valuation experts to assess the valuation techniques
used, to independently corroborate the discount rate used by management
by reference to market data and to assist with the evaluation of other key
assumptions for higher risk assets (primarily probability of technical and
regulatory success factors).
As a result of our work, we determined that the net impairment charge of $683m
recorded for intangible assets was appropriate.
We reviewed the disclosures in Note 9 of the Group Financial Statements, including
sensitivity analysis based on reasonably possible downsides. We are satisfied that
these disclosures are appropriate.
145
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial StatementsFinancial Statements Independent Auditors’ Report to the Members
of AstraZeneca PLC continued
Key audit matter
How our audit addressed the key audit matter
Accounting for externalisation and collaboration arrangements – in-license and
out-licensing arrangements and other types of complex development and
collaboration agreements.
Refer to page 115 (Audit Committee Report), page 155 (Accounting Policies) and
Note 1 in the Group Financial Statements.
The Group routinely enters into development and commercialisation
arrangements and collaborations with other pharmaceutical companies. These
include in-license and out-licensing arrangements and other types of complex
agreements. In 2018, the Group recognised externalisation revenue of $1,041m.
The nature of these arrangements mean that the accounting for externalisation
revenue is often inherently complex and judgemental, unusual by definition and
presents a higher level of risk.
We evaluated the design and tested the operating effectiveness of controls in
place over significant contracts and collaboration agreements. We determined
that we could rely on these controls for the purposes of our audit.
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.
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 had been derecognised on transfer of the
relevant rights.
Based on the procedures performed, we consider management’s judgements
reasonable and did not identify any material misstatements.
Recognition and measurement of litigation and contingent liabilities
Refer to page 116 (Audit Committee Report), page 158 (Accounting Policies) and
Notes 20 and 29 in the Group Financial Statements.
We evaluated the design and tested the operating effectiveness of controls in
respect of the recognition and measurement of litigation matters. We determined
that we could rely on these controls for the purposes of our audit.
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 2018, the Group held provisions of $198m in respect of legal claims.
These provisions are based on judgements and reflect accounting estimates made
by management in determining the likelihood and magnitude of an unfavourable
outcome on the claims. Accordingly, unexpected adverse outcomes could
significantly impact the Group’s reported profit and balance sheet position.
We read the summary of litigation matters provided by management and held
discussions with the Group’s legal counsel. We requested and obtained legal
letters from certain 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.
We considered management’s judgements on the level of provisioning to be
reasonable. We also evaluated the appropriateness of the disclosures in Note 20
and Note 29 which we considered appropriate.
Recognition and measurement of uncertain tax provisions
Refer to page 116 (Audit Committee Report), page 156 (Accounting Policies) and
Note 29 in the Group Financial Statements.
We evaluated the design and tested the operating effectiveness of controls in
respect of the recognition and measurement of uncertain tax provisions. We
determined that we could rely on these controls for the purposes of our audit.
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 and estimates of the probable amount of
the future liability.
At 31 December 2018, the Group has recorded provisions of $942m in respect of
uncertain tax positions.
With the assistance of our local and international tax specialists, we evaluated
management’s judgements and estimates of tax exposures and contingencies
in order to assess the adequacy of the Group’s tax provisions. 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 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 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 reviewed the disclosures in Note 29 of the Group Financial Statements.
We are satisfied that these disclosures are appropriate.
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 which required a full scope audit
for Group reporting. These are the principal
operating units in the US, UK, Sweden, China,
Japan, France, Germany, Russia and Brazil as
well as the Parent Company and AstraZeneca
Treasury Limited. 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.
146
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial Statements We also identified a further six reporting
components which had one or more individual
financial statement line item balances that
were considered significant to the Group’s
Financial Statements. For these components
our work solely focussed on balances related
to revenue (Canada, a further reporting
component in China, Italy, and Spain),
research and development expense (further
reporting components in the UK and the US)
or property, plant and equipment (further
reporting component in the US).
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, intangible assets and
other investments, and litigation matters,
as well as the consolidation.
Taken together, the above procedures
accounted for 85% of the Group’s revenue
and 70% of the Group’s absolute profit
before tax.
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
$130m (2017: $160m)
How we determined it
5% of profit before tax, after adding back intangible asset impairment charges, fair
value movements and discount unwind on contingent consideration as disclosed
in Notes 9 and 19 respectively.
$100m (2017: $75m)
1% of net assets
Rationale for
benchmark applied
The reported profit of the Group can fluctuate due to intangible asset impairment
charges and fair value and discount unwind 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 (being investment holding) and
have determined that net assets is an appropriate
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 $10m and $105m.
We agreed with the Audit Committee that we
would report to them misstatements identified
during our audit above $7m for both the Group
Financial Statements and the Parent Company
Financial Statements (2017: $7m) 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.
As not all future events or conditions can be predicted, this statement is not a
guarantee as to the Group’s and the Parent Company’s ability to continue as a
going concern. For example, the terms on which the United Kingdom may
withdraw from the European Union, which is currently due to occur on 29 March
2019, are not clear, and it is difficult to evaluate all of the potential implications.
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.
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).
147
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial StatementsFinancial Statements Independent Auditors’ Report to the Members
of AstraZeneca PLC continued
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken
in the course of the audit, the information
given in the Strategic Report and Directors’
Report for the year ended 31 December 2018
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
Directors’ Report (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 70
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 71 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 143, 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
113 to 119 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 pursuant to DTR 4 set out on
page 143, 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.
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. The period of total
uninterrupted engagement is 2 years,
covering the years ended 31 December 2017
and 31 December 2018.
Richard Hughes (Senior Statutory Auditor)
for and on behalf of
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
14 February 2019
148
AstraZeneca Annual Report & Form 20-F Information 2018 / 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
Net losses on equity investments measured at fair value through other comprehensive income
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
Costs of hedging
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 (loss)/income 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
21
4
22
22
22
4
25
25
5
5
5
5
2018
$m
21,049
1,041
22,090
(4,936)
17,154
(331)
(5,932)
(10,031)
2,527
3,387
138
(1,419)
(113)
1,993
57
2,050
(46)
(171)
8
56
(153)
(450)
(520)
(37)
111
(8)
(54)
1
–
51
(906)
(1,059)
991
2,155
(105)
1,097
(106)
$1.70
$1.70
1,267
1,267
2017
$m
20,152
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
2016
$m
21,319
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
Dividends declared and paid in the period
24
3,539
3,543
3,540
All activities were in respect of continuing operations.
$m means millions of US dollars.
AstraZeneca Annual Report & Form 20-F Information 2018 / Consolidated Statements
149
Financial Statements 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
Assets held for sale
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
2018
$m
2017
$m
2016
$m
7
8
9
10
11
12
13
4
14
15
11
12
16
17
18
19
12
20
18
12
4
21
20
19
23
22
22
25
7,421
11,707
21,959
89
833
157
515
2,379
45,060
2,890
5,574
849
258
207
4,831
982
15,591
60,651
(1,754)
(12,841)
(27)
(506)
(1,164)
(16,292)
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)
(16,383)
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)
(15,256)
(17,359)
(15,560)
(14,501)
(4)
(3,286)
(2,511)
(385)
(6,770)
(30,315)
(46,607)
14,044
317
4,427
153
448
1,440
5,683
12,468
1,576
14,044
(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
The Financial Statements from pages 149 to 204 were approved by the Board and were signed on its behalf by
Pascal Soriot
Director
14 February 2019
Marc Dunoyer
Director
150
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial Statements Consolidated Statement of Changes in Equity
for the year ended 31 December
At 1 January 2016
Profit for the period
Other comprehensive loss
Transfer to other reserves1
Transactions with owners
Dividends
Dividends paid by subsidiary to non-controlling interest
Acerta Pharma put option (Note 25)
Changes in non-controlling interest (Note 25)
Issue of Ordinary Shares
Share-based payments charge for the period (Note 28)
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 28)
Settlement of share plan awards
Net movement
At 31 December 2017
Adoption of new accounting standards2
Profit for the period
Other comprehensive loss3
Transfer to other reserves1
Transactions with owners
Dividends
Issue of Ordinary Shares
Share-based payments charge for the period (Note 28)
Settlement of share plan awards
Net movement
At 31 December 2018
Share
capital
$m
Share
Capital
premium redemption
reserve
account
$m
$m
Merger
reserve
$m
Other
reserves
$m
Total
Non-
Retained attributable controlling
interests
to owners
earnings
$m
$m
$m
Total
equity
$m
316
4,304
153
448
1,435
11,834
18,490
19
18,509
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
47
–
–
47
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
11
–
–
–
–
–
–
–
3,499
3,499
(93)
3,406
(1,777)
(1,777)
(11)
–
(1)
–
(1,778)
–
(3,540)
(3,540)
–
(3,540)
–
–
(13)
(13)
(1,825)
(1,825)
–
(1,825)
–
–
241
(281)
–
47
241
(281)
1,903
1,903
–
–
–
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)
–
–
–
–
(18)
3,001
3,001
(133)
2,868
639
18
639
–
(3,543)
(3,543)
–
220
(254)
81
43
220
(254)
106
–
–
–
–
–
–
(133)
639
–
(3,543)
43
220
(254)
(27)
317
4,393
153
448
1,428
8,221
14,960
1,682
16,642
–
–
–
–
–
–
–
–
–
–
–
–
–
–
34
–
–
34
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
12
–
–
–
–
(91)
(91)
–
(91)
2,155
2,155
(105)
2,050
(1,058)
(1,058)
(12)
–
(1)
–
(1,059)
–
(3,539)
(3,539)
–
219
(212)
34
219
(212)
–
–
–
–
(3,539)
34
219
(212)
12
(2,538)
(2,492)
(106)
(2,598)
317
4,427
153
448
1,440
5,683
12,468
1,576
14,044
1 Amounts charged or credited to other reserves relate to exchange adjustments arising on goodwill.
2 The Group adopted IFRS 15 ‘Revenue from Contracts with Customers’ from 1 January 2018. See page 153.
3 Included within Other comprehensive loss of $1,059m is a charge of $54m relating to Costs of hedging.
AstraZeneca Annual Report & Form 20-F Information 2018 / Consolidated Statements
151
Financial Statements
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
(Increase)/decrease in trade and other receivables
Increase in inventories
(Decrease)/increase 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 inflow/(outflow) from investing activities
Net cash inflow 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 from financing activities
Notes
3
10
2
19
16
19
10
Net increase/(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
2018
$m
1,993
1,281
113
3,753
(523)
(13)
(103)
(1,885)
(495)
(290)
3,831
(676)
(537)
2,618
–
(349)
(1,043)
12
(328)
2,338
(102)
24
405
(187)
193
–
963
3,581
34
2,971
(1,400)
(3,484)
(67)
–
(98)
(2,044)
1,537
3,172
(38)
4,671
2017
$m
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
2016
$m
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
152
AstraZeneca Annual Report & Form 20-F Information 2018 / 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).
The adoption of IFRS 9 ‘Financial Instruments’
from 1 January 2018 has resulted in changes
to the Group’s accounting policies. IFRS 9
replaced the provisions of IAS 39 that relate to
the recognition, classification and measurement
of financial assets and financial liabilities,
derecognition of financial instruments,
impairment of financial assets and hedge
accounting. In accordance with the transitional
provisions in IFRS 9, comparative figures have
not been restated and the Group has identified
that there was no material impact on the
Group’s Retained earnings as at 1 January 2018.
(i) Classification and measurement
On the date of initial application, 1 January
2018, the Group’s management has assessed
which business models apply to the financial
assets and financial liabilities held by the
Group and has classified its financial
instruments into the appropriate IFRS 9
categories. The main effects resulting from
this reclassification are as follows:
Non-current financial assets
Other investments
Equity securities1
Derivative financial instruments
Other receivables
Current financial assets
Trade and other receivables
Trade receivables – not subject to factoring
Trade receivables – subject to factoring2
Other receivables
Other investments
Equity securities and bonds3
Fixed Deposits
Derivative financial instruments
Cash and cash equivalents
Cash at bank and in hand
Short-term deposits excluding money market funds
Money market funds4
Current financial liabilities
Derivative financial instruments
Non-current financial liabilities
Derivative financial instruments
Original
(IAS 39)
Measurement
category
New
(IFRS 9)
Original
$m
Available for sale
Held for trading
Amortised cost
FVOCI
FVPL
Amortised cost
Amortised cost
Amortised cost
Amortised cost
Available for sale
Amortised cost
Held for trading
Amortised cost
Amortised cost
Amortised cost
Held for trading
Held for trading
Amortised cost
FVOCI
Amortised cost
FVPL
Amortised cost
FVPL
Amortised cost
Amortised cost
FVPL
FVPL
FVPL
933
504
489
2,475
327
949
1,150
80
28
784
1,391
1,149
(24)
(4)
New
$m
933
504
489
2,475
327
949
1,150
80
28
784
1,391
1,149
(24)
(4)
Carrying
amounts
Difference
$m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1 Equity securities investments reclassified from available to sale to assets at fair value through Other comprehensive income. These are strategic investments held directly in other
pharmaceutical and biotech companies.
2 Trade receivables that are subject to debt factoring arrangements were held at amortised cost under IAS 39. Under IFRS 9 these receivables are held under the ‘hold to collect and sell’
business model at fair value through other comprehensive income, however their carrying value and their fair value are considered to be materially the same.
3 Equity security investments reclassified from available to sale to assets at fair value through profit or loss. These are primarily short-term assets invested as part of our cash management
strategy to maximise gains on our liquid resources.
4 Money market funds – the Group is invested in constant net asset value funds where liquidity is offered with same day access for subscription and redemption. Because they fail the ‘solely
payments of principal and interest’ test criteria under IFRS 9 they are measured at fair value through profit or loss, although the fair value is materially the same as amortised cost.
(ii) Derivatives and hedging activities
The Group’s risk management strategies and
hedge documentation are aligned with the
requirements of IFRS 9. All hedge relationships
designated under IAS 39 are treated as
continuing hedges under IFRS 9 and there was
no impact from the adoption of IFRS 9 on
prior periods.
(iii) Impairment of financial assets
The Group has financial assets that are subject
to the new IFRS 9 expected credit loss model
and the Group was required to revise its
impairment methodology under IFRS 9 for
these assets. The identified impairment change
at 1 January 2018 was immaterial and the
impact of the change in impairment
methodology on the Group’s Retained
earnings was assessed as nil.
From 1 January 2018, the Group assesses on
a forward looking basis the expected credit
losses associated with its debt instruments
carried at amortised cost and fair value
through Other comprehensive income. In the
prior year, the impairment of trade receivables
was assessed based on the incurred loss
model. The Group established an allowance
for impairment that represented its estimate of
incurred losses where it was deemed that a
receivable may not have been recoverable.
When the debt was deemed irrecoverable the
allowance account was written off against the
underlying receivable.
The Group has adopted IFRS 15 ‘Revenue from
Contracts with Customers’ which replaces
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
Group expects to be entitled to receive.
The standard also updates revenue
disclosure requirements.
The standard has not had a material impact
on the 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 the estimates of
sales deductions under IAS 18 are consistent
with those adopted under IFRS 15.
The previous 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 the intellectual
AstraZeneca Annual Report & Form 20-F Information 2018 / Group Accounting Policies
153
Financial Statements Group Accounting Policies
continued
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 the historical
allocations is not material. The licences we
grant are typically rights to use the 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.
The Group has retrospectively applied the
standard from 1 January 2018 recognising
the cumulative effect of initially applying the
standard as an increase to contract liabilities,
which are a component of Trade and other
payables of $133m to defer Externalisation
Revenue previously recognised, an increase
to Prepayments and accrued income, which are
a component of Trade and other receivables
of $20m to recognise Externalisation Revenue
previously not recognised, a total related tax
adjustment of $22m and a corresponding net
adjustment to the opening balance of Retained
earnings of $91m. There is no restatement to
prior periods as permitted in the transition rules
for IFRS 15. The impact of initial application in
the year to 31 December 2018 as compared with
the year to 31 December 2017 is the recognition
of additional Externalisation Revenue of $27m
in the year to 31 December 2018.
In addition to the above standard amendments
and new adoptions, effective from 1 January
2018, the Group has changed its presentation
of Trade and other payables resulting in
the following:
(1) Liabilities for product returns, discounts
and other product sales adjustments are
shown together with liabilities for rebates
and chargebacks;
(2) Clinical trial accruals and the Acerta Pharma
put option liability are shown separately;
(3) Other trade-related accruals are shown
within Other accruals.
The revised presentation has no impact on
the total of Trade and other payables, the
Group’s Statement of Financial Position, the
Statement of Cash Flows or the Statement of
Comprehensive Income.
After applying the requirements of IFRS 15 for
revenue contract related liabilities, and following
an internal review of the presentation of
liabilities, the Group considers that further
disaggregation of the balances in Trade and
other Payables would improve the clarity and
understanding of those balances.
154
The Group has revised the comparative
presentation of Trade and other payables in
Note 19 for the changes related to: (1) liabilities
for product returns, discounts and other
product sales adjustments; and (2) clinical trial
accruals and the Acerta Pharma put option.
The Group has assessed the change related to
(3) other trade-related accruals as not material
for revision under IAS 8 ‘Accounting Policies,
Changes in Accounting Estimates and Errors’
and therefore the comparative presentation of
Trade and other payables in Note 19 has not
been revised for this presentational change.
During the year, the Group has adopted the
amendments to IFRS 2 ‘Classification and
Measurement of Share-based Payment
Transactions’ and the interpretation within
IFRIC 22 ‘Foreign Currency Transactions and
Advance Consideration’. The adoptions have
not had a significant impact on the Group’s
Statement of Comprehensive Income,
Statement of Financial Position and Statement
of Cash Flows.
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 2018, the Group
has $7.1bn in financial resources (cash balances
of $4.8bn and undrawn committed bank
facilities of $4.1bn, of which $3.4bn is available
until April 2022, $0.5bn is available until
December 2020 (extendable to December
2021) and $0.2bn is available until December
2019 (extendable to December 2020), with only
$1.8bn 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.
Judgements include matters such as the
determination of operating segments while
estimates focus on areas such as carrying
values, estimated useful lives of Intangible
assets, potential obligations and Contingent
consideration.
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 27.
AstraZeneca’s management considers the
following to be the most important accounting
policies in the context of the Group’s operations.
Revenue
Revenues comprise Product Sales and
Externalisation Revenue.
Product Sales are revenues arising from
contracts with customers. Externalisation
Revenue arises from other contracts. However,
the recognition and measurement principles
of IFRS 15 are applied as set out below.
Revenues exclude inter-company revenues
and value-added taxes.
Product Sales
Product Sales represent net invoice value less
estimated rebates, returns and chargebacks,
which are considered to be key estimates.
Sales are recognised when the control of the
goods has 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.
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial Statements 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 are considered highly probable to
reverse, 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 arrangements may include development
arrangements, commercialisation
arrangements and collaborations. Income
may take the form of upfront fees, milestones,
profit sharing and royalties.
The licences we grant are typically rights to use
intellectual property which do not change
during the period of the licence. Those licences
are generally unique and therefore, the basis
of allocation of the consideration makes use of
the residual approach as permitted by IFRS 15.
These arrangements 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 non-contingent amounts are payable
over one year from the effective date of a
contract, an assessment is made as to whether
a significant financing component exists,
and if so, the fair value of this component is
deferred and recognised over the period to
the expected date of receipt.
Where control of a right to use intangible asset
passes at the outset of an arrangement,
revenue is recognised at the point in time
control is transferred. Where the substance
of an arrangement is that of a right to access
rights attributable to an Intangible asset,
revenue is recognised over time, normally on a
straight-line basis over the life of the contract.
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 ordinarily 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 cannot be recognised until either receipt
of the amount is highly probable or where the
consideration is received for a licence of
intellectual property, on the occurrence of the
related sales.
Where the Group provides ongoing services,
revenue in respect of this element is recognised
over the duration of those services. Where the
arrangement meets the definition of a licence
agreement, sales milestones and sales royalties
are recognised when achieved by applying the
royalty exemption under IFRS 15. All other
milestones and sales royalties are recognised
when considered highly probable. The
determination of highly probable represents a
key judgement.
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, inventory write offs and
impairment charges in relation to manufacturing
assets. 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’. This is considered
a key judgement. 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 2018, 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.
The determination of the useful economic life
is considered a key judgement.
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.
The determination of the recoverable amounts
include key estimates which are highly sensitive
to, and depend upon, key assumptions as
detailed in Note 9.
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.
Business combinations and goodwill
On the acquisition of a business, fair values are
attributed to the identifiable assets and liabilities.
Attributing fair values is a key judgement.
Contingent liabilities are also recorded at fair
value 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.
AstraZeneca Annual Report & Form 20-F Information 2018 / Group Accounting Policies
155
Financial Statements Group Accounting Policies
continued
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.
The timing and amount of future contingent
elements of consideration is considered a key
estimate. Contingent consideration, which may
include development and launch milestones,
revenue threshold milestones and revenue-
based royalties, is 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.
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.
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.
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.
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. Given the extent of
the assumptions used to determine these
values, these are considered to be key
estimates. 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
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 of potential
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 probable of not being
sustained, 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
29 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 Monte Carlo 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.
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.
156
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial Statements 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 for launched products and research and
development costs for products in development.
Assets held for sale
Non-current assets are classified as assets
held for sale when their carrying amount is
to be recovered principally through a sale
transaction and a sale is considered highly
probable. A sale is usually considered highly
probable only when an appropriate level of
management has committed to the sale.
Assets held for sale are stated at the lower of
carrying amount and fair value less costs to
sell. Where there is a partial transfer of a
non-current asset to held for sale, an allocation
of value is made between the current and
non-current portions of the asset based on
the relative value of the two portions, unless
there is a methodology that better reflects the
asset to be disposed of.
Assets held for sale are not depreciated
or amortised.
Trade and other receivables
Financial assets included in Trade and other
receivables are recognised initially at fair value.
The Group holds the Trade receivables with the
objective to collect the contractual cash flows
and therefore measures them subsequently 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 IFRS 9 ‘Financial Instruments’.
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. Contingent
consideration payables are held at fair value
within level 3 of the fair value hierarchy as
defined in Note 11.
Financial instruments
The Group’s financial instruments include
finance 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.
Reclassification from available for sale to at fair
value through Other comprehensive income
These investments were reclassified from
available for sale to assets at fair value
through Other comprehensive income. The
investments primarily relate to biotech
companies and are held to access science
rather than to liquidate and realise gains.
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 under the hold to collect
classification, where they meet the hold to
collect ‘solely payments of principal and
interest’ test criteria under IFRS 9. Those not
meeting these criteria are held at fair value
through profit and loss.
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
Accounting policy applied until
31 December 2017 (IAS 39)
Until 31 December 2017, the investments were
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 were recognised in profit within
Other operating income and expense. All
other changes in fair value were recognised in
Other comprehensive income.
Accounting policy applied from
1 January 2018 (IFRS 9)
On adoption of IFRS 9 ‘Financial Instruments’
on 1 January 2018 the available for sale
classification category was eliminated.
Investments previously classified as available
for sale are now classified as fair value through
profit or loss, unless the Group makes an
irrevocable election at initial recognition
for certain non-current equity investments
to present changes in fair value in Other
comprehensive income. If this election is
made, there is no subsequent reclassification
of fair value gains and losses to profit and loss
following the derecognition of the investment.
Reclassification from available for sale to at
fair value through profit or loss
These investments were reclassified from
available to sale to assets at fair value through
profit or loss. The investments primarily relate
to short-term assets invested as part of our
cash management strategy to maximise gains
on our liquid resources.
For the available for sale assets now at fair
value through profit or loss the fair value gain
that has gone through profit and loss that
under the old classification would have gone
to Other comprehensive income is $nil.
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
AstraZeneca Annual Report & Form 20-F Information 2018 / Group Accounting Policies
157
Financial Statements Group Accounting Policies
continued
income are reclassified to profit in the same
period that the hedged forecast cash flows
affect profit. The reclassification adjustment is
included in Finance expense in the Consolidated
statement of comprehensive income.
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.
158
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. Determining the timing
of recognition of when an adverse outcome is
probable is considered a key judgement.
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.
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 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-of-use’ assets for agreements that are
currently classified as operating leases. The
Group’s principal lease arrangements are for
property, most notably a portfolio of office
premises, and for a global car fleet, utilised
primarily by our sales and marketing teams.
The Group will adopt IFRS 16 retrospectively
with the cumulative effect of initially applying
the standard as an adjustment to the opening
balance of Retained earnings at 1 January
2019. The Group has a choice, on a lease-by-
lease basis, to measure the right-of-use asset
at either its carrying amount as if IFRS 16 had
been applied since the commencement of the
lease, or an amount equal to the lease liability,
adjusted for accruals or prepayments. The
Group has assessed the difference between
the two methods as immaterial and will
measure the right to use asset equal to the
right to use liability, after adjusting for accruals
and prepayments, recognising approximately
$0.7 billion of right-of-use assets and $0.7
billion of lease liabilities upon initial adoption.
In applying the Standard retrospectively in this
way the Group will use one or more practical
expedients, on a lease-by-lease basis, to leases
previously classified as operating leases,
including electing to not apply the retrospective
treatment to leases for which the term ends
within 12 months of initial application and
excluding initial direct costs from the initial
measurement of the right-of-use asset. Key
judgements and estimates made in calculating
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial Statements In addition, the following amendments and
interpretations have been issued:
> Amendments to IFRS 9 ‘Prepayment
Features with Negative Compensation’,
effective for periods beginning on or after
1 January 2019.
> Amendments to IAS 28 ‘Long term
Interests in Associates and Joint Ventures’,
effective for periods beginning on or after
1 January 2019.
> Amendments to IAS 19 ‘Plan Amendment,
Curtailment or Settlement’, effective for
periods beginning on or after 1 January 2019.
> Amendments to IFRS 3 ‘Business
Combinations’, effective for period
beginning on or after 1 January 2020.
> Amendments to IAS 1 ‘Presentation of
Financial Statements’ and IAS 8 ‘Accounting
Policies, Changes in Accounting Estimates
and Errors’, effective for periods beginning
on or after 1 January 2020.
The above amendments and interpretations
are not expected to have a significant impact
on the Group’s net results. The amendments
have not yet been endorsed by the EU.
the initial impact of adoption include assessing
whether arrangements contain a lease,
determining the lease term, and calculating
the discount rate.
The Group will apply IFRS 16’s low-value and
short-term exemptions prospectively. While the
IFRS 16 opening lease liability is calculated
differently from the current operating lease
commitments, there are no material
differences between the positions.
The adoption of IFRS 16 will have no impact on
the Group’s cash flows except to present cash
outflows as financing, instead of operating.
There will be an immaterial benefit to Operating
profit and a corresponding increase in Finance
expense from the presentation of a portion of
lease costs as interest costs. Profit before tax
and Earnings per share are not expected to be
significantly impacted.
IFRIC 23 ‘Uncertainty Over Income Tax
Treatments’ is effective for accounting periods
beginning on or after 1 January 2019 and
provides further clarification on how to
apply the recognition and measurement
requirements in IAS 12 ‘Income Taxes’. It is
applicable where there is uncertainty over
income tax treatments. The EU endorsed
IFRIC 23 on 24 October 2018. The adoption
of IFRIC 23 will principally result in the Group
measuring the effect of uncertainty on income
tax positions using either the most likely amount
or the expected value amount depending on
which method the entity expects to better
predict the resolution of the uncertainty.
The Group will adopt IFRIC 23 retrospectively
with the cumulative effect of initially applying
the interpretation recognised at 1 January 2019
as an adjustment to the opening balance of
Retained earnings. The initial impact of
adopting IFRIC 23 is not material. Profit before
tax and Earnings per share are not anticipated
to be significantly impacted.
AstraZeneca Annual Report & Form 20-F Information 2018 / Group Accounting Policies
159
Financial Statements Notes to the Group Financial Statements
1 Revenue
Product Sales
Oncology:
Tagrisso
Faslodex
Zoladex
Lynparza
Imfinzi
Iressa
Arimidex
Casodex
Calquence
Others
Emerging
Markets
$m
US Europe
$m
$m
Rest of
World
$m
2018
Total
$m
Emerging
Markets
$m
US
$m
Europe
$m
Rest of
World
$m
347
154
409
51
6
286
132
113
–
30
869
537
8
345
564
26
–
1
62
–
314
221
133
190
27
109
31
20
–
8
330
1,860
116
1,028
202
61
36
97
49
67
–
77
752
647
633
518
212
201
62
115
135
115
353
18
–
251
118
108
–
28
405
492
15
141
19
39
7
(1)
3
–
187
256
141
130
–
112
34
22
–
3
228
78
226
8
–
126
58
86
–
83
2017
Total
$m
955
941
735
297
19
528
217
215
3
114
Emerging
Markets
$m
US
$m
Europe
$m
Rest of
World
$m
10
96
355
7
–
233
110
107
–
25
254
438
35
127
–
23
14
2
–
–
76
228
156
81
–
120
37
27
–
8
83
68
270
3
–
137
71
111
–
71
2016
Total
$m
423
830
816
218
–
513
232
247
–
104
Cardiovascular, Renal and Metabolism:
1,528
2,412
1,053
1,035
6,028
1,126
1,120
885
893
4,024
943
893
733
814
3,383
Crestor
Farxiga
Brilinta
Seloken/Toprol-XL
Bydureon
Onglyza
Atacand
Byetta
Symlin
Others
Respiratory:
Symbicort
Pulmicort
Fasenra
Daliresp/Daxas
Tudorza/Eklira
Duaklir
Bevespi
Others
Other:
Nexium
Synagis
Seroquel XR/IR
Losec/Prilosec
FluMist/Fluenz
Movantik/Moventig
Others
841
336
326
641
8
172
157
8
–
206
170
591
588
39
475
223
13
74
34
(1)
203
315
348
19
81
89
70
29
–
76
219
149
59
13
20
59
20
15
–
25
1,433
1,391
1,321
712
584
543
260
126
34
306
784
232
224
593
9
130
178
12
–
205
373
489
509
37
458
320
19
114
48
4
666
242
295
52
88
104
86
34
–
92
542
2,365
111
1,074
51
13
19
57
17
16
–
43
1,079
695
574
611
300
176
48
344
721
133
189
536
4
142
162
24
–
228
1,223
457
348
95
463
376
36
164
–
40
866
187
258
90
100
132
97
45
–
119
591
3,401
58
44
16
11
70
20
21
–
50
835
839
737
578
720
315
254
–
437
2,695 2,206
1,230
579
6,710
2,367
2,371
1,659
869
7,266
2,139
3,202
1,894
881
8,116
495
995
1
5
1
1
–
146
862
116
218
155
25
–
33
7
773
431
2,561
90
32
28
74
91
–
85
46
1
10
3
–
1,286
297
189
110
95
33
439
840
–
4
2
–
–
141
46
340
103
156
1
167
66
–
16
4
1,099
819
446
2,803
92
–
26
73
77
–
88
1,176
–
1
9
2
–
1
198
150
79
16
402
698
–
4
1
1
–
1,242
909
436
2,989
174
–
134
77
–
–
11
99
–
15
83
60
–
90
1,061
–
1
9
2
–
–
154
170
63
–
118
50
316
129
47
283
137
1,644
1,416
1,229
622
4,911
1,388
1,509
1,216
593
4,706
1,243
1,638
1,284
588
4,753
690
1
118
161
1
–
53
1,024
306
287
108
7
15
108
11
842
235
377
107
70
91
–
67
471
1,702
–
28
34
3
1
50
665
361
272
110
109
181
684
–
151
140
(1)
–
294
499
317
193
11
–
120
29
248
370
127
77
76
2
93
947
587
3,400
1,268
1,169
993
521
1,952
687
508
271
78
122
538
–
37
43
3
–
122
726
690
–
159
128
1
1
490
554
325
572
10
33
90
48
251
352
190
83
64
–
213
537
2,032
–
46
55
6
–
169
813
677
967
276
104
91
920
5,067
4,156
1,469
1,632
1,153
Product Sales
6,891
6,876
4,459
2,823 21,049
6,149
6,169
4,753
3,081 20,152
5,794
7,365
5,064
3,096 21,319
Product Sales represents net invoice value less estimated rebates, returns and chargebacks, which are considered to be key estimates. The major
market where estimates are seen as significant is the US and when invoicing Product Sales in the US, we estimate the rebates and chargebacks
we expect to pay. The adjustment in respect of prior year net US Product Sales in 2018 was 3.2% (2017: 8.9%; 2016: 6.0%).
160
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial Statements
Externalisation Revenue
Global co-development and commercialisation of Lynparza and selumetinib with MSD
Licence agreement for Crestor in Spain with Almirall
Transfer of rights to Zoladex in the US and Canada to TerSera
Transfer of rights to anaesthetics medicines to Aspen
Licence of rights to brodalumab to Valeant and LEO Pharma
Co-development and commercialisation of MEDI8897 with Sanofi
Commercial rights to Plendil in China to CMS
Transfer of rights to Toprol-XL in the US to Aralez
Licence of rights to tralokinumab to LEO Pharma
Grant of authorised generic rights to various medicines in Japan
Other externalisation upfronts
Other externalisation milestones
Royalty income
Other externalisation revenue
2018
$m
790
61
35
–
–
–
–
–
–
41
10
4
49
51
2017
$m
1,247
–
250
150
150
127
–
–
–
45
114
87
108
35
2016
$m
–
–
–
520
–
–
298
175
115
42
158
203
119
53
1,041
2,313
1,683
Included with Externalisation Revenue is $35m relating to contract liabilities recognised at 1 January 2018.
2 Operating profit
Operating profit includes the following significant items:
Selling, general and administrative costs
In 2018, Selling, general and administrative costs includes a credit of $482m (2017: charge of $208m; 2016: credit of $999m) 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 2018, Selling, general and administrative costs also includes a credit of $113m (2017: $209m; 2016: $41m) resulting from changes in estimates
of the cash flows arising from the put option over the non-controlling interest in Acerta Pharma.
In 2018, Selling, general and administrative costs also includes a credit of $219m (2017: charge of $241m; 2016: charge of $223m) 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 2018, 2017 and 2016 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 (losses)/gains on disposal of other non-current assets
Impairment of property, plant and equipment
Legal settlements
Other income
Other expense
2018
$m
96
(4)
1,885
–
(8)
–
374
277
(93)
2017
$m
132
(45)
1,518
161
24
(78)
–
286
(168)
Other operating income and expense
2,527
1,830
2016
$m
406
(86)
1,301
–
29
–
–
146
(141)
1,655
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 2018 includes $695m on the disposal of Europe rights to Nexium, $527m on the disposal of rights to
Seroquel in the UK, China and other international markets, $210m from the sale of rights to Atacand in Europe to Cheplapharm, milestone
receipts of $172m from the disposal of the anaesthetics portfolio outside the US to Aspen and $139m from the sale of global rights to Alvesco,
Omnaris and Zetonna to Covis.
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.
161
AstraZeneca Annual Report & Form 20-F Information 2018 / Notes to the Group Financial StatementsFinancial Statements
2 Operating profit continued
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 20.
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
Other
Total charge
2018
$m
432
94
181
(10)
697
2018
$m
41
259
397
697
2017
$m
181
201
347
78
807
2017
$m
176
141
490
807
2016
$m
130
178
823
(24)
1,107
2016
$m
505
46
556
1,107
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.
Financial instruments
Included within Operating profit are the following net gains and losses on financial instruments:
Losses on forward foreign exchange contracts
Gains/(losses) on receivables and payables
Gains on disposal of short-term investments
Gains on other available for sale investments
Total
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 21)
Net exchange losses
Discount unwind on contingent consideration arising from business combinations (Note 19)
Discount unwind on other long-term liabilities
Fair value losses on debt and interest rate swaps
Interest on tax payables
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 in fair value hedges, net of derivatives
Interest and fair value changes on fixed and short-term deposits, equity securities, other derivatives and tax balances
Interest on debt, overdrafts, finance leases and commercial paper held at amortised cost
162
2018
$m
(100)
43
–
–
(57)
2018
$m
10
86
–
–
6
36
138
(673)
(68)
(52)
(51)
(416)
(154)
(2)
(3)
2017
$m
(6)
(30)
161
34
159
2017
$m
8
62
4
–
10
29
113
(612)
(52)
(49)
(148)
(402)
(245)
–
–
(1,419)
(1,281)
(1,508)
(1,395)
2018
$m
(11)
(28)
96
(619)
2017
$m
8
(35)
52
(559)
2016
$m
(216)
132
–
–
(84)
2016
$m
8
35
–
8
16
–
67
(565)
(52)
(63)
–
(497)
(190)
(17)
–
(1,384)
(1,317)
2016
$m
(14)
(21)
74
(553)
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial StatementsNotes to the Group Financial Statementscontinued
Fair value losses of $13m (2017: $9m; 2016: $29m) on interest rate fair value hedging instruments and $10m fair value gains (2017: $9m; 2016: $30m)
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 $13m (2017: $10m; 2016: $12m) on derivatives related to debt instruments designated at fair value through profit or loss and
$13m fair value gains (2017: $3m; 2016: $9m) 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 (2017: $nil; 2016: $nil).
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
Net losses on equity investments measured at fair value through other comprehensive income
Deferred tax impact of reduction in US, Sweden 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, Sweden and other tax rates
Total
Taxation relating to components of other comprehensive income
2018
$m
711
38
749
(644)
(162)
(806)
(57)
2018
$m
37
–
30
(11)
56
69
–
–
–
(18)
51
107
2017
$m
665
(287)
378
(1,113)
94
(1,019)
(641)
2017
$m
24
9
–
(17)
16
(79)
14
2
–
30
(33)
(17)
2016
$m
384
(14)
370
(94)
(130)
(224)
146
2016
$m
110
51
–
(25)
136
63
83
(61)
1
–
86
222
The Reported Tax Rate of (3)% in the year benefitted from a favourable net adjustment of $297m to Deferred taxes, reflecting the recently announced
Dutch and Swedish income tax rate reductions, and a favourable adjustment of $188m on the release of provisions for tax contingencies on expiry
of statute of limitations and conclusion of tax authority review.
Absent these benefits, the Reported Tax Rate for the year would have been 21%.
The cash tax paid for the year was $537m which was 27% 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 2018 prior period
current tax adjustment relates mainly to net reductions in provisions for tax contingencies and tax accrual to tax return adjustments. 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 2018 and 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.
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 $8,144m at 31 December 2018 (2017: $8,359m;
2016: $6,884m).
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.
Details of the material tax exposures and items currently under audit, negotiation and review are set out in Note 29.
163
AstraZeneca Annual Report & Form 20-F Information 2018 / Notes to the Group Financial StatementsFinancial 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 (credit)/charge:
Profit before tax
Notional taxation charge at UK corporation tax rate of 19% (2017: 19.25%; 2016: 20%)
Differences in effective overseas tax rates
Deferred tax credit relating to reduction in Dutch, Swedish 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
Total tax (credit)/charge for the year
2018
$m
1,993
379
18
(334)
7
167
(6)
(164)
(124)
(57)
2017
$m
2,227
429
(212)
(616)
(105)
203
(14)
(133)
(193)
(641)
2016
$m
3,552
710
(233)
(16)
242
132
(7)
(538)
(144)
146
1 The 2018 item relates to the recent reduction in the Dutch and Swedish Corporate Income Tax rates (credit of $297m) and other (credit of $37m). The Dutch Corporate Income Tax rate reduces
from 25% to 22.55% effective from 1 January 2020 and to 20.5% effective from 1 January 2021. The Swedish Income Tax rate reduces from 22% to 21.4% effective from 1 January 2019 and to
20.6% effective from 1 January 2021. 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.
2 The 2017 item relates to recognition of previously unrecognised net deferred tax assets.
3 Other items in 2018 relate to a credit of $188m relating to the release of tax contingencies following the expiry of the relevant statute of limitations and on the conclusion of tax authority review
partially offset by a provision build for transfer pricing and other contingencies (charge $24m). 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 a provision build for transfer pricing contingencies (charge $195m).
4 Further details explaining the adjustments in respect of prior periods is set out above on page 163.
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,
property, plant
& equipment1
$m
Pension and
post-retirement
benefits
$m
Inter-company
inventory
transfers
$m
Net deferred tax balance at 1 January 2016
Taxation expense
Other comprehensive income
Additions through business combinations4
Exchange
Other movements5
Net deferred tax balance at 31 December 2016
Income statement
Other comprehensive income
Exchange
Net deferred tax balance at 31 December 2017
Net adjustment to the opening balance of Retained earnings
Income statement
Other comprehensive income
Equity6
Exchange
(3,261)
(132)
83
(1,827)
(1)
(11)
(5,149)
1,393
(84)
(12)
(3,852)
–
401
56
–
27
Net deferred tax balance at 31 December 20187
(3,368)
427
11
101
–
(74)
–
465
(8)
9
43
509
–
(15)
26
–
(25)
495
738
314
–
–
(38)
–
1,014
(231)
–
48
831
–
179
–
–
(30)
980
Untaxed
reserves2
$m
(692)
(53)
–
–
48
–
(697)
159
–
(62)
(600)
–
(4)
–
–
47
(557)
Losses and
tax credits
carried forward3
$m
804
151
–
50
(1)
–
1,004
(128)
–
30
906
–
129
–
–
(27)
1,008
Accrued
expenses
and other
$m
613
(67)
(24)
Total
$m
(1,371)
224
160
–
(1,777)
(13)
–
509
(166)
35
22
400
12
116
31
12
(36)
535
(79)
(11)
(2,854)
1,019
(40)
69
(1,806)
12
806
113
12
(44)
(907)
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 $1,777m relates to the acquisition of Acerta Pharma (see Note 25).
5 Arising on the deconsolidation of Entasis as detailed in Note 10.
6 Deferred tax movement on share-based payments recorded through equity.
7 The UK had a net deferred tax asset of $691m as at 31 December 2018, 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.
164
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial StatementsNotes to the Group Financial Statementscontinued The net deferred tax balance, before the offset of balances within countries, consists of:
Intangibles,
property, plant
& equipment
$m
Pension and
post-retirement
benefits
$m
Inter-company
inventory
transfers
$m
Untaxed
reserves
$m
Losses and
tax credits
carried forward
$m
Accrued
expenses
and other
$m
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
Deferred tax assets at 31 December 2018
Deferred tax liabilities at 31 December 2018
Net deferred tax balance at 31 December 2018
875
(6,024)
(5,149)
1,226
(5,078)
(3,852)
1,071
(4,439)
(3,368)
465
–
465
559
(50)
509
521
(26)
495
1,014
–
1,014
1,011
(180)
831
1,287
(307)
980
–
(697)
(697)
–
(600)
(600)
–
(557)
(557)
1,004
–
1,004
957
(51)
906
1,103
(95)
1,008
629
(120)
509
885
(485)
400
913
(378)
535
Analysed in the statement of financial position, after offset of balances within countries, as:
Deferred tax assets
Deferred tax liabilities
Net deferred tax balance
2018
$m
2,379
(3,286)
(907)
2017
$m
2,189
(3,995)
(1,806)
Total
$m
3,987
(6,841)
(2,854)
4,638
(6,444)
(1,806)
4,895
(5,802)
(907)
2016
$m
1,102
(3,956)
(2,854)
Unrecognised deferred tax assets
Deferred tax assets of $444m have not been recognised in respect of deductible temporary differences, which include items which will expire within
1 to 20 years (2017: $420m; 2016: $542m) 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.
2018
2,155
$1.70
$1.70
1,267
–
1,267
2017
3,001
$2.37
$2.37
1,266
1
1,267
2016
3,499
$2.77
$2.76
1,265
1
1,266
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. 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.
165
AstraZeneca Annual Report & Form 20-F Information 2018 / Notes to the Group Financial StatementsFinancial Statements 6 Segment information continued
Geographic areas
The following table shows information for Total Revenue by geographic area and material countries. The additional tables show the Operating profit
and Profit before tax made by companies located in that area, 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.
Total Revenue
UK
Continental Europe
France
Germany
Italy
Spain
Sweden
Others
The Americas
Canada
US
Others
Asia, Africa & Australasia
Australia
China
Japan
Others
Total Revenue
2018
$m
2,390
617
592
426
396
477
1,312
3,820
483
7,240
806
8,529
313
3,778
1,952
1,308
7,351
2017
$m
3,240
701
541
514
447
842
1,512
4,557
482
6,666
809
7,957
377
2,955
2,172
1,207
6,711
2016
$m
1,849
899
615
529
440
1,522
1,575
5,580
495
7,828
846
9,169
385
2,650
2,145
1,224
6,404
22,090
22,465
23,002
Total revenue outside of the UK totalled $19,700m for the year ended 31 December 2018 (2017: $19,225m; 2016: $21,153m).
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
2018
$m
(66)
3,671
(757)
539
3,387
2018
$m
4,828
14,529
22,191
976
42,524
2018
$m
556
530
356
105
Operating (loss)/profit
(Loss)/profit before tax
2017
$m
(694)
2,482
1,242
647
3,677
2016
$m
(526)
3,695
1,259
474
4,902
2018
$m
(514)
3,179
(1,171)
499
1,993
2017
$m
(1,146)
1,918
822
633
2,227
2016
$m
(950)
3,136
919
447
3,552
Non-current assets1
Total assets
2017
$m
5,371
16,305
24,811
1,024
47,511
2017
$m
400
629
585
138
2016
$m
5,127
15,731
26,044
917
47,819
Assets acquired2
2016
$m
362
8,494
688
129
9,673
2018
$m
13,573
17,119
26,381
3,578
60,651
2018
$m
3,471
8,913
18,598
1,037
32,019
2017
$m
12,842
18,962
28,180
3,370
63,354
2016
$m
12,704
18,174
28,792
2,856
62,526
Net operating assets3
2017
$m
3,351
10,228
20,339
1,198
35,116
2016
$m
3,306
8,479
20,969
1,030
33,784
1,547
1,752
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
166
Property, plant and equipment
2018
$m
1,605
1,456
2,844
1,516
7,421
2017
$m
1,455
1,508
3,055
1,597
7,615
2016
$m
1,026
1,142
3,233
1,447
6,848
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial StatementsNotes to the Group Financial Statementscontinued
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
2018
$m
469
4,388
8,177
8,015
21,049
2017
$m
489
4,712
7,467
7,484
20,152
2016
$m
487
4,987
8,717
7,128
21,319
Product Sales are recognised when control of the goods has been transferred to a third party. In general this is upon delivery of the products to
wholesalers. One wholesaler (2017: zero; 2016: one) individually represented greater than 10% of Product Sales. The value of these transactions
recorded as Product Sales were $2,704m (2017: N/A; 2016: $2,851m).
7 Property, plant and equipment
Land and
buildings
$m
Plant and
equipment
$m
Assets in
course of
construction
$m
Total property,
plant and
equipment
$m
Cost
At 1 January 2016
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
Capital expenditure
Transfer of assets into use
Disposals and other movements
Exchange adjustments
At 31 December 2018
Depreciation
At 1 January 2016
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
Charge for year
Impairment
Disposals and other movements
Exchange adjustments
At 31 December 2018
Net book value
At 31 December 2016
At 31 December 2017
At 31 December 2018
4,812
29
222
(236)
(211)
4,616
39
525
(367)
210
5,023
25
429
50
(161)
5,366
2,253
185
2
(222)
(126)
2,092
182
78
(249)
128
2,231
202
150
10
(89)
2,504
2,524
2,792
2,862
7,468
206
109
(700)
(540)
6,543
198
567
(577)
452
7,183
99
594
(427)
(353)
7,096
5,182
424
–
(656)
(439)
4,511
442
–
(501)
341
4,793
412
98
(336)
(253)
4,714
2,032
2,390
2,382
1,568
1,214
(331)
(16)
(143)
2,292
1,074
(1,092)
–
159
2,433
910
(1,023)
(14)
(129)
2,177
–
–
–
–
–
–
–
–
–
–
–
–
43
(43)
–
–
2,292
2,433
2,177
13,848
1,449
–
(952)
(894)
13,451
1,311
–
(944)
821
14,639
1,034
–
(391)
(643)
14,639
7,435
609
2
(878)
(565)
6,603
624
78
(750)
469
7,024
614
291
(369)
(342)
7,218
6,848
7,615
7,421
Impairment charges in 2018 were recognised for Land and buildings and Plant and equipment as a result of the announcement of the closure of
Boulder and Longmont, Colorado manufacturing centres. These charges have been recognised in Cost of sales.
Included within other movements in 2018 is a transfer (cost of $120m and accumulated depreciation of $75m) from Plant and equipment to Land
and buildings.
2018
$m
2017
$m
2016
$m
The net book value of land and buildings comprised:
Freeholds
Leaseholds
2,567
295
2,514
278
2,326
198
Included within Plant and equipment are Information Technology assets held under finance leases with a net book value of $nil (2017: $nil; 2016: $43m).
167
AstraZeneca Annual Report & Form 20-F Information 2018 / Notes to the Group Financial StatementsFinancial Statements 7 Property, plant and equipment continued
8 Goodwill
Cost
At 1 January
Additions through business combinations (Note 26)
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
2018
$m
2017
$m
12,143
11,969
–
(121)
–
174
2016
$m
12,113
19
(163)
12,022
12,143
11,969
318
(3)
315
311
7
318
313
(2)
311
11,707
11,825
11,658
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 2018
(and 31 December 2017 and 31 December 2016).
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 2018, 2017 and 2016) 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.
168
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial StatementsNotes to the Group Financial Statementscontinued 9 Intangible assets
Cost
At 1 January 2016
Additions through business combinations (Note 26)
Additions – separately acquired
Disposals
Exchange and other adjustments
At 31 December 2016
Additions – separately acquired
Disposals
Exchange and other adjustments
At 31 December 2017
Additions – separately acquired
Transferred to assets held for sale (Note 17)
Disposals
Exchange and other adjustments
At 31 December 2018
Amortisation and impairment losses
At 1 January 2016
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
Amortisation for year
Impairment
Transferred to assets held for sale (Note 17)
Disposals
Exchange and other adjustments
At 31 December 2018
Net book value
At 31 December 2016
At 31 December 2017
At 31 December 2018
Other intangibles consist mainly of research and device technologies.
Product,
marketing and
distribution rights
$m
Other
intangibles
$m
Software
development
costs
$m
35,318
7,307
789
(339)
(1,472)
41,603
397
(249)
1,162
42,913
476
(2,486)
(630)
(1,137)
39,136
14,104
1,454
43
(25)
(481)
15,095
1,627
488
(19)
467
17,658
2,016
683
(1,504)
(294)
(652)
17,907
26,508
25,255
21,229
2,795
2,019
–
32
(15)
(232)
2,580
7
(67)
116
2,636
–
–
–
(110)
2,526
–
77
(141)
(127)
1,828
37
(62)
108
1,911
37
–
(16)
(93)
1,839
1,773
1,609
85
1
(124)
(77)
1,494
84
3
(52)
81
1,610
80
–
–
(13)
(77)
162
1
(15)
(85)
1,836
118
–
–
50
2,004
69
–
–
–
(38)
2,035
744
632
491
Total
$m
40,132
7,307
898
(495)
(1,831)
46,011
441
(378)
1,386
47,460
513
(2,486)
(646)
(1,340)
43,501
17,486
1,701
45
(164)
(643)
18,425
1,829
491
(71)
598
21,272
2,165
683
(1,504)
(307)
(767)
1,600
21,542
334
301
239
27,586
26,188
21,959
169
AstraZeneca Annual Report & Form 20-F Information 2018 / Notes to the Group Financial StatementsFinancial Statements
9 Intangible assets continued
Amortisation charges are recognised in profit as follows:
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
Year ended 31 December 2018
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 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
Year ended 31 December 2018
Research and development expense
Selling, general and administrative costs
Total
Product,
marketing and
distribution rights
$m
Other
intangibles
$m
Software
development
costs
$m
124
–
1,327
3
1,454
149
–
1,478
–
1,627
187
–
1,829
–
2,016
–
48
31
83
162
–
43
30
45
118
–
33
32
4
69
–
–
85
–
85
–
–
84
–
84
–
–
80
–
80
Product,
marketing and
distribution rights
$m
Other
intangibles
$m
Software
development
costs
$m
32
11
43
101
387
488
539
144
683
1
–
1
–
–
–
–
–
–
–
1
1
–
3
3
–
–
–
Total
$m
124
48
1,443
86
1,701
149
43
1,592
45
1,829
187
33
1,941
4
2,165
Total
$m
33
12
45
101
390
491
539
144
683
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 an indication of impairment. Recoverable amount is determined as the higher of value in use or fair value less costs to sell using discounted cash
flow calculations 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% for 2018, 2017 and 2016).
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 volume, share and pricing;
> amount and timing of projected future cash flows; and
> sales erosion curves following patent expiry.
In 2018, the Group recorded impairment charges of $144m in respect of launched products Eklira ($114m, revised carrying value of $396m) and
Movantik ($30m, revised carrying value of $59m). Impairment charges recorded against products in development related to MEDI0680 ($470m)
and other intangible assets ($95m).
In 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). Impairment charges recorded against
products in development related to tralokinumab ($53m) and other intangible assets ($51m).
Impairment charges recorded in 2016 relates to the termination, or reassessment of the likelihood of success, of several individual projects, none
of which had significant capitalised values.
170
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial StatementsNotes to the Group Financial Statementscontinued
The impairments recorded on launched products were a consequence of revised market volume, share and price assumptions and, for FluMist in
2017, the US market expected timing of renewed recommendation from the Advisory Committee on Immunization Practices (ACIP) under the Centers
for Disease Control and Prevention. These impairments were calculated using value in use models. Impairments recorded on products in development
were a consequence of failed or poor performing trials, with the individual assets being fully impaired.
When launched products, such as the ones detailed above, are partially impaired, the carrying values of these assets in future periods are particularly
sensitive to changes in forecast assumptions, including those assumptions set out above, as the asset is impaired down to its recoverable amount.
Assets that are particularly sensitive to variations in valuation assumptions include Byetta (carrying value as at 31 December 2018 of $316m) and
Ardea (carrying value of $1,172m). The Byetta valuation, impaired in 2017, is most sensitive to the expected timing of a generic entering the market.
Increasing the probability of a generic entry into the market by 20% from our base valuation model would result in an impairment charge of $25m.
No impairment charge has been recorded on Ardea, a product in development, with a net book value of $1,172m. The Ardea valuation is particularly
sensitive to variations in the probability of technical and regulatory success (‘PTRS’) assumptions. Sensitivities performed at the year end on the
Ardea asset included reducing the PTRS by 5 percentage points. Applying this sensitivity would result in an impairment charge against the Ardea
intangible asset of approximately $70m.
The Group has performed an assessment on assets which have had impairments recorded in previous periods to determine if any reversals of
impairments were required and none were identified with the exception of a reversal of $28m in respect of an asset previously impaired prior to
2016. This assessment included FluMist where an impairment of $121m was taken in 2017 and where currently the uncertainty remains around
long term sales potential in the US following the reinstatement of the US recommendation by ACIP in 2018.
Significant assets
Intangible assets arising from the acquisition of Acerta Pharma
Intangible assets arising from the acquisition of ZS Pharma
Farxiga/Forxiga intangible assets acquired from BMS
Intangible assets arising from the acquisition of Ardea1
Intangible assets arising from the restructuring of a historical joint venture with MSD
RSV franchise assets arising from the acquisition of MedImmune
Bydureon intangible assets acquired from BMS
Intangible assets arising from the acquisition of Pearl Therapeutics
Other diabetes intangible assets acquired from BMS
Onglyza intangible assets acquired from BMS
Respiratory intangible assets acquired from Almirall and Actavis
Intangible assets arising from the acquisition of Omthera1
Roxadustat intangible assets acquired from FibroGen1
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
$m
Remaining amortisation
period
6,745
3,067
1,177
1,172
1,092
1,068
988
828
795
752
733
533
327
2018
$m
103
187
(113)
(64)
(24)
89
14 years
13 years
9 years
Not amortised
1 to 12 years
7 years
12 years
10 years
4 to 7 years
5 years
1 to 20 years
Not amortised
Not amortised
2017
$m
99
76
(55)
(27)
10
103
2016
$m
85
65
(33)
–
(18)
99
On 23 February 2018, AstraZeneca entered into an agreement with a consortium of investors to form a new, US domiciled standalone company
called Viela Bio. This agreement was to divest a number of assets in MedImmune’s non-core inflammation and autoimmunity portfolio to Viela,
including MEDI-551, which is an advanced Phase IIb/III asset, and a number of other clinical & pre-clinical assets. AstraZeneca contributed $142m in
initial funds and has a 45% interest in the joint venture. Consideration was $142m and a restricted disposal gain of $63m was recognised in Other
operating income.
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, Dizal (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%. Entasis completed an IPO on 26 September 2018. A gain was made of $25m recognised in profit.
After the IPO AstraZeneca’s holding was reduced to 16.5% with only one member on an increased board size of 14. As a result, the investment is
no longer accounted for as an associate and is now included in equity securities held at FVOCI.
171
AstraZeneca Annual Report & Form 20-F Information 2018 / Notes to the Group Financial StatementsFinancial Statements 10 Investments in associates and joint ventures continued
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 with further contributions of $27m made in 2018.
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 and a further $15m in 2018. At the end of the year Archigen had net liabilities of $18m, of which AstraZeneca’s share is
$9m, and the investment is held at nil value. The Group has made a provision of $5m, within Trade and other payables, for anticipated future costs.
All investments are accounted for using the equity method.
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 at fair value through other comprehensive income
Equity securities available for sale
Total
Current investments
Fixed income securities at fair value through profit and loss
Fixed income securities available for sale
Fixed deposits
Total
2018
$m
260
233
(71)
422
104
(15)
89
2018
$m
833
–
833
809
–
40
849
2017
$m
207
158
(41)
324
117
(14)
103
2017
$m
–
933
933
–
1,150
80
1,230
2016
$m
144
128
(20)
252
125
(26)
99
2016
$m
–
727
727
–
847
37
884
Investments classified as available for sale in 2016 and 2017 under IAS 39 have been reclassified in 2018 on adoption of IFRS 9 on 1 January 2018,
as either at fair value through Other comprehensive income or at fair value through profit and loss. The financial impact from the reclassification of
equity and fixed income investments from available for sale to at fair value through Other comprehensive income and at fair value through profit and
loss has been recorded in the Group accounting policies under ‘Impact from adoption of IFRS 9’.
Other investments classified as at fair value through Other comprehensive income and at fair value through profit and loss (IFRS 9)
Other investments held at fair value through Other comprehensive income include equity securities which are not held for trading and which the Group
has irrevocably elected at initial recognition to recognise in this category. Other investments held at fair value through profit and loss comprise fixed
income securities for which the Group has not elected to recognise fair value gains through Other comprehensive income.
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.
Other investments previously classified as available for sale in 2017 (IAS 39)
Impairment charges of $14m in respect of available for sale equity securities were included in Other operating income and expense in 2017 (2016: $21m).
Equity and fixed income securities available for sale were held at fair value until re-classification.
Fair value hierarchy
The table below analyses equity securities and bonds, 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
172
2018
FVPL
$m
809
–
–
809
2018
FVOCI
$m
667
–
166
833
2017
AFS
$m
1,408
–
675
2,083
2016
AFS
$m
933
–
641
1,574
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial StatementsNotes to the Group Financial Statementscontinued
Equity securities 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 fair value calculated by taking costs and adjusting 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
2018
FVOCI
$m
675
79
(147)
(434)
(6)
(1)
166
2017
AFS
$m
641
53
(1)
(12)
(15)
9
675
Assets are transferred in or out of Level 3 on the date of the event or change in circumstances that caused the transfer.
12 Derivative financial instruments
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
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
Interest rate swaps related to instruments designated
at fair value through profit and loss
Cross currency swaps designated in a net investment hedge1
Cross currency swaps designated in a cashflow hedge2
Cross currency swaps designated in a fair value hedge3
Other derivatives
31 December 2018
Non-current
assets
$m
–
65
278
–
–
343
Current
assets
$m
19
–
–
–
8
27
Non-current
assets
$m
Current
assets
$m
–
53
223
197
31
–
504
–
–
12
–
–
16
28
Current
liabilities
$m
Non-current
liabilities
$m
–
–
–
–
(18)
(18)
Current
liabilities
$m
(3)
–
–
–
–
(21)
(24)
(2)
–
–
(115)
–
(117)
Non-current
liabilities
$m
–
–
(4)
–
–
–
(4)
Non-current
assets
$m
Current
assets
$m
Current
liabilities
$m
Non-current
liabilities
$m
40
–
101
16
–
157
–
213
–
–
45
258
–
–
–
–
(27)
(27)
–
(4)
–
–
–
(4)
2016
AFS
$m
352
210
110
(12)
(2)
(17)
641
Total
$m
17
65
278
(115)
(10)
235
Total
$m
(3)
53
231
197
31
(5)
504
Total
$m
40
209
101
16
18
384
1 Cross currency swaps designated in a net investment hedge comprise a $750m Japanese yen to US dollar cross currency interest rate swap maturing in 2019 and a $69m Chinese renminbi
to US dollar cross currency interest rate swap maturing in 2026. The Japanese to US swap effectively converts $750m of the Group’s $1,000m 1.95% 2019 bond into a Japanese yen
borrowing, partially hedging the Group’s Japanese yen denominated assets and revenues. At 31 December 2018 the fair value of this swap was $213m (2017: $223m; 2016: $242m), the swapped
US dollar:Japanese yen rate was 78.01 and the Japanese yen interest rate on the swap was 0.3452%. The Chinese renminbi to US dollar swap hedges inter-company funding provided to
Chinese Group entities. At 31 December 2018 the fair value of this swap was $(4)m (2017: $(4)m; 2016: $7m), the swapped US dollar:Chinese renminbi rate was 6.68 and the Chinese renminbi
interest rate on the swap was 4.796%. A further $151m Chinese renminbi to US dollar swap matured in December 2018 when the inter-company loan it was hedging was repaid (fair value
2017: $11m; 2016: $29m). Hedge ineffectiveness recognised on swaps designated in a net investment hedge during the period was $nil.
2 Instruments designated in a cash flow hedge are cross currency swaps with total nominal amounts of euro 2.2bn that effectively convert our fixed rate euro 500m 0.25%, euro 900m 0.75% and
euro 800m 1.25% callable bonds repayable in 2021, 2024 and 2028 respectively into fixed rate USD borrowings and hedge the exposure to foreign exchange spot rate and interest rate risk.
The fair value of these swaps at 31 December 2018 was $101m (2017: $197m; 2016: $(115)m). The swap maturity dates match the underlying bond maturity dates and the average swapped
euro:US dollar exchange rate and swapped interest rates are 1.14 and 2.7% respectively.
3 Cross currency swaps designated in a fair value hedge refers to a cross currency interest rate swap that hedges a designated euro 300m portion of our euro 750m 0.875% 2021 non-callable
bond against exposure to movements in the euro:US dollar exchange rate. The maturity date of the cross currency interest rate swap is in 2021 and the swapped euro:US dollar exchange rate
and swapped interest rate are 1.09 and three month US dollar libor + 1.27% respectively.
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.
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:
2018
2017
2016
Derivatives
(0.4)% to 3.2%
1.7% to 2.2%
1.5% to 2.2%
173
AstraZeneca Annual Report & Form 20-F Information 2018 / Notes to the Group Financial StatementsFinancial Statements 13 Non-current other receivables
Non-current other receivables of $515m (2017: $847m; 2016: $901m) include a prepayment of $114m (2017: $180m; 2016: $380m) 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 $114m (2017: $181m; 2016: $116m) and is reported in amounts due within one year (see Note 15).
Non-current other receivables also include $146m (2017: $178m; 2016: $178m) prepayments in relation to our research collaboration with Moderna
and $nil (2017: $175m; 2016: $175m) receivable related to the disposal of the small molecule antibiotics assets in 2016, as it has been reclassified to
amounts due within one year.
14 Inventories
Raw materials and consumables
Inventories in process
Finished goods and goods for resale
Inventories
2018
$m
794
1,450
646
2,890
2017
$m
1,024
1,208
803
3,035
The Group recognised $2,659m (2017: $2,493m; 2016: $2,644m) of inventories as an expense within cost of sales during the year.
Inventory write-offs in the year amounted to $208m (2017: $109m; 2016: $198m).
15 Current trade and other receivables
Amounts due within one year
Trade receivables
Less: Amounts provided for doubtful debts (Note 27)
Other receivables
Prepayments and accrued income
Amounts due after more than one year
Other receivables
Prepayments and accrued income
2018
$m
3,033
(38)
2,995
1,143
1,363
5,501
–
73
73
2017
$m
2,818
(16)
2,802
793
1,148
4,743
156
110
266
2016
$m
811
1,060
463
2,334
2016
$m
2,625
(42)
2,583
852
879
4,314
140
119
259
Trade and other receivables
5,574
5,009
4,573
Trade receivables includes $724m (2017: $327m; 2016: $655m) due from customers which are subject to debt factoring agreements, where invoices
have currently not been factored and then derecognised.
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
2018
$m
893
3,938
4,831
(160)
4,671
2017
$m
784
2,540
3,324
(152)
3,172
2016
$m
782
4,236
5,018
(94)
4,924
The Group holds $86m (2017: $93m; 2016: $91m) of Cash and cash equivalents which is required to meet insurance solvency, capital and
security requirements.
Under IAS 39 all Cash and cash equivalents were held at amortised cost with fair value approximating to carrying value. Following the adoption of
IFRS 9 Financial Instruments on 1 January 2018 US dollar liquidity fund balances included in Cash and cash equivalents were reclassified from
amortised cost to fair value through profit or loss. During 2018 AstraZeneca was invested in constant net asset value funds with same day access
for subscription and redemption. These investments fail the ‘solely payments of principal and interest’ test criteria under IFRS 9. They are therefore
measured at fair value through profit or loss, although the fair value will be materially the same as amortised cost. The balance reclassified on
1 January 2018 was $1,150m as shown under ‘Impact from adoption of IFRS 9’ in the Group accounting policies section.
174
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial StatementsNotes to the Group Financial Statementscontinued
Non-cash and other movements, within operating activities in the Consolidated Statement of Cash Flows, includes:
2018
$m
Gains on disposal of short-term investments
Net gains/(losses) 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
–
8
(113)
219
(212)
(174)
128
(146)
(290)
2017
$m
(161)
(24)
(209)
220
(254)
(157)
74
(13)
(524)
2016
$m
–
(29)
(41)
241
(281)
(192)
74
(264)
(492)
17 Assets held for sale
Assets held for sale of $982m (2017: $nil; 2016: $nil) comprise intangible assets relating to the US rights to RSV franchise assets (specifically
Synagis) arising from the acquisition of MedImmune and to US rights to certain respiratory assets acquired from Almirall and Actavis (including
Tudorza). In both cases a partial transfer has been made from the respective intangible assets based on the relative values of the portion being
disposed of and the portion retained.
AstraZeneca agreed to dispose of the US Rights to Synagis to SOBI on 13 November 2018 with completion of the transaction subject to certain
contingencies. The transaction closed and control of the assets transferred on 23 January 2019.
In December 2018, Circassia exercised an option right to acquire the remaining rights to Tudorza in the US, which was previously part of a
strategic collaboration between the two companies. The transaction closed on 1 January 2019.
18 Interest-bearing loans and borrowings
Current liabilities
Bank overdrafts
Bank collateral1
Finance leases
5.9% Callable bond
Floating rate notes
1.75% Callable bond
1.95% Callable bond
Repayment
dates
On demand
US dollars
US dollars
US dollars
US dollars
2017
2018
2018
2019
Other loans (Commercial paper)
Within one year
Total
Non-current liabilities
Finance leases
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
Floating rate notes
3.5% Callable bond
0.75% Callable bond
3.375% Callable bond
3.125% Callable bond
1.25% Callable bond
4% Callable bond
5.75% Non-callable bond
6.45% Callable bond
4% Callable bond
4.375% Callable bond
4.375% Callable bond
Other loans
Total
US dollars
US dollars
US dollars
US dollars
euros
euros
US dollars
US dollars
US dollars
US dollars
US dollars
euros
US dollars
US dollars
euros
US dollars
pounds sterling
US dollars
US dollars
US dollars
US dollars
US dollars
2018
2018
2019
2020
2021
2021
2022
2022
2023
2023
2023
2024
2025
2027
2028
2029
2031
2037
2042
2045
2048
2018
$m
160
384
–
–
–
–
999
211
1,754
–
–
–
–
1,594
854
570
250
994
325
400
845
1,022
1,980
743
903
992
443
2017
$m
152
513
5
–
399
998
–
180
2,247
–
–
–
999
1,591
890
594
249
992
347
–
–
1,067
1,978
742
941
–
468
2,721
2,720
987
979
736
21
987
979
–
16
2016
$m
94
–
87
1,769
–
–
–
357
2,307
6
399
998
998
1,589
782
522
–
–
350
–
–
937
1,976
–
827
–
426
2,719
986
979
–
7
17,359
15,560
14,501
1 In 2017 the Group changed its accounting policy such that collateral receipts were included in interest bearing loans and borrowings. Previously these were included in short term deposits.
All loans and borrowings above are unsecured, except for finance leases which were secured against the Information Technology assets to which
they relate (see Note 7).
175
AstraZeneca Annual Report & Form 20-F Information 2018 / Notes to the Group Financial StatementsFinancial Statements
18 Interest-bearing loans and borrowings continued
At 31 December 2017
Changes from financing cash flows
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 2018
Current
loans and
borrowings
$m
Non-current
loans and
borrowings
$m
2,247
15,560
–
(1,400)
(98)
(1,498)
8
999
(2)
2,971
–
–
2,971
–
(999)
(173)
1,754
17,359
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
Instruments
designated
designated in
at fair value2 cash flow hedge3
$m
Amortised
cost4
$m
Total
carrying
value
$m
$m
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
2018
Overdrafts
Finance leases due within one year
Loans due within one year
Loans due after more than one year
Total at 31 December 2018
–
–
–
770
598
1,368
–
–
596
304
900
–
–
–
346
346
–
–
–
–
350
350
–
–
–
347
347
–
–
–
325
325
–
–
–
–
2,286
2,286
–
–
–
2,602
2,602
–
–
–
2,495
2,495
94
87
6
1,356
11,261
12,804
152
5
1,494
12,307
13,958
160
–
1,594
14,193
15,947
94
87
6
2,126
14,495
16,808
152
5
2,090
15,560
17,807
160
–
1,594
17,359
19,113
Total
$m
17,807
2,971
(1,400)
(98)
1,473
8
–
(175)
19,113
Fair
value
$m
94
87
6
2,161
15,826
18,174
152
5
2,092
17,031
19,280
160
–
1,587
17,841
19,588
1 Instruments designated as hedged items in a fair value hedge relationship relate to a designated euro 300m portion of our euro 750m 0.875% 2021 non-callable bond. The accumulated amount
of fair value hedge adjustments to the bond is a loss of $19m and hedge ineffectiveness recognised during the period was nil.
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 500m 0.25%, euro 900m 0.75% and euro 800m 1.25% Callable bonds repayable in 2021, 2024 and 2028 respectively. Hedge
ineffectiveness recognised during the period was nil.
4 Included within borrowings held at amortised cost are amounts designated as hedges of net investments in foreign operations of $954m at 31 December 2018 (2017: $1,054m; 2016: $1,208m).
The fair value of these borrowings was $1,106m at 31 December 2018 (2017: $1,206m; 2016: $1,400m). These borrowings comprise our £350m 5.75% 2031 non-callable bond and a euro 450m
portion of our euro 750m 0.875% 2021 non-callable bond and have been designated as hedges of net investments in the Group’s UK and Euro operations respectively. Also included within
borrowings held at amortised cost is the Group’s $1bn 1.95% 2019 bond, $750m of which has been swapped to Japanese yen. The US dollar to Japanese yen cross currency interest rate swap
has been designated as a hedge of net investments in the Group’s Japanese operations. Hedge ineffectiveness recognised on borrowings designated in a net investment hedge during the
period was nil.
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 gain of $8m was made during the year on the fair value of bonds designated at fair value through profit or loss, due to increased credit risk. A gain
of $34m has been made on these bonds since designation due to increased credit risk. Under IFRS 9, the Group records the component of fair value
changes relating to the component of own credit risk through 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 $287m.
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
176
2018
2017
2016
2.3% to 2.4%
1.9% to 2.2%
1.5% to 2.2%
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial StatementsNotes to the Group Financial Statementscontinued
19 Trade and other payables
Current liabilities
Trade payables
Value added and payroll taxes and social security
Rebates, chargebacks, returns and other revenue accruals
Clinical trial accruals
Other accruals
Externalisation revenue contract liabilities
Contingent consideration
Other payables
Total
Non-current liabilities
Accruals
Externalisation revenue contract liabilities
Contingent consideration
Acerta Pharma put option liability (Note 25)
Other payables
Total
2018
$m
1,720
204
4,043
993
3,951
92
867
971
12,841
7
78
4,239
1,838
608
6,770
2017
$m
2,285
243
3,264
922
3,324
–
555
1,048
11,641
143
–
4,979
1,823
895
7,840
2016
$m
1,680
240
3,601
696
2,714
–
527
1,028
10,486
292
–
4,930
1,901
2,365
9,488
The Group has revised the presentation of Trade and other payables in 2018 to separately present clinical trial accruals, returns and other revenue
accruals that have historically been presented within Trade payables (see the Group Accounting policies section from page 153). The Group has also
separately presented the Acerta put option that has historically been presented within Other payables.
Included within Rebates, chargebacks, returns and other revenue accruals are contract liabilities of $126m (1 January 2018: $138m). The revenue
recognised in the year for contract liabilities is $139m, comprising $104m relating to other revenue accruals and $35m Externalisation Revenue
contract liabilities.
Trade payables includes $166m (2017: $64m; 2016: $nil) due to suppliers that have signed up to a supply chain financing programme, under which
the suppliers can elect on a invoice by invoice basis to receive a discounted early payment from the partner bank rather than being paid in line with
the agreed payment terms. If the option is taken the Group’s liability is assigned by the supplier to be due to the partner bank rather than the supplier.
The value of the liability payable by the Group remains unchanged. The Group assesses the arrangement against indicators to assess if debts
which vendors have sold to the funder under the supplier financing scheme continue to meet the definition of trade payables or should be classified
as borrowings. At 31 December 2018 the payables met the criteria of Trade payables.
The Acerta Pharma 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). The expected redemption amount is dependent on the accumulated profits of Calquence to the point of redemption, which
may vary materially dependent on factors such as revenues earned, research and development expenditure, regulatory approvals received, and
certain other expenses of Acerta Pharma B.V. and its subsidiaries.
The Group has adopted IFRS 15 Revenue from Contracts with Customers from 1 January 2018 under the modified retrospective method. Consequently,
the Group has presented Externalisation revenue contract liabilities prospectively from that date.
With the exception of Contingent consideration payables of $5,106m (2017: $5,534m; 2016: $5,457m) 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)
At 31 December
2018
$m
5,534
(349)
(495)
416
5,106
2017
$m
5,457
(434)
109
402
5,534
2016
$m
6,411
(293)
(1,158)
497
5,457
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 decrease of $482m in 2018
(2017: an increase of $208m; 2016: a decrease of $999m) 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 contingent consideration balance relating to BMS’s share of Global Diabetes Alliance of $3,983m (2017: $4,477m; 2016: $4,240m) would
increase/decrease by $398m with an increase/decrease in sales of 10% as compared with the current estimates.
177
AstraZeneca Annual Report & Form 20-F Information 2018 / Notes to the Group Financial StatementsFinancial Statements
19 Trade and other payables continued
The maximum development and sales milestones payable under outstanding contingent consideration arrangements arising on business combinations
are as follows:
Acquisitions
Spirogen
Amplimmune
Omthera
Pearl Therapeutics
BMS’s share of Global Diabetes Alliance1
Almirall1
Definiens1
Year
2013
2013
2013
2013
2014
2014
2014
Nature of
contingent consideration
Maximum future milestones
$m
Milestones
Milestones
Milestones
Milestones
Milestones and royalties
Milestones and royalties
Milestones
216
275
120
390
600
620
150
1 These contingent consideration liabilities have been designated as the hedge instrument in a net investment hedge of foreign currency risk arising on the Group’s underlying US dollar net
investments held in non-US dollar denominated subsidiaries. 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.
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.
20 Provisions
At 1 January 2016
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
Charge for year
Cash paid
Reversals
Exchange and other movements
At 31 December 2018
Due within one year
Due after more than one year
Total
Severance
$m
Environmental
$m
Employee
benefits
$m
403
578
(433)
(40)
(21)
487
225
(324)
(75)
45
358
94
(152)
(58)
(16)
226
67
11
(19)
–
–
59
11
(20)
–
9
59
65
(24)
–
(3)
97
158
6
(21)
–
–
143
30
(43)
(10)
6
126
1
(9)
–
1
119
Legal
$m
357
223
(126)
–
(16)
438
281
(48)
(40)
23
654
11
(232)
(230)
(5)
198
2018
$m
506
385
891
Other
provisions
$m
257
170
(87)
(39)
(10)
291
55
(37)
(44)
6
271
30
(28)
(28)
6
251
2017
$m
1,121
347
1,468
Total
$m
1,242
988
(686)
(79)
(47)
1,418
602
(472)
(169)
89
1,468
201
(445)
(316)
(17)
891
2016
$m
1,065
353
1,418
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 29. Two payments totalling $145m were paid out of the legal provision during
January 2019.
Employee benefit provisions include the Deferred Bonus Plan. Further details are included in Note 28.
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.
21 Post-retirement benefits
Pensions
Background
The Company and most of its subsidiaries offer retirement plans which cover the majority of employees in the Group. The Group’s policy is to provide
‘defined contribution’ (‘DC’) orientated pension provision to its employees unless otherwise compelled by local regulation. As a result, many of
these retirement plans are DC, where the Group 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 are now largely legacy arrangements as they have been closed to new entrants since
2000, apart from the collectively bargained Swedish plan (which is still open to employees born before 1979). During 2010, following consultation
with its UK employees’ representatives, the Group 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 approximately 700 employees. In November
2017, the Group closed the qualified and non-qualified US defined benefit pension plans to future accrual (and removed any salary link) from
31 December 2017.
178
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial StatementsNotes to the Group Financial Statementscontinued 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 Group 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 Group and local fiduciaries, taking into account:
the Group’s credit rating; local regulation; cash flows; and the solvency and maturity of the relevant pension scheme.
Financing principles
Ninety one per cent of the Group’s defined benefit obligations at 31 December 2018 are in schemes within the UK, the US and Sweden. In these
countries, the pension obligations are funded in line with the Group’s financing principles. There have been no fundamental changes to these
principles during 2018. The Group 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 Group 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 Group 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 Group.
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 Group 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. A key element of this funding framework is the investment
strategy used to grow existing assets and hedge against changes in liability values. The Group provides regular input to local fiduciary boards
with the aim of ensuring that an appropriate investment return is targeted over the long term in a risk-controlled manner.
UK
The UK defined benefit pension fund represents approximately 62% of the Group’s defined benefit obligations at 31 December 2018. 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 and Regulation (UK)
The UK Pension Fund is governed and administered by a corporate Trustee which is legally separate from the Group. 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).
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.
Funding requirements (UK)
UK legislation requires that pension schemes are funded prudently. On a triennial basis, the Trustee and the Group must agree the contributions
required (if any) to ensure the Fund is fully funded over an appropriate time-period and on a suitably 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 Group 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, with
a likely timescale for completion in early to mid-2020.
In relation to deficit recovery contributions, a lump sum contribution of £51m ($68m) was made in March 2018, with a further £51m contribution
due before 31 March 2019. In addition, a contribution of £26m ($35m) was made in March 2018, with a further contribution of £27m due before
31 March 2019, in relation to part payment of the deferred contribution explained below.
During 2017, the Group 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 instalments (with interest added each year) 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 Group entered into a long-term funding agreement with the Trustee in October 2016 under which the Group will grant a charge in favour of the
Trustee over certain land and buildings at the Cambridge Biomedical Campus, which would crystallise only in the event of the Group’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 ($6,710m) compared to a market value of assets at 31 March 2016 of £4,492m ($5,724m).
Under the governing documentation of the UK Pension Fund, any future surplus in the Fund would be returnable to the Group 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’.
179
AstraZeneca Annual Report & Form 20-F Information 2018 / Notes to the Group Financial StatementsFinancial Statements 21 Post-retirement benefits continued
GMP Equalisation (UK)
A UK High Court judgment was issued on 26 October 2018 relating to Guaranteed Minimum Pensions (‘GMP’). Although the ruling relates to the
Lloyds Banking Group pension schemes, it is expected to create a precedent for other UK defined benefit pension schemes. The ruling requires
the equalisation of member benefits earned between 1990 and 1997 to address gender inequality in instances where GMP benefits are currently
unequal. While there remains some uncertainty, the Group has made a provision for the estimated financial impact of this ruling on the UK Pension
Fund, based on a comparison of the cumulative value of members’ benefits with the benefits of a notional member of the opposite gender (method
C2 under the terminology of the High Court Judgement). The estimated impact is based on the broad profile of the Fund (ie age profile, service
profile and GMP proportion) and a past service cost of £17m ($23m) has been recognised in the year ended 31 December 2018. Further work will
be carried out with the Trustee over 2019 to determine the exact impact.
Rest of Group
The IAS 19 positions for the US and Sweden as at 31 December 2018 are shown below. These plans account for 29% 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 Group’s financing principles and contributions are paid as prescribed by the long-term funding framework
(subject to local regulations being met).
The US defined benefit pension plans were actuarially revalued at 31 December 2018, when plan obligations were $1,463m and plan assets were
$1,379m. This includes obligations in respect of the non-qualified plan which is unfunded. There has been an improvement in the funding position
of the qualified US pension plan and it is now close to being fully funded on the IAS 19 basis. As the funding position improved over 2018, the
investment strategy was de-risked, reducing equity exposure and increasing the interest rate hedge.
The Swedish defined benefit pension plans were actuarially valued at 31 December 2018, when plan obligations were estimated to amount to $1,872m
and plan assets were $1,017m. It should be noted that the Swedish plans have a funding surplus on the local GAAP accounting basis and this
influences contribution policy.
On current bases, it is expected that ongoing contributions (excluding those in respect of past service deficit contributions) during the year ending
31 December 2019 for the three main countries will be approximately $32m.
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 2018, some 3,215 retired employees and covered dependants currently benefit from these provisions
and some 2,231 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 2018 was $5m (2017: $14m; 2016: $17m). Plan assets were $260m and plan
obligations were $263m at 31 December 2018. 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 2018. The assumptions used may not necessarily be borne out in practice, due to the inherent financial and demographic uncertainty
associated with making long-term projections. 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
2018
UK
Rest of Group
3.2%
–1
3.0%
2.8%2
2.4%3
2.5%3
1.1%
2.0%
1.1%
3.0%
2.5%
2.9%
UK
3.1%
–1
2.9%
2.5%2
2.5%3
2.7%3
2017
Rest of Group
2.2%
3.1%
1.1%
3.0%
2.7%
3.5%
1 Pensionable pay frozen at 30 June 2010 levels following UK fund changes.
2 Group defined benefit obligation as at 31 December 2018 calculated using discount rates based on market conditions as at 31 December 2018.
3 2018 interest costs and service costs calculated using discount rates based on market conditions as at 31 December 2017.
In the UK, a new assumption has been made that 30% of members will transfer out of the defined benefit section of the AstraZeneca Pension Fund
at the point of retirement. This assumption is based on Fund experience since pensions freedoms legislation came into effect in April 2015 and will
be reviewed each year to ensure it remains appropriate. The assumption has the impact of reducing liabilities by approximately £53m ($70m) and
has been recorded in Other comprehensive income.
The weighted average duration of the post-retirement scheme obligations in the UK is 16 years and 15 years in the Rest of Group.
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 a continuing trend.
180
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial StatementsNotes to the Group Financial Statementscontinued The table below illustrates life expectancy assumptions at age 65 for male members retiring in 2018 and male members expected to retire in 2038
(2017: 2017 and 2037 respectively).
Country
UK
US
Sweden
Life expectancy assumption for a male member retiring at age 65
2018
23.2
22.2
21.9
2038
24.7
22.8
23.6
2017
23.7
20.8
21.9
2037
24.8
23.0
23.6
The Group adopted the CMI 2017 Mortality Projections Model with a 1% long-term improvement rate in 2018 in the UK.
Risks associated with the Group’s defined benefit pensions
The UK defined benefit plan accounts for 62% of the Group’s defined benefit obligations and exposes the Group to a number of risks, the most
significant of which are:
Risk
Description
Mitigation
Volatile asset returns
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
of assets (around 72.5%) in a growth portfolio. 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 majority (over 80%) 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
A significant proportion of the DBO is indexed in line with price
inflation (mainly inflation as measured by the UK Retail Price Index
(RP’) but also for some members a component of pensions is
indexed by the UK Consumer Price Index (CPI)) and higher inflation
will lead to higher liabilities (although, in most cases, this is capped
at an annual increase of 5%).
Life expectancy
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 85% of total assets and protects to some degree
against falls in long-term interest rates (approximately 80% hedged
at the end of 2017). 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.
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 AA corporate bonds.
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 88% of total assets and protects to
some degree against higher-than-expected inflation increases on the
DBO (approximately 85% hedged at the end of 2017). 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 75 years for around 10,000 of the UK
Pension Fund’s current pensioners and covers $2.1bn of the UK
Pension Fund’s liabilities. A one-year increase in life expectancy will
result in a $217m increase in pension fund assets.
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 companies through new legislation). These are mitigated
so far as possible via the governance structure in place which oversees and administers the pension funds.
The Group’s pension plans in the US and Sweden also manage these key risks, where they are relevant, in a similar manner, with the local fiduciary
bodies investing in a diversified growth portfolio and employing a framework to hedge interest rate risk.
Post-retirement scheme deficit
The assets and obligations of the defined benefit schemes operated by the Group at 31 December 2018, 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.
181
AstraZeneca Annual Report & Form 20-F Information 2018 / Notes to the Group Financial StatementsFinancial Statements 21 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
Total fair value of scheme assets5
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
Quoted
$m
2,056
–
–
–
–
–
–
40
–
2,096
Quoted
$m
1,725
–
–
–
–
–
–
39
–
UK
Unquoted
$m
Quoted
$m
Rest of Group
Unquoted
$m
79
849
(12)
371
–
–
–
23
2
45
–
26
421
396
416
268
23
266
–
37
(237)
1,174
1,004
1,921
633
121
–
4,653
UK
–
–
(189)
1,197
733
1,712
596
176
–
199
870
3
201
–
–
–
81
1
–
–
145
190
280
449
191
5
250
1,510
1,312
1,861
3,408
Rest of Group
Unquoted
$m
Quoted
$m
Unquoted
$m
Quoted
$m
2,135
849
(12)
371
–
–
–
63
2
Quoted
$m
1,924
870
3
201
–
–
–
120
1
3,119
Total
Unquoted
$m
45
37
(211)
1,595
1,400
2,337
901
144
266
6,514
Total
Unquoted
$m
–
–
(44)
1,387
1,013
2,161
787
181
250
5,735
2017
Total
$m
2,180
886
(223)
1,966
1,400
2,337
901
207
268
9,922
2018
Total
$m
1,924
870
(41)
1,588
1,013
2,161
787
301
251
8,854
Total fair value of scheme assets5
1,764
4,225
1,355
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, equity total return swaps 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 (2017: $nil) of the Group’s own assets.
Scheme obligations
Present value of scheme obligations in respect of:
Active membership
Deferred membership
Pensioners
Total value of scheme obligations
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
$m
Rest of Group
$m
(751)
(1,665)
(4,636)
(7,052)
(1,468)
(1,215)
(1,630)
(4,313)
UK
$m
Rest of Group
$m
5,989
(7,052)
2,865
(4,313)
2018
Total
$m
(2,219)
(2,880)
(6,266)
(11,365)
2018
Total
$m
8,854
(11,365)
UK
$m
Rest of Group
$m
(814)
(1,998)
(5,220)
(8,032)
(1,018)
(1,688)
(1,767)
(4,473)
UK
$m
Rest of Group
$m
6,749
(8,032)
3,173
(4,473)
2017
Total
$m
(1,832)
(3,686)
(6,987)
(12,505)
2017
Total
$m
9,922
(12,505)
(1,063)
(1,448)
(2,511)
(1,283)
(1,300)
(2,583)
UK
$m
Rest of Group
$m
6,749
156
(5)
(351)
(349)
143
2
(356)
5,989
3,173
79
(9)
(123)
(23)
31
1
(264)
2,865
2018
Total
$m
9,922
235
(14)
(474)
(372)
174
3
(620)
8,854
UK
$m
Rest of Group
$m
6,137
159
(6)
45
596
123
3
(308)
6,749
2,979
81
(12)
188
176
34
–
(273)
3,173
2017
Total
$m
9,116
240
(18)
233
772
157
3
(581)
9,922
The actual return on the plan assets was a loss of $239m (2017: gain of $473m).
182
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial StatementsNotes to the Group Financial Statementscontinued
Movement in post-retirement scheme obligations
UK
$m
Rest of Group
$m
2018
Total
$m
UK
$m
Rest of Group
$m
2017
Total
$m
Present value of obligations in scheme at beginning of year
(8,032)
(4,473)
(12,505)
(7,118)
(4,184)
(11,302)
Current service cost
Past service (cost)/credit
Participant contributions
Benefits paid
Interest expense on post-retirement scheme obligations
Actuarial losses
Exchange and other adjustments
(23)
(34)
(2)
356
(185)
472
396
(51)
(6)
(1)
264
(102)
(44)
100
(74)
(40)
(3)
620
(287)
428
496
(23)
(39)
(3)
308
(184)
(272)
(701)
(64)
70
–
273
(105)
(202)
(261)
(87)
31
(3)
581
(289)
(474)
(962)
Present value of obligations in scheme at end of year
(7,052)
(4,313)
(11,365)
(8,032)
(4,473)
(12,505)
The obligations arise from the following plans:
Funded – pension schemes
Funded – post-retirement healthcare
Unfunded – pension schemes
Unfunded – post-retirement healthcare
Total
UK
$m
Rest of Group
$m
2018
Total
$m
UK
$m
Rest of Group
$m
2017
Total
$m
(7,034)
(3,584)
(10,618)
(8,013)
(3,698)
(11,711)
–
–
(18)
(7,052)
(230)
(483)
(16)
(230)
(483)
(34)
(4,313)
(11,365)
–
–
(19)
(8,032)
(245)
(515)
(15)
(245)
(515)
(34)
(4,473)
(12,505)
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 2018, 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
UK
$m
Rest of Group
$m
(23)
(34)
(5)
(62)
156
(185)
(29)
(91)
(51)
(6)
(9)
(66)
79
(102)
(23)
(89)
2018
Total
$m
(74)
(40)
(14)
(128)
235
(287)
(52)
(180)
(351)
(123)
(474)
(26)
389
109
121
(46)
4
(2)
(167)
(72)
393
107
(46)
UK
$m
Rest of Group
$m
(23)
(39)
(6)
(68)
159
(184)
(25)
(93)
45
(50)
(261)
39
(227)
(64)
70
(12)
(6)
81
(105)
(24)
(30)
188
(4)
(214)
15
(15)
2017
Total
$m
(87)
31
(18)
(74)
240
(289)
(49)
(123)
233
(54)
(475)
54
(242)
Past service cost in 2018 includes a charge to Operating Profit of $23m arising from the expected impact of the UK High Court judgment relating
to Guaranteed Minimum Pensions on the UK Pension Fund, as referred to in the UK section on page 179. The past service cost in 2018 also includes
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 $341m (2017: $304m).
Rate sensitivities
The following table shows the US dollar effect of a change in the significant actuarial assumptions used to determine the retirement benefits
obligations in our three main defined benefit pension obligation countries.
Discount rate
UK ($m)
US ($m)
Sweden ($m)
Total ($m)
+0.5%
520
78
152
750
2018
−0.5%
(586)
(83)
(174)
(843)
+0.5%
618
95
147
860
2017
−0.5%
(703)
(101)
(168)
(972)
183
AstraZeneca Annual Report & Form 20-F Information 2018 / Notes to the Group Financial StatementsFinancial Statements
21 Post-retirement benefits continued
Inflation rate1
UK ($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%
(444)
–
(171)
(615)
2018
−0.5%
421
–
151
572
2018
+0.5%
(526)
–
(165)
(691)
2017
−0.5%
495
–
146
641
2017
+0.5%
−0.5%
+0.5%
−0.5%
–
–
(52)
(52)
+1 year
(301)2
(24)
(68)
(393)
–
–
48
48
2018
−1 year
3023
24
68
394
–
–
(51)
(51)
+1 year
(337)
(26)
(63)
(426)
–
–
47
47
2017
−1 year
337
27
64
428
1 Rate of increase in pensions in payment follows inflation.
2 Of the $301m increase, $217m is covered by the longevity swap.
3 Of the $302m decrease, $212m 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.
22 Reserves
Retained earnings
The cumulative amount of goodwill written off directly to reserves resulting from acquisitions, net of disposals, amounted to $619m (2017: $631m;
2016: $613m) using year-end rates of exchange.
At 31 December 2018, 456,792 shares, at a cost of $22m, have been deducted from retained earnings (2017: 476,504 shares, at a cost of $22m;
2016: 276,303 shares, at a cost of $19m) to satisfy future vesting of employee share plans.
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 hedges1
Fair value movement on derivatives designated in net investment hedges2
Net exchange movement in retained earnings
At 31 December
2018
$m
2017
$m
(1,017)
(2,028)
(450)
(12)
(520)
(8)
(990)
(2,007)
536
18
505
(48)
1,011
(1,017)
2016
$m
(372)
(1,050)
(11)
(591)
(4)
(1,656)
(2,028)
1 Foreign exchange arising on designated borrowings in net investment hedges includes $45m in respect of designated bonds and $(565)m in respect of designated contingent consideration
liabilities. The change in value of designated bonds relates to $25m in respect of our £350m 5.75% 2031 non-callable bond and $20m in respect of a €450m portion of our €750m 0.875% 2021
non-callable bond. The change in value of designated contingent consideration liabilities relates to $(358)m in respect of BMS’ share of Global Diabetes Alliance, $(32)m in respect of Almirall
and $(6)m in respect of Definiens and $(169)m in relation to the put option liability in Acerta Pharma.
2 Fair value movement on derivatives designated in net investment hedges comprises $(13)m in respect of our $750m Japanese yen to US dollar cross currency interest rate swap, $(1)m in respect
of our $69m Chinese renminbi to US dollar cross currency interest rate swap and $6m in respect of our matured $151m Chinese renminbi to US dollar cross currency interest rate swap.
Cumulative amounts with respect to cash flow hedges included within retained earnings are $37m (2017: $76m; 2016: $80m). With effect from
1 January 2018, the Company has disclosed separately the costs of hedging of cross currency interest rate swaps in cash flow hedges and net
investment hedges. The cumulative gain with respect to costs of hedging is $47m and the loss during the year was $54m.
The balance remaining in the foreign currency translation reserve from net investment hedging relationships for which hedge accounting no longer
applied is a gain of £154m.
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.
184
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial StatementsNotes to the Group Financial Statementscontinued
23 Share capital of the Company
Issued Ordinary Shares ($0.25 each)
Redeemable Preference Shares (£1 each – £50,000)
At 31 December
Allotted, called-up and fully paid
2018
$m
317
–
317
2017
$m
317
–
317
2016
$m
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:
At 1 January
Issues of shares (share schemes)
At 31 December
Share repurchases
No Ordinary Shares were repurchased by the Company in 2018 (2017: nil; 2016: nil).
Shares held by subsidiaries
No shares in the Company were held by subsidiaries in any year.
No. of shares
2018
2017
2016
1,266,221,605 1,265,229,424 1,264,122,670
817,831
992,181
1,106,754
1,267,039,436 1,266,221,605 1,265,229,424
24 Dividends to shareholders
Second interim (March 2018)
Interim (September 2018)
Total
2018
Per share
$1.90
$0.90
$2.80
2017
Per share
$1.90
$0.90
$2.80
2016
Per share
$1.90
$0.90
$2.80
2018
$m
2,402
1,139
3,541
2017
$m
2,404
1,139
3,543
2016
$m
2,402
1,138
3,540
The Company has exercised its authority in accordance with the provisions set out in the Company’s Articles of Association that the balance of
unclaimed dividends over past 12 years be forfeited. $2m of unclaimed dividends have been adjusted for in retained earnings in 2018.
The 2017 second interim dividend of $1.90 per share was paid on 19 March 2018.
Reconciliation of dividend charged to equity to cash flow statement:
Dividends charged to equity
Exchange losses/(gains) on payment of dividend
Hedge contracts relating to payment of dividends (cash flow statement)
Dividends paid (cash flow statement)
2018
$m
3,541
10
(67)
3,484
2017
$m
3,543
(4)
(20)
3,519
2016
$m
3,540
3
18
3,561
25 Non-controlling interests
Following the acquisition of a majority stake in Acerta Pharma on 2 February 2016, the Group Financial Statements at 31 December 2018 reflect
equity of $1,567m (2017: $1,676m; 2016: $1,808m) and total comprehensive losses of $109m (2017: 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
(Loss)/profit after tax
Other comprehensive income
Total comprehensive (loss)/income
Non-current assets
Current assets
Total assets
Current liabilities
Total liabilities
Net assets/(liabilities)
Net cash inflow/(outflow) from operating activities
Net cash (outflow)/inflow from investing activities
Increase/(decrease) in cash and cash equivalents in the year
2018
$m
–
(9)
–
(9)
2018
$m
16
526
542
(63)
(63)
479
2018
$m
7
(4)
3
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)
185
AstraZeneca Annual Report & Form 20-F Information 2018 / Notes to the Group Financial StatementsFinancial Statements 25 Non-controlling interests continued
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) in both the US and Europe and when the extent of the commercial opportunity has
been fully established. 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 19). 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, the liability was remeasured due
to a change in the expected timing of the exercise of the put option, while during 2017, 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 (2017: decrease; 2016 decrease) in the liability for the
year before the effect of interest costs. On exercise of the put option, the associated cash flows will be disclosed as financing activities within the
Consolidated Statement of Cash Flows.
26 Acquisitions of business operations
There were no acquisitions of business operations in 2018 or 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.
186
Fair value
$m
7,307
253
(90)
(1,777)
5,693
(1,903)
19
3,809
(1,332)
2,477
(94)
2,383
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial StatementsNotes to the Group Financial Statementscontinued
27 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, interest rate swaps and cross-currency
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 IFRS 9. Hedge effectiveness is determined at the inception
of the hedge relationship, and through periodic prospective effectiveness assessments to ensure that an economic relationship exists between
the hedged item and hedging instrument. Sources of hedge effectiveness will depend on the hedge relationship designation but may include:
> A significant change in the credit risk of either party to the hedging relationship.
> A timing mismatch between the hedging instrument and the hedged item.
> Movements in foreign currency basis spread for derivatives in a fair value hedge.
> A significant change in the value of the foreign currency denominated net assets of the Group in a net investment hedge.
The hedge ratio for each designation will be established by comparing the quantity of the hedging instrument and the quantity of the hedged item
to determine their relative weighting; for all of the Group’s existing hedge relationships the hedge ratio has been determined as 1:1.
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 23), debt (Note 18), other current investments (Note 11) 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 IFRS 9. Amounts due, on invoices that have not been factored at year end, from customers that are subject to factoring
arrangements are disclosed in Note 15.
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 $12,679m at the beginning of the year to a net debt position of $13,003m at 31 December 2018.
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, bank loans, 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 $4,831m, short-term fixed income investments of $809m, fixed deposits of $40m, less overdrafts of
$160m at 31 December 2018, the Group has committed bank facilities of $4.1bn available to manage liquidity. At 31 December 2018, the Group
has issued $3,792m under a Euro Medium Term Note programme and $14,546m under a SEC-registered programme. The Group increased its
committed bank facilities by $1.1bn in the year to a total of $4.1bn at 31 December 2018. $0.2bn of the new facilities mature in December 2019 but
have a one-year extension option, exercisable by the Group. $0.5bn of the new facilities mature in December 2020 but have a one-year extension
option, exercisable by the Group. $0.4bn of the new facilities, together with the existing $3bn of facilities, mature in April 2022. The funds made
available under these facility agreements may be used for the general corporate purposes of the Group. 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.
Advances under the revolving facilities bear an interest rate per annum based on LIBOR (or other relevant benchmark rate) plus a margin. The
facility agreements contain no financial covenants. At 31 December 2018 the facilities were undrawn.
187
AstraZeneca Annual Report & Form 20-F Information 2018 / Notes to the Group Financial StatementsFinancial Statements 27 Financial risk management objectives and policies continued
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 2016
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
455
–
–
–
7
–
Bonds
$m
2,374
1,921
1,500
2,080
1,756
14,796
462
24,427
(4)
–
(8,111)
(59)
458
16,257
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
Finance
leases
$m
42
24
16
10
3
–
95
(2)
–
93
Finance
leases
$m
5
–
–
–
–
–
5
–
–
5
Trade
and other
payables
$m
10,566
4,986
1,144
1,666
877
3,624
22,863
–
(2,889)
19,974
Trade
and other
payables
$m
11,840
1,976
1,586
3,240
1,112
2,808
22,562
–
(3,081)
19,481
Total
non-derivative
financial
instruments
$m
Interest
rate swaps
$m
Cross-
currency
swaps
$m
Total
derivative
financial
instruments
$m
13,437
6,931
2,660
3,756
2,643
18,420
47,847
(8,117)
(2,948)
36,782
(54)
(19)
(15)
(15)
(15)
(30)
(148)
148
(82)
(82)
32
12
(216)
47
86
320
281
(351)
(93)
(163)
(22)
(7)
(231)
32
71
290
133
(203)
(175)
(245)
Total
non-derivative
financial
instruments
$m
Interest
rate swaps
$m
Cross-
currency
swaps1
$m
Total
derivative
financial
instruments1
$m
14,689
3,540
3,730
5,256
2,848
18,383
48,446
(7,983)
(3,175)
37,288
(10)
(12)
(12)
(12)
(12)
(12)
(70)
70
(50)
(50)
32
(190)
53
(11)
37
31
(48)
(504)
93
(459)
Total
$m
13,415
6,924
2,429
3,788
2,714
18,710
47,980
(8,320)
(3,123)
36,537
Total
$m
14,711
3,338
3,771
5,233
2,873
18,402
48,328
(8,417)
(3,132)
22
(202)
41
(23)
25
19
(118)
(434)
43
(509)
36,779
1 The 2017 disclosures have been revised with the within one year outflow reducing to $32m from $420m, the in one to two years inflow increasing to $190m from $100m, the in two to three years
outflow reducing to $53m from $295m, the in three to four years inflow reducing to $11m from $747m, the in four to five years outflow increasing to $37m from $34m and the in more than five
years outflow increasing to $31m from $26m.
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 2018
Bank
overdrafts
and other
loans
$m
774
7
14
–
–
–
Bonds
$m
1,629
2,210
2,002
1,813
2,069
17,405
795
27,128
(2)
(8,669)
(17)
(122)
776
18,337
Finance
leases
$m
–
–
–
–
–
–
–
–
–
–
Trade
and other
payables
$m
13,029
1,688
833
3,340
776
2,084
21,750
–
(2,139)
19,611
Total
non-derivative
financial
instruments
$m
Interest
rate swaps
$m
Cross-
currency
swaps
$m
Total
derivative
financial
instruments
$m
Total
$m
15,432
(10)
(172)
(182)1
15,250
3,905
2,849
5,153
2,845
19,489
49,673
(8,671)
(2,278)
38,724
(9)
(9)
(9)
(9)
–
(46)
46
(40)
(40)
57
33
37
37
69
61
(304)
(83)
(326)
482
243
284
285
696
15
(258)
(123)
(366)
3,953
2,873
5,181
2,873
19,558
49,688
(8,929)
(2,401)
38,358
1 Total derivative financial instruments within one year excludes Other current derivatives of $(18)m (2017: $5m; 2016: $10m). Total derivative financial instruments within one year and Other
current derivatives reflect receivables of $10.207bn (2017: $6.738bn) and payables of $10.007bn (2017: $6.765bn).
2 Total derivative financial instruments in one to two years reflects receivables of $35m (2017: $803m) and payables of $83m (2017: $601m).
3 Total derivative financial instruments in two to three years reflects receivables of $950m (2017: $39m) and payables of $974m (2017: $80m).
4 Total derivative financial instruments in three to four years reflects receivables of $30m (2017: $994m) and payables of $58m (2017: $971m).
5 Total derivative financial instruments in four to five years reflects receivables of $30m (2017: $34m) and payables of $58m (2017: $59m).
6 Total derivative financial instruments in more than five years reflects receivables of $2.084bn (2017: $2.198bn) and payables of $2.153bn (2017: $2.217bn).
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 $5,106m of contingent consideration and $1,838m arising from the put option over the non-controlling interest in Acerta Pharma, both held within
Other payables (see Note 19).
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 $1.25bn of bonds maturing in 2023, $1.0bn in 2029 and $0.75bn in 2048. These were to refinance the
$1.4bn of bonds maturing in 2018 and for general corporate purposes.
188
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial StatementsNotes to the Group Financial Statementscontinued At 31 December 2018, the Group held interest rate swaps with a notional value of $0.29bn, converting the 7% guaranteed debentures payable in
2023 to floating rates. No new interest rate swaps were entered into during 2018. At 31 December 2018, 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 157.
The majority of surplus cash is currently invested in US dollar liquidity funds, fully collateralised repurchase arrangements and investment grade
fixed income securities.
The interest rate profile of the Group’s interest-bearing financial instruments, as at 31 December 2018, 31 December 2017 and 31 December 2016,
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.
Financial liabilities
Interest-bearing loans and borrowings
Current
Non-current
Total
Financial assets
Fixed deposits
Cash and cash equivalents
Total
Fixed rate Floating rate
$m
$m
999
16,038
17,037
40
–
40
755
1,321
2,076
–
4,831
4,831
2018
Total
$m
1,754
17,359
19,113
40
4,831
4,871
Fixed rate
$m
Floating rate
$m
404
14,608
15,012
–
–
–
1,843
952
2,795
80
3,324
3,404
2017
Total
$m
2,247
15,560
17,807
80
3,324
3,404
Fixed rate
$m
Floating rate
$m
1,086
13,154
14,240
–
–
–
1,221
1,347
2,568
37
5,018
5,055
2016
Total
$m
2,307
14,501
16,808
37
5,018
5,055
In addition to the financial assets above, there are $6,195m (2017: $6,366m; 2016: $5,519m) 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 67% of Group external sales in 2018 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 2018, before impact of derivatives, 2.4% of interest-bearing loans and borrowings were denominated in pounds sterling and
18.3% 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.
Foreign currency risk arises when the Group has inter-company funding and investments in certain subsidiaries operating in countries with exchange
controls or where there is risk of significant future currency devaluation. One indicator of potential foreign currency risk is where a country is officially
designated as hyper inflationary. As at 31 December 2018, the Group operates in two countries designated as hyper inflationary being Argentina
and Venezuela.
The foreign exchange risk to the Group from Argentina is immaterial.
At the start of 2018 Venezuela operated a two tier exchange rate system with a heavily subsidised DIPRO rate for essential goods and services and
a second rate, DICOM, to cover all other non-essentials. During 2017 the Group had begun to use the DICOM rate for the consolidation of its financial
statements, believing that this was the best expectation of the rate at which profits would be remitted. As a result of this the Group was unaffected
by the elimination of the DIPRO rate in early 2018. The foreign exchange risk to the Group from Venezuela is immaterial.
Transactional
The Group aims to hedge all its forecast 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.
189
AstraZeneca Annual Report & Form 20-F Information 2018 / Notes to the Group Financial StatementsFinancial Statements
27 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 2018,
with all other variables held constant. Based on the composition of our long-term debt portfolio as at 31 December 2018, a 1% increase in interest
rates would result in an additional $17m in interest expense being incurred per year. The exchange rate sensitivity analysis assumes an instantaneous
10% change in foreign currency exchange rates from their levels at 31 December 2018, with all other variables held constant. The +10% case assumes
a 10% strengthening of the US dollar against all other currencies and the -10% case assumes a 10% weakening of the US dollar.
Each incremental 10% movement in foreign currency exchange rates would have approximately the same effect as the initial 10% detailed in the
table below and each incremental 1% change in interest rates would have approximately the same effect as the 1% detailed in the table below.
31 December 2016
Increase/(decrease) in fair value of financial instruments ($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) ($m)
31 December 2018
Increase/(decrease) in fair value of financial instruments ($m)
Impact on profit: (loss)/gain ($m)
Impact on equity: gain/(loss) ($m)
+1%
1,249
–
–
+1%
1,329
–
–
+1%
1,130
–
–
Interest rates
Exchange rates
−1%
(1,390)
–
–
Interest rates
−1%
(1,293)
–
–
+10%
180
(24)
204
+10%
198
(123)
321
−10%
(180)
24
(204)
Exchange rates
−10%
(198)
123
(321)
Interest rates
Exchange rates
−1%
(1,267)
–
–
+10%
(146)
(299)
153
−10%
161
348
(187)
In 2018 the Group changed the method for assessing a 10% change in foreign currency exchange rates. In 2017 and 2016 the sensitivity was calculated
as 10% of year end exposure. The sensitivity is now calculated by dividing the non-USD balances by adjusted foreign rates. This does not have a
material impact on results but has resulted in the weakening and strengthening values no longer being symmetrical. There have been no other
changes in the methods and assumptions used in preparing the sensitivity analysis.
Credit risk
The Group is exposed to credit risk on financial assets, such as cash investments, derivative instruments, and 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.
Financial counterparty credit risk
The majority of the AstraZeneca Group’s cash is centralised within the Group Treasury entity and is subject to counterparty risk on the principal
invested. The level of the Group’s cash investments and hence credit risk will depend on the cash flow generated by the Group and the timing of
the use of that cash. The credit 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 Group’s principal financial counterparty credit risks at 31 December 2018 were as follows:
Current assets
Cash at bank and in hand
Money market liquidity fund
Collateralised repurchase agreement
Bank collateral1
Other short-term cash equivalents
Total Cash and cash equivalents (Note 16)
Fixed income securities at fair value through profit and loss (Note 11)
Fixed income securities available for sale (Note 11)
Fixed deposits (Note 11)
Total derivative financial instruments (Note 12)
Current assets subject to credit risk
1 In 2017 the Group changed its accounting policy such that collateral receipts were included in interest bearing loans and borrowings.
Non-current assets
Equity securities at fair value through other comprehensive income (Note 11)
Equity securities available for sale (Note 11)
Derivative financial instruments (Note 12)
Non-current assets subject to credit risk
190
2018
$m
893
3,435
400
–
103
4,831
809
–
40
258
5,938
2018
$m
833
–
157
990
2017
$m
784
1,150
1,150
–
240
3,324
–
1,150
80
28
2016
$m
782
3,440
950
(242)
88
5,018
–
847
37
27
4,582
5,929
2017
$m
–
933
504
2016
$m
–
727
343
1,437
1,070
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial StatementsNotes to the Group Financial Statementscontinued 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 money market liquidity fund portfolios are managed by five external third-party fund managers to maintain an AAA rating. The Group’s investments
represent no more than 10% of each overall fund value. There were no other significant concentrations of financial credit risk at the reporting date.
The short-term repurchase agreements are fully collateralised investments. The collateral is fixed income in nature and is held by a third party custodian
and represents approximately 101% of the value of the cash deposited. The minimum long term credit rating of the collateral is BBB minus. 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 2018 was $403m (2017: $1,151m; 2016: $951m).
The fixed income securities are managed by four external third-party fund managers. The long term rating of these securities was BBB minus or better.
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 2018 was $384m (2017: $513m;
2016: $322m) and the carrying value of each cash collateral posted by the Group at 31 December 2018 was $14m (2017: $nil; 2016: $80m).
The impairment provision for other financial assets at 31 December 2018 was immaterial.
Equity securities represent non-controlling investments in third-party pharmaceutical companies.
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. Following the adoption of IFRS 9 on 1 January 2018 the Group
introduced the expected credit loss approach to establish an allowance for impairment that represents its estimate of expected losses in respect
of Trade and other receivables. Given the general quality and short-term nature of our trade receivables, there was no material impact assessed
arising from the introduction of this method.
The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade
receivables. To measure expected credit losses trade receivables have been grouped based on shared credit characteristics and the days past due.
The expected loss rates are based on payment profiles over a period of 36 months before 31 December 2018 or 1 January 2018 respectively and the
corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward-looking
information on macroeconomic factors affecting the ability of the customer to settle the receivables.
On that basis, the loss allowance as at 31 December 2018 and 1 January 2018 was determined as follows:
31 December 2018
Expected loss rate
Gross carrying amount
Loss allowance
1 January 2018
Expected loss rate
Gross carrying amount
Loss allowance
Current
0.05%
2,854
1
Current
0.05%
2,490
1
0-90 days
past due
0.75%
82
1
0-90 days
past due
0.75%
262
2
90-180 days
past due
Over 180 days
past due
10%
27
3
47%
70
33
90-180 days
past due
Over 180 days
past due
5%
31
1
33%
35
12
Total
3,033
38
Total
2,818
16
Trade receivables are written off where there is no reasonable expectation of recovery.
Impairment losses on trade receivables are presented as net impairment losses within operating profit, any subsequent recoveries are credited
against the same line.
In the US, sales to three wholesalers accounted for approximately 88% of US sales (2017: three wholesalers accounted for approximately 60%;
2016: three wholesalers accounted for approximately 83%).
191
AstraZeneca Annual Report & Form 20-F Information 2018 / Notes to the Group Financial StatementsFinancial Statements
27 Financial risk management objectives and policies continued
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
2018
$m
2,853
81
24
37
2,995
2018
$m
16
22
–
38
2017
$m
2,488
260
31
23
2,802
2017
$m
42
(26)
–
16
2016
$m
2,559
14
–
10
2,583
2016
$m
52
–
(10)
42
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.
28 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
2018
2017
2016
7,200
14,800
16,700
24,500
63,200
6,900
14,500
16,300
22,300
60,000
7,000
14,700
17,800
22,000
61,500
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 2018 was 64,400 (2017: 61,100; 2016: 59,700).
The costs incurred during the year in respect of these employees were:
Salaries
Social security costs
Pension costs
Other employment costs
Total
2018
$m
5,370
626
469
505
2017
$m
5,004
570
378
534
2016
$m
4,664
584
426
610
6,970
6,486
6,284
Severance costs of $94m are not included above (2017: $225m; 2016: $578m).
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.
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.
192
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial StatementsNotes to the Group Financial Statementscontinued
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 123 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 $219m (2017: $220m; 2016: $241m). 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 2018, 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 2018 under the plan took place in March with further grants in May and August.
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
Shares awarded in March 2018
Shares awarded in May 2018
Shares awarded in August 2018
1 Weighted average fair value.
Shares
’000
2,673
24
67
2,359
10
44
3,400
18
92
WAFV1
pence
1962
1935
2536
2440
2607
2234
2427
2651
2982
WAFV1
$
28.19
28.64
33.58
30.88
34.20
29.11
34.62
36.42
38.46
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 2016
Shares
’000
84
WAFV
pence
3923
WAFV
$
56.38
The AstraZeneca Global Restricted Stock Plan
This plan was introduced in 2010. The main grant of awards in 2018 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 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 awarded in March 2018
Shares awarded in August 2018
Shares awarded in November 2018
Shares
’000
2,695
122
2,502
78
31
77
4,474
40
3
WAFV
pence
3923
5071
4880
5214
4468
4942
4853
5964
6300
WAFV
$
56.38
67.16
61.76
68.40
58.22
66.24
69.24
76.92
82.86
193
AstraZeneca Annual Report & Form 20-F Information 2018 / Notes to the Group Financial StatementsFinancial Statements 28 Employee costs and share plans for employees continued
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 four times in 2018 to make awards to 252 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.
WAFV
$
Shares
’000
WAFV
pence
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 awarded in March 2018
Shares awarded in May 2018
Shares awarded in August 2018
Shares awarded in November 2018
809
335
37
14
205
134
8
26
31
23
148
45
37
38
3923
3869
5071
4233
4293
4880
5214
4468
4765
4942
4853
5301
5964
6300
56.38
57.28
67.16
53.42
55.50
61.76
68.40
58.22
65.60
66.24
69.24
72.84
76.92
82.86
The AstraZeneca Extended Incentive Plan
This plan was introduced in 2018 and provides for the grant of awards to key employees, excluding Executive Directors. Awards are made on an
ad hoc basis and 50% of the award will normally vest on the fifth anniversary of grant, with the balance vesting on the tenth anniversary of grant.
The award can be subject to the achievement of performance conditions. 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 (if any) and which
employees should be invited to participate.
Shares awarded in March 2018
Shares awarded in August 2018
Shares awarded in November 2018
Shares
’000
163
116
24
WAFV
pence
4853
5964
6300
WAFV
$
69.24
76.92
82.86
The fair values were determined using a modified version of the Monte Carlo 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.
29 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
2018
$m
586
2017
$m
570
2016
$m
629
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
Future potential revenue milestone payments
Total
$m
6,881
6,011
Under 1 year
$m
Years 1 and 2
$m
Years 3 and 4
$m
425
68
966
718
1,395
271
Years 5
and greater
$m
4,095
4,954
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 2018.
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 220, 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.
194
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial StatementsNotes to the Group Financial Statementscontinued 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 2016, 2017 or 2018.
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 a number of 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 2018 in
the aggregate of $97m (2017: $59m; 2016: $59m),
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. As per our accounting policy on page 158,
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. 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 $71m
and $118m (2017: $87m and $144m; 2016: $85m
and $141m), which relates mainly to the US.
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 29, 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
195
AstraZeneca Annual Report & Form 20-F Information 2018 / Notes to the Group Financial StatementsFinancial Statements to FDA approval, to introduce generic versions
of the product concerned.
AstraZeneca has full confidence in, and will
vigorously defend and enforce, its IP.
Over the course of the past several years,
including in 2018, 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 and subsequently, 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.
In 2018, AstraZeneca entered into several
separate settlements and the District Court
entered consent judgments to dismiss several
of the litigations. Additional proceedings are
ongoing in the District Court. No trial date has
been set.
Patent proceedings outside the US
In Canada, in June 2017, Teva Canada Limited
(Teva) challenged the patents listed on the
Canadian Patent Register with reference to
Brilinta. In September 2017, Apotex Inc. (Apotex)
did the same. AstraZeneca discontinued the
proceeding against Teva in June 2018 after
Teva withdrew its challenge. The hearing in
the Apotex matter is scheduled for May 2019.
In October 2018, Taro Pharmaceuticals Inc.
(Taro) also challenged the patents. AstraZeneca
commenced an infringement action against
Taro in November 2018.
In China, in October 2017, the Chinese Patent
Office issued a decision invalidating one of
AstraZeneca’s Chinese substance patents
relating to Brilinta. AstraZeneca appealed and,
in December 2018, the Beijing High People’s
Court vacated the invalidation decision and
remanded the case back to the Chinese Patent
Office for further processing in view of the
Court’s decision. The patent, Chinese Patent
No. ZL99815926.3, is due to expire in
December 2019.
Calquence (acalabrutinib)
US patent proceedings
In November 2017, Pharmacyclics LLC
(Pharmacyclics, a company in the AbbVie group)
filed a patent infringement lawsuit in the District
Court of Delaware (the District Court) against
Acerta Pharma and AstraZeneca relating to
Calquence. A trial has been scheduled for
June 2020.
196
In April 2018, AstraZeneca and Acerta Pharma
filed a complaint in the District Court against
Pharmacyclics and AbbVie, Inc. alleging that
their drug, Imbruvica, infringes a US patent
owned by Acerta Pharma. In November 2018,
Janssen Biotech, Inc. intervened as a defendant.
A trial has been scheduled for January 2021.
Crestor (rosuvastatin calcium)
Patent proceedings outside the US
In Australia, AstraZeneca had taken a
provision 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. In February 2018, AstraZeneca
settled the claim from Apotex Pty Ltd (and
other related Apotex entities) which was the
last generic claim outstanding with respect to
this matter. In May 2018, AstraZeneca settled
the claim from the Commonwealth of Australia
and, as a result, all of the claims related to this
matter have now been resolved and the
matter is now closed.
In France, patent infringement proceedings
are now resolved against Biogaran S.A.S. in
relation to the Crestor substance patent
(European Patent No. EP 0,521,471).
In Japan, patent invalidity proceedings are now
resolved against Nippon Chemiphar Co. Ltd
(Nippon) in relation to the Crestor substance
patent (Japanese Patent No. JP 2648897).
The patent was found valid by the Japanese
Patent Office in 2016 and an appeal from
Nippon has been dismissed.
In the Netherlands, in 2016, Resolution
Chemicals Ltd. (Resolution) appealed a lower
court’s decision that Resolution’s rosuvastatin
zinc product infringed the supplementary
protection certificate related to AstraZeneca’s
European Patent No. EP 0,521,471 to the
Supreme Court of the Netherlands (the
Supreme Court). In 2018, the Supreme Court
dismissed Resolution’s appeal and upheld
Resolution’s product as infringing AstraZeneca’s
patent rights in the Netherlands. The matter is
now closed.
In Spain, in 2017, AstraZeneca initiated patent
infringement proceedings against ratiopharm
España, S.A. (ratiopharm) in reference to
ratiopharm’s rosuvastatin zinc product. In 2018,
AstraZeneca settled the proceedings against
ratiopharm and the matter is now closed.
Daliresp (roflumilast)
US patent proceedings
In 2015 and subsequently, in response to
Paragraph IV notices from multiple 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 2018, AstraZeneca
entered into several separate settlements and
the District Court entered consent judgments
to dismiss several of the litigations. Additional
proceedings are ongoing in the District Court.
No trial date has been set.
Farxiga (dapagliflozin)
US patent proceedings
In May 2018, AstraZeneca initiated ANDA
litigation against Zydus Pharmaceuticals (USA)
Inc. (Zydus) in the US District Court for the
District of Delaware. In its complaint,
AstraZeneca alleged that Zydus’ generic
version of Farxiga, if approved and marketed,
would infringe AstraZeneca’s US Patents
Nos. 6,414,126 and 6,515,117. In June 2018,
Zydus filed its answer and counterclaims for
non-infringement of AstraZeneca’s US Patent
Nos. 7,851,502; 7,919,598; 8,221,786; 8,361,972;
8,501,698; 8,685,934; and 8,716,251. Trial is
scheduled for February 2021.
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 or NDAs submitted pursuant
to 21 U.S.C. § 355(b)(2) 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. Between 2016 and
2018, AstraZeneca resolved all of the remaining
lawsuits, and the District Court also entered
consent judgments ending those lawsuits.
In December 2018, AstraZeneca filed a new
patent infringement lawsuit in the District Court
relating to all four listed-patents after receiving
a new Paragraph IV notice relating to an ANDA
seeking FDA approval to market generic
versions of Faslodex prior to the expiration of
AstraZeneca’s patents.
Patent proceedings outside the US
In France, in June 2018, the Commercial Court
of Nanterre denied AstraZeneca’s request for
a preliminary injunction against Sandoz SAS
(Sandoz) to prevent a potential launch of its
generic Faslodex in France. Additionally, in June
2018, Sandoz served AstraZeneca with an
invalidation writ against European Patent Nos.
EP 2,266,573; EP 1,250,138; and EP 1,272,195.
In Italy, in February 2015, Actavis Group Ptc ehf
and Actavis Italy S.p.A. filed an action alleging
that AstraZeneca’s European Patent No. EP
1,250,138 (the ‘138 patent) was invalid. In July
2018, the Court of Turin determined that the
‘138 patent is invalid.
In May 2017, the Opposition Division of the
European Patent Office (EPO) revoked
European Patent No. EP 2,266,573 (the ‘573
patent). AstraZeneca appealed the decision
and, in January 2019, the Board of Appeal of
the EPO reversed the earlier decision and
upheld the validity of the ‘573 patent.
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial StatementsNotes to the Group Financial Statementscontinued Imfinzi (durvalumab)
US patent proceedings
In July 2017, Bristol-Myers Squibb, E.R. Squibb
& Sons LLC, Ono Pharmaceutical Co, and
Tasuku Honjo filed a patent infringement action
in the US District Court in Delaware relating to
AstraZeneca’s commercialisation of Imfinzi.
A trial has been scheduled for October 2020.
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). 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 appealed. In February
2018, AstraZeneca and Apotex entered into
a settlement agreement under which Apotex
agreed to pay AstraZeneca CAD 435m ($352m),
concluding all Losec patent litigation in Canada.
Movantik (naloxegol)
US patent proceedings
In December 2018, AstraZeneca initiated ANDA
litigation against Apotex Inc. and Apotex Corp.,
and against MSN Laboratories, in the US
District Court for the District of Delaware.
In each of its complaints, AstraZeneca alleges
that the generic companies’ versions of
Movantik, if approved and marketed, would
infringe US Patent No. 9,012,469.
Nexium (esomeprazole magnesium)
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. (Apotex).
In July 2015, AstraZeneca’s appeal was
dismissed. AstraZeneca was granted leave
to appeal to the Supreme Court of Canada
(the Supreme Court). In June 2017, the Supreme
Court granted AstraZeneca’s appeal and found
the ‘653 patent valid. Apotex appealed the
Supreme Court’s decision. AstraZeneca
commenced proceedings to collect damages.
In June 2018, the parties settled all outstanding
proceedings. The matter is now closed.
Onglyza (saxagliptin) and
Kombiglyze (saxagliptin and metformin)
US patent proceedings
In February 2017, the US District Court for the
District of Delaware (the District Court) issued
a decision upholding the validity of US Patent
No. RE44,186 (the ‘186 patent), listed in the FDA
Orange Book with reference to Onglyza and/or
Kombiglyze XR. In August 2017, the US Patent
and Trademark Office (USPTO) issued a
decision in an inter partes review upholding the
challenged claims of the ‘186 patent. Mylan
Pharmaceuticals Inc. (Mylan) appealed the
District Court’s decision and the USPTO’s
decision to the US Court of Appeals for the
Federal Circuit. In May 2018, AstraZeneca and
Mylan settled these two appeals. The matter
is now closed.
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 were filed
by the Generic Challengers. In June 2018,
AstraZeneca and the Generic Challengers
settled these claims. The matter is now closed.
Roxadustat
Patent proceedings outside the US
In Canada, in May 2018, Akebia Therapeutics,
Inc. (Akebia) filed an impeachment action in
the Federal Court alleging invalidity of several
of FibroGen, Inc.’s (FibroGen) method of use
patents (Canadian Patent Nos. 2467689;
2468083; and 2526496) related to HIF prolyl
hydroxylase inhibitors. AstraZeneca is the
exclusive licensee of FibroGen in Canada.
AstraZeneca and FibroGen are defending
the action.
Symbicort (budesonide/formoterol
fumarate dihydrate)
US patent proceedings
In October 2018, AstraZeneca initiated ANDA
litigation against Mylan Pharmaceuticals Inc.
(MPI), Mylan Laboratories Limited, Mylan Inc.,
and Mylan N.V. (collectively, Mylan) and,
separately, ANDA litigation against Teva
Pharmaceuticals USA, Inc. (Teva) in the US
District Court for the District of Delaware. In its
complaints, AstraZeneca alleges that Mylan’s
and Teva’s generic versions of Symbicort,
if approved and marketed, would infringe
AstraZeneca’s US Patents Nos. 7,759,328;
8,143,239; 8,575,137; and 7,967,011.
AstraZeneca also filed a similar action against
Mylan in the US District Court for the Northern
District of West Virginia.
In November 2018, AstraZeneca filed an
amended complaint in the Teva action to add
Catalent Pharma Solutions LLC (Catalent) as
a party. In December 2018, Teva and Catalent
responded to the amended complaint and
alleged that their proposed generic product
does not infringe the asserted patents and/or
that the asserted patents are invalid and/or
unenforceable. Teva also asserted counterclaims
in which it alleged that the proposed generic
product does not infringe five additional patents
that AstraZeneca did not assert in its complaint,
namely US Patents Nos. 7,587,988; 8,528,545;
8,387,615; 8,616,196; and 8,875,699.
In December 2018, AstraZeneca filed an
amended complaint in the Mylan Delaware
action to add 3M Company as a party.
In January 2019, in the Mylan Delaware action,
Mylan Laboratories Limited, Mylan Inc., and
Mylan N.V. filed a motion to dismiss for failure
to state a claim and MPI filed a motion to
dismiss for improper venue.
In January 2019, MPI responded to the West
Virginia complaint and alleged that its proposed
generic product does not infringe the asserted
patents and/or that the asserted patents are
invalid and/or unenforceable. Mylan also
asserted counterclaims to the asserted patents.
In January 2019, in the West Virginia action,
Mylan Laboratories Limited, Mylan Inc., and
Mylan N.V. filed a motion to dismiss for failure
to state a claim.
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. In
November 2018, the Court of Appeal for the
State of California annulled the judgment from
the California state co-ordinated proceeding
and remanded for further discovery.
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.
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) 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 various injuries
following treatment with proton pump inhibitors,
197
AstraZeneca Annual Report & Form 20-F Information 2018 / Notes to the Group Financial StatementsFinancial Statements including Nexium and Prilosec. In May 2017,
counsel for a group of such plaintiffs claiming
that they have been diagnosed with kidney
injuries 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 individual residents 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 individual
residents in Quebec.
Onglyza (saxagliptin) and
Kombiglyze (saxagliptin and metformin)
In the US, AstraZeneca is defending various
lawsuits alleging heart failure, cardiac injuries,
and/or death from treatment with Onglyza or
Kombiglyze. In February 2018, the Judicial Panel
on Multidistrict Litigation ordered the transfer of
various pending federal actions to the Eastern
District of Kentucky (the District) for consolidated
pre-trial proceedings with the federal actions
pending in the District. The previously disclosed
California state court co-ordinated proceeding
remains pending in California.
Seroquel (quetiapine fumarate)
In the US, in June 2018, AstraZeneca was
named in a lawsuit filed in Illinois involving
one plaintiff alleging Brugada Syndrome from
treatment with Seroquel. In September 2018,
the US District Court for the Southern District
of Illinois entered judgment in favour of
AstraZeneca and terminated AstraZeneca as
a party to the action.
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. This matter was
resolved and is now concluded.
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.
198
Nexium settlement anti-trust litigation
In the US, AstraZeneca was 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 returned a verdict in
favour of AstraZeneca, and the federal appeals
for this verdict were subsequently concluded.
Two lawsuits with similar allegations were filed
in Pennsylvania state court by various indirect
purchasers of Nexium. These cases had been
stayed pending the outcome of the federal court
litigation, but AstraZeneca was informed in June
2018 that both matters were administratively
closed by the state court. This matter is
accordingly concluded.
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)
Aralez litigation
In the US, in October 2016, AstraZeneca
completed its sale of certain assets related to
the US rights to Toprol-XL and AstraZeneca’s
authorised generic metoprolol succinate product
to Aralez Pharmaceuticals Trading DAC (Aralez).
In the US, in August 2018, Aralez commenced
voluntary insolvency proceedings and filed
voluntary petitions for relief under Chapter 11 of
the US Bankruptcy Code in the US Bankruptcy
Court for the Southern District of New York.
Aralez listed AstraZeneca as an unsecured
creditor in the US Bankruptcy Proceedings
with a claim of $14m. AstraZeneca filed a
proof of claim asserting an unsecured claim of
approximately $65m. In October 2018, Aralez
filed a motion in the Bankruptcy Court seeking to
sell the US rights to Toprol-XL and its authorised
generic. AstraZeneca filed an objection to the
proposed sale. A hearing on the proposed
sale is scheduled for 20-21 February 2019.
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 2011. 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. This matter has been dismissed.
Government investigations/proceedings
Iraq Ministry of Health Anti-Corruption Probe
In July 2018, AstraZeneca, along with other
companies, received an inquiry from the DOJ
pursuant to the Foreign Corrupt Practices Act in
connection with an anti-corruption investigation
relating to activities in Iraq, including interactions
with the Iraqi government. AstraZeneca is
cooperating with the inquiry.
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 is ongoing.
Texas Attorney General litigation
In the US, in January 2015, 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 alleged that
AstraZeneca engaged in inappropriate
promotion of Crestor and improperly influenced
the formulary status of Crestor. In July 2018, this
matter was resolved and is now concluded.
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. In July 2018, this matter was
resolved and is now concluded.
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.
In July 2018, this matter was resolved and is
now concluded.
Texas Attorney General litigation
In the US, in October 2014, the Texas Attorney
General’s Office intervened in a state
whistleblower action pending in Travis County
Court, Texas. The lawsuit alleged that
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial StatementsNotes to the Group Financial Statementscontinued AstraZeneca engaged in inappropriate
promotion and made improper payments
intended to influence the formulary status of
Seroquel. In July 2018, this matter was
resolved and is now concluded.
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 cooperated 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 September 2018,
the US Federal Court in New York denied
MedImmune’s motion to dismiss the lawsuit
brought by the Attorney General for the State
of New York.
In June 2017, MedImmune 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, MedImmune was served
with an amended complaint in which relator
set forth additional false claims allegations
relating to Synagis. In September 2018, the
US Federal Court in New York dismissed the
relator’s lawsuit.
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 cooperate 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).
Toprol-XL (metoprolol succinate)
Louisiana Attorney General litigation
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, a Louisiana state court (the Trial Court)
granted AstraZeneca’s motion to dismiss the
lawsuit, but the State appealed and, in April
2018, the Louisiana Court of Appeals for the
First Circuit (the Appellate Court) reversed the
dismissal and remanded the case back to the
Trial Court for further proceedings. In May 2018,
AstraZeneca filed a writ with the Louisiana
Supreme Court seeking review of the Appellate
Court’s decision. In September 2018, the
Louisiana Supreme Court denied that writ and
declined to review the Appellate Court’s decision.
Multi-product litigation
Litigation in Washington State
In the US, in September 2018, a lawsuit
against AstraZeneca and several other
defendants was unsealed in the US District
Court for the Western District of Washington.
The complaint alleges that the defendants
violated various laws, including state and
federal false claims acts, by offering clinical
educator and reimbursement support
programmes. In September 2018, the
government moved to dismiss the lawsuit
against AstraZeneca and similar lawsuits filed
against other companies by relator, Health
Choice Alliance.
Other government investigations/proceedings
US Congressional Inquiry
In January 2019, AstraZeneca received a letter
from E. Cummings, Chairman of the US House
of Representatives Committee on Oversight and
Reform seeking information related to pricing
practices for Crestor. Requests were also sent
to 11 other pharmaceutical manufacturers.
AstraZeneca intends to cooperate with
the inquiry.
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 $212m, a
decrease of $23m compared with 2017 mainly
due to a reduction in accruals for transfer pricing
contingencies as a result of the conclusion of
tax authority review.
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
$357m (2017: $30m; 2016: $184m) including
associated interest. 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 $730m relating to
a number of other tax contingencies, a decrease
of $201m mainly due to releases following
expiry of statute of limitations and on conclusion
of tax authority review, exchange rate effects,
partially offset by the impact of an additional
year of transactions relating to contingencies
for which accruals had already been established.
For these tax exposures, AstraZeneca estimates
the potential for reasonably possible additional
losses above and beyond the amount provided
to be up to $253m (2017: $nil; 2016: $nil)
including associated interest. 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.
In addition to the above tax exposures, the
European Commission (EC) announced in 2017
that it had opened a State aid investigation
into the UK’s Controlled Foreign Company
(CFC) Group Financing Exemption. The EC’s
decision is anticipated in 2019 although any
decision would be subject to appeal.
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 Trade and other payables is an
amount of interest arising on tax contingencies
of $116m.
199
AstraZeneca Annual Report & Form 20-F Information 2018 / Notes to the Group Financial StatementsFinancial Statements 30 Operating leases
Total rentals under operating leases charged to profit were as follows:
Operating leases
2018
$m
188
2017
$m
175
2016
$m
174
The Group has revised the presentation of operating leases from 2017 to include operating leases that have been identified during the transition to
IFRS 16 as having previously been omitted from this disclosure. This resulted in an increase in 2017 from $137m to $175m.
The future minimum lease payments under operating leases that have initial or remaining terms in excess of one year at 31 December 2018 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
2018
$m
188
360
136
684
2017
$m
151
345
118
614
2016
$m
98
247
96
441
The Group has revised the presentation of operating leases from 2017 to include operating leases that have been identified during the transition to
IFRS 16 as having previously been omitted from this disclosure. This resulted in an increase in 2017 from $523m to $614m.
31 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 Associates in respect of the Group’s pension schemes:
The audit of subsidiaries’ pension schemes
2018
$m
3.8
9.4
2.0
0.8
0.1
0.9
0.4
17.4
2017
$m
3.0
5.7
2.0
0.4
–
–
–
11.1
2016
$m
–
–
–
–
–
–
–
–
$3.2m of fees payable in 2018 are in respect of the 2017 Group audit and audit of subsidiaries.
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
2018
$’000
32,523
2,387
23,605
58,515
2017
$’000
28,274
2,469
16,452
47,195
2016
$’000
23,725
2,407
20,377
46,509
Total remuneration is included within employee costs (see Note 28).
32 Subsequent events
In December 2018, an internal decision was taken to close two biologics manufacturing sites in Colorado, USA. The Group assessed the recoverable
value of the site assets including Property, plant and equipment and inventory, and have recorded an impairment of $252m within land and buildings
and a provision against inventories of $75m at 31 December 2018. The announcement to those impacted of these closures was made subsequent
to year end.
On 10 January 2019, the Company entered into a floating rate $500m committed bank loan agreement, which was drawn in full on 4 February 2019.
The loan is repayable in December 2019 although can be partially or fully repaid in advance but, in that event, is not available to be redrawn.
On 23 January 2019, AstraZeneca completed the sale of its US rights to Synagis, and of a right to participate in the payments from the US profits
and losses for MEDI8897, to Swedish Orphan Biovitrum AB (Sobi). Under the terms of the agreement, AstraZeneca has received total upfront
consideration including cash of $966m and ordinary shares in Sobi with an initial fair value of c.$600m, equating to an ownership interest of 8%.
The majority of consideration is attributable to the sale of US rights to Synagis.
Consideration attributable to the sale of US rights to Synagis will be treated as Other operating income and expense in the Group in 2019, net of
the derecognition of $893m of the related intangible asset, which has been transferred to assets held for sale at 31 December 2018.
The right to participate in payments from the US profits and losses for MEDI8897 will be treated as a financial liability at amortised cost, recognised
initially at fair value. The valuation of this financial liability was not finalised at the date of signing of these Financial Statements. Any difference between
the amount of consideration received and the fair value recognised will be recognised within Other operating income and expense in 2019.
200
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial StatementsNotes to the Group Financial Statementscontinued
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 2018 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 2018.
At 31 December 2018
Group Interest
At 31 December 2018
Group Interest
At 31 December 2018
Group Interest
Wholly owned subsidiaries
Argentina
AstraZeneca S.A.
100%
Nicolas de Vedia 3616, Piso 8, Ciudad Autónoma de
Buenos Aires, Argentina
Australia
AstraZeneca Holdings Pty Limited
AstraZeneca PTY Limited
Pharmaceutical Manufacturing
Company Pty Limited
Pharmaceutical Manufacturing
Division Pty Limited
100%
100%
100%
100%
AstraZeneca Pharmaceutical
(China) Co. Ltd
100%
No. 88 Yaocheng Avenue, Taizhou, Jiangsu Province,
China
Germany
AstraZeneca Holding GmbH
AstraZeneca GmbH
Tinsdaler Weg 183, Wedel, D-22880, Germany
AstraZeneca Pharmaceuticals
Technologies (Beijing) Co., Ltd
100%
Sofotec GmbH
100%
100%
100%
Unit 2203, 22F, No 8, Jianguomenwai Avenue,
Chaoyang District, Beijing, China
Benzstrasse 1-3, 61352, Bad Homburg v.d. Hohe,
Germany
Colombia
AstraZeneca Colombia S.A.S.
100%
Carrera 7 No. 71-21, Torre A, Piso 19, Bogota, D.C.,
Colombia
Definiens AG2
100%
Bernhard-Wicki-Straße 5, 80636, Munich, Germany
Greece
AstraZeneca S.A.
100%
Theotokopoulou 4 & Astronafton, Athens, 151 25,
Greece
66 Talavera Road, Macquarie Park, NSW 2113,
Australia
Austria
Costa Rica
AstraZeneca CAMCAR Costa Rica,
S.A.
100%
Hong Kong
AstraZeneca Österreich GmbH
100%
A-1030 Wien, Landstraßer Hauptstraße 1A, Austria
Escazu, Guachipelin, Centro Corporativo Plaza
Roble, Edificio Los Balcones, Segundo Nivel, San
Jose, Costa Rica
AstraZeneca Hong Kong Limited
100%
Unit 1 – 3, 11/F., 18 King Wah Road, North Point,
Hong Kong
Belgium
AstraZeneca S.A. / N.V.
Alfons Gossetlaan 40 bus 201 at 1702 Groot-
Bijgaarden, Belgium
Croatia
100%
AstraZeneca d.o.o.
Brazil
AstraZeneca do Brasil Limitada
100%
Rod. Raposo Tavares, KM 26, 9, Cotia, Brazil
Bulgaria
AstraZeneca Bulgaria EOOD
100%
36 Dragan Tzankov Blvd., District Izgrev,
Sofia, 1057, Bulgaria
Radnicka cesta 80, 10000 Zagreb, Croatia
Czech Republic
AstraZeneca Czech Republic, s.r.o.
100%
India
U Trezorky 921/2, 158 00 Prague 5, Czech Republic
Denmark
AstraZeneca A/S
100%
Arne Jacobsens Allé 13, DK-2300, Copenhagen S,
Denmark
100%
Hungary
AstraZeneca Kft
100%
1st floor, 4 building B, Alíz str., Budapest, 1117,
Hungary
AstraZeneca India Private Limited3
100%
Block A, Neville Tower, 11th Floor, Ramanujan IT
SEZ, Taramani, Chennai, Tamil Nadu, PIN 600113,
India
Iran
AstraZeneca Pars Company
100%
Suite 1, 1st Floor No. 39, Alvand Ave., Argantin Sq.,
Tehran 1516673114, Iran
Canada
AstraZeneca Canada Inc.1
Egypt
100%
AstraZeneca Egypt for
Pharmaceutical Industries JSC
100%
Suite 5000, 1004 Middlegate Road, Ontario, L4Y
1M4, Canada
Villa 133, Road 90 North, New Cairo, Egypt
Ireland
Cayman Islands
AZ Reinsurance Limited
18 Forum Lane, 2nd Floor, Camana Bay,
Grand Cayman, P.O.BOX 69, Cayman Islands
AstraZeneca Egypt for Trading LLC
100%
14C Ahmed Kamel Street, New Maadi, Cairo, Egypt
100%
Drimex LLC
100%
Villa 47, Road 270, New Maadi, Cairo 11435, Egypt
AstraZeneca Pharmaceuticals
(Ireland)
Designated Activity Company
100%
4th Floor, South Bank House, Barrow Street,
Dublin, 4, Republic of Ireland
Estonia
Israel
AstraZeneca Eesti OÜ
100%
AstraZeneca (Israel) Ltd
100%
Valukoja 8, Ülemiste City, Tallinn 11415, Estonia
6 Hacharash St., Hod Hasharon 4524075, Israel
Chile
AstraZeneca S.A.
AstraZeneca Farmaceutica
Chile Limitada
100%
100%
Av. Isidora Goyenechea 3477, 2nd Floor, Las Condes,
Santiago, Chile
China
AstraZeneca Pharmaceuticals
Co., Limited
100%
No. 2, Huangshan Road, Wuxi New District, China
AstraZeneca (Wuxi) Trading Co. Ltd
100%
Building E (Building No. 5), Huirong Commercial
Plaza, East Jinghui Road, Xinwu District, Wuxi, China
Finland
AstraZeneca OY.
Itsehallintokuja 4, Espoo, 02600,
Finland
France
AstraZeneca S.A.S.
AstraZeneca Finance S.A.S.
AstraZeneca Holding France S.A.S.
Tour Carpe Diem-31, Place des Corolles,
92400 Courbevoie, France
AstraZeneca Investment
(China) Co., Ltd
100%
AstraZeneca Dunkerque
Production SCS
No. 199 Liangjing Road, China (Shanghai) Pilot Free
Trade Zone, Shanghai, China
224 Avenue de la Dordogne, 59640 Dunkerque,
France
Italy
100%
Simesa SpA
AstraZeneca SpA
100%
100%
Palazzo Ferraris, via Ludovico il Moro 6/c 20080,
Basiglio (Milan), Italy
Japan
AstraZeneca K.K.
100%
3-1, Ofuka-cho, Kita-ku, Osaka, 530-0011, Japan
Kenya
AstraZeneca Pharmaceuticals
Limited
100%
L.R. No.1/1327, Avenue 5, 1F, Rose Avenue,
Nairobi, Kenya
100%
100%
100%
100%
AstraZeneca Annual Report & Form 20-F Information 2018 / Group Subsidiaries and Holdings
201
Financial Statements Group Subsidiaries and Holdings
continued
At 31 December 2018
Group Interest
At 31 December 2018
Group Interest
At 31 December 2018
Group Interest
Latvia
Norway
South Africa
AstraZeneca Latvija SIA
100%
AstraZeneca AS
Skanstes iela 50, Riga, LV-1013, Latvia
Fredrik Selmers vei 6 NO-0663 Oslo, Norway
100%
AstraZeneca Pharmaceuticals
(Pty) Limited
100%
17 Georgian Crescent West, Northdowns Office
Park, Bryanston, 2041, South Africa
Lithuania
AstraZeneca Lietuva UAB
Jasinkio 16A, Vilnius, LT-03163, Lithuania
Pakistan
100%
AstraZeneca Pharmaceuticals
Pakistan (Private) Limited4
100%
South Korea
Luxembourg
AstraZeneca Luxembourg S.A.
100%
Am Brill 7 B – L-3961 Ehlange –
Grand Duchy du Luxembourg, Luxembourg
Malaysia
AstraZeneca Asia-Pacific Business
Services Sdn Bhd
100%
Peru
Level 8, Unit 8.01-8.05 Menara UAC, Jalan PJU 7/5,
Mutiara Damansara, 47800 Petaling Jaya, Selangor,
Malaysia
AstraZeneca Sdn Bhd
100%
Philippines
Lot 6.05, Level 6, KPMG Tower, 8 First Avenue,
Bandar Utama, 47800 Petaling Jaya, Selangor Darul
Ehsan, Malaysia
Mexico
AstraZeneca, S.A. de C.V.
100%
Poland
Office No 1, 2nd Floor, Sasi Arcade, Block 7,
Main Clifton Road, Karachi, Pakistan
AstraZeneca Korea Co. Ltd
100%
17th Floor, Luther Building, 42, Olympic-ro 35da-gil
Songpa-gu, Seoul, South Korea
Panama
AstraZeneca CAMCAR, S.A.
100%
Spain
Bodega #1, Parque Logistico MIT, Carretera
Hacia Coco Solo, Colon, Panama
AstraZeneca Farmaceutica Spain
S.A.
AstraZeneca Farmaceutica Holding
Spain, S.A.
AstraZeneca Peru S.A.
100%
Laboratorio Beta, S.A.
Av. El Derby 055, Torre 2. Piso 5. Of. 503.
Santiago de Surco, Lima, Peru
Laboratorio Lailan, S.A.
Laboratorio Odin, S.A.
Laboratorio Tau S.A.
100%
100%
100%
100%
100%
100%
AstraZeneca Pharmaceuticals
(Phils.) Inc.
Parque Norte, Edificio Álamo, C/Serrano Galvache
no 56., 28033 Madrid, Spain
100%
16th Floor, Inoza Tower, 40th Street,
Bonifacio Global City, Taguig 1634, Philippines
Av. Periferico Sur 4305 interior 5, Colonia Jardines en
la Montana, Mexico City, Tlalpan Distrito Federal,
CP 14210, Mexico
AstraZeneca Pharma Poland
Sp.z.o.o.
Postepu 14, 02-676, Warszawa, Poland
AstraZeneca Health Care Division,
S.A. de C.V.
100%
Portugal
Sweden
Astra Export & Trading Aktiebolag
Astra Lakemedel Aktiebolag
AstraZeneca AB
100%
AstraZeneca Biotech AB
AstraZeneca BioVentureHub AB
AstraZeneca Holding Aktiebolag5
AstraZeneca International
Holdings Aktiebolag6
AstraZeneca Nordic AB
AstraZeneca
Pharmaceuticals Aktiebolag
AstraZeneca Södertälje 2 AB
Stuart Pharma Aktiebolag
Tika Lakemedel Aktiebolag
SE-151 85 Södertälje, Sweden
Aktiebolaget Hassle
Symbicom Aktiebolag6
431 83 MoIndal, Sweden
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Astra Alpha Produtos
Farmaceuticos Lda
AstraZeneca Produtos
Farmaceuticos Lda
Novastra Promoção e Comércio
Farmacêutico Lda
Novastuart Produtos
Farmaceuticos Lda
Stuart-Produtos Farmacêuticos Lda
Zeneca Epsilon – Produtos
Farmacêuticos Lda
Zenecapharma Produtos
Farmaceuticos Lda
Rua Humberto Madeira, No 7, Queluz de Baixo,
2730-097, Barcarena, Portugal
Astra Tech International Aktiebolag
100%
Box 14, 431 21 MoIndal, Sweden
Puerto Rico
Switzerland
IPR Pharmaceuticals, Inc.
100%
AstraZeneca AG
Road 188, San Isidro Industrial Park, Canóvanas,
Puerto Rico 00729
100%
Romania
AstraZeneca Pharma S.R.L.
100%
12 Menuetului Street, Bucharest Business Park,
Building D, West Wing, 1st Floor, Sector 1,
Bucharest, 013713, Romania
Russia
AstraZeneca Industries, LLC
AstraZeneca Pharmaceuticals, LLC
100%
100%
125284, Begovaya Str, 3, Block 1, Moscow,
Russian Federation
Singapore
Neuhofstrasse 34, 6340 Baar, Switzerland
Spirogen Sarl6
Rue du Grand-Chêne 5, CH-1003 Lausanne,
Switzerland
100%
100%
Taiwan
AstraZeneca Taiwan Limited7
100%
21st Floor, Taipei Metro Building 207, Tun Hwa South
Road, SEC 2 Taipei, Taiwan, Republic of China
Thailand
AstraZeneca (Thailand) Limited
100%
Asia Centre 19th floor, 173/20, South Sathorn Rd,
Khwaeng Thungmahamek, Khet Sathorn, Bangkok,
10120, Thailand
AstraZeneca Singapore Pte Limited
100%
Tunisia
10 Kallang Avenue #12-10, Aperia Tower 2, 339510,
Singapore
AstraZeneca Tunisie SaRL
100%
Lot n°1.5.5 les jardins du lac, bloc B les berges du lac
Tunis, Tunisia
Avenida Lomas Verdes 67 Colonia Lomas Verdes,
Naucalpan de Juarez, CP 53120, Mexico
Morocco
AstraZeneca Maroc SARLAU
100%
92 Boulevard Anfa ETG 2, Casablanca 20000,
Morocco
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 Treasury B.V.
AstraZeneca Zeta B.V.
100%
100%
100%
100%
100%
100%
100%
100%
100%
Prinses Beatrixlaan 582, 2595BM, The Hague,
The Netherlands
MedImmune Pharma B.V.
Lagelandseweg 78, 6545 CG Nijmegen,
The Netherlands
New Zealand
AstraZeneca Limited
100%
Pharmacy Retailing (NZ) Limited t/a Healthcare
Logistics, 58 Richard Pearse Drive, Mangere,
Auckland, 1142, New Zealand
Nigeria
AstraZeneca Nigeria Limited
100%
11A, Alfred Olaiya Street, Awuse Estate, Off Salvation
Street, Opebi, Ikeja, Lagos, Nigeria
202
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial Statements At 31 December 2018
Group Interest
At 31 December 2018
Group Interest
At 31 December 2018
Group Interest
Turkey
United States
AstraZeneca Ilac Sanayi ve Ticaret
Limited Sirketi
YKB Plaza, B Blok, Kat:3-4, Levent/Bes¸iktas¸,
Istanbul, Turkey
100%
Amylin Pharmaceuticals, LLC8
AstraZeneca Collaboration
Ventures, LLC8
AstraZeneca Pharmaceuticals LP9
Zeneca Ilac Sanayi Ve Ticaret
Anonim Sirketi
Atkemix Nine Inc.
100%
Atkemix Ten Inc.
Büyükdere Cad., Y.K.B. Plaza, B Blok, Kat:4, Levent/
Bes¸iktas¸, Istanbul, Turkey
Ukraine
AstraZeneca Ukraina LLC
100%
13, Pymonenko Street, building 1, Kiev, 04050, Ukraine
United Arab Emirates
AstraZeneca FZ-LLC
100%
P.O. Box 505070, Block D, Dubai Healthcare City,
Oud Mehta Road, Dubai, United Arab Emirates
BMS Holdco, Inc.
Corpus Christi Holdings Inc.
Omthera Pharmaceuticals, Inc.
Stauffer Management Company LLC8
Zeneca Holdings Inc.
Zeneca Inc.
Zeneca Wilmington Inc.5
1800 Concord Pike, Wilmington, DE 19803,
United States
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Subsidiaries where the effective
interest is less than 100%
Algeria
SPA AstraZeneca Al Djazair10
65.77%
No 20 Zone Macro Economique, dar El Medina-Hydra,
Alger, Algeria
India
AstraZeneca Pharma India Limited5
75%
Block N1, 12th Floor, Manyata Embassy Business Park,
Rachenahalli, Outer Ring Road, Bangalore-560 045,
India
Indonesia
P.T. AstraZeneca Indonesia
95%
Perkantoran Hijau Arkadia Tower F, 3rd Floor, JI. T.B.
Simatupang Kav. 88, Jakarta, 12520, Indonesia
United Kingdom
Ardea Biosciences Limited
Arrow Therapeutics Limited
Astra Pharmaceuticals Limited
AstraPharm6
AstraZeneca China UK Limited
AstraZeneca Death In Service
Trustee Limited
AstraZeneca Employee Share
Trust Limited
AstraZeneca Finance Limited
AstraZeneca Intermediate
Holdings Limited5
AstraZeneca Investments Limited
AstraZeneca Japan Limited
AstraZeneca Nominees Limited
AstraZeneca Quest Limited
AstraZeneca Share Trust Limited
AstraZeneca Sweden
Investments Limited
AstraZeneca Treasury Limited6
AstraZeneca UK Limited
AstraZeneca US Investments Limited5
AZENCO2 Limited
AZENCO4 Limited
Cambridge Antibody Technology
Group Limited
KuDOS Horsham Limited
KuDOS Pharmaceuticals Limited
Zenco (No 8) Limited
Zeneca Finance (Netherlands)
Company
ZS Pharma Inc.
100%
The Netherlands
1100 Park Place, Suite 300, San Mateo, CA 94403,
United States
Acerta Pharma B.V.
Aspire Therapeutics B.V.
55%
55%
AlphaCore Pharma, LLC8
100%
Kloosterstraat 9, 5349 AB, Oss, The Netherlands
333 Parkland Plaza, Suite 5, Ann Arbor,
MI 48103, United States
Amylin Ohio LLC8
100%
8814 Trade Port Drive, West Chester,
OH 45011, United States
Ardea Biosciences, Inc.
4939 Directors Place, San Diego, CA 92121,
United States
AZ-Mont Insurance Company
100%
76 St Paul Street, Suite 500, Burlington, VT 05401,
United States
Definiens Inc.
1808 Aston Avenue, Suite 190, Carlsbad,
CA 92008, United States
MedImmune Biologics, Inc.
MedImmune, LLC8
MedImmune Ventures, Inc.
100%
100%
100%
100%
One MedImmune Way, Gaithersburg, MD 20878,
United States
United States
Acerta Pharma LLC8
55%
121 Oyster Point Boulevard, South San Francisco,
CA 94080, United States
Joint Ventures
100%
Hong Kong
WuXi MedImmune Biopharmaceutical
Co., Limited
50%
Room 1902, 19/F, Lee Garden One, 33 Hysan
Avenue, Causeway Bay, Hong Kong
United Kingdom
Archigen Biotech Limited10
Centus Biotherapeutics Limited10
50%
50%
1 Francis Crick Avenue, Cambridge Biomedical
Campus, Cambridge, CB2 0AA, United Kingdom
United States
Montrose Chemical
Corporation of California
50%
Optein, Inc.
2711 Centerville Road, Suite 400, Wilmington,
DE 1989, United States
Pearl Therapeutics, Inc.
200 Cardinal Way, Redwood City, CA 94063,
United States
100%
Suite 380, 600 Ericksen Ave N/E, Bainbridge Island,
United States
Significant Holdings
100%
Australia
Armaron Bio Ltd11
22.07%
MPR Group, HWT Tower, Level 19, 40 City Rd,
Southbank, VIC 3006, Australia
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Uruguay
100%
AstraZeneca S.A.7
100%
China
1 Francis Crick Avenue, Cambridge Biomedical
Campus, Cambridge, CB2 0AA, United Kingdom
MedImmune Limited
100%
Milstein Building, Granta Park, Cambridge, CB21 6GH,
United Kingdom
MedImmune U.K. Limited
100%
Plot 6, Renaissance Way, Boulevard Industry Park,
Liverpool, L24 9JW, United Kingdom
Yaguarón 1407 of 1205, Montevideo, Uruguay
Dizal (Jiangsu)
Pharmaceutical Co., Ltd.12
48.3%
Venezuela
AstraZeneca Venezuela S.A.
Gotland Pharma S.A.
Suite 4105, Building E (Building No.5) of Huirong
Plaza, East Jinghui Road, Xinwu District, Wuxi,
Jiangsu Province, China
100%
100%
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
Vietnam
AstraZeneca Vietnam Company
Limited
100%
18th Floor, A&B Tower, 76 Le Lai, Ben Thanh Ward,
District 1, Ho Chi Minh City, Vietnam
United Kingdom
Apollo Therapeutics LLP8
25%
Stevenage Biosciences Catalyst, Gunnels Wood Road,
Stevenage, Hertfordshire, SG1 2FX, United Kingdom
AstraZeneca Annual Report & Form 20-F Information 2018 / Group Subsidiaries and Holdings
203
Financial Statements Group Subsidiaries and Holdings
continued
At 31 December 2018
Group Interest
At 31 December 2018
Group Interest
United States
C.C. Global Chemicals Company9
37.5%
PO Box 7, MS2901, Texas, TX76101-0007,
United States
Viela Bio, Inc.13
40.9%
One MedImmune Way, Fifth Floor, Suite Area Two,
Gaithersburg, MD 20878, United States
Associated Holdings
Australia
Adherium Limited
4.64%
Collins Square, Tower Four, Level 18, 727 Collins
Street, Melbourne VIC 3008, Australia
Biohaven Pharmaceutical
Holding Company Ltd.
234 Church Street, New Haven, CT 06510,
United States
BlinkBio, Inc.
0.25%
0.38%
P.O. Box 1966, Jupiter, FL 33468, United States
shares.
Cerapedics, Inc.21
7.09%
11025 Dover St #1600, Broomfield, CO 80021,
United States
Corvidia Corporation22
11.98%
35 Gatehouse Drive, Waltham, MA 02451,
United States
France
Innate Pharma S.A.
Elusys Therapeutics, Inc.23
7.51%
9.8%
25 Riverside Drive, Unit One, Pine Brook, NJ 07058,
United States
117 Avenue de Luminy, 13009 Marseille, France
Switzerland
ADC Therapeutics Sàrl14
7.23%
Biopôle, Route de la Corniche 3B, 1066 Epalinges,
Switzerland
United Kingdom
Circassia Pharmaceuticals PLC
19.9%
The Magdalen Centre, Robert Robinson Avenue,
Oxford Science Park, Oxford, Oxfordshire, OX4 4GA,
United Kingdom
Datapharm Communications
Limited8,15
12.5%
Ground Floor, Pascal Place, Randalls Way,
Leatherhead, Surrey, KT22 7TW, United Kingdom
Mereo Biopharma Group PLC
0.69%
4th Floor, One, Cavendish Place, London, W1G 0QF,
United Kingdom
Entasis Therapeutics Holdings Inc.
16.53%
35 Gatehouse Drive, Waltham, MA 02451,
United States
FibroGen, Inc.
0.65%
409 Illinois St., San Francisco, CA 94158,
United States
G1 Therapeutics, Inc.
7.93%
79 T.W. Alexander Drive, 4401 Research Commons,
Suite 105, Research Triangle Park, NC 7709,
United States
Hydra Biosciences Inc.
4.27%
405 Concord Avenue, PO Box 147, Belmont, MA
02478, United States
Millendo Therapeutics, Inc.
3.08%
301 North Main Street, Suite 100, Ann Arbor, MI
48104, United States
Moderna, Inc.
7.75%
0.17%
200 Technology Square, Cambridge, MA 02139,
United States
1 Ownership held in ordinary and class B special shares.
2 Ownership held in common shares, preferred shares 2003,
preferred shares 2003 ex (A), preferred shares 2003 ex (B),
preferred shares Series D, preferred shares Series E and
preferred shares Series F.
3 Accounting year end is 31 March.
4 Accounting year end is 30 June.
5 Directly held by AstraZeneca PLC.
6 Ownership held in Ordinary A shares and Ordinary B
7 Ownership held in common shares and special shares.
8 Ownership held as membership interest.
9 Ownership held as partnership interest.
10 Ownership held in class A shares.
11 Ownership held in class B preference shares.
12 Voting rights and percentages vary depending on the
subject matter and business to be voted on.
13 Ownership held in common stock and series A-1 preferred
stock.
14 Ownership held in class B preference shares, class C
preference shares, class D preference shares and class E
preference shares.
15 A company limited by guarantee.
16 Ownership held in common shares and series A preferred
shares.
17 Ownership held in Class A voting and Class A non-voting
shares.
18 Ownership held in series B preferred stock.
19 Ownership held in series A-1 preferred stock.
20 Ownership held in series A preferred stock.
21 Ownership held in class C preference shares and class D
preference shares.
22 Ownership held in series A preferred stock and series B
preferred stock.
23 Ownership held in class D preference shares.
24 Ownership held in class C-1 preference shares.
Myotherix Inc.11
8.27%
2600 Tenth St., #435, Berkeley, CA 94710,
United States
Nano Precision Medical, Inc.
4.83%
5858 Horton St Suite 393, Emeryville, CA 94608,
United States
PhaseBio Pharmaceuticals, Inc.
12.26%
One Great Valley, Parkway, Suite 30, Malvern,
PA 19355, United States
Rani Therapeutics, LLC24
0.97%
2051 Ringwood Ave, San Jose, CA 95116,
United States
Regulus Therapeutics Inc.
3.35%
10614 Science Center Dr., San Diego, CA 92121,
United States
Rocket Pharmaceuticals Inc.
1.07%
350 Fifth Avenue, Suite 7530, New York, NY 10118,
United States
Silence Therapeutics PLC
27 Eastcastle Street, London, W1W 8DH,
United Kingdom
United States
AbMed Corporation16
18%
65 Cummings Park Drive, Woburn, MA 01801,
United States
Affinita Biotech, Inc.17
16.23%
329 Oyster Point Blvd., 3rd Floor,
South San Francisco, CA 94080, United States
Albireo Pharma, Inc.
4.25%
10 Post Office Square, Suite 502 South, Boston,
MA 02109, United States
Arcutis, Inc.18
2.22%
70 Willow Road, Suite 200, Menlo Park, CA 94025,
United States
Aristea Therapeutics, Inc.19
15%
16652 Maverick Lane, Poway, CA 92064,
United States
Biodesix Inc.20
0.05%
2970 Wilderness Place, Suite 100, Boulder, CO
80301, United States
204
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial Statements 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
2018
$m
2017
$m
1
33,244
31,482
2
3
3
3
4
–
4,466
4,466
(383)
(999)
(1,382)
3,084
36,328
(283)
(17,013)
(17,296)
19,032
317
4,427
153
2,533
11,602
19,032
11
7,995
8,006
(325)
(1,397)
(1,722)
6,284
37,766
(283)
(15,197)
(15,480)
22,286
317
4,393
153
2,549
14,874
22,286
$m means millions of US dollars.
The Company’s profit for the year was $266m (2017: $3,109m).
The Company Financial Statements from page 205 to 209 were approved by the Board and were signed on its behalf by
Pascal Soriot
Director
14 February 2019
Marc Dunoyer
Director
Company’s registered number 02723534
AstraZeneca Annual Report & Form 20-F Information 2018 / Company Statements
205
Financial Statements
Company Statement of Changes in Equity
for the year ended 31 December
At 1 January 2017
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 2017
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 2018
Share
capital
$m
316
Share
premium
account
$m
4,351
Capital
redemption
reserve
$m
153
Other
reserves
$m
2,583
Profit and
loss account
$m
15,307
–
–
–
–
–
1
1
–
–
–
–
–
42
42
–
–
–
–
–
–
–
–
–
–
–
(34)
–
(34)
317
4,393
153
2,549
–
–
–
–
–
–
–
–
–
–
–
–
34
34
–
–
–
–
–
–
–
–
–
–
–
(16)
–
(16)
317
4,427
153
2,533
Total
equity
$m
22,710
3,109
1
3,110
3,109
1
3,110
(3,543)
(3,543)
–
–
(3,543)
14,874
266
1
267
(34)
43
(3,534)
22,286
266
1
267
(3,539)
(3,539)
–
–
(3,539)
11,602
(16)
34
(3,521)
19,032
At 31 December 2018, $11,602m (2017: $14,874m) of the Profit and loss account reserve was available for distribution, subject to filing these
Financial Statements with Companies House. Included in Other reserves is a special reserve of $157m (2017: $157m), arising on the redenomination
of share capital in 1999. The other reserves arose from the cancellation of share premium by the Company in 1993.
Included within Other reserves at 31 December 2018 is $692m (2017: $708m) in respect of cumulative share-based payment awards.
206
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial Statements 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 of potential
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 probable of not being
sustained, 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
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 rate method at each
reporting date. Changes in carrying value are
recognised in profit.
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.
AstraZeneca Annual Report & Form 20-F Information 2018 / Company Accounting Policies
207
Financial Statements Notes to the Company Financial Statements
1 Fixed asset investments
At 1 January 2018
Additions
Transfer to current assets
Capital reimbursement
Exchange
Amortisation
Impairment
At 31 December 2018
A list of subsidiaries is included on pages 201 to 204.
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
1.95% Callable bond
Amounts due after more than one year
Amounts owed to Group undertakings (unsecured)
7.2% Loan
Interest-bearing loans and borrowings (unsecured)
1.95% Callable bond
2.375% Callable bond
0.875% Non-callable bond
0.25% Callable bond
Floating rate note
2.375% Callable bond
3.5% Callable bond
Floating rate note
0.75% Callable bond
3.375% Callable bond
3.125% Callable bond
1.25% Callable bond
4% Callable bond
5.75% Non-callable bond
6.45% Callable bond
4% Callable bond
4.375% Callable bond
4.375% Callable bond
Total amounts due after more than one year
Total loans
208
Shares
$m
15,996
–
–
(16)
–
–
(38)
15,942
Investments in subsidiaries
Loans
$m
15,486
2,974
(999)
–
(174)
15
–
Total
$m
31,482
2,974
(999)
(16)
(174)
15
(38)
17,302
33,244
2018
$m
211
165
7
383
2018
$m
–
–
999
999
2017
$m
199
119
7
325
2017
$m
399
998
–
1,397
283
283
–
1,594
854
570
250
994
845
400
1,022
1,980
743
903
992
443
2,721
987
979
736
17,296
18,295
999
1,591
890
594
249
992
–
–
1,067
1,978
742
941
–
468
2,720
987
979
–
15,480
16,877
Repayment
dates
2018
2018
2019
2023
2019
2020
2021
2021
2022
2022
2023
2023
2024
2025
2027
2028
2029
2031
2037
2042
2045
2048
US dollars
US dollars
US dollars
US dollars
US dollars
US dollars
euros
euros
US dollars
US dollars
US dollars
US dollars
euros
US dollars
US dollars
euros
US dollars
Pounds sterling
US dollars
US dollars
US dollars
US dollars
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial Statements
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
2018
$m
11,506
4,196
1,594
999
18,295
2017
$m
10,165
4,316
999
1,397
16,877
With the exception of the 2018, 2022 and 2023 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. IFRS 9 has been adopted from 1 January 2018. The recoverability of all inter-company loans
has been assessed in accordance with IFRS 9. No impairment was identified and thus, no provision has been made. The inter-company balances
are considered to have low credit risk and the loss allowance is therefore limited to 12 month expected credit losses. In 2018 there have been no
credit losses.
4 Share capital
Details of share capital movements in the year are included in Note 23 to the Group Financial Statements.
5 Contingent liabilities
The Company is named as a party to legal proceedings in the Array BioPharma Inc. commercial litigation, which is described more fully in Note 29
to the Group Financial Statements.
Other
The Company has guaranteed the external borrowing of a subsidiary in the amount of $286m (2017: $286m).
6 Statutory and other information
The Directors were paid by another Group company in 2018 and 2017.
7 Subsequent events
On 10 January 2019, the Company entered into a floating rate $500m committed bank loan agreement, which was drawn in full on 4 February 2019.
The loan is repayable in December 2019, although can be partially or fully paid in advance, but in that event, it is not available to be withdrawn.
AstraZeneca Annual Report & Form 20-F Information 2018 / Notes to the Company Financial Statements
209
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
2014
$m
2015
$m
26,095
452
(5,842)
(324)
(5,579)
(13,000)
335
2,137
78
(963)
(6)
1,246
(11)
1,235
(1,506)
(271)
1,233
2
$0.98
$0.98
$2.80
23,641
1,067
(4,646)
(339)
(5,997)
(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
2016
$m
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
2017
$m
2018
$m
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
21,049
1,041
(4,936)
(331)
(5,932)
(10,031)
2,527
3,387
138
(1,419)
(113)
1,993
57
2,050
(1,059)
991
2,155
(105)
$1.70
$1.70
$2.80
Operating profit as a percentage of Total Revenue
8.0%
16.7%
21.3%
16.4%
15.3%
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
6.1
2014
$m
38,541
2,138
1,219
16,697
58,595
(17,330)
(1,796)
(19,823)
19,646
316
19,311
19
19,646
2014
$m
7,058
(7,032)
(2,705)
(2,679)
11.3
2015
$m
40,859
1,896
1,294
16,007
60,056
(14,869)
(2,665)
(24,013)
18,509
316
18,174
19
18,509
2015
$m
3,324
(4,239)
878
(37)
8.9
2016
$m
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
2016
$m
4,145
(3,969)
(1,324)
(1,148)
4.4
2017
$m
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
2017
$m
3,578
(2,328)
(2,936)
(1,686)
3.7
2018
$m
41,087
1,594
2,379
15,591
60,651
(16,292)
(3,286)
(27,029)
14,044
317
12,151
1,576
14,044
2018
$m
2,618
963
(2,044)
1,537
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.
210
AstraZeneca Annual Report & Form 20-F Information 2018 / Financial Statements
Additional
Information
Development Pipeline 212
Patent Expiries of Key
Marketed Products 217
Risk 220
Sustainability: supplementary
information 231
Shareholder Information 232
Trade Marks 238
Glossary 239
Index 243
Cautionary statement regarding
forward-looking statements 244
AstraZeneca Annual Report & Form 20-F Information 2018 / Additional Information
211
Additional Information Development Pipeline
as at 31 December 2018
AstraZeneca-sponsored or -directed trials
New Molecular Entities (NMEs) and significant 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.
Phase I
Compound
Oncology
AZD0156
AZD1390
AZD4573
AZD4785
AZD5153
AZD5991
AZD9496
Mechanism
ATM inhibitor
ATM inhibitor
CDK9 inhibitor
KRAS inhibitor
BRD4 inhibitor
MCL1 inhibitor
Area Under Investigation
solid tumours
glioblastoma
haematological malignancies
solid tumours
solid tumours
haematological malignancies
selective oestrogen receptor degrader
oestrogen receptor +ve breast cancer
Calquence + AZD6738
BTK inhibitor + ATR inhibitor
Calquence + danvatirsen
BTK inhibitor + STAT3 inhibitor
Imfinzi + adavosertib
Imfinzi + azacitidine
PD-L1 mAb + Wee1 inhibitor
PD-L1 mAb + azacitidine
haematological malignancies
haematological malignancies
solid tumours
myelodysplastic syndrome
Imfinzi + dabrafenib + trametinib
PD-L1 mAb + BRAF inhibitor + MEK inhibitor
melanoma
PD-L1 mAb + EGFR inhibitor
non-small cell lung cancer (NSCLC)
PD-L1 mAb + RT
PD-L1 + MEK inhibitor
PD-L1 mAb + CTLA-4 mAb
locally-advanced head and neck squamous cell carcinoma,
NSCLC, small cell lung cancer
solid tumours
solid tumours
PD-L1 mAb + CTLA-4 mAb + chemotherapy
1st line pancreatic ductal adenocarcinoma, oesophageal
and small cell lung cancer
BCMA antibody drug conjugate
PSMA antibody drug conjugate
CD40 ligand fusion protein
PD-1/CTLA-4 bispecific mAb
multiple myeloma
prostate cancer
solid tumours
solid tumours
ASCT2 antibody drug conjugate
haematological malignancies
CD73 mAb
CD73 mAb + A2aR inhibitor
CD73 mAb + EGFR inhibitor
MCR
hypercholesterolaemia
LOX-1 mAb
anti-diabetic
inhaled JAK inhibitor
inhaled IL-4Ra
inhaled ENaC
inhaled PI3Kgd
IL-33 mAb
RORg
solid tumours
EGFRm NSCLC
EGFRm NSCLC
CV disease
CV disease
CV disease
type-2 diabetes
asthma
asthma
cystic fibrosis
asthma
chronic obstructive pulmonary disease (COPD)
psoriasis/respiratory
BAFF/B7RP1 bispecific mAb
systemic lupus erythematosus
alpha synuclein mAb
amyloid beta mAb
Parkinson's disease
Alzheimer’s disease
Imfinzi + Iressa
Imfinzi + RT (platform)
(CLOVER)
Imfinzi + selumetinib
Imfinzi + tremelimumab
Imfinzi + tremelimumab +
chemotherapy
MEDI2228
MEDI3726
MEDI5083
MEDI5752
MEDI7247
oleclumab
oleclumab + AZD4635
oleclumab + Tagrisso
CVRM
AZD9977
AZD8233
MEDI6570
MEDI7219
Respiratory
AZD0449
AZD1402
AZD5634
AZD8154
MEDI3506
Other
AZD0284
MEDI0700
MEDI1341
MEDI1814
212
AstraZeneca Annual Report & Form 20-F Information 2018 / Additional Information
Phase II
Compound
Oncology
Mechanism
Area Under Investigation
adavosertib + chemotherapy
Wee1 inhibitor + chemotherapy
AZD2811
AZD4547
AZD4635
AZD6738
AZD8186
capivasertib
Imfinzi + AZD5069 or
Imfinzi + danvatirsen
Imfinzi + MEDI0457
Imfinzi + MEDI0680
Imfinzi + monalizumab
Imfinzi + oleclumab
Imfinzi + tremelimumab
Imfinzi + tremelimumab
Lynparza + adavosertib
Lynparza + AZD6738
Aurora B inhibitor
FGFR inhibitor
A2aR inhibitor
ATR inhibitor
PI3K inhibitor
AKT inhibitor
PD-L1 mAb + PD-1 mAb
PD-L1 mAb + NKG2a mAb
PD-L1 mAb + CD73 mAb
PD-L1 mAb + CTLA-4 mAb
PD-L1 mAb + CTLA-4 mAb
PARP inhibitor + Wee1 inhibitor
PARP inhibitor + ATR inhibitor
ovarian cancer
solid tumours
solid tumours
solid tumours
solid tumours
solid tumours
breast cancer
solid tumours
solid tumours
solid tumours
biliary tract, oesophageal
gastric cancer
solid tumours
gastric cancer
breast cancer
Imfinzi + Lynparza (BAYOU)
PD-L1 mAb + PARP inhibitor
1st line unresectable stage 4 bladder cancer
PD-L1 mAb + DNA HPV vaccine
head and neck squamous cell carcinoma
PD-L1 mAb + CXCR2 antagonist or
PD-L1 mAb + STAT3 inhibitor
head and neck squamous cell carcinoma, bladder and NSCLC
Lynparza + AZD6738 or Lynparza +
adavosertib (VIOLETTE)
PARP inhibitor + ATR inhibitor or PARP inhibitor +
Wee1 inhibitor
Lynparza + Imfinzi
(MEDIOLA)
Tagrisso + (selumetinib or savolitinib)
(TATTON)
PARP inhibitor + PD-L1 mAb
ovarian cancer, breast cancer, gastric cancer and small cell lung
cancer
EGFR inhibitor + (MEK inhibitor or MET inhibitor)
advanced EGFRm NSCLC
CVRM
AZD4831
AZD5718
AZD8601
myeloperoxidase
FLAP
VEGF-A
heart failure with a preserved ejection fraction
coronary artery disease
CV disease
cotadutide (MEDI0382)
GLP-1/glucagon dual agonist
type-2 diabetes/obesity
MEDI5884
MEDI6012
verinurad
Respiratory
abediterol
AZD1419
AZD7594
AZD7986
AZD8871
AZD9567
PT010
tezepelumab
Other
anifrolumab
anifrolumab
MEDI3902
MEDI7352
MEDI8852
MEDI8897
prezalumab
suvratoxumab
cholesterol modulation
LCAT
URAT1 inhibitor
LABA
inhaled TLR9 agonist
inhaled SGRM
DPP1
MABA
oral SGRM
LABA/LAMA/ICS
TSLP mAb
Type I IFN receptor mAb
Type I IFN receptor mAb
Psl/PcrV bispecific mAb
NGF/TNF bispecific mAb
influenza A mAb
RSV mAb-YTE
B7RP1 mAb
CV disease
CV disease
chronic kidney disease (CKD)
asthma/COPD
asthma
asthma/COPD
COPD
COPD
rheumatoid arthritis/respiratory
asthma
atopic dermatitis
lupus nephritis
systemic lupus erythematosus (subcutaneous)
prevention of nosocomial Pseudomonas aeruginosa pneumonia
osteoarthritis pain/painful diabetic neuropathy
influenza A treatment
passive RSV prophylaxis
primary Sjögren’s syndrome
mAb binding to S. aureus toxin
prevention of nosocomial Staphylococcus aureus pneumonia
213
AstraZeneca Annual Report & Form 20-F Information 2018 / Development PipelineAdditional Information Development Pipeline
continued
Phase III/Pivotal Phase II/Registration
Compound
Oncology
Calquence
Mechanism
Area Under Investigation
US
EU
Japan
China
Estimated Filing
BTK inhibitor
relapsed/refractory mantle cell
lymphoma
Launched
Imfinzi + tremelimumab +
chemotherapy
(POSEIDON)
PD-L1 mAb + CTLA-4 mAb +
chemotherapy
1st line NSCLC
Imfinzi + tremelimumab +
CRT (ADRIATIC)
PD-L1 mAb + CTLA-4 mAb +
CRT
Limited disease small cell lung
cancer
H2 2019
H2 2019
H2 2019
2020
2020+
2020+
2020+
2020+
Imfinzi + tremelimumab +
SoC (CASPIAN)
PD-L1 mAb + CTLA-4 mAb +
SoC
Imfinzi + tremelimumab +
SoC (NILE)
PD-L1 mAb + CTLA-4 mAb +
SoC
1st line small cell lung cancer
H2 2019
H2 2019
H2 2019
2020
1st line urothelial cancer
2020+
2020+
2020+
PD-L1 mAb + CTLA-4 mAb
1st line bladder cancer
H2 2019
H2 2019
H2 2019
PD-L1 mAb + CTLA-4 mAb
1st line hepatocellular carcinoma
2020+
2020+
2020+
2020+
PD-L1 mAb + CTLA-4 mAb
1st line head and neck squamous
cell carcinoma
H1 2019
H2 2019
H2 2019
PD-L1 mAb + CTLA-4 mAb
1st line NSCLC
H2 2019
H2 2019
H2 2019
2020
Imfinzi + tremelimumab
(DANUBE)
Imfinzi + tremelimumab
(HIMALAYA)
Imfinzi + tremelimumab
(KESTREL)
Imfinzi + tremelimumab
(NEPTUNE)
Lumoxiti (PLAIT)
anti-CD22 recombinant
immunotoxin
3rd line hairy cell leukaemia
Lynparza + cediranib
(CONCERTO)
PARP inhibitor + VEGF
inhibitor
recurrent platinum-resistant
ovarian cancer
savolitinib (SAVOIR)
MET inhibitor
papillary renal cell carcinoma
Launched
(Orphan Drug,
Priority Review)
2020
2020
2020
2020
selumetinib (SPRINT)
MEK inhibitor
paediatric neurofibromatosis
type-1
H2 2019
(Orphan Drug)
H2 2019
(Orphan Drug)
CVRM
Epanova
Lokelma
omega-3 carboxylic acids
severe hypertriglyceridaemia
Approved
potassium binder
hyperkalaemia
roxadustat (OLYMPUS,
ROCKIES)
hypoxia-inducible factor
prolyl hydroxylase inhibitor
anaemia in CKD/end-stage
renal disease
Approved
Approved
H2 2019
2020
H1 2019
Approved
Respiratory
Bevespi Aerosphere
(PT003)
Fasenra (CALIMA,
SIROCCO, ZONDA,
BISE, BORA, GREGALE)
PT010
PT027
tezepelumab
(NAVIGATOR, SOURCE)
Other
LABA/LAMA
COPD
Launched
Approved
Accepted
Accepted
IL-5R mAb
severe, uncontrolled asthma
Launched
Launched
Launched
2020+
LABA/LAMA/ICS
ICS/SABA
TSLP mAb
COPD
asthma
severe, uncontrolled asthma
2019
2020+
2020+
2019
Accepted
Accepted
2020+
2020+
anifrolumab (TULIP)
Type I IFN receptor mAb
systemic lupus erythematosus
2020
(Fast Track designation)
2020
2020
214
AstraZeneca Annual Report & Form 20-F Information 2018 / Additional Information
Significant Life-cycle Management
Compound
Oncology
Calquence
Mechanism
Area Under Investigation
US
EU
Japan
China
Estimated Filing
BTK inhibitor
1st line chronic lymphocytic leukaemia
Calquence
BTK inhibitor
Calquence
BTK inhibitor
relapsed/refractory chronic lymphocytic
leukaemia
relapsed/refractory chronic lymphocytic
leukaemia, high risk
H2 2019
(Orphan Drug)
H2 2019
(Orphan Drug)
2020
(Orphan Drug)
2020
(Orphan Drug)
2020
(Orphan Drug)
2020
(Orphan Drug)
2020+
(Orphan Drug)
2020+
Calquence
Calquence
BTK inhibitor
BTK inhibitor
haematological malignancies
1st line mantle cell lymphoma
Imfinzi
PD-L1 mAb
Imfinzi (PEARL, China)
PD-L1 mAb
solid tumours
1st line NSCLC
Imfinzi (PACIFIC)
PD-L1 mAb
locally advanced (stage 3) NSCLC
Imfinzi (POTOMAC)
PD-L1 mAb
non-muscle invasive bladder cancer
PD-L1 mAb + CRT
locally-advanced (stage 3) NSCLC
N/A
N/A
N/A
2020
Approved
Approved
Accepted
Approved
(Breakthrough
designation,
Priority Review)
N/A
2020+
2020+
2020+
2020+
2020+
N/A
2020+
2020+
PD-L1 mAb + CRT
locally-advanced (stage 3) NSCLC
N/A
N/A
N/A
2020+
PD-L1 mAb + CTx
locally-advanced (stage 3) NSCLC
2020+
2020+
2020+
PD-L1 mAb + CTx
muscle invasive bladder cancer
2020+
2020+
2020+
Imfinzi + CRT
(PACIFIC-2)
Imfinzi + CRT
(PACIFIC-5, China)
Imfinzi + CTx
neoadjuvant (AEGEAN)
Imfinzi + CTx
(NIAGARA)
Imfinzi + VEGF + TACE
(EMERALD-1)
PD-L1 mAb + VEGF +
TACE
locoregional hepatocellar carcinoma
2020+
2020+
2020+
2020+
Lynparza (OlympiA)
PARP inhibitor
gBRCA adjuvant breast cancer
Lynparza (OlympiAD)
PARP inhibitor
gBRCA metastatic breast cancer
Lynparza (POLO)
PARP inhibitor
pancreatic cancer
Lynparza (SOLO-3)
PARP inhibitor
gBRCA PSR ovarian cancer
Lynparza + abiraterone
(PROpel)
PARP inhibitor + NHA
prostate cancer
Lynparza (PROfound)
PARP inhibitor
prostate cancer
Lynparza (SOLO-1)
PARP inhibitor
1st line BRCAm ovarian cancer
Lynparza (SOLO-2)
PARP inhibitor
2nd line or greater BRCAm PSR ovarian
cancer, maintenance monotherapy
Tagrisso (LAURA)
EGFR inhibitor
stage 3 EGFRm NSCLC
Tagrisso (ADAURA)
EGFR inhibitor
adjuvant EGFRm NSCLC
Tagrisso (FLAURA)
EGFR inhibitor
1st line advanced EGFRm NSCLC
2020+
Launched
(Priority Review)
H2 2019
(Orphan Drug)
H2 2019
2020+
2020
(Breakthrough
designation)
Approved
(Priority Review)
Approved
(Priority Review)
2020+
2020+
Approved
(Breakthrough
designation)
2020+
Accepted
H2 2019
2020+
Approved
(Orphan Drug,
Priority Review)
H1 2019
2020+
2020+
2020+
2020
2020
2020+
Accepted
Accepted
Approved
Approved
(Orphan Drug)
Accepted
(Priority Review)
Approved
2020+
2020+
2020+
2020+
2020+
2020+
Approved
Approved
Accepted
215
AstraZeneca Annual Report & Form 20-F Information 2018 / Development PipelineAdditional Information Development Pipeline
continued
Significant Life-cycle Management continued
Compound
CVRM
Brilinta/Brilique
(HESTIA)
Brilinta/Brilique
(THEMIS)
Brilinta/Brilique
(THALES)
Bydureon
(EXSCEL)
Bydureon BCise
(autoinjector)
Epanova
(STRENGTH)
Farxiga/Forxiga
Dapa-HF
Farxiga/Forxiga
(DELIVER)
Farxiga/Forxiga
Dapa-CKD
Farxiga/Forxiga
(DEPICT)
Farxiga/Forxiga
(DECLARE)
Qtern
roxadustat
Respiratory
Duaklir Genuair
Fasenra
(TERRANOVA,
GALATHEA)
Fasenra
(OSTRO)
Symbicort
(SYGMA)
Other
Mechanism
Area Under Investigation
US
EU
Japan
China
Estimated Filing
P2Y12 receptor antagonist prevention of vaso-occlusive crises in
2020+
2020+
paediatric patients with sickle cell
disease
P2Y12 receptor antagonist CV outcomes trial in patients with
H2 2019
H2 2019
H2 2019
H2 2019
P2Y12 receptor antagonist
coronary artery disease and type-2
diabetes without a previous history of
myocardial infarction or stroke
acute ischaemic stroke or transient
ischaemic attack
2020
2020
2020
GLP-1 receptor agonist
type-2 diabetes outcomes study
Accepted
Approved
N/A
Accepted
GLP-1 receptor agonist
type-2 diabetes
Launched
Approved
omega-3 carboxylic acids CV outcomes study in statin-treated
2020
2020
2020
2020
SGLT-2 inhibitor
SGLT-2 inhibitor
SGLT-2 inhibitor
patients at high CV risk, with persistent
hypertriglyceridaemia plus low
HDL-cholesterol
worsening heart failure or CV death in
patients with chronic heart failure (HFrEF)
worsening heart failure or CV death
in patients with chronic heart failure
(HFpEF)
renal outcomes and CV mortality
in patients with CKD
2020
2020
2020
2020
2020+
2020+
2020+
2020+
2020+
2020+
2020+
2020+
SGLT-2 inhibitor
type-1 diabetes
Accepted
Accepted
Accepted
SGLT-2 inhibitor
CV outcomes trial in patients with
type-2 diabetes
H1 2019
H1 2019
H1 2019
DPP-4 inhibitor/SGLT-2
inhibitor FDC
hypoxia-inducible factor
prolyl hydroxylase inhibitor
type-2 diabetes
Launched
Launched
anaemia in myelodysplastic syndrome
2020+
saxagliptin/dapagliflozin
metformin
DPP-4 inhibitor/SGLT-2
inhibitor
type-2 diabetes
Accepted
Accepted
Xigduo XR/Xigduo
SGLT-2 inhibitor/
metformin FDC
type-2 diabetes
Launched
Launched
LAMA/LABA
IL-5R mAb
COPD
COPD
Accepted
Launched
2020+
2020
2020
IL-5R mAb
nasal polyposis
2020
2020
ICS/LABA
as-needed use in mild asthma
N/A
Accepted
N/A
H2 2019
Linzess (linaclotide)
GC-C receptor
peptide agonist
irritable bowel syndrome
with constipation
Nexium
proton pump inhibitor
stress ulcer prophylaxis
Approved
Accepted
216
AstraZeneca Annual Report & Form 20-F Information 2018 / Additional 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 220. Many of our products are subject
to challenges by third parties. Details of material challenges by third parties can be found in Note 29 to the Financial Statements from page 196.
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.
Key marketed
products
Atacand3
(candesartan
cilexitil)
Bevespi
Aerosphere
(glycopyrrolate/
formoterol)
Brilinta/
Brilique
(ticagrelor)
Bydureon/
Bydureon
BCise
(exenatide XR
injectable
suspension)
Byetta
(exenatide
injection)
Calquence
(acalabrutinib)
Crestor
(rosuvastatin
calcium)
Daliresp/
Daxas
(roflumilast)
Duaklir
(aclidinium/
formoterol)
Fasenra
(benralizumab)
Faslodex
(fulvestrant)
Farxiga/
Forxiga
(dapagliflozin)
Fluenz Tetra/
FluMist
Quadrivalent
(live attenuated
influenza vaccine)
Description
An angiotensin II antagonist for the 1st line
treatment of hypertension and symptomatic
heart failure
A combination of a long-acting muscarinic
antagonist (LAMA) and a long-acting
beta2-agonist (LABA) used for the long-term
maintenance treatment of airflow obstruction in
COPD
An oral P2Y12 platelet inhibitor for acute
coronary syndromes (ACS) (ticagrelor 90mg) or
continuation therapy in high-risk patients
(ticagrelor 60mg) 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's 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
A statin for dyslipidaemia and
hypercholesterolaemia
US
expired
China
4
EU1
Japan
2018
2017
2016
2018
2017
2016
expired
4
13
19
36
62
86
97
US
Product Sales ($m)
Aggregate Revenue
for China, Japan
and Europe2
Product Sales ($m)
2030-2031
2030
2030
2030
33
16
2
–
–
–
2018-20245,
2021-2030
2018-2024,
20218-20279
2023-2024,
2025-2030
2018,
20196,
20217
588
509
348
532
402
347
2018-2028,
203010
2020-2028,
202910
2018-2028,
202910
2018-2028,
202910
475
458
463
85
93
109
2018-202011
2020
2018-2021
2018-2020
74
114
164
34
39
62
2026-2032,
2036
2032
2032
2032
62
–
–
–
–
–
2018-202212 2020-2021
2020
2023
170
373 1,223
825 1,528 1,698
An oral phosphodiesterase-4 inhibitor for
adults with severe COPD to decrease their
number of exacerbations
2020,
2023-2024
2023
201913,
2023
155
167
134
28
26
15
A fixed-dose combination of a LAMA and a
LABA for the maintenance treatment of COPD
2020, 2025,
2022-202914
2020,
2022-2027
2025,
2022-2029
2025,
2021-2029
–
–
–
–
–
91
77
62
77
–
–
2020,
2028-2034
2021,
2028
2020,
2028
2020
218
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.
Used for the treatment of hormone receptor
positive advanced breast cancer that has
progressed following treatment with prior
endocrine therapy
A selective inhibitor of human sodium-glucose
co-transporter 2 (SGLT-2 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
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
202115
2021
2026
537
492
438
382
352
311
2020, 2025*,
2020-2030
2020-2023,
2028
2020-2027 2024-2025,
2028
591
355
358
394
245
175
2018-2026
2020-2025
2020-2026
2020-2025
15
–
33
91
76
65
AstraZeneca Annual Report & Form 20-F Information 2018 / Patent Expiries of Key Marketed Products
217
Additional Information Patent Expiries of Key
Marketed Products
continued
Key marketed
products
Imfinzi
(durvalumab)
Iressa
(gefitinib)
Description
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 for the treatment of locally
advanced or metastatic urothelial carcinoma
and unresectable stage 3 non-small cell lung
cancer (NSCLC)
An epidermal growth factor receptor-tyrosine
kinase inhibitor (EGFR-TKI) that acts to block
signals for cancer cell growth and survival in
advanced NSCLC
Komboglyze/
Kombiglyze XR18
(saxagliptin/
metformin)
Combines saxagliptin and metformin as either
Komboglyze – a twice-daily tablet for type-2
diabetes, or Kombiglyze XR – an extended
release once-daily tablet for type-2 diabetes
Lokelma
(sodium
zirconium
cyclosilicate)
An insoluble, non-absorbed sodium zirconium
silicate, formulated as a powder for oral
suspension, that acts as a highly-selective
potassium-removing agent for the treatment
of hyperkalaemia
US
2030
China
2030
EU1
2030
Japan
2018
2017
2016
2018
2017
2016
2030
564
19
–
62
–
–
US
Product Sales ($m)
Aggregate Revenue
for China, Japan
and Europe2
Product Sales ($m)
16
2023
201917,
2023
2018,
2023
26
39
23
376
367
358
2023,
2025
2021, 2025 2021-2026,
2025
19
–
111
145
2019,
2032-2033,
2035
2033
2032
2032-2033
–
–
–
–
–
–
–
–
–
Lumoxiti
(moxetumomab
pasudotox-tdfk)
A CD22-directed cytotoxin and a first-in-class
treatment in the US for adult patients with
relapsed or refractory hairy cell leukaemia (HCL)
2022-2024,
2031-2032
2031
2022, 2031
2031
–
–
–
–
–
–
Lynparza
(olaparib)
Movantik/
Moventig
(naloxegol)
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 for the
treatment of women with BRCAm ovarian
cancer and metastatic breast cancer
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
2022-2024,
2028*,
202920,
2024-2031
2021-2024,
2024-2027,
202920,
2024
2021-2029,
2024-2027,
202920,
2024
2021-2029,
2024-2027,
202920,
2024
345
141
127
250
130
81
2022-2027,
2028*, 2032
2024, 2031 2022-2024,
2029*21,
2031
2022-2024,
2031
108
120
90
–
2
–
Nexium
(esomeprazole)
A proton pump inhibitor used to treat
acid-related diseases
2018-202022
2018-2019
2018
2018,
2018-2019
287
499
526
955
973
975
Onglyza
(saxagliptin)
Pulmicort
(budesonide)
Qtern
(dapagliflozin/
saxagliptin)
Seloken/
Toprol-XL
(metoprolol
succinate)
Seroquel XR
(quetiapine)
Symbicort
(budesonide/
formoterol)
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
A beta-blocker once-daily tablet for control of
hypertension, heart failure and angina
Generally approved for the treatment of
schizophrenia, bipolar disorder, major
depressive disorder and, on a more limited
basis, for generalised anxiety disorder
A combination of an inhaled corticosteroid and a
fast onset LABA for maintenance treatment of
asthma and COPD either as Symbicort
Turbuhaler or Symbicort pMDI (pressurised
metered-dose inhaler)
2023, 2028
2021, 2025
2024, 2025
19
109
209
231
95
114
120
2018-201923
201824
201824
201824
116
156
174
975
847
732
2020, 2025*,
2020-2029
2020-2023
2020-2027
2024-2025
–
4
–
5
–
–
expired
expired
expired
expired
39
37
95
488
470
462
expired
expired25
expired
26
73
175
515
70
82
134
2019-202927
201828 2018-201928 2019-202028
862 1,099 1,242
1,220 1,201 1,276
218
AstraZeneca Annual Report & Form 20-F Information 2018 / Additional Information Key marketed
products
Synagis
(palivizumab)
Tagrisso
(osimertinib)
Tudorza/Eklira
Genuair
(aclidinium)
Xigduo/Xigduo
XR
(dapagliflozin/
metformin)
Description
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
US
2023
China
EU1
2023
Japan
2018
2017
2016
2018
2017
2016
2023
287
317
325
377
370
352
US
Product Sales ($m)
Aggregate Revenue
for China, Japan
and Europe2
Product Sales ($m)
2032
2032
2032
2034
869
405
254
808
486
158
A LAMA for the maintenance treatment of
COPD
2020, 2025,
2022-2029
2020,
2022-2027
2025,
2022-2029
2025,
2021-2029
25
66
77
75
74
84
2020,
2025*,
2020-2030
2020-2023
2020-2028 2024-2025,
2030
114
134
99
83
58
37
Combines dapagliflozin and metformin as either
Xigduo – a twice-daily tablet to improve
glycaemic control in adult patients with type-2
diabetes who are inadequately controlled on
metformin alone or Xigduo XR – an extended
release once-daily tablet to improve glycaemic
control in adult patients with type-2 diabetes
who are inadequately controlled on metformin
alone
Zoladex
(goserelin
acetate implant)
A luteinising hormone-releasing hormone
(LHRH) agonist used to treat prostate cancer,
breast cancer and certain benign
gynaecological disorders
202229
2021
2021
2021
8
15
35
508
483
498
* 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 for Europe Region as defined in Market definitions on page 239.
3 Atacand HCT in US.
4 Takeda retained rights.
5 Separate settlements with ANDA challengers for a licensed entry date corresponding to the expiry of US Patent No. RE46,276, subject to regulatory approval.
6
The patent was invalidated during invalidation proceedings at the Chinese Patent Office (CNIPA). In December 2018, however, the Beijing High People’s Court vacated the invalidation decision
and remanded the case back to the CNIPA for further processing in view of the Court’s decision upholding the validity of the patent.
7 The patent was invalidated during invalidation proceedings at the CNIPA. The patentee has appealed that decision.
8 The patent was revoked during opposition proceedings at the European Patent Office (EPO). The patentee has appealed that decision.
9 The patent is the subject of a pending opposition proceeding at the EPO.
10 Patent expiry date relates to BCise.
11 Separate settlements with ANDA challengers for a licensed entry date of 15 October 2017, or later, subject to regulatory approval.
12
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.
13 There is eight years’ data exclusivity and two years’ market exclusivity for Daxas in the EU to 5 July 2020.
14 NDA filed 31 May 2018.
15 Settled with various generic companies for licensed entry dates of 25 March 2019 or later.
16
In the US, Iressa has seven years’ Orphan Drug exclusivity to 13 July 2022.
17 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.
18 Komboglyze/Kombiglyze XR revenue is included in the Onglyza revenue figure.
19 AstraZeneca does not have commercialisation rights.
20 Patent expiry date relates to the tablet formulation.
21 ProStrakan Group (a subsidiary of Kyowa Hakko Kirin) is exclusively licensed in the EU, Iceland, Norway, Switzerland and Liechtenstein.
22 Licence agreements have allowed generic companies to launch generic capsule versions in the US.
23
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.
24 The 2018 expiry relates to the formulation in the Turbuhaler presentation and to a process useful for the Respules product.
25 Rights licensed to Luye Pharma.
26 Rights licensed to Astellas.
27 Patent expiry dates relate to the Symbicort pMDI product, including any granted Paediatric Exclusivity term.
28 Patent expiry dates relate to the Symbicort Turbuhaler product.
29 Rights licensed to TerSera.
AstraZeneca Annual Report & Form 20-F Information 2018 / Patent Expiries of Key Marketed Products
219
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 72,
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 86, 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 2018 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 229.
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 for example,
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.
220
AstraZeneca Annual Report & Form 20-F Information 2018 / Additional Information Product pipeline and IP risks
Impact
Difficulties in obtaining or maintaining regulatory drug approval for 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, vary by country and by region. Regulators can refuse
to grant approval or may require additional data before approval is granted or as a
post-approval commitment, even though the medicine may already be approved or
launched in other countries.
Factors, including advances in science and technology, evolving regulatory science,
new laws and policies, and different approaches to benefit/risk tolerance by regulatory
authorities, the general public, and other third-party public interest groups are known
to influence the approvability of new drugs. While we seek to manage most of these
risks, unanticipated and unpredictable policymaking by governments and regulators,
limited regulatory authority resources or conflicting priorities often lead to delays in
regulatory approvals.
We may be required to generate additional data after a drug’s approval because a
regulatory authority may have concerns that impact the benefit/risk profile of the drug.
For our marketed drugs, new data or 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, 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.
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.
With the UK planning to leave the EU by the end of March 2019, intense
work is ongoing to manage Brexit related changes, identify scenarios
for the many uncertainties still to be resolved, and determine the new
UK requirements moving forward. This includes transferring licences
and authorisations for EU markets currently held in the UK to an EU
member state and building capability to test medicines in the EU for
which such testing is currently undertaken in the UK. UK licences also
need to be separated out from centrally approved products in the EU.
These actions are required to ensure appropriate regulatory
requirements can be met both in the EU and UK post 29 March 2019.
Based on our corporate planning assumptions for a no deal Brexit, with
no transition period, the Company is taking steps to protect product
supply both in the UK and EU. Changes in regulatory reviews and
approvals, and safety surveillance will certainly have implications on
resources, ways of working and costs.
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 also recognise increasing use of compulsory licensing in some countries in
which we operate.
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 29 to
the Financial Statements from page 194.
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 35, the Competitive pressures including expiry or loss
of IP rights and generic competition risk on page 222 and Note 29 to
the Financial Statements from page 194.
AstraZeneca Annual Report & Form 20-F Information 2018 / Risk
221
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.
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.
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.
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 217).
For example, in 2018 our US Product Sales of Crestor fell to $170 million (2017: $373
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 since 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 Symbicort, Brilinta, Faslodex
and Farxiga.
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 29 to the Financial
Statements from page 194.
222
AstraZeneca Annual Report & Form 20-F Information 2018 / Additional Information Commercialisation risks
Price controls and reductions
Impact
Due to these pricing pressures, there will continue to be downward
pressure on prices globally that will challenge the profitability levels of
products in particular markets.
Any future replacement, modification or repeal of the ACA, or any
significant spending reductions or cost controls affecting Medicare,
Medicaid or other publicly funded or subsidised health programmes in
the US, could adversely affect our business and financial results. The
significant uncertainty about the future of the ACA, entitlement reform
and healthcare laws in general in the US could have a material adverse
effect on our results of operations, financial condition or business.
We expect that consolidation and integration of drug distributors, retail
pharmacy chains, private insurers, managed care organisations and
other purchasing organisations may continue to have an effect on
pharmaceutical manufacturers, including us.
The potential duplication of HTA evaluations could result in a delay to
times of reimbursement and patient access.
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. The US political landscape 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. We face uncertainties due to federal legislative and
administrative efforts to repeal, substantially modify or invalidate some or all of the
provisions of the ACA. Additionally, there may be modifications to Medicare and other
government programmes, price transparency requirements, and policies aimed at
reducing drug list prices. For more information, please see Pricing of medicines in the
Marketplace section from page 11. It is difficult to predict what specific proposals could
be enacted and to determine the implications for the healthcare system and
pharmaceutical industry. However, lowering drug costs remains a key campaign
promise of the current administration and proposals that would significantly modify
existing laws and regulations, including coverage and reimbursement of drugs in
government programmes and policies relating to drug pricing, could affect private
health insurance, coverage and reimbursement in Medicare, Medicaid and the health
insurance exchange marketplaces, and other facets of the US healthcare market,
with potentially significant impacts on the pharmaceutical industry.
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.
In the US, consolidation among distributors, retail pharmacy chains and other
purchasing organisations, including integration across the supply chain, creates
concentration of credit risk and increasing potential for large integrated entities to exert
more power in negotiations with AstraZeneca, which could result in margin erosion.
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. There is also a continued push across the EU to harmonise the Health
Technology Assessment (HTA) review process. This could lead to an environment in
the EU where medicines undergo duplicate HTA evaluations, both at an EU level and
a country level, as it is unlikely organisations such as GBA in Germany or HAS in
France would make changes to their systems.
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 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 11 and on the next page in the
following risk factor.
AstraZeneca Annual Report & Form 20-F Information 2018 / Risk
223
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 (including foreign exchange movements) 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, EU or elsewhere, which, in turn,
invest in other funds, including sovereign funds. This means our credit exposure is a
mix of US, EU and rest of the world sovereign default risk, financial institution and
non-financial institution default risk.
A number of our existing or future commercial or other agreements, such as
borrowings, derivative financial instruments and commercial contracts, utilise or may
utilise LIBOR or other similar rates as benchmark reference rates. LIBOR and other
benchmark reference rates are the subject of ongoing national and international
regulatory reform, the result of which could see them partially or fully replaced by
alternative reference rates, with potential adjustments or renegotiations being
necessary to our agreements in respect of the commercial terms or mechanisms to set
the reference rate. Whilst different alternative reference rates could develop for different
currencies and for different agreements, for example borrowings and derivative
financial instruments, there is a risk that we fail to renegotiate our agreements. Any
combination of these could have an adverse effect on the cost, cash flows, value,
return on and trading market of (as appropriate) our borrowings, derivative financial
instruments, commercial and other agreements, and could increase our administrative
burden if the transition to alternative rates is required or necessary by regulation or
market practice.
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 86), 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 86.
In addition, as set out in the next section, the UK’s exit from the EU due to
take place on 29 March 2019 could adversely impact the operation of the
financial system and the ability of financial institutions to perform certain
activities and services upon which we rely.
Uncertainty and volatility in relation to the UK’s planned exit from the EU
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.
It is still too early to judge the full impact of Brexit. While a draft Withdrawal Agreement
has been agreed between the UK government and the European Commission, it is
unclear whether this will be ratified by the UK parliament in its current form, amended,
or if the UK will leave the EU without a deal. In the absence of a ratified agreement, it is
unclear what trading relationships the UK will have with the EU and other significant
trading partners after 29 March 2019 given the range of political and legal options
currently available including, for example, a no deal exit from the EU, extension or
recission of the Article 50 notice and a second referendum. Brexit and implementation
of the resulting changes could materially and adversely affect the tax, tax treaty,
currency, operational, legal and regulatory regimes as well as the macro-economic
environment in which the Group operates. Since the referendum, global markets and
foreign exchange rates have experienced increased volatility, including a decline in the
value of pound sterling as compared to the euro and US dollar. Upon leaving the EU,
among other things, the UK could lose access to the single EU market, travel between
the UK and EU countries could be restricted and border checks or other regulatory
constraints may impede the free movement of goods. Our workforce, and in turn our
ability to recruit and retain talent, could be impacted by any restrictions on the
movement of persons as 3.9% of our employees in the UK are citizens of EU countries
other than the UK. We could face new and greater costs and challenges if UK
regulations and policies that govern our business diverge from those of the EU, or if
there is any other new or increased friction in our trading environment.
224
Until the Brexit negotiation process is completed, it is difficult to
anticipate the potential impact on our market share, sales, profitability
and results of operations. For example, it is possible in the immediate
aftermath of the UK leaving the EU that the capacity at major ports
both in the UK and the EU is materially reduced for an indeterminate
period of time. This could adversely affect our ability to transport
medicines and raw materials/intermediates to the EU and vice versa
with a consequential adverse impact.
The longer-term effects of Brexit are difficult to predict but could
include further financial instability and slower economic growth or
economic downturn in the UK in particular, but also in Europe and the
global economy. Any restrictions on the movement of persons,
deterioration in market access or trading terms, delay or restrictions to
the movement of goods or increased cost and burdens in the form of
new or diverging rules and regulations may have a significant adverse
impact on our operations, profitability and business model. Further,
uncertainty around the form and timing of any withdrawal agreement
and the form and timing of any post-withdrawal trading arrangements
(whether with the EU or third parties) could increase volatility and lead
to adverse effects on the economy of the UK, other parts of Europe
and the rest of the world, which in turn could have an adverse
economic impact on our operations.
AstraZeneca Annual Report & Form 20-F Information 2018 / 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 biologic 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 relating to strategic transactions 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.
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 the rights of our then existing shareholders.
Commercial success of our products and markets, including the development of
growth markets, 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.
> Difficulties enforcing and protecting IP.
> 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 and the need to manage
sanctions and other restrictions that may be imposed in each jurisdiction.
> Recruitment of appropriately skilled and experienced personnel.
> Difficulty in identifying the most effective sales and marketing channels and routes
to market.
> Intervention by local or 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, in
terms of performance, and adherence to AstraZeneca’s compliance standards which
are often higher than the market norm.
> Difficulties in cash repatriation due to strict foreign currency controls, risk of material
currency devaluation and lack of hard currency reserves in some Emerging Markets.
> Complexity derived from direct exports 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.
The integration of new businesses with our own could result in operational complexities.
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 2018 / Risk
225
Additional Information Risk
continued
Supply chain and business execution risks
Impact
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.
Failure to comply with all manufacturing regulations can result in
negative regulatory inspection findings leading to manufacturing
cessation, product seizure, debarment or recalls which could have
a material adverse effect on our business, financial condition and
results of operations.
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.
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, at a critical supplier or vendor, or during transit.
> Delays in construction of new facilities or the expansion of existing facilities, including
those intended to support future demand for our products (particularly as the
complexities associated with biologics facilities, especially for drug substances,
increase the probability of delay).
> The inability to supply products due to a product quality failure or regulatory
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 and adequate supply.
As with the rest of the pharmaceutical industry, we work in a heavily regulated
environment. It is necessary for us to meet all regulations, including compliance with
Good Manufacturing Practices (GMP) and Good Distribution Practices (GDP) and
comparable regulatory dossier conditions of approval in other countries in which our
products are licensed, manufactured or sold. Regulatory agencies periodically inspect
our manufacturing facilities to evaluate compliance with applicable requirements and
may identify potential deficiencies.
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 biologic 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.
226
AstraZeneca Annual Report & Form 20-F Information 2018 / 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. They
provide an important means of safeguarding and communicating data, including
critical or sensitive information, the confidentiality and integrity of which we rely on. We
also rely on the effectiveness of our internal policies, controls and procedures to
protect the confidentiality, integrity and availability of information held on our IT
systems, as well as the effectiveness of our due diligence of, and ongoing oversight
over, third-party vendors who hold or have access to our data. 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 GDPR which entered
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 (ie, from theft) and privileged access (rights to perform IT tasks).
The size and complexity of our IT systems and cloud utilisation, and those of our
third-party vendors (including outsource and Software as a Service (SaaS) providers)
with whom we contract, have significantly increased over the past decade. Such
systems are 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, the
internet of things (IoT), 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, brand image or goodwill. 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.
The GDPR and similar privacy legislation being passed in various jurisdictions globally
introduce the obligation to report data protection breaches, whether intentional or
inadvertent, to regulators and affected individuals within expedited timeframes. Such
expedited reporting, often before the nature and impact of a data breach can be fully
understood, could potentially cause reputational damage and a loss of public trust that
ultimately may be disproportionate to the extent of the breach.
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 or the global markets if there is instability in a particular
geographic region, including as a result of war, terrorism, pandemics, armed conflicts,
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 cybersecurity, failure to integrate new and existing IT
systems) or failure to comply with additional requirements under the
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 or failures of
our cybersecurity policies, controls or procedures. Any such
breakdown, breach or failure could result in disclosure of confidential
or other sensitive information, damage to our reputation, regulatory
penalties, or sanctions, financial losses and/or other costs.
The inability to effectively back up and restore data could lead to
permanent loss of data that could in turn result in non-compliance with
applicable laws and regulations, and otherwise harm our business.
We and our vendors could be susceptible to third-party or internal
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
organised criminal groups, ‘hacktivists’, nation states, employees 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 effect on our business.
Although we maintain cybersecurity insurance, there can be no
assurance that our insurance coverage limits will protect against any
future claim or that such insurance proceeds will be paid to us in a
timely manner.
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, brand image or goodwill.
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.
AstraZeneca Annual Report & Form 20-F Information 2018 / Risk
227
Additional Information Risk
continued
Supply chain and business execution risks
Impact
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. In January 2019, we announced
organisational changes to support continued scientific innovation and commercial success
as we enter the next phase in our strategic development. Such changes may increase levels
of employee uncertainty leading to lower levels of engagement.
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.
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 product recalls, loss of
product approvals and seizures, and interruption of production, which
could create product shortages and delays in new product approvals,
and negatively impact patient access. As another example, violation of
laws, rules, regulations or policies in countries subject to trade and
economic sanctions could lead to loss of import or export privileges,
civil or criminal penalties for us or our employees, or potential
reputational harm, which could have a material adverse effect on our
results of operations, financial condition or business.
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. Moreover, such laws,
rules and regulations are subject to change.
Material examples of statutes, rules and regulations impacting business operations include:
> Compliance with Good Manufacturing Practice.
> Local, national and international environmental and 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.
> Compliance with human rights and appropriate environmental practices of third-party
contractors around the world including with, but not limited to, the conflict minerals
rule in the US, and the UK Modern Slavery Act.
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 29 to the Financial Statements from page 194.
Safety and efficacy of marketed products is questioned
Our ability to accurately assess, prior to launch, the eventual safety or efficacy 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, declining sales
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 29 to the
Financial Statements from page 194.
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, consumer fraud
and/or other claims, including civil and criminal governmental actions,
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 230.
228
AstraZeneca Annual Report & Form 20-F Information 2018 / Additional Information Legal, regulatory and compliance risks
Impact
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 29 to the Financial Statements from
page 194 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.
Failure to adhere to increasingly stringent anti-bribery and anti-corruption legislation
There remains an increased 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, amongst others. To the extent we are the subject of
any such pending and material matters, details are included in Note 29 to the
Financial Statements from page 194.
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 86).
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.
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.
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.
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 Group individual
directors or officers.
Serious fraud may lead to potential prosecution or even imprisonment
of senior management.
AstraZeneca Annual Report & Form 20-F Information 2018 / Risk
229
Additional Information Risk
continued
Economic and financial risks
Impact
Unexpected deterioration in the Group's financial position
A wide range of financial risks could result in a material deterioration in the Group’s
financial position.
As a global business, currency fluctuations can significantly affect our results of
operations, which are reported in US dollars. Approximately 33% of our global 2018
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 Chinese renminbi, the euro, Japanese yen and
pound sterling.
Our consolidated balance sheet contains significant investments in intangible assets,
including goodwill. The nature of the pharmaceutical 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 29 to the Financial Statements from page 194 for details.
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 Group'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.
230
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 168.
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 229.
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.
If any double tax treaties are 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 86 for tax risk management policies and Note 29 to the
Financial Statements from page 194 for details of current tax disputes.
Changes in tax regimes, such as those relating to the US federal tax
regime which were effective from 1 January 2018, could result in a
material impact on the Group'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 Group 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 Group. 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 21
to the Financial Statements from page 178 for further details of the
Group’s pension obligations.
AstraZeneca Annual Report & Form 20-F Information 2018 / 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:
> Key Performance Indicators –
Be a Great Place to Work, page 22
> Key Performance Indicators –
Do business sustainably, page 22
> Emerging market healthcare, page 32
> Develop a strong and diverse pipeline
of leaders, page 40
> Human rights, page 41
> Managing change, page 41
> Employee relations, page 41
> Safety, health and wellbeing, page 41
> Sustainability, page 42
> Sustainability strategy, page 42
> Sustainability governance, page 43
> Broadening access to healthcare, page 43
> Ethics and transparency, page 43
> Protecting the environment, page 46
> Community investment, page 48
> Young Health Programme, page 48
> Donation programmes, page 48
> Greenhouse gas (GHG) reporting,
page 231
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.
Greenhouse gas (GHG) 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 2018 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 2018 to 31 December 20181
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
2018
2017
2016
301,055
291,694
309,685
158,987
178,614
218,770
294,906
273,681
288,210
Company’s chosen intensity measurement: Scope 1 + Scope 2 (Market-
based) emissions reported above normalised to million US dollar revenue
20.8
20.9
23.0
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
1,309,069 1,234,739 1,155,504
1,769,110 1,705,047 1,683,959
Scope 3 Total: Emissions from all 15 Greenhouse Gas Protocol Scope 3
Categories4
5,819,517 5,830,380 5,813,138
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. Baseline year is 2015 (one year in arrears)
263
260
253
1
2
3
4
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 majority of adjustments made are not material individually, except for business air travel (new data
supplier, leading to restated baseline) and product use phase (recalculated using improved life-cycle emissions data).
The data quoted in this Annual Report are generated from the revised data.
Included in this section are GHGs from direct fuel combustion, process and engineering emissions at our sites and from fuel
use in our vehicle fleet.
GHGs 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. Our corporate emissions reporting
and targets follow the Market-based approach.
In previous years, this data has been reported one year in arrears. GHG accounting has been updated to align the 2016 and
2017 reporting with the actual year's emissions data. For 2018 reporting, a significant proportion has been estimated and will
be refined in future external reports.
AstraZeneca Annual Report & Form 20-F Information 2018 / Sustainability: supplementary information
231
Additional Information 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
www.astrazeneca.com/investors
irteam@astrazeneca.com
Tel (UK): +44 (0)20 3749 5824
Tel (toll free in the US): +1 866 381 7277
Shareholder Information
The principal markets for trading in
AstraZeneca shares are the London Stock
Exchange, Nasdaq Stockholm 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 Nasdaq Stockholm 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 2019 AGM will be held on 26 April 2019.
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.
232
Dividends
Dividend dates for 2019 are shown in the
financial calendar on page 233. 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 USD, 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.co.uk 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.co.uk 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, Sweden
(Tel: +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 2018 / Additional Information Financial calendar
Event
Second interim
dividend for 2018
Provisional date
Ex-dividend date
28 February 2019
Record date
Payment date
1 March 2019
27 March 2019
Announcement of
first quarter results
for 2019
Annual general
meeting (AGM)
26 April 2019
26 April 2019
Announcement of
second quarter and half-year
results for 2019
25 July 2019
First interim
dividend for 2019
Ex-dividend date
Record date
Payment date
Announcement of
third quarter results
for 2019
8 August 2019
9 August 2019
9 September 2019
24 October 2019
Financial year end
31 December 2019
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 (Tel: +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 2018, the Company had 83,588 registered holders of 1,267,039,436 Ordinary Shares. There were 105,266 holders of Ordinary
Shares held under the Euroclear Services Agreement, representing 10.1% of the issued share capital of the Company and 1,818 registered
holders of ADSs, representing 20.1% 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.
2018
2017
2016
2015
2014
1,267
1,267
6317.0
4712.5
5873.0
1,266
1,266
5508.0
4194.0
5121.0
1,265
1,265
5220.0
3774.0
4437.5
1,264
1,264
4863.0
3903.5
4616.5
1,263
1,262
4823.5
3549.5
4555.5
2018
%
0.4
0.5
0.5
0.8
0.2
1.0
12.1
84.5
2017
%
0.5
0.5
0.6
0.8
0.2
1.0
11.9
84.5
2016
%
0.5
0.5
0.6
0.8
0.2
0.9
12.3
84.2
2015
%
0.5
0.6
0.7
0.9
0.2
0.9
13.0
83.2
2014
%
0.5
0.6
0.7
1.0
0.2
1.0
13.3
82.7
AstraZeneca Annual Report & Form 20-F Information 2018 / Shareholder Information
233
Additional Information
Shareholder Information
continued
Reported high and low share prices during the year
2018
2017
– December
– November
– October
– September
– August
– July
– Quarter 4
– Quarter 3
– Quarter 2
– Quarter 1
– Quarter 4
– Quarter 3
– Quarter 2
– Quarter 1
Ordinary Shares
London Stock Exchange1
Low
(pence)
High
(pence)
Ordinary Shares
Nasdaq Stockholm2
Low
High
(SEK)
(SEK)
ADRs
New York Stock Exchange3
Low
(USD)
High
(USD)
6211.0
6317.0
6078.0
5963.0
6107.0
5865.0
6317.0
6107.0
5478.0
5204.0
5180.0
5192.0
5508.0
4974.5
5720.0
5732.0
5546.0
5572.0
5795.0
5182.0
5546.0
5182.0
4867.0
4712.5
4705.0
4325.0
4566.0
4194.0
722.0
754.8
725.0
702.1
721.8
685.3
754.8
721.8
648.4
587.3
581.0
578.0
619.0
558.0
661.8
692.4
665.5
659.6
680.7
608.2
661.8
608.2
584.3
531.7
541.0
466.2
534.0
470.6
39.87
41.49
40.08
39.72
39.61
39.13
41.49
39.72
37.05
36.63
34.78
34.16
35.36
31.80
36.86
37.85
37.15
37.07
37.96
34.76
36.86
34.76
34.55
32.97
32.09
28.88
29.76
26.72
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 Nasdaq Stockholm, 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 2019, the proportion of Ordinary Shares represented by ADSs was 20.0% of the issued share capital of the Company. At
31 January 2019, there were 83,479 registered holders of Ordinary Shares, of which 688 were based in the US and there were 1,813 record
holders of ADRs, of which 1,785 were based in the US.
Major shareholdings
At 31 December 2018, 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 2018
100,885,181
4 December 2009
51,587,810
63,802,495
2 February 2012
17 July 2018
7.96
4.07
5.04
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 2018 and 31 January 2019.
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
2019
31 January
2018
31 January
2017
31 January
2016
7.96
4.07
5.04
7.97
4.07
4.98
7.97
4.08
3.00
7.98
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.
234
AstraZeneca Annual Report & Form 20-F Information 2018 / Additional Information Directors’ and officers’ shareholdings
At 31 January 2019, 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
564,514
0.04
Options to purchase securities from
registrant or subsidiaries
(a) At 31 January 2019, options outstanding
to subscribe for Ordinary Shares were:
Number of shares
1,689,933
Subscription
price (pence)
Normal
expiry date
2280-4724
2019-2024
The weighted average subscription price of
options outstanding at 31 January 2019 was
3610 pence. All options were granted under
Company employee share schemes.
(b) Included in paragraph (a) are options
granted to officers of the Company as follows:
Number of shares
1,407
Subscription
price (pence)
Normal
expiry date
3307-3597
2021
(c) Details of Directors’ option holdings are
shown in the Remuneration Report on page
138. No options were held by Directors at
31 December 2018.
During the period 1 January 2019 to
31 January 2019, no Director was granted
or exercised any options.
Related party transactions
During the period 1 January 2019 to
31 January 2019, 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 31 to the Financial
Statements on page 200).
Articles of Association
AstraZeneca PLC’s current Articles were
adopted by shareholders at the Company’s
AGM held on 18 May 2018. 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.
Rights, preferences and restrictions
attaching to shares
As at 31 December 2018, the Company had
1,267,039,436 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 USD/GBP
exchange rate on 31 December 2018 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.
AstraZeneca Annual Report & Form 20-F Information 2018 / Shareholder Information
235
Additional 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 28 of the Financial
Statements and Directors’
Remuneration Report
Shareholder waiver
of dividends
Page 106 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 167.
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 ADRs 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 that
own directly, indirectly or constructively ADRs
or Ordinary Shares representing 10% or more
of our voting power or value, 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.
236
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 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.
AstraZeneca Annual Report & Form 20-F Information 2018 / 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/USD
USD/GBP
Average rates
(statement of comprehensive income,
statement of cash flows)
2018
2017
2016
End of year spot rates
(statement of financial position)
2018
2017
2016
8.6419
8.5835
8.5286
1.3405
1.2835
1.3673
8.9537
8.2467
9.1162
1.2743
1.3468
1.2272
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 2018. 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.
AstraZeneca Annual Report & Form 20-F Information 2018 / Shareholder Information
237
Additional 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
Arimidex
Atacand1
Atacand HCT
Atacand Plus1
BCise
Bevespi Aerosphere
Brilinta
Brilique
Bydureon
Byetta
Calquence
Carbocaine2
Casodex
Citanest2
Cosudex
Crestor
Daliresp
Daxas
Diprivan2
Duzallo
EMLA2
Farxiga
Fasenra
Faslodex
Fluenz
FluMist
Forxiga
Genuair
Imdur3
Imfinzi
Iressa
Kombiglyze
Komboglyze
Losec
Lokelma
Lynparza
Marcaine2
Movantik
Moventig
Naropin2
Nexium
Onglyza
Plendil
Pressair
Prilosec
Provisacor
Pulmicort
Pulmicort Flexhaler
Pulmicort Respules
Pulmicort Turbuhaler
Qtern
Respules
Rhinocort4
Rhinocort Aqua4
Seloken
Seroquel
Seroquel XR
Symbicort
Symbicort SMART
Symbicort Turbuhaler
Symlin
Synagis5
Tagrisso
Toprol-XL
Turbuhaler
Vimovo6
Xigduo
Xylocaine2
Zavicefta7
Zoladex
Zomig8
Zurampic
1 AstraZeneca divested these trade marks in Europe to Cheplapharm effective 28 September 2018.
2 AstraZeneca divested these trade marks to Aspen group effective 1 November 2017.
3 AstraZeneca assigned this trade mark to Everest Future Limited effective 1 May 2016.
4 AstraZeneca assigned Rhinocort and Rhinocort Aqua to Cilag outside the US effective 5 December 2016.
5 AstraZeneca owns this trade mark in the US only. AbbVie owns it in the rest of the world.
6 AstraZeneca divested the global rights (excluding the US and Japan) for this trade mark to Grünenthal, effective 3 December 2018.
7 AstraZeneca assigned this trade mark to Pfizer Inc. effective 23 December 2016.
8
AstraZeneca assigned the rights to this trade mark outside Japan to Grünenthal effective 7 June 2017. In Japan, AstraZeneca divested this product to Sawai Pharmaceutical effective
3 October 2017.
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
Anticalin
Duaklir
Eklira
Epanova
Fluimucil
Linzess
Lumoxiti
Tudorza
Licensor or Owner
Pieris AG
Almirall, S.A.
Almirall, S.A.
Chrysalis Pharma AG
Zambon S.p.A.
Ironwood
Innate Pharma
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
Imbruvica
Keytruda
messenger RNA Therapeutics
Owner
Depending on geography, the trade mark is owned by Pharmacyclics, Inc., Johnson & Johnson or Janssen Pharmaceutica NV.
MSD
Moderna
238
AstraZeneca Annual Report & Form 20-F Information 2018 / 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
Hungary
Iceland*
Ireland
Israel*
Italy
Latvia*
Lithuania*
Japan
Iraq*
Jamaica*
France
Germany
Greece
Canada
Costa Rica
Cuba*
Dominican Republic*
Jordan*
Ecuador*
Egypt
El Salvador
Georgia*
Guatemala
Honduras
Hong Kong
India
Indonesia
Iran*
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 2018 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 2018 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
Additional paid in capital or paid in surplus (not distributable)
Redeemable securities and short-term deposits
AstraZeneca Annual Report & Form 20-F Information 2018 / Glossary
239
Additional Information Glossary
continued
The following abbreviations and expressions have the following
meanings when used in this Annual Report:
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.
Cilag – Cilag GmbH International.
Circassia – Circassia Pharmaceuticals plc.
CIS – Commonwealth of Independent States.
CKD – Chronic kidney disease.
CMS – China Medical System Holdings Ltd.
Code of Ethics – the Group’s Code of Ethics.
Acerta Pharma – Acerta Pharma B.V.
ACS – acute coronary syndromes.
Actavis – Actavis plc.
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.
AI – artificial intelligence.
Almirall – Almirall, S.A.
Amgen – Amgen, Inc.
Amplimmune – Amplimmune, Inc.
ANDA – an abbreviated new drug application, which is a marketing
approval application for a generic drug submitted to the FDA.
Company or Parent Company – AstraZeneca PLC (formerly Zeneca
Group PLC (Zeneca)).
COPD – chronic obstructive pulmonary diseases.
Covis – Covis Pharma B.V.
CREST – UK-based securities settlement system.
CRL – Complete Response Letter.
CROs – contract research organisations.
CRUK – Cancer Research UK.
CV – cardiovascular.
CVRM – Cardiovascular, Renal and Metabolism.
Daiichi Sankyo – Daiichi Sankyo, Inc.
Definiens – Definiens AG.
Director – a director of the Company.
DJSI – Dow Jones Sustainability Index.
Annual Report – this Annual Report and Form 20-F Information 2018.
DOJ – the United States Department of Justice.
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.
AstraZeneca HealthCare Foundation – a Delaware, US not-for-
profit corporation and a 501(c)(3) entity, separate from AstraZeneca
Pharmaceuticals, organised for charitable purposes including to
promote public awareness and education of healthcare issues and
support eligible nonprofit organisations in alignment with its mission.
The Foundation has received $30 million in contributions to date
from AstraZeneca to support the Connections for Cardiovascular
HealthSM programme.
ATM – Ataxia telangiectasia mutated.
Avillion – Avillion LLP.
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.
CFO – the Chief Financial Officer of the Company.
Cheplapharm – Cheplapharm Arzneimittel GmbH.
CHMP – the Committee for Medicinal Products for Human Use.
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.
EBITDA – Reported Profit before tax plus net finance expense, share
of after tax losses of joint ventures and associates and charges for
depreciation, amortisation and impairment.
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.
ERK – extracellular signal-regulated kinases.
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.
GINA – Global Initiative for Asthma.
GQCE – Generics Quality Consistency Evaluation.
Gilead – Gilead Sciences, Inc.
GMD – Global Medicines Development.
GPPS – Global Product and Portfolio Strategy.
240
AstraZeneca Annual Report & Form 20-F Information 2018 / Additional Information 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.
HF – heart failure.
HFA – hydrofluoroalkane.
HHA – Healthy Heart Africa programme.
HNSCC – head and neck squamous cell carcinoma.
HR – human resources.
HTA – health technology assessment.
IA – the Group’s Internal Audit Services function.
IAS – International Accounting Standards.
IASB – International Accounting Standards Board.
ICS – inhaled corticosteroid.
Nasdaq Stockholm – previously the Stockholm Stock Exchange.
NCD – non-communicable disease.
NDA – a new drug application to the FDA for approval to market a new
medicine in the US.
New Medicines – Tagrisso, Imfinzi, Lynparza, Calquence, Lumoxiti,
Farxiga, Brilinta, Lokelma, Bevespi and Fasenra.
NME – new molecular entity.
NMPA – National Medical Products Administration, formerly the China
Food and Drug Administration (CFDA).
Novartis – Novartis Pharma AG.
Novo Nordisk – Novo Nordisk A/S.
NSAID – a non-steroidal anti-inflammatory drug.
NSCLC – non-small cell lung cancer.
NYSE – the New York Stock Exchange.
n/m – not meaningful.
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.
operating profit – sales, less cost of sales, less operating costs,
plus operating income.
IMED – Innovative Medicines and Early Development.
Innate Pharma – Innate Pharma S.A.
IO – immuno-oncology.
IP – intellectual property.
IQVIA – IQVIA Solutions HQ Limited. For more information, see page 244.
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.
Luye Pharma – Luye Pharma Group.
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.
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.
PFS – progression-free survival. The length of time during and after the
treatment of a disease, such as cancer, that a patient lives with the
disease but it does not get worse.
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.
AstraZeneca Annual Report & Form 20-F Information 2018 / Glossary
241
Additional Information 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 April 2016 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.
Viela Bio – Viela Bio, Inc.
WHO – World Health Organization, the United Nations’ specialised
agency for health.
YHP – Young Health Programme.
Zambon – Zambon S.p.A.
ZS Pharma – ZS Pharma, Inc.
Glossary
continued
PHC – personalised healthcare.
Pieris Pharmaceuticals – Pieris Pharmaceuticals, Inc.
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.
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.
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 from
page 35.
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.
SGLT-2 – sodium-glucose co-transporter 2.
SHE – Safety, Health and Environment.
Shionogi – Shionogi & Co. Ltd.
Shire – Shire plc.
SLE – systemic lupus erythematosus.
sNDA – supplemental New Drug Application.
Sobi – Swedish Orphan Biovitrum AB.
SPC – supplementary protection certificate.
specialty care – specific healthcare provided by medical
specialists who do not generally have first contact with patients.
Spirogen – Spirogen Sàrl.
SoC – standard of care. Treatment that is accepted by medical experts
as a proper treatment for a certain type of disease and that is widely
used by healthcare professionals.
Takeda – Takeda Pharmaceutical Company Limited.
TerSera – TerSera Therapeutics LLC.
Teva – Teva Pharmaceuticals USA, Inc.
Total Revenue – the sum of Product Sales and Externalisation Revenue.
242
AstraZeneca Annual Report & Form 20-F Information 2018 / 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, Renal & Metabolism
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
Earnings per Ordinary Share
Employee costs and share plans for employees
Employees
Environmental impact
Ethics
Externalisation
Financial highlights
Finance income and expense
Financial instruments
Financial position 2018
Financial Review
Financial risk management
Financial Statements 2018
Gender diversity
Glossary
Group Financial Record
Group Subsidiaries and Holdings
Growth Platforms
Healthy Heart Africa programme
Human Rights
Independent auditors’ report
87, 153-159, 207
Information Technology
185-186
Intangible assets
186
Intellectual Property
15, 30, 223
Interest-bearing loans and borrowings
79, 238
Key Performance Indicators
45
104
Leases
Life-cycle of a medicine
102, 106, 141, 235, 240
Litigation
2-3
Manufacturing and Supply
104-106
110-119
Market definitions
Marketplace
44
Modern Slavery Act
8, 14, 21, 34, 63, 107
Non-Financial Reporting Regulations
81, 84, 89, 177, 240
Oncology
94-95, 240
Operating profit
8
Other Disease Areas
3, 26, 27, 41
Other investments
86
Patent Expiries
56-61
Patient safety
157, 174, 187
Physician Payments Sunshine Act
4
5-7
Political donations
Post-retirement benefits
26, 44-45
Product revenue information
22, 43, 105, 111, 240
Property, plant and equipment
194-199
48, 131
233
105
Provisions
Regulatory environment
Related party transactions
Relations with shareholders
150-152
Remuneration
36
83, 89
10, 35-36
175, 207
20-23
156, 158, 200
8-10
195-199
33-34
239
11-17
41, 113
48
50-54
77, 161
67-69
157
217-219
45
44
106
178-184
160
167
178
14
200, 235
104
120-141
92-121
Remuneration Policy
www.astrazeneca.com/remunerationpolicy2017
212-216
Research and Development
9, 24-27, 155, 194
59-60
Reserves
137-138
Respiratory
143
Restructuring
38-40, 108
Results of operations 2018
3, 86, 106, 185, 232
Risk
1, 4, 165
192-193
38-41
46-47
Sales and Marketing
Sales by geographical area
Sales by therapy area
Sarbanes-Oxley Act
22, 42-46
Science Committee
35, 78-79, 155
Segment information
1
162
Senior management (SET)
Share capital
157, 162
Share repurchase
210
74-91
Shareholder information
Strategic priorities
86
Sustainability: supplementary information
184, 186
62-66
81, 162, 178
77
70-73, 220-230
29-32, 43
3, 30-32, 78, 160
2, 7, 160
90
107
165-167
93, 96-97
185
86, 185
232-237
2, 18-23
231
142-210
Taxation
84, 90, 156, 163-165, 207
38, 40, 109
Tax information for shareholders
239-242
Trade and other payables
210
Trade and other receivables
201-204
Trade marks
6, 21, 29, 78-79
Values and Purpose
33, 241
41
144
Young Health Programme
ZS Pharma
157, 236-237
83, 177-178
83, 174, 191
238
8
48
84, 111, 114
AstraZeneca Annual Report & Form 20-F Information 2018 / Index
243
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 220 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 2018 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 2018; 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 52 countries contained in the
IQVIA database, which amounted to
approximately 88% (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.
244
AstraZeneca Annual Report & Form 20-F Information 2018 / Additional Information Design and production
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Board photography
Marcus Lyon
SET photography
Scott Nibauer
Graham Carlow
Hannes Kirchhof
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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AstraZeneca Annual Report & Form 20-F Information 2018 / [Section]Additional InformationPage Heading 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/annualreport2018
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AstraZeneca Annual Report & Form 20-F Information 2018 / Additional Information