What science can do
AstraZeneca Annual Report and Form 20-F Information 2019
Welcome
We are a global, science-led, patient-focused
pharmaceutical company and in this Annual Report we
report on the progress we made in 2019 in pushing the
boundaries of science to deliver life-changing medicines.
What
science
can do...
Next?
Our strategic priorities are focused on delivering value to patients and society.
Delivering growth and therapy
area leadership
by supplying medicines that can
transform care and ensuring that
they reach patients who need them.
Accelerating innovative science
Being a great place to work
in search of solutions that prevent,
treat, and even cure, some of the
world’s most serious health
challenges.
by living our Values and behaviours,
delivering as an enterprise team and
leading in sustainability.
See Delivering growth from page 31.
See Innovative science from page 25.
See A great place to work: Employees from page 44 and
Contributing to society from page 49.
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:
Antibody-drug conjugates (ADCs)
ADCs are among the most exciting
technologies for the treatment of cancer.
AstraZeneca is developing novel ADC
targets that include therapy-resistant
tumours and cancer stem cells. We are
building a library of payloads, and using
our antibody engineering expertise for
site-s(cid:83)ecific con(cid:77)ugation and
next-generation ADCs.
Contents
Financial highlights
Total Revenue*
Up 10% at actual rate of exchange to $24,384
million (up 13% at CER), comprising Product
Sales of $23,565 million (up 12%; 15% at
CER) and Collaboration Revenue of $819
million (down 21%; 20% at CER)
(cid:49)et cash (cid:432)o(cid:90) fro(cid:80) o(cid:83)erating activities
Up 13% at actual rate of exchange to $2,969
million
2019
2018
2017
$24.4bn
$24,384m
$22,090m
$22,465m
2019
2018
2017
$3.0bn
(cid:53)e(cid:83)orted o(cid:83)erating (cid:83)rofit
Down 14% at actual rate of exchange to
$2,924 million (down 16% at CER)
(cid:38)ore o(cid:83)erating (cid:83)rofit
Up 13% at actual rate of exchange to
$6,436 million (up 13% at CER)
2019
2018
2017
$2.9bn
$2,924m
$3,387m
$3,677m
2019
2018
2017
$6.4bn
$2,969m
$2,618m
$3,578m
$6,436m
$5,672m
$6,855m
Reported EPS
Down 40% at actual rate of exchange to $1.03
(down 44% at CER)
Core EPS
Up 1% at actual rate of exchange to $3.50
(0% at CER)
2019
2018
2017
$1.03
$1.03
$1.70
$2.37
2019
2018
2017
$3.50
$3.50
$3.46
$4.28
Denotes a scale break. Throughout this Annual Report, all
bar chart scales start from zero. We use a scale break where
charts of a di(cid:428)erent (cid:80)agnitude(cid:15) but the sa(cid:80)e unit of
measurement, are presented alongside each other.
For more information in relation to the inclusion of
(cid:53)e(cid:83)orted (cid:83)erfor(cid:80)ance(cid:15) (cid:38)ore financia(cid:79) (cid:80)easures and
constant exchange rate (CER) growth rates as used in this
Annual Report, see the Financial Review from page 78.
* As detailed from page 173, Total Revenue consists of Product Sales and Collaboration Revenue.
Key
For more information
within this Annual Report
For more information, see
www.astrazeneca.com
BV Denotes sustainability
information independently
assured by Bureau Veritas
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Strategic Report
AstraZeneca at a glance 2
Chairman’s Statement 4
Chief Executive
(cid:50)(cid:433)cer(cid:350)s (cid:53)evie(cid:90) 5
Business model and
life-cycle of a medicine 8
Healthcare in a changing
world 11
Strategy 17
Key Performance Indicators 20
Business Review 24
Therapy Area Review 54
> Oncology 54
> Cardiovascular, Renal
& Metabolism 60
> Respiratory 66
> Other Disease Areas 71
Risk Overview 74
Financial Review 78
Corporate Governance
Chairman’s Introduction 96
Corporate Governance
Overview 97
Board of Directors 98
Senior Executive Team 100
Corporate Governance
Report 102
Science Committee Report 113
Nomination and Governance
Committee Report 114
Audit Committee Report 116
Directors’
Remuneration Report 125
Remuneration Policy 149
Financial Statements
Preparation of the Financial
Statements and Directors’
Responsibilities 161
Auditors’ Report 162
Consolidated Statements 168
Group Accounting Policies 172
Notes to the Group
Financial Statements 180
Group Subsidiaries
and Holdings 227
Company Statements 231
Company Accounting
Policies 233
Notes to the Company
Financial Statements 234
Group Financial Record 236
Additional Information
Development Pipeline 238
Patent Expiries of Key
Marketed Products 243
Risk 246
Shareholder Information 258
Directors’ Report 263
Sustainability: supplementary
information 266
Trade Marks 267
Glossary 268
Cautionary statement
regarding forward-looking
statements 272
This Annual Report is also available on our website,
www.astrazeneca.com/annualreport2019
AstraZeneca Annual Report & Form 20-F Information 2019 / Contents
1
AstraZeneca
at a glance
We are a global, science-led, patient-focused,
pharmaceutical company. We have transformed our
pipeline and returned to growth. As a result of continued
pipeline delivery and commercial execution, we are now
entering a new stage in our journey.
This is focused on enhanced innovation and the
sustainable delivery of life-changing medicines that
improve patient outcomes and health experience.
Our strategic priorities
Strategy from page 17 and
Key Performance Indicators
from page 20.
A science-led
innovation strategy
Innovative science from page 25.
Broad R&D platform in
three main areas
Innovative science from page 25 and
Therapy Area Review from page 54.
(cid:53)e(cid:432)ect ho(cid:90) (cid:90)e are
working to achieve
our Purpose: to push
the boundaries of
science to deliver
life-changing
medicines
Distinctive R&D
capabilities
Small molecules,
biologics, protein
engineering and
innovative delivery
devices, as well as
ne(cid:90) scientific
modalities, new
technologies and
new biology
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
1. Deliver Growth and Therapy Area Leadership
2. Accelerate Innovative Science
3. Be a Great Place to Work
8
new molecular entities (NMEs) in Phase III/
pivotal Phase II or under regulatory review
covering 13 indications
2019
2018
2017
2016
8
8
11
12
Cardiovascular, Renal
& Metabolism
We are committed
to the seamless
management of heart
failure, cardiovascular,
renal and metabolic
diseases, improving
patient outcomes and
decreasing the
mortality rate
Respiratory
We aim to transform
the treatment of
respiratory diseases
through our inhaled
combination
medicines, biologics
for unmet medical
need and scientific
advances, with the
ambition of achieving
remission or even
cures for patients
Other Disease Areas
We have medicines
and vaccines in other
disease areas that
have an important
impact for patients
Portfolio of specialty and
primary care medicines
(Product Sales)
$8,667m
37% of total
2018: $6,028m
2017: $4,024m
$6,906m
29% of total
2018: $6,710m
2017: $7,266m
$5,391m
23% of total
2018: $4,911m
2017: $4,706m
$2,601m
11% of total
2018: $3,400m
2017: $4,156m
Product Sales declined
by(cid:98)(cid:21)(cid:23)(cid:8) (cid:11)(cid:21)(cid:20)(cid:8) at (cid:38)(cid:40)(cid:53)(cid:12) and
represented 11% of total
Product Sales, down from
16% in 2018. This included
Nexium sales down by 13%
(11% at CER) to $1,483
million
Sales growth of 44%
(47% at CER), including:
Sales growth of 3%
(6% at CER), including:
Sales growth of 10% in the
year (13% at CER), including:
Tagrisso sales of $3,189
million, representing growth
of 71% (74% at CER)
Imfinzi sales of $1,469
million, representing growth
of 132% (133% at CER)
(cid:47)(cid:92)n(cid:83)(cid:68)(cid:85)z(cid:68) sales of $1,198
million, representing growth
of 85% (89% at CER)
The performance of legacy
medicines included a decline
in Faslodex sales of 13%
(11% at CER) to $892 million,
re(cid:432)ecting the (cid:79)aunch of
multiple generic medicines
(cid:37)(cid:85)i(cid:79)in(cid:87)(cid:68) sales of $1,581
million, representing growth
of 20% (23% at CER), due to
continued patient uptake for
ACS and post-MI
Farxiga sales of $1,543
million, with growth of 11%
(cid:11)(cid:20)(cid:23)(cid:8) at (cid:38)(cid:40)(cid:53)(cid:12)(cid:15) re(cid:432)ecting
pricing pressure in the US
and a sa(cid:79)es increase of(cid:98)(cid:23)(cid:19)(cid:8)
in Emerging Markets (48% at
CER) to $471 million
(cid:38)(cid:85)(cid:72)(cid:86)(cid:87)(cid:82)(cid:85) sales of $1,278
million, down 11% (8%
at (cid:38)(cid:40)(cid:53)(cid:12)(cid:15) re(cid:432)ecting generic
co(cid:80)(cid:83)etition and the e(cid:428)ect of
volume-based procurement
in China
(cid:54)(cid:92)m(cid:69)i(cid:70)(cid:82)(cid:85)(cid:87) sales of $2,495
million, down 3% (stable
CER), as competitive price
pressures in the US
continued
(cid:51)(cid:88)(cid:79)mi(cid:70)(cid:82)(cid:85)(cid:87) sales of $1,466
million, representing growth
of 14% (18% at CER), with
Emerging Market sales
up 20% (24% at CER)
representing 81% of global
sales
(cid:41)(cid:68)(cid:86)(cid:72)n(cid:85)(cid:68) sales of $704 million,
up by 137% (139% at CER),
with strong sales growth in
the US, Europe and Japan
2
AstraZeneca Annual Report & Form 20-F Information 2019 / Strategic Report
Oncology. See page 54.
Cardiovascular, Renal & Metabolism. See page 60.
Respiratory. See page 66.
S
t
r
a
t
e
g
i
c
R
e
p
o
r
t
Global commercial
presence, with strength
in Emerging Markets
(Product Sales)
Delivering growth
from page 31.
Our talented and diverse
employees
Committed to attracting, retaining
and developing a talented and
diverse workforce united in the
pursuit of our Purpose and living
our Values
A great place to work: Employees from
page 44.
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 51.
Our capital allocation priorities
Striking a balance between
the(cid:98)interests of the business(cid:15)
our(cid:98)financia(cid:79) creditors and
shareholders, and supporting
our(cid:98)(cid:83)rogressive dividend (cid:83)o(cid:79)icy
Financial Review from page 78.
1 Bri(cid:79)inta(cid:15)(cid:3)(cid:55)a(cid:74)ri(cid:86)(cid:86)(cid:82)(cid:15)(cid:3)Imfinzi(cid:15)(cid:3)Lynparza(cid:15)(cid:3)
(cid:38)a(cid:79)(cid:84)(cid:88)en(cid:70)e(cid:15)(cid:3)(cid:41)ar(cid:91)i(cid:74)a(cid:15)(cid:3)L(cid:82)(cid:78)e(cid:79)ma(cid:15)(cid:3)(cid:41)a(cid:86)enra(cid:15)(cid:3)
Be(cid:89)e(cid:86)pi(cid:3)and(cid:3)Breztri(cid:17)
2 In April 2019, the Company completed a
placing of 44,386,214 new Ordinary Shares
of $0.25 each in the Company. For more
information, see page 263.
Emerging Markets
US
Europe
$8,165m
35% of total
2018: $6,891m
2017: $6,149m
$7,747m
33% of total
2018: $6,876m
2017: $6,169m
$4,350m
18% of total
2018: $4,459m
2017: $4,753m
Product Sales increased by
18% (24% at CER). New
Medicines1 represented 23%
of Emerging Market sales in
the year, up from 15% in 2018
Product Sales increased by
(cid:20)(cid:22)(cid:8)(cid:15) re(cid:432)ecting the success
of the new Oncology
medicines
Product Sales declined by 2%
(cid:11)gre(cid:90) (cid:21)(cid:8) at (cid:38)(cid:40)(cid:53)(cid:12)(cid:15) re(cid:432)ecting a
strong performance by our
(cid:50)nco(cid:79)ogy (cid:80)edicines(cid:15) o(cid:428)set by a
decline in Nexium and legacy
Respiratory medicines
70,600
employees
2018: 64,600
2017: 61,100
45.4%
of our senior
ro(cid:79)es are fi(cid:79)(cid:79)ed
by women
91
manuscripts published by
our scientists in high-impact
peer-reviewed journals
Established Rest
of(cid:98)(cid:58)or(cid:79)d
$3,303m
14% of total
2018: $2,823m
2017: $3,081m
Product Sales grew by 17%
(cid:11)(cid:20)(cid:27)(cid:8) at (cid:38)(cid:40)(cid:53)(cid:12) re(cid:432)ecting the
strong performance of New
Medicines in Japan. We are
also impacted by divestments
in Canada and (cid:54)(cid:92)m(cid:69)i(cid:70)(cid:82)(cid:85)(cid:87)
analogues competition in
Australia
>3,100
employees with PhDs
3
7
1
4
5
6
2
9
8
Strategic R&D centres
1. Cambridge, UK (HQ)
2. Gaithersburg, MD, US
3. Gothenburg, Sweden
Other R&D centres and offices
4. South San Francisco, CA, US
5. Boston, MA, US
6. New York, NY, US
7. Alderley Park and Macclesfield, UK
8. Shanghai, China
9. Osaka, Japan
Priority
Priority
Priority
1
Access to healthcare
2
Environmental
protection
3
Ethics and transparency
100%
of employees trained
in Code of Ethics
Distributions to
shareholders
Dividends
Proceeds from issue
of shares2
Total
$3,592m
2018: $3,484m
2017: $3,519m
$(3,525)m
2018: $(34)m
2017: $(43)m
$67m
2018: $3,450m
2017: $3,476m
R&D expenditure
Credit rating
(Standard & Poor’s)
Credit rating
(Moody’s)
$6,059m
2018: $5,932m
2017: $5,757m
BBB+
Long-term:
stable outlook
A3
Long-term:
negative outlook
AstraZeneca Annual Report & Form 20-F Information 2019 / AstraZeneca at a glance
3
(cid:38)hair(cid:80)an(cid:350)s
(cid:54)tate(cid:80)ent
(cid:44)n the first fu(cid:79)(cid:79) year of our return to (cid:51)roduct (cid:54)a(cid:79)es gro(cid:90)th(cid:15)
(cid:90)e (cid:80)ade good (cid:83)rogress in (cid:79)ine (cid:90)ith our strategy. (cid:58)e
antici(cid:83)ate (cid:21)(cid:19)(cid:21)(cid:19) to be another year of (cid:83)rogress.
“ (cid:47)oo(cid:78)ing ahead(cid:15) (cid:358)(cid:90)e (cid:90)i(cid:79)(cid:79) (cid:80)aintain our
focus on e(cid:91)ecuting a strategy centred
on science and (cid:83)atients.(cid:353)
$2.80
Full-year dividend of
$2.80 per share
(cid:37)road-based (cid:83)rogress
AstraZeneca’s financial performance in 2019
reflected a year of innovation for patients.
Results from our New Medicines1 and
Emerging Markets accompanied positive
news for patients and growing sales in all
three of our therapy areas. This balance
across our medicines and regions is matched
by a balance across primary and specialty
care treatments, which, together with our
healthy pipeline of candidate medicines,
forms a firm foundation for what we believe
will be growth in the coming years.
(cid:53)es(cid:83)onding to a changing (cid:90)or(cid:79)d
Our return to Product Sales growth also
reflects our success in responding to a
changing world. It is a world of economic
growth and increasing wealth, of a growing
and ageing global population and challenged
by an increasing burden of chronic and
non-communicable diseases.
It is also a world of pricing pressures and
of strong competition in which unparalleled
scientific and technological advances are
transforming both the pharmaceutical sector
and people’s ability to manage their own health.
Success will come to those companies able to
grasp the opportunities offered and overcome
the challenges faced. The Board and I are
encouraged by AstraZeneca’s re-emergence as
a science leader, and how it is embracing those
opportunities and driving change in the industry.
Nowhere is change more evident than in the
US, where we are working with policymakers
to ensure patients continue to have access
to the medicines they need. We are actively
supporting solutions that provide access
and affordability while continuing to support
scientific innovation. These include efforts
to reform the system of rebates, ensuring
patients are benefiting from the discounts
we provide and the broader implementation
of value-based reimbursement models.
(cid:58)or(cid:78)ing (cid:90)ith sta(cid:78)eho(cid:79)ders
We are only able to achieve this because of
the strong team Pascal has assembled at
AstraZeneca. But driving change only
happens as a result of engaging successfully
with a wide range of stakeholders beyond our
shareholders – employees and patients,
healthcare providers and governments,
suppliers and the communities in which we
operate. We report on how we do that in the
Corporate Governance Report from page 104
and I have seen this with my own eyes when
representing AstraZeneca across the world.
(cid:47)eading in sustainabi(cid:79)ity
Leading in science means we have a
responsibility to take a lead in applying the
science to the world in which we live. It is why
I am proud of our Ambition Zero Carbon
strategy announced at the World Economic
Forum in January 2020 to eliminate emissions
by 2025 and be carbon negative across the
entire value chain by 2030.
(cid:21)(cid:19)(cid:20)(cid:28) (cid:83)erfor(cid:80)ance and (cid:90)hat(cid:350)s ne(cid:91)t
With Product Sales in 2019 up by 12% (15%
at CER), we delivered a year of strong revenue
growth. Good progress was also made with
a pipeline that produced an extensive number
of regulatory approvals and data readouts. Of
course, seeking to lead and push the boundaries
of science means that sometimes we do not
succeed and our results in 2019 reflect an
intangible asset impairment following the closure
of the Phase III STRENGTH trial for Epanova due
to its low likelihood of demonstrating a benefit
to patients.
So far as 2020 is concerned, we anticipate
another year of progress for AstraZeneca with
continued focus on improving operating leverage
and cash generation. In light of this, the Board
reaffirmed its commitment to the progressive
dividend policy; with a second interim dividend of
$1.90 per share taking the unchanged full-year
dividend per share to $2.80.
Our outlook for 2020 reflects our assessment
of the Covid-19 virus outbreak and assumes
an unfavourable impact lasting up to a few
months.
Looking ahead, and as we reinforce our
commitment to achieving our long-term climate
change and decarbonisation targets, we will
maintain our focus on executing a strategy
centred on science and patients.
Leif Johansson
(cid:38)hair(cid:80)an
4
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:54)trategic (cid:53)e(cid:83)ort
(cid:38)hief (cid:40)(cid:91)ecutive
(cid:50)(cid:433)cer(cid:350)s (cid:53)evie(cid:90)
(cid:36)stra(cid:61)eneca(cid:350)s first fu(cid:79)(cid:79) year of returning to (cid:51)roduct (cid:54)a(cid:79)es gro(cid:90)th
(cid:90)as (cid:80)ade (cid:83)ossib(cid:79)e by our abi(cid:79)ity to de(cid:79)iver our science to (cid:83)atients.
(cid:58)e are no(cid:90) (cid:80)a(cid:91)i(cid:80)ising and e(cid:91)(cid:83)(cid:79)oring the fu(cid:79)(cid:79) (cid:83)otentia(cid:79) of our
(cid:79)eading (cid:80)edicines(cid:15) ra(cid:83)id(cid:79)y advancing the ne(cid:91)t (cid:90)ave of science
and (cid:83)ositioning your (cid:38)o(cid:80)(cid:83)any for continued success.
(cid:54)
t
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a
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e
g
i
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(cid:53)
e
(cid:83)
o
r
t
(cid:352) (cid:56)nder(cid:83)inning our return to gro(cid:90)th
has been our science-(cid:79)ed innovation.(cid:353)
(cid:54)cience-(cid:79)ed gro(cid:90)th
In 2019, Product Sales grew by 12% (15% at
CER) to $23,565 million, driven by progress
in all three of our therapy areas.
Underpinning our return to growth has been
our science-led innovation. The panel to the
right lists the medicines we have launched
from our main therapy areas since 2013.
The two we launched in 2019, together with
the launch of roxadustat in 2020, brings the
total to 12. It is these 12 new medicines that
are largely responsible for the 59% growth
(62% at CER) in Product Sales of our New
Medicines1 in 2019 to almost $10 billion.
New Medicines also represented 42% of
total Product Sales, up from 30% in 2018.
2019 was also another exceptional year for
our science, with our pipeline producing
overwhelmingly positive news for patients.
This included a record number of 63
regulatory events, either submissions or
approvals for our medicines in major markets.
That performance is backed by a healthy
pipeline of high potential medicines, with the
number of Phase II and Phase III pipeline
progressions indicating our ability to deliver
longer-term sustainable growth. In 2019, we
had 22 pipeline progressions, and an average
of 24 progressions in each of the last four years.
(cid:39)e(cid:79)ivering our science for (cid:83)atients
Thanks to the strength of our science, we are
reaching patients quickly.
Oncology
As shown in the panel, our Oncology therapy
area has delivered six new cancer medicines
to patients since 2013 – meeting our 2020
target early.
Of these medicines, Lynparza, which we are
developing in collaboration with MSD, is now
approved in 73 countries and is the industry-
leading PARP inhibitor: approved in three
tumour types, ovarian, breast and pancreatic,
in 2019 Lynparza became the only PARP
inhibitor to show clinical benefit in a fourth
type – prostate. A particular benefit of
Lynparza is its administration in the 1st-line
setting which brings the goal of long-term
remission and cure closer. With annual sales
of more than $1 billion, Lynparza benefited
some 15,000 new patients in 2019.
It was also another strong year for Tagrisso,
which is approved in more than 87 countries
and is our largest selling medicine, with more
than 68,000 new patients in 2019. And, Imfinzi,
which is now approved in 15 countries for
bladder cancer and in 61 countries for lung
cancer, benefited some 25,000 new patients
in 2019 and achieved sales of more than
$1 billion.
We have a range of clinical trials under way
investigating the full potential of our marketed
medicines and there are plenty more projects
in our pipeline. Of course, in pushing the
boundaries of science, we sometimes
experience setbacks which, in 2019, included
disappointing results from the Phase III trial
of Imfinzi plus tremelimumab in Stage IV
non-small cell lung cancer. Overall, however,
we continue to make good progress
advancing new and exciting candidate
medicines designed to change the practice
of medicine and ultimately eliminate cancer
as a cause of death.
(cid:49)e(cid:90) (cid:80)edicines (cid:79)aunched since
(cid:21)(cid:19)(cid:20)(cid:22) (cid:11)date of first (cid:79)aunch(cid:12)
(cid:50)nco(cid:79)ogy
> Lynparza (cid:11)(cid:21)(cid:19)(cid:20)(cid:23)(cid:12) for ovarian(cid:15)
breast and (cid:83)ancreatic cancer
> Tagrisso (cid:11)(cid:21)(cid:19)(cid:20)(cid:24)(cid:12) for (cid:79)ung cancer
> Imfinzi (cid:11)(cid:21)(cid:19)(cid:20)(cid:26)(cid:12) for (cid:79)ung and
b(cid:79)adder cancer
> Calquence (cid:11)(cid:21)(cid:19)(cid:20)(cid:26)(cid:12) for (cid:80)ant(cid:79)e
ce(cid:79)(cid:79) (cid:79)y(cid:80)(cid:83)ho(cid:80)a and chronic
(cid:79)y(cid:80)(cid:83)hocytic (cid:79)eu(cid:78)ae(cid:80)ia
> Lumoxiti (cid:11)(cid:21)(cid:19)(cid:20)(cid:27)(cid:12) for hairy ce(cid:79)(cid:79)
(cid:79)eu(cid:78)ae(cid:80)ia
> Enhertu (cid:11)(cid:21)(cid:19)(cid:20)(cid:28)(cid:12) for breast
cancer
CVRM
> Qtern (cid:11)(cid:21)(cid:19)(cid:20)(cid:26)(cid:12) for diabetes
> Lokelma (cid:11)(cid:21)(cid:19)(cid:20)(cid:27)(cid:12) for
hy(cid:83)er(cid:78)a(cid:79)ae(cid:80)ia
> (cid:53)o(cid:91)adustat (cid:11)(cid:21)(cid:19)(cid:21)(cid:19)(cid:12) for anae(cid:80)ia
Respiratory
> Fasenra (cid:11)(cid:21)(cid:19)(cid:20)(cid:26)(cid:12) for severe
asth(cid:80)a
> Bevespi Aerosphere (cid:11)(cid:21)(cid:19)(cid:20)(cid:26)(cid:12) for
chronic obstructive (cid:83)u(cid:79)(cid:80)onary
disease (cid:11)(cid:38)(cid:50)(cid:51)(cid:39)(cid:12)
> Breztri Aerosphere (cid:11)(cid:21)(cid:19)(cid:20)(cid:28)(cid:12) for
(cid:38)(cid:50)(cid:51)(cid:39)
1 Brilinta plus Tagrisso, Imfinzi, Lynparza,
Calquence, Farxiga, Lokelma, Fasenra,
Bevespi and Breztri. Of our remaining
recently launched medicines, Enhertu and
roxadustat will be added to this list in due
course, while commercialisation rights of
Lumoxiti were licensed to Innate Pharma for
the US and EU in 2018.
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:38)hief (cid:40)(cid:91)ecutive (cid:50)(cid:433)cer(cid:350)s (cid:53)evie(cid:90)
5
(cid:38)hief (cid:40)(cid:91)ecutive
(cid:38)hief (cid:40)(cid:91)ecutive
(cid:50)(cid:433)cer(cid:350)s (cid:53)evie(cid:90)
(cid:50)(cid:433)cer(cid:350)s (cid:53)evie(cid:90)
continued
continued
59%
(cid:24)(cid:28)(cid:8) gro(cid:90)th (cid:11)(cid:25)(cid:21)(cid:8) at (cid:38)(cid:40)(cid:53)(cid:12) in
(cid:51)roduct (cid:54)a(cid:79)es of our (cid:49)e(cid:90)
(cid:48)edicines in (cid:21)(cid:19)(cid:20)(cid:28) to a(cid:79)(cid:80)ost
(cid:7)(cid:20)(cid:19) bi(cid:79)(cid:79)ion
(cid:25)(cid:22)
(cid:25)(cid:22) regu(cid:79)atory sub(cid:80)issions or
a(cid:83)(cid:83)rova(cid:79)s for our (cid:80)edicines in
(cid:80)a(cid:77)or (cid:80)ar(cid:78)ets
45%
(cid:58)o(cid:80)en no(cid:90) (cid:80)a(cid:78)e u(cid:83) (cid:77)ust over
(cid:23)(cid:24)(cid:8) of senior (cid:79)eaders today(cid:15)
co(cid:80)(cid:83)ared (cid:90)ith (cid:23)(cid:19)(cid:8) in (cid:21)(cid:19)(cid:20)(cid:21)
(cid:352) (cid:37)y harnessing the
un(cid:83)recedented
(cid:83)ossibi(cid:79)ities of science
and techno(cid:79)ogy(cid:15) by
transfor(cid:80)ing the (cid:90)ay
(cid:90)e (cid:90)or(cid:78) and by
engaging (cid:90)ith (cid:83)atients
in everything (cid:90)e do(cid:15)
(cid:44) a(cid:80) confident that
(cid:90)e (cid:90)i(cid:79)(cid:79) rea(cid:79)ise our
(cid:83)i(cid:83)e(cid:79)ine(cid:350)s (cid:83)otentia(cid:79) to
the full and deliver
continued success.(cid:353)
Perhaps the most exciting is Enhertu which
was approved in the US in December for the
treatment of HER2-positive breast cancer.
This is a difficult to treat cancer and, together
with partner Daiichi Sankyo, we are exploring
Enhertu’s full potential with five ongoing
pivotal trials and over 40 clinical trials planned
across HER2-expressing cancers.
CVRM
In our CVRM portfolio, Farxiga, our treatment
for diabetes, is now approved in more than
100 countries. While we received a Complete
Response Letter (CRL) from the FDA during
the year in respect of type-1 diabetes, the real
excitement with this medicine is in following
the science to explore its potential to go
beyond diabetes and treat patients with heart
failure. Here, our trials are demonstrating that
Farxiga can reduce the risk of heart failure in
patients with, and without, diabetes.
We are also following the science in our
pipeline by, for example, exploring diseases
such as non-alcoholic fatty liver disease,
or other innovative approaches, including
regenerating the heart by growing heart
muscle back.
Respiratory
Finally, in our Respiratory portfolio, Fasenra
is now approved in more than 50 countries
for the treatment of severe asthma with an
eosinophilic phenotype. First approved in
2017, it was our first respiratory biologic
medicine and has already helped 50,000
patients. We continue to explore Fasenra’s
potential in treating severe asthma as well
as other diseases where eosinophils are
believed to play a major role.
Approvals for Breztri Aerosphere (PT010) in
China and Japan in 2019 on the strength of
the Phase III KRONOS trial, were followed by
positive results from its Phase III ETHOS trial
which showed a significant reduction in the
rate of moderate to very severe COPD
exacerbations. This evidence will be used in
response to the CRL we received from the
FDA in response to our regulatory submission.
We are also researching tezepelumab which
has the potential to treat a broad population
of asthma patients currently ineligible for
biologic therapies.
Our Respiratory therapy area is expanding
to include immunology, where candidate
medicines include anifrolumab, a potential
treatment for lupus, we hope to bring soon
to patients who have only seen one new
treatment in some 60 years.
(cid:36) g(cid:79)oba(cid:79)(cid:15) ba(cid:79)anced business
The contribution that each of our three
therapy areas is making in delivering for
patients is symptomatic of diversity and
greater balance in our Company: for the first
time in 2019 around half our Product Sales
were in a specialty care and half in a primary
care setting.
Balance is also evident in our global
commercial presence, where we operate
across all geographies. We have particular
strength in Emerging Markets, where Product
Sales increased by 18% (24% at CER) in 2019,
with growth in China of 29% (35% at CER).
In the US, Product Sales increased by 13%,
while in Europe they declined by 2% in the
year (up by 2% at CER). In Japan, Product
Sales increased by 27% (26% at CER).
None of this commercial success would
have been possible without the operational
excellence that underpinned 106 successful
market launches during the year and 31
independent inspections of our manufacturing
sites with no critical observations.
(cid:37)eing a great (cid:83)(cid:79)ace to (cid:90)or(cid:78)
To be successful, we must remain a great
place to work. This is because our innovation
requires breakthrough ideas that can only
come from people encouraged to be
themselves at work, enabled to contribute
to their full potential, and empowered to
challenge conventional thinking. For us that
means being an inclusive and diverse
workplace, attracting and retaining the best
people. For example, women now make up
just over 45% of senior leaders today,
compared with 40% in 2012, and we are
aiming to reach 50% by 2022.
To ensure our organisation is best able to deliver
our ambition, in January 2019, we announced
changes that created therapy area-focused
R&D units responsible for discovery through
to late-stage development – one for Oncology
and one for BioPharmaceuticals (CVRM and
Respiratory). While we continue to make
decisions on a Group-wide basis based on
overall therapeutic considerations, these
changes have enabled us to follow the science
by accelerating promising early-stage assets
and life-cycle management programmes, as
well as making us more agile and collaborative
in the way we work.
(cid:25)
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:54)trategic (cid:53)e(cid:83)ort
(cid:54)
t
r
a
t
e
g
i
c
(cid:53)
e
(cid:83)
o
r
t
(cid:39)e(cid:79)ivering our strategy
(cid:56)nderstanding disease better(cid:29) (cid:55)ransfor(cid:80)ing
the discovery and deve(cid:79)o(cid:83)(cid:80)ent of innovative
ne(cid:90) (cid:80)edicines. (cid:54)ee (cid:83)age (cid:21)(cid:26).
(cid:53)edefining c(cid:79)inica(cid:79) tria(cid:79)s(cid:29) (cid:48)a(cid:78)ing c(cid:79)inica(cid:79)
tria(cid:79)s better and easier for (cid:83)atients. (cid:54)ee
(cid:83)age (cid:22)(cid:19).
(cid:44)(cid:80)(cid:83)roving (cid:83)atient access(cid:29) (cid:40)(cid:91)(cid:83)(cid:79)oring ne(cid:90)
va(cid:79)ue-based (cid:83)ay(cid:80)ent (cid:80)ode(cid:79)s. (cid:54)ee (cid:83)age (cid:22)(cid:25).
(cid:44)(cid:80)(cid:83)roving outco(cid:80)es for (cid:83)atients(cid:29)
(cid:40)stab(cid:79)ishing (cid:43)ea(cid:79)th (cid:44)nnovation (cid:43)ubs to
de(cid:79)iver (cid:83)atient-focused disease (cid:80)anage(cid:80)ent
so(cid:79)utions. (cid:54)ee (cid:83)age (cid:23)(cid:22).
(cid:37)eing a great (cid:83)(cid:79)ace to (cid:90)or(cid:78)(cid:29) (cid:36)ttracting and
retaining the best (cid:83)eo(cid:83)(cid:79)e. (cid:54)ee (cid:83)age (cid:23)(cid:27).
(cid:36)(cid:80)bition (cid:61)ero (cid:38)arbon(cid:29) (cid:50)ur strategy to
e(cid:79)i(cid:80)inate e(cid:80)issions by (cid:21)(cid:19)(cid:21)(cid:24) and be carbon
negative by (cid:21)(cid:19)(cid:22)(cid:19). (cid:54)ee (cid:83)age (cid:24)(cid:22).
Global Product Sales by therapy area
Product
Sales
$m
8,667
6,906
5,391
2,601
23,565
Actual
growth
%
2019
CER
growth
%
Product
Sales
$m
Actual
growth
%
2018
CER
growth
%
Product
Sales
$m
Actual
growth
%
2017
CER
growth
%
44
3
10
(24)
12
47
6,028
50
49
4,024
19
19
6
13
6,710
4,911
(21)
3,400
15
21,049
(8)
4
(18)
4
(8)
3
(19)
7,266
4,706
4,156
4
20,152
(10)
(1)
(18)
(5)
(10)
(1)
(17)
(5)
Oncology
Cardiovascular, Renal
& Metabolism
Respiratory
Other Disease Areas
Total
This announcement builds on our
longstanding commitment to leading in
sustainability and contributing to society.
For example, 2019 was the fifth anniversary
of our Healthy Heart Africa programme. It was
also the tenth year of our award-winning
Young Health Programme where, with our
recently announced partnership with UNICEF,
we will have a truly global disease prevention
programme working in some of the hardest
to reach areas of the world.
(cid:50)ur (cid:79)ong-ter(cid:80) future
Our decarbonisation plans for the planet are
for the long term. Our Company is also for the
long term. As well as delivering our science for
patients today, we have ambitious future plans
built on our healthy pipeline. By harnessing
the unprecedented possibilities of science
and technology, by transforming the way
we work and by engaging with patients in
everything we do, I am confident that we will
realise our pipeline’s potential to the full and
deliver continued success.
That confidence stems from the talented team
we can draw on in AstraZeneca, as well as our
many partners, and the continued support of
Leif and the Board of Directors. I am grateful
to them all.
(cid:51)asca(cid:79) (cid:54)oriot
(cid:38)hief (cid:40)(cid:91)ecutive (cid:50)(cid:433)cer
(cid:58)or(cid:78)ing (cid:90)ith (cid:83)atients to de(cid:79)iver (cid:80)ore
As we accelerate growth, our strategy is
focused on exploring the full potential of our
leading medicines and advancing our science.
For us that means continued innovation – both
in our science and the way we work.
Throughout this Annual Report and listed to
the right are examples of how we are doing
that, including ideas which we crowdsourced
from employees.
Putting patients at the heart of what we do
is central to those efforts and an example of
how we live our Values. That means
recognising patients as people first and
working with them to help us innovate and
deliver advances across everything that a
patient experiences – from prevention and
awareness, diagnosis, treatment and
post-treatment to wellness.
As the case studies also indicate, we are
using digital technology more generally to
transform the way we work and reimagine
healthcare across all areas, from R&D to
Commercial, and from Operations to our
enabling units.
(cid:54)ustaining the (cid:83)(cid:79)anet
We are a Company that has long recognised
the interconnection between business growth,
the needs of society and the limitations of our
planet. Climate change is an urgent threat to
public health, the environment and the
sustainability of the global economy. Since
2015, we have reduced our carbon emissions
from operations by almost one third and our
water consumption by almost one fifth. But
now is the time to act even faster and, in
January 2020, we announced an ambitious
$1 billion programme for zero carbon
emissions from our global operations by 2025
and to ensure our entire value chain is carbon
negative by 2030. This would bring forward
our decarbonisation plans by more than
a decade.
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:38)hief (cid:40)(cid:91)ecutive (cid:50)(cid:433)cer(cid:350)s (cid:53)evie(cid:90)
7
Business model
and (cid:79)ife-cyc(cid:79)e of
a(cid:98)(cid:80)edicine
AstraZeneca at a glance summarises our business.
In this section, we review our business model – how
(cid:90)e create financia(cid:79) and non-financia(cid:79) va(cid:79)ue and the
resources (cid:90)e need in order to bring benefits to (cid:83)atients.
Who we are
(cid:50)ur (cid:51)ur(cid:83)ose
(cid:58)e (cid:83)ush the boundaries of science to de(cid:79)iver (cid:79)ife-
changing medicines.
(cid:50)ur (cid:51)ur(cid:83)ose under(cid:83)ins everything (cid:90)e do. (cid:44)t gives us
a reason to co(cid:80)e to (cid:90)or(cid:78) every day. (cid:44)t re(cid:80)inds us (cid:90)hy
(cid:90)e e(cid:91)ist as a (cid:38)o(cid:80)(cid:83)any. (cid:44)t he(cid:79)(cid:83)s us de(cid:79)iver benefits to
(cid:83)atients and create va(cid:79)ue for shareho(cid:79)ders.
(cid:36) focus on (cid:83)atients.
(cid:58)e ai(cid:80) to i(cid:80)(cid:83)rove the entire (cid:83)atient e(cid:91)(cid:83)erience and
de(cid:79)iver the hea(cid:79)th outco(cid:80)es that (cid:83)eo(cid:83)(cid:79)e care about (cid:80)ost
so that they can en(cid:77)oy fu(cid:79)fi(cid:79)(cid:79)ing (cid:79)ives. (cid:58)e can do that
better if (cid:90)e (cid:90)a(cid:79)(cid:78) in (cid:83)atients(cid:350) shoes(cid:15) (cid:79)isten to their
e(cid:91)(cid:83)eriences and e(cid:80)bed their insights to innovate and
strengthen how we work.
(cid:50)ur (cid:57)a(cid:79)ues
(cid:58)e fo(cid:79)(cid:79)o(cid:90) the science.
(cid:58)e (cid:83)ut (cid:83)atients first.
(cid:58)e (cid:83)(cid:79)ay to (cid:90)in.
We do the right thing.
(cid:58)e are entre(cid:83)reneuria(cid:79).
(cid:50)ur (cid:57)a(cid:79)ues deter(cid:80)ine ho(cid:90) (cid:90)e (cid:90)or(cid:78) together and the
behaviours that drive our success. (cid:55)hey guide our
decision (cid:80)a(cid:78)ing and define our be(cid:79)iefs.
(cid:50)ur (cid:38)u(cid:79)ture
(cid:50)ur (cid:57)a(cid:79)ues foster a strong (cid:36)stra(cid:61)eneca cu(cid:79)ture in
(cid:90)hich our (cid:83)eo(cid:83)(cid:79)e are e(cid:80)(cid:83)o(cid:90)ered and ins(cid:83)ired to
(cid:80)a(cid:78)e a di(cid:428)erence to (cid:83)atients(cid:15) society and our (cid:38)o(cid:80)(cid:83)any.
(cid:37)y (cid:83)erfor(cid:80)ing as an enter(cid:83)rise tea(cid:80)(cid:15) co(cid:80)(cid:80)itting to
(cid:79)ife-(cid:79)ong (cid:79)earning and deve(cid:79)o(cid:83)(cid:80)ent and being cha(cid:80)(cid:83)ions
of inc(cid:79)usion and diversity(cid:15) (cid:90)e ensure that (cid:36)stra(cid:61)eneca
is a great (cid:83)(cid:79)ace to (cid:90)or(cid:78). (cid:36)(cid:79)(cid:79) of this is under(cid:83)inned by the
high ethica(cid:79) standards e(cid:80)bodied in our (cid:38)ode of (cid:40)thics
(cid:90)hich (cid:90)e e(cid:80)(cid:83)(cid:79)oy (cid:90)hen carrying out a(cid:79)(cid:79) as(cid:83)ects of our
business g(cid:79)oba(cid:79)(cid:79)y.
(cid:50)ur (cid:54)ustainabi(cid:79)ity
(cid:58)e are co(cid:80)(cid:80)itted to o(cid:83)erating in a (cid:90)ay that recognises
the interconnection between business growth, the needs
of society and the (cid:79)i(cid:80)itations of our (cid:83)(cid:79)anet.
(cid:50)ur sustainabi(cid:79)ity (cid:83)riorities in access to hea(cid:79)thcare(cid:15)
environ(cid:80)enta(cid:79) (cid:83)rotection(cid:15) and ethics and trans(cid:83)arency
su(cid:83)(cid:83)ort the de(cid:79)ivery of our business strategy.
(cid:37)usiness (cid:53)evie(cid:90) fro(cid:80) (cid:83)age (cid:21)(cid:23).
Why AstraZeneca?
(cid:58)e are a g(cid:79)oba(cid:79) (cid:83)har(cid:80)aceutica(cid:79) business
which has:
>(cid:36) science-(cid:79)ed innovation strategy
>(cid:36)n (cid:53)(cid:9)(cid:39) (cid:83)(cid:79)atfor(cid:80) across s(cid:80)a(cid:79)(cid:79) (cid:80)o(cid:79)ecu(cid:79)es
and bio(cid:79)ogics(cid:15) as (cid:90)e(cid:79)(cid:79) as ne(cid:90) scientific
modalities
>(cid:55)hree (cid:80)ain thera(cid:83)y areas(cid:29) (cid:50)nco(cid:79)ogy(cid:30)
(cid:38)ardiovascu(cid:79)ar(cid:15) (cid:53)ena(cid:79) (cid:9) (cid:48)etabo(cid:79)is(cid:80)(cid:30) and
(cid:53)es(cid:83)iratory
>(cid:36) (cid:83)ortfo(cid:79)io of s(cid:83)ecia(cid:79)ty care and (cid:83)ri(cid:80)ary
care medicines
>(cid:36) g(cid:79)oba(cid:79) foot(cid:83)rint
>(cid:36) ta(cid:79)ented and diverse (cid:90)or(cid:78)force (cid:90)ho are
co(cid:80)(cid:80)itted to our (cid:51)ur(cid:83)ose and (cid:90)ho (cid:79)ive our
Values
(cid:47)i(cid:83)id nano(cid:83)artic(cid:79)e brea(cid:78)ing the
endosomal membrane to release
(cid:80)odified (cid:80)(cid:53)(cid:49)(cid:36) into the cyto(cid:83)(cid:79)as(cid:80).
8
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Inputs
> Applying our
resources to
meet unmet
medical need
Outputs
> Improved health
> Returns to
shareholders
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What we do
(cid:50)ur business activities s(cid:83)an the entire (cid:79)ife-cyc(cid:79)e of a (cid:80)edicine.
(cid:43)o(cid:90) (cid:90)e create financia(cid:79) va(cid:79)ue
Investment
(cid:58)e invest in the discovery(cid:15) deve(cid:79)o(cid:83)(cid:80)ent(cid:15) (cid:80)anufacturing
and co(cid:80)(cid:80)ercia(cid:79)isation of our (cid:83)i(cid:83)e(cid:79)ine of innovative s(cid:80)a(cid:79)(cid:79)
(cid:80)o(cid:79)ecu(cid:79)e and bio(cid:79)ogic (cid:83)rescri(cid:83)tion (cid:80)edicines(cid:15) inc(cid:79)uding
targeted business deve(cid:79)o(cid:83)(cid:80)ent through co(cid:79)(cid:79)aboration(cid:15)
in-(cid:79)icensing and ac(cid:84)uisitions.
Revenue generation
(cid:58)e generate revenue fro(cid:80) (cid:51)roduct (cid:54)a(cid:79)es of our e(cid:91)isting
(cid:80)edicines and ne(cid:90) (cid:80)edicine (cid:79)aunches(cid:15) as (cid:90)e(cid:79)(cid:79) as fro(cid:80)
our co(cid:79)(cid:79)aboration activities. (cid:50)ur focus is on creating
(cid:80)edicines that faci(cid:79)itate (cid:83)rofitab(cid:79)e future revenue
generation(cid:15) (cid:90)hi(cid:79)e bringing benefits to (cid:83)atients.
Reinvestment
(cid:58)e reinvest in deve(cid:79)o(cid:83)ing the ne(cid:91)t generation of
innovative (cid:80)edicines and in our business to (cid:83)rovide
the (cid:83)(cid:79)atfor(cid:80) for future sources of revenue in the face
of (cid:79)osses of (cid:78)ey (cid:83)atents.
(cid:47)ife-cyc(cid:79)e of a (cid:80)edicine
(cid:53)esearch and deve(cid:79)o(cid:83)(cid:80)ent (cid:83)hases – duration(cid:29) (cid:24)–(cid:20)(cid:24) years
(cid:47)aunch (cid:83)hase – duration(cid:29) (cid:24)–(cid:20)(cid:24) years
(cid:20). (cid:41)ind (cid:83)otentia(cid:79) (cid:80)edicine
(cid:23). (cid:51)hase (cid:44)(cid:44) tria(cid:79)s
7. Launch new medicine
> (cid:44)dentify un(cid:80)et (cid:80)edica(cid:79) need and underta(cid:78)e
scientific research to identify (cid:83)otentia(cid:79) ne(cid:90)
medicines.
> (cid:44)nitiate (cid:83)rocess of see(cid:78)ing (cid:83)atent (cid:83)rotection.
(cid:21). (cid:51)re-c(cid:79)inica(cid:79) studies
> (cid:38)onduct (cid:79)aboratory and ani(cid:80)a(cid:79) studies to
understand if the (cid:83)otentia(cid:79) (cid:80)edicine is safe to
introduce into humans and in what quantities.
> (cid:39)eter(cid:80)ine (cid:79)i(cid:78)e(cid:79)y e(cid:433)cacy(cid:15) side e(cid:428)ect (cid:83)rofi(cid:79)e and
maximum dose estimates.
3. Phase I trials
> (cid:37)egin c(cid:79)inica(cid:79) tria(cid:79)s (cid:90)ith s(cid:80)a(cid:79)(cid:79) grou(cid:83)s of hea(cid:79)thy
hu(cid:80)an vo(cid:79)unteers (cid:11)s(cid:80)a(cid:79)(cid:79) (cid:80)o(cid:79)ecu(cid:79)es(cid:12) or (cid:83)atients
(cid:11)bio(cid:79)ogics(cid:12) to understand ho(cid:90) the (cid:83)otentia(cid:79)
(cid:80)edicine is absorbed into the body(cid:15) distributed
around it and excreted.
> (cid:39)eter(cid:80)ine a(cid:83)(cid:83)ro(cid:91)i(cid:80)ate dosage and identify side
e(cid:428)ects.
> (cid:38)onduct tria(cid:79)s on s(cid:80)a(cid:79)(cid:79)- to (cid:80)ediu(cid:80)-si(cid:93)ed
> (cid:53)aise a(cid:90)areness of (cid:83)atient benefit and a(cid:83)(cid:83)ro(cid:83)riate
grou(cid:83)s of (cid:83)atients to test e(cid:428)ectiveness and
to(cid:79)erabi(cid:79)ity of the (cid:80)edicine and deter(cid:80)ine
o(cid:83)ti(cid:80)a(cid:79) dose.
> Design Phase III trials to generate data
needed for regu(cid:79)atory a(cid:83)(cid:83)rova(cid:79)s and
(cid:83)ricing(cid:18)rei(cid:80)burse(cid:80)ent g(cid:79)oba(cid:79)(cid:79)y.
(cid:24). (cid:51)hase (cid:44)(cid:44)(cid:44) tria(cid:79)s
> (cid:40)ngage in tria(cid:79)s in a (cid:79)arger grou(cid:83) of
(cid:83)atients to gather infor(cid:80)ation about
e(cid:428)ectiveness and safety of the (cid:80)edicine
and eva(cid:79)uate the overa(cid:79)(cid:79) benefit(cid:18)ris(cid:78) (cid:83)rofi(cid:79)e.
> (cid:44)nitiate branding for the ne(cid:90) (cid:80)edicine in
(cid:83)re(cid:83)aration for its (cid:79)aunch.
(cid:25). (cid:53)egu(cid:79)atory sub(cid:80)ission and (cid:83)ricing
> (cid:54)ee(cid:78) regu(cid:79)atory a(cid:83)(cid:83)rova(cid:79)s for
(cid:80)anufacturing(cid:15) (cid:80)ar(cid:78)eting and se(cid:79)(cid:79)ing
the medicine.
> (cid:54)ub(cid:80)it c(cid:79)inica(cid:79) data to regu(cid:79)atory
authorities (cid:11)and(cid:15) if re(cid:84)uested(cid:15) generate
further data increasing(cid:79)y in rea(cid:79)-(cid:90)or(cid:79)d
settings(cid:12) to de(cid:80)onstrate the safety and
e(cid:433)cacy of the (cid:80)edicine to enab(cid:79)e the(cid:80)
to decide (cid:90)hether to grant regu(cid:79)atory
a(cid:83)(cid:83)rova(cid:79)s.
use, market and sell the medicine.
> (cid:38)(cid:79)inicians begin to (cid:83)rescribe the (cid:80)edicine and
(cid:83)atients begin to benefit.
> (cid:38)ontinuous(cid:79)y (cid:80)onitor(cid:15) record and ana(cid:79)yse re(cid:83)orted
side e(cid:428)ects. (cid:53)evie(cid:90) need to u(cid:83)date the side e(cid:428)ect
(cid:90)arnings to ensure that (cid:83)atients(cid:350) (cid:90)e(cid:79)(cid:79)being is
maintained.
> (cid:36)ssess rea(cid:79)-(cid:90)or(cid:79)d e(cid:428)ectiveness(cid:15) and o(cid:83)(cid:83)ortunities
to su(cid:83)(cid:83)ort (cid:83)atients and (cid:83)rescribers(cid:15) to achieve
(cid:80)a(cid:91)i(cid:80)u(cid:80) benefit fro(cid:80) the (cid:80)edicine.
(cid:27). (cid:51)ost-(cid:79)aunch research and deve(cid:79)o(cid:83)(cid:80)ent
> (cid:38)onduct studies to further understand the
benefit(cid:18)ris(cid:78) (cid:83)rofi(cid:79)e of the (cid:80)edicine in (cid:79)arger
and(cid:18)or additiona(cid:79) (cid:83)atient (cid:83)o(cid:83)u(cid:79)ations.
> (cid:47)ife-cyc(cid:79)e (cid:80)anage(cid:80)ent activities to broaden
understanding of the (cid:80)edicine(cid:350)s fu(cid:79)(cid:79) (cid:83)otentia(cid:79).
> (cid:38)onsider additiona(cid:79) diseases or as(cid:83)ects of disease
to be treated by(cid:15) or better (cid:90)ays of ad(cid:80)inistering(cid:15)
the medicine.
> (cid:54)ub(cid:80)it data (cid:83)ac(cid:78)ages (cid:90)ith re(cid:84)uests for (cid:79)ife-cyc(cid:79)e
(cid:80)anage(cid:80)ent to regu(cid:79)atory authorities for revie(cid:90)
and a(cid:83)(cid:83)rova(cid:79).
(cid:51)ost-e(cid:91)c(cid:79)usivity – duration (cid:21)(cid:19)(cid:14) years
(cid:28). (cid:51)ost-e(cid:91)c(cid:79)usivity
> (cid:51)atent e(cid:91)(cid:83)iry and generic entry.
> (cid:53)einvest(cid:80)ent 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.
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:37)usiness (cid:80)ode(cid:79) and (cid:79)ife-cyc(cid:79)e of a (cid:80)edicine
(cid:28)
Business model
and (cid:79)ife-cyc(cid:79)e
of a (cid:80)edicine
continued
What does our business model
re(cid:84)uire to be successfu(cid:79)(cid:34)
(cid:36) ta(cid:79)ented and diverse (cid:90)or(cid:78)force
(cid:58)e need to ac(cid:84)uire(cid:15) retain and deve(cid:79)o(cid:83) a
ta(cid:79)ented and diverse (cid:90)or(cid:78)force united in (cid:83)ursuit
of our (cid:51)ur(cid:83)ose and (cid:57)a(cid:79)ues and fostering a
strong AstraZeneca culture.
(cid:26)(cid:19)(cid:15)(cid:25)(cid:19)(cid:19)
e(cid:80)(cid:83)(cid:79)oyees
(cid:54)ee (cid:36) great (cid:83)(cid:79)ace to (cid:90)or(cid:78)(cid:29) (cid:40)(cid:80)(cid:83)(cid:79)oyees fro(cid:80) (cid:83)age (cid:23)(cid:23).
(cid:36) (cid:79)eadershi(cid:83) (cid:83)osition in science
(cid:58)e need to achieve scientific (cid:79)eadershi(cid:83) if (cid:90)e
are to de(cid:79)iver (cid:79)ife-changing (cid:80)edicines. (cid:55)o that
end(cid:15) (cid:90)e need to focus on innovative science(cid:15)
(cid:83)rioritise and acce(cid:79)erate our (cid:83)i(cid:83)e(cid:79)ine and
transfor(cid:80) our innovation and cu(cid:79)ture (cid:80)ode(cid:79).
(cid:54)ee (cid:44)nnovative science fro(cid:80) (cid:83)age (cid:21)(cid:24).
(cid:7)(cid:25).(cid:20)bn
invested in our science
Understand our stakeholders
(cid:58)e need to understand the factors and issues
that are (cid:80)ost i(cid:80)(cid:83)ortant to the various
stakeholders that interact with, and are
i(cid:80)(cid:83)acted by(cid:15) our business.
(cid:54)ee (cid:38)onnecting (cid:90)ith our sta(cid:78)eho(cid:79)ders fro(cid:80) (cid:83)age (cid:20)(cid:19)(cid:23).
(cid:33)(cid:20)(cid:21)(cid:19)(cid:80)
(cid:50)ur (cid:80)edicines i(cid:80)(cid:83)acted (cid:80)ore
than (cid:20)(cid:21)(cid:19) (cid:80)i(cid:79)(cid:79)ion (cid:83)atient (cid:79)ives in
(cid:21)(cid:19)(cid:20)(cid:28)
(cid:40)(cid:428)ective co(cid:79)(cid:79)aborations
(cid:58)e need business deve(cid:79)o(cid:83)(cid:80)ent(cid:15) s(cid:83)ecifica(cid:79)(cid:79)y
(cid:83)artnering(cid:15) (cid:90)hich is an i(cid:80)(cid:83)ortant e(cid:79)e(cid:80)ent of our
business (cid:80)ode(cid:79). (cid:44)t su(cid:83)(cid:83)(cid:79)e(cid:80)ents and strengthens
our (cid:83)i(cid:83)e(cid:79)ine and our e(cid:428)orts to achieve scientific
(cid:79)eadershi(cid:83).
(cid:33)(cid:26)(cid:22)(cid:19)
collaborations worldwide
(cid:54)ee (cid:37)usiness deve(cid:79)o(cid:83)(cid:80)ent on (cid:83)age (cid:23)(cid:19).
Commercialisation skills
(cid:58)e need a strong g(cid:79)oba(cid:79) co(cid:80)(cid:80)ercia(cid:79) (cid:83)resence and
s(cid:78)i(cid:79)(cid:79)ed (cid:83)eo(cid:83)(cid:79)e to ensure that (cid:90)e can successfu(cid:79)(cid:79)y
(cid:79)aunch our (cid:80)edicines(cid:15) that they are avai(cid:79)ab(cid:79)e (cid:90)hen
needed and that (cid:83)atients have access to the(cid:80).
(cid:33)(cid:20)(cid:19)(cid:19)
countries in which
we are active
(cid:54)ee (cid:39)e(cid:79)ivering gro(cid:90)th fro(cid:80) (cid:83)age (cid:22)(cid:20).
(cid:44)nte(cid:79)(cid:79)ectua(cid:79) (cid:83)ro(cid:83)erty (cid:11)(cid:44)(cid:51)(cid:12)
(cid:58)e need to create and (cid:83)rotect our (cid:44)(cid:51) rights.
(cid:39)eve(cid:79)o(cid:83)ing a ne(cid:90) (cid:80)edicine re(cid:84)uires significant
invest(cid:80)ent over (cid:80)any years(cid:15) (cid:90)ith no guarantee of
success. (cid:41)or our invest(cid:80)ents to be viab(cid:79)e(cid:15) (cid:90)e see(cid:78)
to (cid:83)rotect ne(cid:90) (cid:80)edicines fro(cid:80) being co(cid:83)ied for a
reasonab(cid:79)e (cid:83)eriod of ti(cid:80)e through (cid:83)atent (cid:83)rotection.
(cid:33)(cid:20)(cid:19)(cid:19)
countries where we
obtain (cid:83)atent (cid:83)rotection
(cid:54)ee (cid:44)nte(cid:79)(cid:79)ectua(cid:79) (cid:51)ro(cid:83)erty fro(cid:80) (cid:83)age (cid:23)(cid:20).
(cid:36) robust su(cid:83)(cid:83)(cid:79)y chain
(cid:58)e need a su(cid:83)(cid:83)(cid:79)y of high-(cid:84)ua(cid:79)ity (cid:80)edicines(cid:15)
(cid:90)hether fro(cid:80) one of the (cid:21)(cid:25) (cid:50)(cid:83)erations sites in
(cid:20)(cid:25) countries in (cid:90)hich (cid:90)e (cid:80)anufacture or the
(cid:7)(cid:20)(cid:23) bi(cid:79)(cid:79)ion (cid:90)e s(cid:83)end on the (cid:83)urchase of goods(cid:15)
services and active (cid:83)har(cid:80)aceutica(cid:79) ingredients
(APIs).
(cid:54)ee (cid:50)(cid:83)erations fro(cid:80) (cid:83)age (cid:22)(cid:26).
(cid:41)inancia(cid:79) strength
(cid:58)e need to be financia(cid:79)(cid:79)y strong(cid:15) inc(cid:79)uding
having access to e(cid:84)uity and debt finance(cid:15)
to bear the financia(cid:79) ris(cid:78) of investing in the
entire (cid:79)ife-cyc(cid:79)e of a (cid:80)edicine.
(cid:54)ee (cid:41)inancia(cid:79) (cid:53)evie(cid:90) fro(cid:80) (cid:83)age (cid:26)(cid:27).
(cid:7)(cid:20)(cid:23)bn
s(cid:83)ent (cid:90)ith su(cid:83)(cid:83)(cid:79)iers
(cid:7)(cid:22).(cid:19)bn
net cash (cid:432)o(cid:90) fro(cid:80)
o(cid:83)erating activities
(cid:20)(cid:19)
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:54)trategic (cid:53)e(cid:83)ort
How we add value
(cid:44)(cid:80)(cid:83)roved hea(cid:79)th
(cid:38)ontinuous scientific innovation is vita(cid:79) to
achieving sustainable healthcare which
creates va(cid:79)ue by(cid:29)
> i(cid:80)(cid:83)roving hea(cid:79)th outco(cid:80)es and
transfor(cid:80)ing the (cid:79)ives of (cid:83)atients (cid:90)ho
use our medicines
> enab(cid:79)ing hea(cid:79)thcare syste(cid:80)s to reduce
costs and increase e(cid:433)ciency
> i(cid:80)(cid:83)roving access to hea(cid:79)thcare and
hea(cid:79)thcare infrastructure
> he(cid:79)(cid:83)ing deve(cid:79)o(cid:83) the co(cid:80)(cid:80)unities in (cid:90)hich
(cid:90)e o(cid:83)erate through (cid:79)oca(cid:79) e(cid:80)(cid:83)(cid:79)oy(cid:80)ent and
(cid:83)artnering.
(cid:54)ee (cid:36) great (cid:83)(cid:79)ace to (cid:90)or(cid:78)(cid:29) (cid:38)ontributing to society
fro(cid:80) (cid:83)age (cid:23)(cid:28).
(cid:41)inancia(cid:79) va(cid:79)ue
(cid:53)evenue fro(cid:80) our (cid:51)roduct (cid:54)a(cid:79)es and
co(cid:79)(cid:79)aboration activities generates cash (cid:432)o(cid:90)(cid:15)
(cid:90)hich he(cid:79)(cid:83)s us(cid:29)
> fund our invest(cid:80)ent in science and
the business to drive (cid:79)ong-ter(cid:80) va(cid:79)ue
> fo(cid:79)(cid:79)o(cid:90) our (cid:83)rogressive dividend (cid:83)o(cid:79)icy
> meet our debt service obligations.
(cid:55)his invo(cid:79)ves ba(cid:79)ancing the interests of
our business(cid:15) financia(cid:79) creditors and
shareholders.
(cid:54)ee (cid:41)inancia(cid:79) (cid:53)evie(cid:90) fro(cid:80) (cid:83)age (cid:26)(cid:27).
Healthcare in a
changing world
Economic growth and increasing wealth, an
expanding and ageing global population, together with
technological change, are contributing to growth in the
pharmaceutical industry. However, social, economic
and political challenges remain in addressing unmet
medical need.
S
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g
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Increasing demand for healthcare
> Economic growth and increasing wealth have raised many people out of extreme
poverty
> The world’s population is growing and life expectancy is increasing
> While communicable diseases continue to pose a threat, especially in emerging
markets, chronic and non-communicable diseases (NCDs) are increasing
> Digital and other technologies are transforming the pharmaceutical industry and
enabling people to become more active participants in managing their healthcare
> Society’s expectations of business are changing and new challenges are being faced
A growing pharmaceutical sector
> The US is the largest pharmaceutical market, with 48% of global sales, while China
now represents 8%
> Pharmaceutical sales grew by 6.0% in 2019, led by emerging markets
> Global healthcare spending is projected to increase at an annual rate of 4.7% from
2018-2023
Opportunities and challenges for the sector
> Pricing, regulation and patent exclusivity present opportunities as well as challenges
> The sector is reshaping itself at the same time as it seeks to build trust with key
stakeholders
Increasing demand for healthcare
Growing and shifting global economy
The October 2019 World Economic Outlook of the International
Monetary Fund commented that global economic activity remained
weak after slowing sharply in the last three quarters of 2018. It
observed that rising trade and geopolitical tensions had increased
uncertainty about the future of the global trading system and
international cooperation more generally, taking a toll on business
confidence, investment decisions and global trade.
Over the longer term, in the two decades to 2018, global GDP rose by
some 80% to $82.5 trillion (World Bank). Figures from the International
Development Association of the World Bank indicate these decades
saw significant progress in many of the world’s poorest countries.
The extreme poverty rate fell from more than 50% to about 30%.
Child mortality declined from nearly 14% to 7%. Access to electricity
increased by 57% and the share of people using at least basic drinking
water and sanitation services increased by 22% and 41%, respectively.
At the same time, with markets such as China and India developing
and urbanising rapidly, 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 world’s second largest economy.
80%
Global GDP grew by nearly
80% between 1998 and 2018.
(World Bank)
30%
Between 1998 and 2018, the rate
of extreme poverty fell from more
than 50% to about 30%.
(International Development
Association)
AstraZeneca Annual Report & Form 20-F Information 2019 / Healthcare in a changing world
11
Immune system
response to a virus.
Healthcare in a
changing world
continued
Increasing demand for healthcare continued
Growing and ageing populations
As shown on the right, the world’s population is rising and, with more
people living longer, ageing. Indeed, in some markets, such as Japan
and Western Europe, where the number of people over 65 in 2023 is
forecast to be 29% and 22%, respectively, ageing populations mean
the size of the labour force will stagnate or decline. This will result in
a potential shortage of labour compared with the abundance of labour
that has fuelled growth since the 1970s.
Estimated world
population (UN, bn)
Life expectancy
(Economist Intelligence Unit, years)
2100
2050
2030
2019
11.2
9.7
8.5
7.7
2018
2022
73.7
74.7
Denotes a scale break.
Increasing burden of chronic disease
$47tn
The World Economic Forum has
estimated that NCDs could cost
the global economy a cumulative
$47 trillion in the 20 years to
2030.
An ageing population and changes in society are contributing to steady
increases in NCDs with developing countries particularly affected as
their populations grow. For example, nearly 425 million people were
living with diabetes in 2017; by 2045, that number is projected to
increase to 629 million.
41m
NCDs killed 41 million people in
2016, compared with 31 million
in 2000, up by one third. (WHO)
In particular, while urbanisation presents opportunities, such as greater
wealth and access to better healthcare, it also presents new hazards
and healthcare challenges, including 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
ageing, healthcare costs are rising as people are living longer.
85%
More than 85% of ‘premature’
deaths arising from NCDs occur
in low- to middle-income
countries. (WHO)
Digital and technical breakthroughs
Advances in digitisation, analytics, artificial intelligence (AI), machine
learning 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 of the patient.
38bn
It is estimated that by 2025, more
than 38 billion internet-connected
devices will be installed globally.
(Strategy Analytics)
At the same time, the digitisation of healthcare is improving prevention,
facilitating more accurate diagnoses and treatment regimens, and
putting more information in people’s hands, empowering them to play
a larger role in managing their own health.
Changing society and business
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. Society’s
view of business is also changing. Organisations are no longer valued
or trusted solely on the quality of products and services, and financial
performance, but also their engagement with employees, customers,
communities and society as a whole as well as the way in which they
consider sustainability issues, such as environmental or human
rights issues.
Workforce dynamics are also changing for many, as working for a
single employer is replaced by working independently in a number
of different roles.
12
AstraZeneca Annual Report & Form 20-F Information 2019 / Strategic Report
“ Organisations are no longer valued or
trusted solely on the quality of products
and services(cid:15) and financia(cid:79) (cid:83)erfor(cid:80)ance(cid:15)
but also their engagement with employees,
customers, communities and society as
a whole.”
S
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A growing pharmaceutical sector
Global pharmaceutical sales
As shown in the chart on the
right, global pharmaceutical
sales grew by 6.0% in 2019.
Established Markets saw an
average revenue increase of
4.9% and Emerging Markets
revenue grew at 10.1%. The US,
Japan, China, Germany and
France are the world’s top five
pharmaceutical markets by 2019
sales. In 2019, the US had 47.5%
of global sales (2018: 47.9%;
2017: 47.7%).
World ($bn)
US ($bn)
Europe ($bn)
2019
2018
2017
1,033
975
930
2019
2018
2017
491
467
440
2019
2018
2017
195
185
177
$1,033bn (6.0%)
$491bn (5.1%)
$195bn (5.5%)
Established ROW ($bn)
Emerging Markets ($bn)
Denotes a scale break.
2019
2018
2017
115
112
112
2019
2018
2017
$115bn (2.5%)
$232bn (10.1%)
232
211
198
Data based on world market sales using
(cid:36)stra(cid:61)eneca (cid:80)ar(cid:78)et definitions as set out in
the (cid:48)ar(cid:78)et definitions on (cid:83)age (cid:21)(cid:25)(cid:27). (cid:38)hanges
in data subscriptions, exchange rates and
subscription coverage, as well as restated
IQVIA data, have led to the restatement of
total market values for prior years. Source:
IQVIA, IQVIA Midas Quantum Q3 2019
(including US data). Reported values and
gro(cid:90)th are based on (cid:38)(cid:40)(cid:53). (cid:57)a(cid:79)ue figures are
rounded to the nearest billion and growth
percentages are rounded to the nearest tenth.
Estimated pharmaceutical sales and market growth to 2023
The table of estimated
pharmaceutical sales and market
growth to 2023 on the right also
illustrates that we expect
developing markets, including
Africa, the Commonwealth of
Independent States (CIS), the
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 5.7%. This is
due to the continued slowdown of
the major hospital sector.
North America
EU (Including UK)
Other Europe (Non-EU countries)
$628bn
4.2%
$302bn
3.6%
Japan
Oceania
South East Asia and East Asia
$94bn
– 0.6%
Latin America
Africa
$93bn
10.5%
Middle East
Indian subcontinent
$25bn
4.4%
CIS
$16bn
2.7%
$29bn
7.5%
$41bn
9.9%
$26bn
9.7%
$234bn
5.8%
$31bn
9.3%
Estimated pharmaceutical sales in 2023. Data are based on ex-manufacturer prices at CER. Source: IQVIA.
Estimated pharmaceutical market growth. Data are based on the compound annual growth rate from 2018 to 2023. Source: IQVIA.
AstraZeneca Annual Report & Form 20-F Information 2019 / Healthcare in a changing world
13
Healthcare in a
changing world
continued
Opportunities and challenges for the sector
In addition to the global trends set out on the previous pages, the pharmaceutical sector faces a number
of opportunities and challenges, as set out below. The Strategy section of this Annual Report includes an
overview of how we are responding to this environment. More detail can be found in the relevant
sections of this Annual Report as indicated below.
Innovation
Scientific innovation is critical to addressing unmet
medical need but R&D productivity across the
industry has fallen in recent years. For example, in its
report, Ten years on, Deloitte charted the pressures
that had led to a decline in return on investment, with
the average cost of bringing a medicine to market
increasing by two thirds, to almost $2 billion, in the
decade to 2019.
R&D models are therefore changing in an effort to
be more productive. For example, scientific and
technological breakthroughs in the next generation
of therapeutics have the potential to help accelerate
innovation and are leading to new treatment options.
Such advances have already resulted in significant
numbers of FDA Priority Reviews and Breakthrough
Therapy Designations.
Regulatory environment
Public 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;
the EMA Regulatory Science to 2025 in Europe; a
new conditional early approval system in Japan;
worksharing processes between authorities in
Australia, Singapore, Canada and Switzerland; and
proposed changes to regulations in China. Facilitated
review pathways relying on assessments conducted
in a reference agency have been introduced in many
developing authorities to speed up patient access to
medicines. In addition, international harmonisation of
regulatory requirements is being advanced in many
areas and will contribute to faster access to new
medicines for patients and promote public health.
There are also uncertainties. In Europe, they include
how the UK will work with the EU regulatory system
after the end of the transition period, which runs to
31 December 2020 following its exit from the EU on
31 January 2020 and the approach the UK will take
to establishing its own regulatory system outside the
EU. Additionally, the relocation of the EMA from
London to Amsterdam, Netherlands has created
some disruption and delay to regulatory processes.
Innovation can also be accelerated through the use
of large volumes of data from disease biology and
genomics, which is driving precision medicine, while
advances in data management and integration can
improve the speed and quality of clinical trials.
Additionally, a better understanding of disease biology
can assist the delivery of new medicines and new
approaches to health, including improved methods
of prevention.
Against this background, and as shown to the right,
the FDA approved 48 novel drugs in 2019. The role
of regulation in the pharmaceutical sector is explored
further below.
The implementation of the EU Clinical Trials
Regulation has also been delayed. Nevertheless,
paediatrics, use of digital tools, and of data sources
other than randomised controlled clinical trials in
clinical development, as well as patients’ access to
innovative medicines and stakeholders’ interactions
to improve drug development, are high on the EU and
US agenda as well as being key objectives of the
China regulatory reforms. In the EU, there is now
stronger evidence that the Commission and the
Member States are reviewing the full pharmaceutical
legislation framework and may put forward relevant
actions to the new Commission which was
established in 2019.
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, the US and now
Canada. New policies continue to be evaluated by
other regulatory authorities around the world.
For more information, see Strategy from
page 17.
48
FDA novel medicine approvals
2019
2018
2017
2016
2015
48
59
46
22
45
Link to strategy
Accelerate Innovative Science
For more information, see Risk from
page 246.
“ Public expectation
of safe(cid:15) e(cid:428)ective
and high-quality
(cid:80)edicines is re(cid:432)ected
in a highly regulated
biopharmaceutical
industry.”
Link to strategy
Accelerate Innovative Science
For more information, see Risk from
page 246. For more information about
biosimilars, see Loss of exclusivity
and genericisation opposite.
14
AstraZeneca Annual Report & Form 20-F Information 2019 / Strategic Report
S
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R
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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.
Pricing controls and transparency measures remain
a priority in key markets such as China, where the
National Reimbursement Drug List was updated in 2017.
In 2019, China expanded value-based procurement
(VBP), placing downward pressure on the pricing of
products that have lost exclusivity in the VBP.
Loss of exclusivity and genericisation
In Europe, governments continue to implement and
expand price control measures for medicines, and the
EU has committed to introducing a harmonised health
technology assessment (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 have not been successful, the
current administration and members of Congress
remain focused on healthcare policy priorities,
including efforts to decrease drug prices and 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 of care and
patient outcomes.
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 2019, generics constituted 84.8% of the
market by volume (2018: 84.8%).
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.
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.
“ 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
Deliver Growth and Therapy
Area Leadership
For more information, see
(cid:53)is(cid:78)(cid:98)fro(cid:80)(cid:98)(cid:83)age (cid:21)(cid:23)(cid:25).
84.8%
For prescriptions dispensed in the
US in 2019, generics constituted
84.8% of the market by volume
(2018: 84.8%).
Link to strategy
Deliver Growth and Therapy
Area Leadership
For more information, see
(cid:44)nte(cid:79)(cid:79)ectua(cid:79) (cid:51)ro(cid:83)erty(cid:98)fro(cid:80)(cid:98)(cid:83)age (cid:23)(cid:20).
AstraZeneca Annual Report & Form 20-F Information 2019 / Healthcare in a changing world
15
Healthcare in a
changing world
continued
Opportunities and challenges for the sector continued
Trust
The pharmaceutical industry continues to face
challenges in building and maintaining its reputation
and the trust of its stakeholders. This reflects sales
and marketing practices by some companies, for
example in connection with the selling of opioid pain
relievers, or pricing practices, including price
gouging. It also reflects inquiries or investigations by
government and regulatory authorities. For example,
companies have been investigated by the US
Department of Justice (DOJ) and Securities and
Exchange Commission (SEC), under the Foreign
Corrupt Practices Act, and by the UK Serious
Fraud Office under the UK Bribery Act.
To address these challenges, companies are
seeking to operate in a way that meets the
expectations of all stakeholders, for example, by:
> embedding a culture of ethics and integrity
> adopting higher governance standards
> promoting sustainability programmes
> improving relationships with employees,
shareholders and other stakeholders.
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.”
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 highlights 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, mergers and
acquisitions, business development deals (including
licensing and collaborations) and competition for
business development opportunities have continued.
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.
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, and prediction
and prevention rather than just diagnosis and
treatment. This may also entail new ways of
competing. If new approaches such as outcomes-
based pricing are to be successful, companies will
need to develop systems that capture outcomes data
linked to the use of their medicines. 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.
More generally, to be successful, companies will
need to be able to respond to the pressures and
demands made on them by patients and caregivers,
health authorities, payers, policymakers and others.
Link to strategy
Be a Great Place to Work
For more information, see Ethics and
transparency on page 52.
“ 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, patient-focused
pharmaceutical company
For more information, see Risk
from page 246.
16
16
AstraZeneca Annual Report & Form 20-F Information 2019 / Strategic Report
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(cid:53)es(cid:83)iratory. (cid:58)ith a broad (cid:53)(cid:9)(cid:39) (cid:83)(cid:79)atfor(cid:80) and (cid:83)ortfo(cid:79)io of s(cid:83)ecia(cid:79)ty
and (cid:83)ri(cid:80)ary care (cid:80)edicines(cid:15) (cid:90)e have a g(cid:79)oba(cid:79) (cid:83)resence(cid:15) (cid:90)ith
strength in (cid:40)(cid:80)erging (cid:48)ar(cid:78)ets(cid:15) (cid:83)articu(cid:79)ar(cid:79)y (cid:38)hina.
(cid:50)ur strategic (cid:83)riorities
While the fundamentals of our strategy are
unchanged, the world around us is changing and the
burden of disease is increasing. We are responding by
enhancing our focus on growth through innovation
– fostering a patient-centric culture and embedding it
across our organisation, doing more with technology,
digital and data, and advancing cutting-edge science.
All this is reflected in our strategic priorities,
listed below, which were refreshed in 2019 to
support delivery of the next phase of our strategy.
These priorities are accompanied by our unwavering
commitment to being a trusted partner for all our
stakeholders, having a positive impact on society, and
being an indispensable ally in the quest to meet rising
global demand for effective healthcare.
(cid:20). (cid:39)e(cid:79)iver (cid:42)ro(cid:90)th
and (cid:55)hera(cid:83)y
(cid:36)rea (cid:47)eadershi(cid:83)
(cid:21). (cid:36)cce(cid:79)erate
(cid:44)nnovative (cid:54)cience
(cid:22). (cid:37)e a (cid:42)reat
(cid:51)(cid:79)ace to (cid:58)or(cid:78)
(cid:36)chieve (cid:42)rou(cid:83) (cid:41)inancia(cid:79) (cid:55)argets
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, driving operating
leverage, and increased cash generation.
We wish to maintain a progressive dividend policy and
a strong balance sheet.
(cid:43)o(cid:90) (cid:90)e re(cid:83)ort our (cid:83)rogress
Key Performance Indicators (KPIs)
The following pages present our KPIs for the year ending
31 December 2019. Our KPIs are aligned to our three
strategic priorities and are the indicators against which we
measure our productivity and success. We also monitor
financial targets, which indicate whether we have delivered
our strategy in a way that allows us to continue to operate as
a successful business.
Our remuneration arrangements are also aligned to our
strategic priorities as set out in our Group scorecard and
reflected in our KPIs. Deliver Growth and Therapy Area
Leadership, Accelerate Innovative Science and Achieve Group
Financial Targets are included in the annual bonus targets.
(cid:41)or (cid:80)ore infor(cid:80)ation(cid:15) see the (cid:39)irectors(cid:350) (cid:53)e(cid:80)uneration (cid:53)e(cid:83)ort
fro(cid:80) (cid:83)age (cid:20)(cid:21)(cid:24).
Strategic Report
Our operating model comprises key business functions that are
aligned to the 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 includes three types of review
and our Principal Risks:
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 (Business
Development and Operations) or which underpin our business
model (Intellectual Property). We report on our employees,
how we do business sustainably and our broader contribution
to society.
Therapy Area Review
Looks at each of our therapy areas, their developments and
focus for 2019, as well as what is in the pipeline.
Financial Review
Reviews our financial performance during the year.
Risks
We also review the risks that might challenge the delivery of
our strategy.
(cid:41)or (cid:80)ore infor(cid:80)ation(cid:15) see (cid:37)usiness (cid:53)evie(cid:90) fro(cid:80) (cid:83)age (cid:21)(cid:23)(cid:15) (cid:55)hera(cid:83)y
(cid:36)rea (cid:53)evie(cid:90) fro(cid:80) (cid:83)age (cid:24)(cid:23)(cid:15) (cid:53)is(cid:78) (cid:50)vervie(cid:90) fro(cid:80) (cid:83)age (cid:26)(cid:23) and
(cid:41)inancia(cid:79) (cid:53)evie(cid:90) fro(cid:80) (cid:83)age (cid:26)(cid:27).
18
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:54)trategic (cid:53)e(cid:83)ort
(cid:54)
t
r
a
t
e
g
i
c
(cid:53)
e
(cid:83)
o
r
t
(cid:54)trategic (cid:83)riority
(cid:39)e(cid:79)iver (cid:42)ro(cid:90)th and (cid:55)hera(cid:83)y (cid:36)rea (cid:47)eadershi(cid:83)
(cid:36)cce(cid:79)erate (cid:44)nnovative (cid:54)cience
(cid:37)e a (cid:42)reat (cid:51)(cid:79)ace to (cid:58)or(cid:78)
(cid:58)hat this (cid:80)eans
(cid:43)o(cid:90) our current
strategy res(cid:83)onds to
(cid:80)ar(cid:78)et trends
Our strategy, on
which we report in
this Annual Report,
including the
initiatives listed on
page 17, reflects the
way we have chosen
to respond to the
opportunities and
challenges posed by
the marketplace in
which we operate, as
outlined in Healthcare
in a changing world
from page 11.
Driving growth through successful innovation
and commercial excellence, and creating
sustainable profitability by managing costs
and scaling efficiently as we build.
Impacting and improving the whole patient
experience, from disease prevention and
awareness, diagnosis, treatment, post-
treatment to wellness.
Advancing high-potential late-stage pipeline
projects with a continued focus to ensure
sustainable delivery of new products.
Pursuing the next wave of disruptive biology
with new scientific modalities, such as
ProTACs, in vivo biologics and cell therapy;
new technologies, such as OMICs; and new
biology, such as the microbiome.
Making a difference to medicine and
patients, delivering the next wave of science,
shaping the patient ecosystem and focusing
on outcomes.
Leading in sustainability which means
improving access to healthcare,
environmental protection and maintaining
ethics and transparency.
Collaborating with the funders of healthcare to
increase the use of value-based pricing
solutions that focus on the outcomes our
medicines deliver to patients and healthcare
systems.
Accelerating efforts in artificial intelligence (AI)
data science and digital technology, enabling
new insights, accelerated processes and an
improved patient experience and adherence.
Performing as an enterprise team, building a
culture of lifelong learning and development
and also being champions of inclusion and
diversity.
Aiming to shift from a focus on treatment to
improve the whole patient experience and
develop new payer models that improve access
to our medicines:
Aiming to lead in new science platforms,
leveraging technology to transform R&D
productivity and the patient’s experience:
> Fostering a patient-immersed culture,
building fully-integrated therapy area
ecosystem models, and establishing
‘health innovation hubs’.
> Focus on innovative science in three main
therapy areas, a range of drug modalities,
emerging drug platforms and new
technologies, such as cell therapy,
ProTACs and OMICs.
> Engaging with policymakers to support
> Strengthening our ability to match
improvements in access, coverage, care
delivery, quality of care and patient care
outcomes.
targeted medicines to patients who need
them most.
> Driving R&D productivity by focusing on
Living our Values and behaviours.
Aiming to be a great and sustainable
organisation, trusted by all our stakeholders:
> Empowering employees through our
Code of Ethics to make decisions in the
best interests of the Group and society.
> Refusing to tolerate bribery or any other
form of corruption.
> Recruiting the best talent which
underpins our innovation and growth.
> Living our Values and engendering a
high-performing culture and lifelong
learning.
> Leveraging technology across prevention
and awareness, diagnosis, treatment and
post-treatment to wellness to deliver better
patient outcomes more efficiently.
> Enabling our Emerging Markets to deliver
better and broader patient access through
faster submissions, innovative and
targeted equitable pricing strategies and
practices.
> Partnering with industry, governments and
academia to find ways to bring new
medicines to market more quickly and
efficiently.
quality rather than quantity at all stages of
drug discovery and development, and
leveraging technology including the
provision of enhanced data and clinical
insights, as well as digital and AI
approaches.
> Harnessing different perspectives, talents
and ideas to create an inclusive culture,
as well as ensuring that employees reflect
the diversity of the communities in which
we operate.
> Contributing to society in support of the
> Partnering with academia, governments,
industry, and scientific and patient
organisations to access the best science,
drive innovation and streamline and
standardise regulatory processes to
increase access to our medicines
worldwide.
United Nations Sustainable Development
Goals.
> Broadening access to healthcare solutions
for life-changing treatment and prevention.
> Addressing the environment’s impact on
human health.
> Basing pricing policy on four principles:
> Maintaining effective working
value, sustainability, access and flexibility;
and develop novel and flexible ways to
assess and pay for medicines.
relationships with health authorities
worldwide.
> Making information about our clinical
> Pursuing a strong patent strategy –
building robust patent estates that protect
our pipeline and products to defending
and enforcing patent rights.
research publicly available to enhance
scientific understanding while ensuring
respect for the privacy of patients.
(cid:54)ee (cid:39)e(cid:79)ivering gro(cid:90)th fro(cid:80) (cid:83)age (cid:22)(cid:20).
(cid:54)ee (cid:44)nnovative science fro(cid:80) (cid:83)age (cid:21)(cid:24) and
(cid:55)hera(cid:83)y (cid:36)rea (cid:53)evie(cid:90) fro(cid:80) (cid:83)age (cid:24)(cid:23).
(cid:54)ee (cid:36) great (cid:83)(cid:79)ace to (cid:90)or(cid:78)(cid:29) (cid:40)(cid:80)(cid:83)(cid:79)oyees fro(cid:80)
(cid:83)age (cid:23)(cid:23) and (cid:38)ontributing to society fro(cid:80) (cid:83)age
(cid:23)(cid:28).
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:54)trategy
(cid:20)(cid:28)
(cid:46)ey (cid:51)erfor(cid:80)ance
(cid:44)ndicators
(cid:50)ur (cid:46)(cid:51)(cid:44)s and re(cid:80)uneration
A number of KPIs on the following
pages are used to measure the
remuneration of Executive
Directors.
In 2019, we made changes to
our KPIs to reflect shareholder
feedback. As a result of requests
to simplify the metrics used
for determining remuneration,
as well as improve transparency
by disclosing targets, we have
introduced three additional ‘total’
KPIs in 2019.
These additional KPIs have been
used for remuneration purposes
and allow us to disclose
aggregated targets without
(cid:46)ey (cid:51)erfor(cid:80)ance (cid:44)ndicators
(cid:39)e(cid:79)iver (cid:42)ro(cid:90)th and (cid:55)hera(cid:83)y (cid:36)rea (cid:47)eadershi(cid:83)
Total1
$21,894m
Product Sales from sales platforms
2019
2018
$21,894m
$18,464m
(cid:36)ctua(cid:79) gro(cid:90)th
2019 +19%
(cid:21)(cid:19)(cid:20)(cid:27) (cid:14)(cid:20)(cid:22)(cid:8)
(cid:38)(cid:40)(cid:53) gro(cid:90)th
2019 +22%
2018 +12%
Emerging Markets
$8,165m
Product Sales
Respiratory
$5,391m
Product Sales
New CVRM
$4,376m
Product Sales
2019
2018
2017
$8,165m
$6,891m
$6,149m
2019
2018
2017
$5,391m
$4,911m
$4,706m
2019
2018
2017
$4,376m
$4,004m
$3,567m
(cid:36)ctua(cid:79) gro(cid:90)th
2019 +18%
2018 +12%
(cid:21)(cid:19)(cid:20)(cid:26) (cid:14)(cid:25)(cid:8)
(cid:38)(cid:40)(cid:53) gro(cid:90)th
2019 +24%
(cid:21)(cid:19)(cid:20)(cid:27) (cid:14)(cid:20)(cid:22)(cid:8)
(cid:21)(cid:19)(cid:20)(cid:26) (cid:14)(cid:27)(cid:8)
(cid:36)ctua(cid:79) gro(cid:90)th
2019 +10%
(cid:21)(cid:19)(cid:20)(cid:27) (cid:14)(cid:23)(cid:8)
(cid:21)(cid:19)(cid:20)(cid:26) -(cid:20)(cid:8)
(cid:38)(cid:40)(cid:53) gro(cid:90)th
2019 +13%
(cid:21)(cid:19)(cid:20)(cid:27) (cid:14)(cid:22)(cid:8)
(cid:21)(cid:19)(cid:20)(cid:26) -(cid:20)(cid:8)
(cid:36)ctua(cid:79) gro(cid:90)th
2019 +9%
2018 +12%
(cid:21)(cid:19)(cid:20)(cid:26) (cid:14)(cid:28)(cid:8)
(cid:38)(cid:40)(cid:53) gro(cid:90)th
2019 +12%
2018 +12%
(cid:21)(cid:19)(cid:20)(cid:26) (cid:14)(cid:28)(cid:8)
Japan
$2,548m
Product Sales
Oncology
$8,667m
Product Sales
2019
2018
2017
$2,548m
$2,004m
$2,208m
2019
2018
2017
$8,667m
$6,028m
$4,024m
(cid:36)ctua(cid:79) gro(cid:90)th
2019 +27%
(cid:21)(cid:19)(cid:20)(cid:27) -(cid:28)(cid:8)
(cid:21)(cid:19)(cid:20)(cid:26) (cid:14)(cid:20)(cid:8)
(cid:38)(cid:40)(cid:53) gro(cid:90)th
2019 +26%
(cid:21)(cid:19)(cid:20)(cid:27) -(cid:20)(cid:20)(cid:8)
(cid:21)(cid:19)(cid:20)(cid:26) (cid:14)(cid:23)(cid:8)
(cid:36)ctua(cid:79) gro(cid:90)th
2019 +44%
(cid:21)(cid:19)(cid:20)(cid:27) (cid:14)(cid:24)(cid:19)(cid:8)
(cid:21)(cid:19)(cid:20)(cid:26) (cid:14)(cid:20)(cid:28)(cid:8)
(cid:38)(cid:40)(cid:53) gro(cid:90)th
2019 +47%
(cid:21)(cid:19)(cid:20)(cid:27) (cid:14)(cid:23)(cid:28)(cid:8)
(cid:21)(cid:19)(cid:20)(cid:26) (cid:14)(cid:20)(cid:28)(cid:8)
Focus on revenue performance of our
sales platforms:
(cid:40)(cid:80)erging (cid:48)ar(cid:78)ets
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.
(cid:53)es(cid:83)iratory
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.
(cid:49)e(cid:90) (cid:38)(cid:57)(cid:53)(cid:48)
Since 2017, the New CVRM sales
platform has included Brilinta, Onglyza
franchise (Onglyza and Kombiglyze),
Farxiga franchise (Farxiga and Xigduo),
Exenatide Total (Byetta and Bydureon),
Symlin, Qtern, roxadustat and Lokelma.
Epanova was previously included but
we have now terminated the Phase III
STRENGTH trial.
(cid:45)a(cid:83)an
Strengthen the performance of our
New Medicines, particularly our
Oncology brands.
(cid:50)nco(cid:79)ogy
Includes entire Oncology portfolio.
We have met our target of delivering
six new cancer medicines to patients
by 2020: Lynparza, Tagrisso, Imfinzi,
Calquence, Lumoxiti and Enhertu
that make a meaningful difference
to patients.
1 Reconciliation of (cid:55)otal Product Sales from
sales platforms to total Product Sales is
shown in the (cid:41)inancial Review from page
78. (cid:55)his reconciliation is shown for 2018
and 2019 onl(cid:92).
(cid:38)hanges to (cid:46)(cid:51)(cid:44)s in (cid:21)(cid:19)(cid:20)(cid:28)
The total of Product Sales from sales platforms is a new KPI as outlined in Our
KPIs and remuneration above and combines the five sales platforms’ metrics. It
removes the double-counting of certain Product Sales which are included in more
than one platform. Reconciliation to the number used for calculating annual bonus
is shown from page 135.
(cid:39)e(cid:79)ivering gro(cid:90)th fro(cid:80) (cid:83)age (cid:22)(cid:20)(cid:30) (cid:55)hera(cid:83)y (cid:36)rea (cid:53)evie(cid:90) fro(cid:80) (cid:83)age (cid:24)(cid:23).
20
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:54)trategic (cid:53)e(cid:83)ort
(cid:28)(cid:19)(cid:8)
(cid:53)evenue fro(cid:80) sa(cid:79)es (cid:83)(cid:79)atfor(cid:80)s of
(cid:7)(cid:21)(cid:20)(cid:15)(cid:27)(cid:28)(cid:23) (cid:80)i(cid:79)(cid:79)ion in (cid:21)(cid:19)(cid:20)(cid:28)
re(cid:83)resented (cid:28)(cid:19)(cid:8) of (cid:55)ota(cid:79) (cid:53)evenue
disclosing sensitive commercial
information at the individual KPI
level. These changes are
explained in more detail
throughout this section and more
information can be found in the
Directors’ Remuneration Report
from page 125.
Any variances between the KPI
and values used in determining
remuneration are explained in the
Directors’ Remuneration Report
from page 125.
(cid:46)(cid:51)(cid:44) (cid:78)ey
(cid:49)e(cid:90) in (cid:21)(cid:19)(cid:20)(cid:28)
(cid:56)sed for re(cid:80)uneration
of (cid:40)(cid:91)ecutive (cid:39)irectors
(cid:39)enotes a sca(cid:79)e brea(cid:78).
(cid:54)
t
r
a
t
e
g
i
c
(cid:53)
e
(cid:83)
o
r
t
(cid:46)ey (cid:51)erfor(cid:80)ance (cid:44)ndicators
(cid:36)cce(cid:79)erate (cid:44)nnovative (cid:54)cience
The Accelerate Innovative Science
KPIs measure the performance of the
pipeline. Pipeline progression events
(Phase II NME starts/progressions and
Phase III investment decisions)
measure innovation and sustainability.
Regulatory events demonstrate the
advancement of this innovation to
patients and the value to the Group.
By measuring both Phase II and Phase
III pipeline progressions, we are
focused on both near-term and
longer-term delivery. Phase II NME
starts ensure the ongoing robustness
and future stability of the pipeline (and
reflect the outcome of nearer-term
strategic investment decisions). Phase
III investments measure assets that will
deliver nearer-term value (and reflect
the outcome of longer-term strategic
investment decisions).
Submissions and approvals metrics
demonstrate the advancement of this
innovation through filing and approval
in our four major markets (US, EU,
Japan and China).
Pipeline progression events
Regulatory events
22
2019
2018
2017
63
22¹
28
23
2019
2018
2017
1 17 against our Group scorecard for
1 37 against our Group scorecard for
determining annual bonus.
determining annual bonus.
NME Phase II starts/progressions
NME or LCM project regulatory
submissions in major markets
8
2019
2018
2017
35
2019
2018
2017
81
9
14
1 6 against our Group scorecard for
1 1(cid:23) against our Group scorecard for
determining annual bonus.
Phase III investment decisions
determining annual bonus.
2 2(cid:23) for determining annual bonus.
3 13 for determining annual bonus.
NME and major LCM
regional approvals
14
2019
2018
2017
28
2019
2018
2017
141
19
9
1 11 against our Group scorecard for
1 23 against our Group scorecard for
determining annual bonus.
determining annual bonus.
631
51
37
351
282
183
281
23
19
(cid:38)hanges to (cid:46)(cid:51)(cid:44)s in (cid:21)(cid:19)(cid:20)(cid:28)
The totals of Pipeline progression and Regulatory events are new KPIs
as outlined in Our KPIs and remuneration above. The former is a total of
NME Phase II starts/progressions and Phase III investment decisions.
The latter represents the total of NME or LCM regulatory submissions
and approvals.
(cid:44)nnovative science fro(cid:80) (cid:83)age (cid:21)(cid:24)(cid:30) (cid:55)hera(cid:83)y (cid:36)rea (cid:53)evie(cid:90) fro(cid:80) (cid:83)age (cid:24)(cid:23)(cid:30)
(cid:39)eve(cid:79)o(cid:83)(cid:80)ent (cid:51)i(cid:83)e(cid:79)ine fro(cid:80) (cid:83)age (cid:21)(cid:22)(cid:27).
(cid:352) (cid:44)n (cid:21)(cid:19)(cid:20)(cid:28)(cid:15) (cid:90)e had (cid:21)(cid:21) (cid:83)i(cid:83)e(cid:79)ine
(cid:83)rogressions(cid:15) and an average of (cid:21)(cid:23)
(cid:83)rogressions in each of the (cid:79)ast four
years.(cid:353)
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:46)ey (cid:51)erfor(cid:80)ance (cid:44)ndicators
21
(cid:46)ey (cid:51)erfor(cid:80)ance
(cid:44)ndicators continued
(cid:46)ey (cid:51)erfor(cid:80)ance (cid:44)ndicators
(cid:37)e a (cid:42)reat (cid:51)(cid:79)ace to (cid:58)or(cid:78) BV
Our Great Place to Work strategy is
built around two priorities:
‘Contribution to the enterprise’ and
‘Contribution to society’.
(cid:36) great (cid:83)(cid:79)ace to (cid:90)or(cid:78) fro(cid:80) (cid:83)age (cid:23)(cid:23).
(cid:38)ontribution to the enter(cid:83)rise
This priority is built on three pillars:
performing as an enterprise team,
committed to lifelong learning and
development, and championing of
inclusion and diversity.
(cid:36) great (cid:83)(cid:79)ace to (cid:90)or(cid:78)(cid:29) (cid:40)(cid:80)(cid:83)(cid:79)oyees fro(cid:80)
(cid:83)age (cid:23)(cid:23).
Employee belief that AstraZeneca
is a great place to work1
86%
2019
2018
2017
86%
83%
81%
1 Source(cid:29) December Pulse surve(cid:92) for each (cid:92)ear.
2019 was a full census surve(cid:92), 2018 and
2017 surve(cid:92)ed a (cid:24)0(cid:8) sample of the
organisation.
Performing as an enterprise team1,2
77%
2019
2018
2017
Building a culture of lifelong learning
and development1,2
Inclusion and diversity1
83%
45.4%
77%
74%
73%
2019
2018
2017
83%
80%
78%
2019
2018
2017
45.4%
44.6%
44.4%
2 December Pulse surve(cid:92)(cid:29) 2019 was a full
census surve(cid:92), 2018 and 2017 surve(cid:92)ed a
(cid:24)0(cid:8) sample of the organisation.
1 Source(cid:29) December Pulse surve(cid:92) for each
(cid:92)ear, based on the (cid:84)uestion (cid:349)effective
collaboration between teams(cid:350).
1 Source(cid:29) December Pulse surve(cid:92) for each
(cid:92)ear, based on the (cid:84)uestion (cid:349)opportunit(cid:92) for
personal development and growth(cid:350).
1 (cid:58)omen representation at career level (cid:41)(cid:14)
(the most senior 12(cid:8) of the emplo(cid:92)ee
population).
Access to healthcare: through our
access to healthcare programmes1,2
(cid:38)ontribution to society – (cid:47)eading in
sustainabi(cid:79)ity
The Leading in sustainability KPIs
measure the progress of our
environmental, social and governance
practices. They are representative
indicators of each of the three priorities
for our sustainability approach – to
broaden access to healthcare, to
protect the environment, and to foster
ethics and transparency.
(cid:36) great (cid:83)(cid:79)ace to (cid:90)or(cid:78)(cid:29) (cid:38)ontributing to
society fro(cid:80) (cid:83)age (cid:23)(cid:28).
19.8m
people
2019
2018
2017
Environmental protection:
operational greenhouse gas
(GHG) footprint1
1,975 kt CO2e
Ethics and transparency:
non-compliance with our
Code of Ethics¹
63.3
per 1,000 employees in
Commercial Regions
19.8m
14.4m
9.2m
2019
2018
2017
1,975 kt CO2e
1,852 kt CO2e
1,768 kt CO2e
2019
2018
2017
63.3
56.6
41.4
1 Operational G(cid:43)G footprint is emissions
from all Scope 1, 2 and selected Scope 3
sources. See page 266.
1 (cid:55)here were 2,(cid:24)97 instances, most of them
minor, of non(cid:16)compliance with our Code of
Ethics or supporting re(cid:84)uirements in our
Commercial Regions b(cid:92) emplo(cid:92)ees and
third parties. See page 3(cid:24) for more
information.
1 Our access to healthcare programmes,
including (cid:43)ealth(cid:92) (cid:43)eart Africa, (cid:43)ealth(cid:92)
(cid:47)ung, Phakamisa, and (cid:60)oung (cid:43)ealth
Programme ((cid:60)(cid:43)P), have reached 19.8
million people through education,
screenings, diagnosis and treatment
cumulativel(cid:92) since the start of each
programme. See from page (cid:23)9 for more
information.
2 (cid:58)e expanded this measure to include the
(cid:60)(cid:43)P for all (cid:92)ears. (cid:55)otals for each
programme individuall(cid:92) are reported in the
Sustainabilit(cid:92) Data Summar(cid:92) at
www.astrazeneca.com(cid:18)sustainabilit(cid:92).
(cid:38)hanges to (cid:46)(cid:51)(cid:44)s in (cid:21)(cid:19)(cid:20)(cid:28)
The Contribution to the enterprise KPIs have been revised from previous
years to align to our strategy. Previous metrics are available in the
Sustainability Data Summary at www.astrazeneca.com/sustainability.
(cid:36) great (cid:83)(cid:79)ace to (cid:90)or(cid:78) fro(cid:80) (cid:83)age (cid:23)(cid:23).
(cid:352) (cid:358)(cid:90)e announced an a(cid:80)bitious
(cid:7)(cid:20) bi(cid:79)(cid:79)ion (cid:83)rogra(cid:80)(cid:80)e for (cid:93)ero carbon
e(cid:80)issions fro(cid:80) our g(cid:79)oba(cid:79) o(cid:83)erations
by (cid:21)(cid:19)(cid:21)(cid:24) and to ensure our entire va(cid:79)ue
chain is carbon negative by (cid:21)(cid:19)(cid:22)(cid:19).(cid:353)
22
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:54)trategic (cid:53)e(cid:83)ort
(cid:54)
t
r
a
t
e
g
i
c
(cid:53)
e
(cid:83)
o
r
t
(cid:46)ey (cid:51)erfor(cid:80)ance (cid:44)ndicators
(cid:36)chieve (cid:42)rou(cid:83) (cid:41)inancia(cid:79) (cid:55)argets
(cid:51)roduct (cid:54)a(cid:79)es
Growth in Product Sales demonstrates
our ability to deliver medicines to
patients.
Product Sales1
$23,565m
(cid:49)et cash (cid:432)o(cid:90) fro(cid:80) o(cid:83)erating activities1
$2,969m
(cid:49)et cash (cid:432)o(cid:90) fro(cid:80) o(cid:83)erating activities
Cash generation is a key driver of
long-term shareholder returns and
facilitates re-investment in our pipeline,
critical for delivering new medicines
and future value.
(cid:40)(cid:51)(cid:54)
EPS is an important profitability metric,
and a key driver of shareholder value.
For more information on our Core
measures, please see from page 81 in
the Financial Review.
(cid:41)inancia(cid:79) (cid:53)evie(cid:90) fro(cid:80) (cid:83)age (cid:26)(cid:27).
1 Reconciliation to the number used for
calculating annual bonus is shown from
page 135.
2019
2018
2017
$23,565m
$21,049m
$20,152m
2019
2018
2017
$2,969m
$2,618m
$3,578m
(cid:36)ctua(cid:79) gro(cid:90)th
2019 +12%
(cid:21)(cid:19)(cid:20)(cid:27) (cid:14)(cid:23)(cid:8)
(cid:21)(cid:19)(cid:20)(cid:26) -(cid:24)(cid:8)
(cid:38)(cid:40)(cid:53) gro(cid:90)th
2019 +15%
(cid:21)(cid:19)(cid:20)(cid:27) (cid:14)(cid:23)(cid:8)
(cid:21)(cid:19)(cid:20)(cid:26) -(cid:24)(cid:8)
(cid:39)enotes a sca(cid:79)e brea(cid:78).
Reported EPS
$1.03
2019
2018
2017
(cid:36)ctua(cid:79) gro(cid:90)th
2019 +13%
(cid:21)(cid:19)(cid:20)(cid:27) -(cid:21)(cid:26)(cid:8)
(cid:21)(cid:19)(cid:20)(cid:26) -(cid:20)(cid:23)(cid:8)
Core EPS1
$3.50
$1.03
$1.70
$2.37
2019
2018
2017
$3.50
$3.46
$4.28
(cid:36)ctua(cid:79) gro(cid:90)th
2019 -40%
(cid:21)(cid:19)(cid:20)(cid:27) -(cid:21)(cid:27)(cid:8)
(cid:21)(cid:19)(cid:20)(cid:26) -(cid:20)(cid:23)(cid:8)
(cid:38)(cid:40)(cid:53) gro(cid:90)th
2019 -33%
(cid:21)(cid:19)(cid:20)(cid:27) -(cid:21)(cid:28)(cid:8)
(cid:21)(cid:19)(cid:20)(cid:26) -(cid:20)(cid:24)(cid:8)
(cid:36)ctua(cid:79) gro(cid:90)th
2019 +1%
(cid:21)(cid:19)(cid:20)(cid:27) -(cid:20)(cid:28)(cid:8)
(cid:21)(cid:19)(cid:20)(cid:26) -(cid:20)(cid:8)
(cid:38)(cid:40)(cid:53) gro(cid:90)th
2019 0%
(cid:21)(cid:19)(cid:20)(cid:27) -(cid:20)(cid:28)(cid:8)
(cid:21)(cid:19)(cid:20)(cid:26) -(cid:21)(cid:8)
(cid:38)hanges to (cid:46)(cid:51)(cid:44)s in (cid:21)(cid:19)(cid:20)(cid:28)
We have removed dividend per share as a KPI as it is not a measure used
by the Group to determine performance against strategy.
(cid:41)inancia(cid:79) (cid:53)evie(cid:90) fro(cid:80) (cid:83)age (cid:26)(cid:27).
(cid:352) (cid:36)stra(cid:61)eneca(cid:350)s financia(cid:79) (cid:83)erfor(cid:80)ance
in (cid:21)(cid:19)(cid:20)(cid:28) re(cid:83)resented a year of
innovation for (cid:83)atients.(cid:353)
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:46)ey (cid:51)erfor(cid:80)ance (cid:44)ndicators
(cid:21)(cid:22)
Business
Review
Following our return to Product Sales growth in 2018, our
renewed focus is on delivering growth through innovation.
This focus is underpinned by embedding patient centricity
across the organisation, doing more with technology, digital
and data, and advancing more cutting-edge science.
Oncology tumour drivers – cell surface
and lipid bilayer with receptor.
In this Business Review, we report on
how the elements of our business are
delivering against our strategic
priorities which are to:
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. We wanted AstraZeneca to be
more agile, collaborative and focused on
bringing innovative medicines to patients.
The changes were 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
also enhanced our commercial functions to
increase collaboration with our R&D
organisation, enabling greater commitment
to our main therapy areas.
The functions 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 78.
1. Deliver Growth
and Therapy
Area Leadership
2. Accelerate
3. Be a Great
Innovative Science
Place to Work
Research & Development (R&D)
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 January 2019, we created therapy area-focused R&D units that are responsible for
discovery through to late-stage development – one for Oncology and one for
BioPharmaceuticals (CVRM and Respiratory). These are 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, Australia and New Zealand). Japan was categorised separately.
In January 2019, we created two commercial units – one for Oncology and one for
BioPharmaceuticals. These units align product strategy and commercial delivery
across the US and Europe-Canada and sharpened our focus on our main therapy
areas. The International commercial organisation remains unchanged and Japan
continues to be reported separately.
24
AstraZeneca Annual Report & Form 20-F Information 2019 / Strategic Report
S
t
r
a
t
e
g
i
c
R
e
p
o
r
t
Innovative science
(cid:58)e are using our distinctive scientific
capabilities to deliver a pipeline of
life-changing medicines.
2019 Overview
> Created new R&D organisations
> Published 91 manuscripts in ‘high-impact’
publications
> Embarked on collaboration with
BenevolentAI to help understanding
of disease biology
> Began strategic collaboration with Daiichi
Sankyo for Enhertu as (cid:83)art of our e(cid:428)orts to
create next generation of therapeutics
> Piloted ways to better predict clinical
e(cid:428)ectiveness and (cid:80)a(cid:78)e c(cid:79)inica(cid:79) tria(cid:79)s easier
for patients
> Delivered clinical trial data and submissions
that resulted in 28 approvals
> (cid:54)cientific rationa(cid:79)e resu(cid:79)ted in (cid:20)(cid:27) regu(cid:79)atory
designations
> Bioethics Advisory Group ensured continued
focus on bioethics
> Construction continued at Cambridge, UK
R&D centre, new centre announced in
(cid:54)hanghai(cid:15) (cid:38)hina and ne(cid:90) o(cid:433)ce o(cid:83)ened in
New York, NY, US
Research & Development
In 2019, we created therapy-area focused
R&D organisations responsible for discovery
through to late-stage development –
BioPharmaceuticals R&D focuses on CVRM
and respiratory diseases, and Oncology R&D
focuses on cancer. The span across the entire
life-cycle of a potential new medicine 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.
Our drug discovery and development is guided
through a 5R framework – right target, right
patient, right tissue, right safety and right
commercial potential. In the four years after its
introduction in 2012, the proportion of pipeline
molecules advancing from pre-clinical
investigation to completion of Phase III clinical
trials has increased from 4% to 19% within the
small molecules portfolio. To further improve
our R&D productivity, we are exploring emerging
technologies to accelerate the design and
testing of potential medicines. Artificial
intelligence (AI) is being used increasingly in
the pharmaceutical sector, building on the
emergence of novel computing technologies
and the exponential increase in data and deep
learning algorithms. Our teams are looking to
harness new technologies to further automate
processes and create efficiencies.
One of the measures of our success in
accelerating innovative science and
demonstrating the quality of our research 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. Our scientists from R&D have
published 91 manuscripts in ‘high-impact’
peer-reviewed journals, each with an impact
factor exceeding 15 (Thomson Reuters 5yr IF
score) and a score exceeding 870 in total. This
represents a thirteen-fold improvement since
2012, when the 5R framework was first
introduced.
for respiratory and cardiovascular diseases,
using their novel bicyclic peptide platform.
We are also working with Ethris GmbH to
enhance our respiratory expertise using the
stabilised non-immunogenic mRNA (SNIM)
technology, and APT Therapeutics to access
their therapeutic protein platform. Finally, in 2019,
we announced a strategic collaboration with
Daiichi Sankyo to accelerate and expand
development of Enhertu, a novel antibody-drug
conjugate (ADC).
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 2019, we opened the
Functional Genomics Research Centre at the
Milner Therapeutics Institute in Cambridge to
better understand gene changes and disease
onset, using CRISPR-gene editing technology.
We also embarked on a long-term collaboration
with BenevolentAI to use AI and machine
learning to build biomedical knowledge graphs
for chronic kidney disease (CKD) and idiopathic
pulmonary fibrosis, in order to contextualise
scientific data and the relationships between
them. For more information on knowledge
graphs, see page 27. Such collaborations aim to
uncover the underlying biology of these complex
diseases and accelerate drug discovery.
Next generation of therapeutics
We continue to design new ways to target the
drivers of disease to create the next generation
of therapeutics. In 2019, 12 new modalities were
in clinical development, compared with six in
2012, which demonstrated the diversity of
technology in our early pipeline. In conjunction
with Ionis Pharmaceuticals, we are developing
antisense oligonucleotides (ASOs) in two of our
therapy areas: Oncology and CVRM.
Danvatirsen (AZD9150) is currently in Phase II
clinical trials, and is being evaluated for
anti-tumour activity in combination with Imfinzi.
We are also exploring ASOs in CKD, in non-
alcoholic steatohepatitis. In 2019, we initiated a
new collaboration with Seres Therapeutics to
evaluate microbiome-based approaches to
predict which patients may respond best to
cancer immunotherapies. Additionally in 2019,
our work with Pieris Pharmaceuticals allowed us
to progress AZD1402 through Phase I clinical
development as a novel inhaled medicine for
asthma based on its proprietary Anticalin protein
platform. In our long-standing relationship with
Moderna, we have worked on AZD8601 and
produced the largest batch ever of modified
ribonucleic acid (mRNA) suitable for clinical
testing. We continue to partner with Bicycle
Therapeutics to develop potential new therapies
For more information, see Therapy Area Review from
page 54.
Predicting clinical effectiveness
We are adopting cutting-edge technologies to
improve our ability to predict the clinical
effectiveness of our candidate drug molecules.
Our work with Definiens focuses on developing
analytical tools to characterise the immuno-
oncology landscape of tumours, as well as the
expression of biomarkers for many of the drugs
in our pipeline. Advances in humanised models
have generated improved data about toxicity and
efficacy compared with previous methods. In
2019, our collaboration with Emulate published
research which demonstrated the ability of its
Liver-Chip to model liver toxicity of eight
previously studied compounds. With the
University of Colorado, US, we continue to show
how different patient derived xenograft models
can help define new combination therapies in
oncology. To recreate the mechanical and
electrical forces in a beating heart, we have
partnered with Novoheart to leverage their 3-D
human ventricular cardiac organoid chamber –
‘heart-in-a-jar’ – technology to reproduce key
characteristics of heart failure with preserved
ejection fraction. Our progress in ctDNA
monitoring has the potential to identify patients
with high risk of recurrence post-surgery and
patients with micro-metastatic disease prior to
relapse. We are capturing exquisite cellular detail
using mass-spectrometry imaging to inform
pre-clinical decision making, for example for how
drug-drug interactions influence blood-brain
barrier permeability, which was previously
difficult to predict without this technology.
Pioneering new approaches to engagement
in the clinic
In 2019, we conducted more than 270 global
clinical trials and we piloted several trials using
digital solutions to help patients to find clinical
trials easier. For more information, please see
Redefining clinical trials on page 30. Through the
use of digital tools, we are also starting to design
and drive the performance of our clinical trials,
adopt electronic health records to improve
clinical trial implementation and accurately
forecast clinical trial drug supplies to investigator
sites to avoid waste or delays.
We are also working towards digital solutions to
improve disease understanding and patient
outcomes. In several early clinical trials, we are
exploring new digital markers, for example in the
AstraZeneca Annual Report & Form 20-F Information 2019 / Business Review
25
Business Review
Innovative science
continued
Phase IIa INCONTRO programme to assess the
relevance of FeNO (fractional exhaled nitric
oxide) as a biomarker in the assessment of lung
inflammation and exacerbation risk. We are
developing novel digital therapeutics to improve
clinical outcomes, optimise medication use and
adherence, and to reduce, manage or prevent
adverse events. For example, with Voluntis and
the National Cancer Institute in the US, we are
developing a digital therapeutic for women
undergoing treatment for recurrent platinum-
sensitive high-grade ovarian cancer in clinical
trials of cediranib plus Lynparza. This digital
solution supports patients through tolerability
and management of adverse effects, and
recently won the Prix Galien award for best
patient engagement technology.
Development pipeline
During 2019, we delivered clinical trial data and
submissions that resulted in 28 approvals for
new medicines in the US, EU, China and Japan.
As shown in the table below, our pipeline
includes 167 projects, of which 144 are in the
clinical phase of development. We are making
significant progress in advancing our late-stage
programmes through regulatory approval with
35 NME or major LCM regulatory submissions in
the US, EU, China and Japan during 2019.
At the end of the year, we had eight NME
projects in pivotal trials or under regulatory
review (covering 13 indications), compared with
eight at the end of 2018.
Also in 2019, 20 NMEs progressed to their next
phase of development and 18 projects were
discontinued: 12 for poorer than anticipated
safety and efficacy results; five as a result of a
strategic shift in the environment or portfolio
prioritisation; and one for economic reasons.
Accelerating our pipeline
We are prioritising our investment in specific
programmes, focusing on scientific innovation.
As a result, we had numerous positive trial
read-outs in 2019 including: Lynparza in germline
BRCA-mutated metastatic pancreatic cancer
(POLO); Calquence in previously treated patients
with chronic lymphocytic leukaemia (CLL) and in
patients with previously untreated CLL; Imfinzi in
patients with previously untreated extensive-
stage small cell lung cancer (CASPIAN); Enhertu
in patients with HER2-positive metastatic breast
cancer (DESTINY-Breast01); Lynparza in men
with metastatic castration-resistant prostate
cancer (PROfound); Lynparza in women with
advanced ovarian cancer (PAOLA-1); Imfinzi +
tremelimumab in previously untreated Stage IV
(metastatic) non-small cell lung cancer (NSCLC)
(POSEIDON); roxadustat for the treatment of
patients with anaemia in CKD that are either
non-dialysis dependent or dialysis dependent;
Brilinta in patients with established coronary
artery disease and type-2 diabetes (THEMIS);
Farxiga for the treatment of patients with heart
failure (DAPA-HF); Breztri Aerosphere in
patients with moderate to very severe chronic
obstructive pulmonary disease (ETHOS); and
anifrolumab for the treatment of systemic lupus
erythematosus (TULIP 2).
In January 2020, we announced positive
high-level results from the registrational Phase II
trial for Enhertu for gastric cancer (DESTINY-
Gastric01) and from the Phase III Brilinta trial for
stroke (THALES).
As is to be expected when we are investigating
treatments for diseases that are hard to
address, we also had some setbacks during
the year. These included disappointing Phase III
data results. For example, the results from the
Phase III NEPTUNE trial with Imfinzi in
combination with tremelimumab in patients
with Stage IV NSCLC. The trial did not meet
its primary endpoint of improving overall
survival (OS) compared to standard of care
(SoC) chemotherapy. We also discontinued
development of savolitinib as a monotherapy
treatment for papillary renal cell carcinoma
and closed the Phase III STRENGTH trial
for Epanova due to its low likelihood of
demonstrating a benefit to patients with
mixed dyslipidaemia who are at increased
risk of cardiovascular (CV) disease.
In 2019, we presented scientific rationale that
resulted in 14 Regulatory Designations for
Breakthrough Therapy, Priority Review or Fast
Track for new medicines which offer the potential
to address unmet medical need in certain
diseases. We also secured Orphan Drug
Designation for the development of four
medicines to treat very rare diseases.
For more information, see Development Pipeline from
page 238.
Development pipeline overview (as at 31 December 2019)
167 projects
Our development pipeline includes projects in early- and late-stage development as outlined below. Projects are counted here until they have
launched in all applicable major regions.
Phase I
34 Phase II
50 Late-stage
development*
27 Life-cycle
management
projects*
56
> 34 projects in Phase I,
> 50 projects in Phase II,
> 27 projects in late-stage
> 56 LCM projects
including:
– 32 NMEs or novel
combinations
– (cid:21) significant additiona(cid:79)
indications for projects that
have reached Phase III
including:
– 39 NMEs or novel
combinations
– (cid:20)(cid:20) significant additiona(cid:79)
indications for projects that
have reached Phase III
– 41 LCMs not yet approved
in any market
– 15 LCMs already approved
or launched in the EU,
China, Japan and/or the US
development, either in Phase
III/pivotal Phase II trials or
under regulatory review:
– 8 NMEs or novel
combinations not yet
approved in any market
– 11 projects exploring
additional indications for
these NMEs
– 8 NMEs already approved
or launched in the EU,
China, Japan and/or the US
* NMEs or novel combinations
and significant additional indications.
* Only includes material projects
where first indication is alread(cid:92)
launched.
34
50
27
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Oncology
CVRM
Respiratory
Other
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Link to strategy: Accelerate
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Understanding
disease better
Using artificial intelligence and
machine learning to transform
the discovery and development
of innovative new medicines.
By better understanding what causes or drives
diseases, we hope to find new ways to treat,
prevent or even cure them.
We are using knowledge graphs – networks of
contextualised scientific data facts such as genes,
proteins, diseases and compounds, and the
relationship between them – to give scientists
new insights.
Our collaboration with BenevolentAI aims to build
knowledge from the masses of data to better
understand disease biology. We are combining
AstraZeneca’s disease area expertise and large,
diverse datasets with BenevolentAI’s leading AI
and machine learning capabilities to build
knowledge graphs for idiopathic pulmonary
fibrosis and chronic kidney disease.
We are working together to interpret these
knowledge graphs to understand better the
underlying mechanisms of these complex diseases
and identify more quickly new potential drug
targets.
For more information see Research
& Development on page 25.
“ We are generating and have access to more
data than ever before. By harnessing artificial
intelligence and machine learning to unlock
this wealth of data, we have the potential to
transform the way we discover and develop
innovative new medicines.”
Mene Pangalos
EVP, BioPharmaceuticals R&D
AstraZeneca Annual Report & Form 20-F Information 2019 / Business Review
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Business Review
Innovative science
continued
Bioethics BV
‘Bioethics’ refers to the range of ethical
issues that arise from the study and practice
of biological and medical science. We are
committed to working in a transparent and
ethical manner across all our bioethics
subject matter areas. Our Global Standard
on Bioethics sets out our principles which
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 Global
Standard on Bioethics is available on our
website, www.astrazeneca.com/sustainability.
Our Bioethics Advisory Group (BAG) is
sponsored by the Chief Medical Officer and
oversees the operation of the Global Standard
on Bioethics. 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 2019. Ethical discussions
in 2019 included the use of precision genome
editing in research and development, potential
impacts of AI on healthcare, and potential
delays to supply of influenza vaccines resulting
from any change to the scope of the Nagoya
Protocol to include non-human genetic
sequence data.
Clinical trials
We believe that transparency enhances the
understanding of how our medicines work and
benefit patients. 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 2019, 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 trials 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.
Clinical trial active sites by region*
BioPharmaceuticals
Oncology
Europe 38%
US/Canada 32%
(cid:36)sia (cid:51)acific 10%
Japan 6%
Latin America 8%
Middle East and Africa 3%
China 3%
Europe 41%
US/Canada 28%
(cid:36)sia (cid:51)acific 14%
Japan 7%
Latin America 5%
Middle East and Africa 2%
China 4%
(cid:13) Percentages have been rounded to the nearest whole number.
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.
We are committed to minimising the use of
fetal tissue by exploring technological
alternatives. In 2019, no additional new
research proposals that include use of cells
derived from human fetal tissue (hFT) were
approved while three projects using hFT had
progressed as at 31 December. An additional
project using human embryonic stem cells
(hESC) was approved in 2019, resulting in 10
projects using 21 different hESC lines or
derived cells having been approved as at
31 December. Four projects are ongoing.
Animal research
Technology has not yet advanced to the stage
where animal use can be eliminated. In
addition, some animal studies are required
by international regulators before medicines
progress to human trials. 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.
As of 31 December 2019, we shared
anonymised individual patient-level data
from 147 studies with 50 research teams
and responded to 161 requests from external
researchers using our portal, http://
www.astrazenecagroup-dt.pharmacm.com,
to request our clinical data and reports to
support additional research. In 2019, 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 2019, we
published Trial Result Summaries for 108
AstraZeneca trials.
As of 31 December 2019, we have published
a total of five Clinical Study Packages, which
includes hundreds of study reports, on
regulatory agency web portals under EMA
policy 0070 and Health Canada’s PRCI
process. Additional clinical study documents
can be requested by researchers through our
data request portal.
For more information, see our website,
www.astrazeneca.com, or our clinical trials website,
www.astrazenecaclinicaltrials.com.
Patient safety
One of our Values is to put patients first and, by
detecting, assessing, understanding and
preventing adverse effects or any other
drug-related problems, 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, and in order to be an industry leader in
pharmacovigilance, we continue to improve the
competence of the patient safety staff, and
refine our processes, systems and tools. This
includes exploring the use of emerging
technologies, such as automation support,
machine learning and digital communication
interfaces which have the potential to further
enhance our product safety evaluation,
communication and risk mitigation capabilities.
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As an integral part of the Cambridge
ecosystem, we are working to co-develop
future and sustainable travel solutions with the
community and investing in developing
scientific capability in the next generation. For
example, the Energy Challenge STEM initiative
fostered a community of volunteers across
AstraZeneca’s employees in Cambridge to
bring a science challenge to more than 4,000
local primary school pupils. With its focus on
scientific method and topicality around
fostering awareness of the calorific value in
foods, the Energy Challenge has been
recognised as a contributor to health
awareness in the community through
recent awards.
In 2019, we also progressed the planning
phase of amenities for our CBC-based
employees and further consolidated our
late-stage development, office-based
employees across three offices in central
Cambridge until our overall vision of
co-location at the CBC campus is complete.
This vision will enable our non-laboratory
based Cambridge colleagues to be 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.
Investment
In 2019, R&D expenditure was $6,059 million
(2018: $5,932 million; 2017: $5,757 million),
including Core R&D costs of $5,320 million
(2018: $5,266 million; 2017: $5,412 million). In
addition, we spent $1,835 million on acquiring
product rights (such as in-licensing) (2018:
$476 million; 2017: $404 million). We also
invested $10 million on the implementation
of our R&D restructuring strategy (2018: $94
million; 2017: $201 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
2019
2018
2017
36%
37%
36%
64%
63%
64%
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. In 2019, our winning entries
included a team implementing refinement in
anaesthetic procedures for rats; a novel
molecular biology approach allowing reduction
in the number of mice needed in some studies;
a collaborative project ultimately leading to
changes in regulations and the replacement of
some studies, which previously used fish, with
non-animal alternatives. C-SAW also provides
general information and education
opportunities about the use of animals in
research 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 2019,
animals were used for in-house studies 108,674
times (2018: 121,8231). In addition, animals were
used on our behalf for CRO studies 35,210
times (2018: 29,853). In total, over 97% were
rodents or fish.
1 2018 figure includes some animals used onl(cid:92) for breeding.
For more information, see our Sustainability
Report available on our website,
www.astrazeneca.com/sustainability.
R&D resources
We have approximately 9,200 employees in our
R&D organisation, working in various sites
around the world. We currently 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 South San Franscico, CA),
Japan (Osaka) and China (Shanghai). We also
have a site in Poland (Warsaw) that focuses on
late-stage development.
In November 2019, we announced the creation
of a global R&D centre in Shanghai, China to
carry out R&D for potential new medicines that
will more than double the local R&D headcount
to around 1,000. During 2019, we also opened
an office in New York, NY, US with a specific
focus on delivery of our Oncology pipeline,
particularly in the clinical and medical space.
The addition of this new office ensures that we
have a presence in all four of the nationally-
recognised top areas for biopharmaceutical
innovation in the US.
Cambridge
Cambridge, UK is a world-leading academic
and life sciences hub. Having relocated our
global corporate headquarters to Cambridge
in 2016, we continue to progress the build of
our new strategic R&D centre on the
Cambridge Biomedical Campus (CBC) and
now have 2,800 employees located in and
around the city. We are already seeing the
impact of significant scientific and strategic
collaborations within the Cambridge cluster
as a result of the relationships forged.
Construction of our R&D centre began in April
2015. During 2019, activities at the site focused
on the fit-out of laboratory and scientific support
spaces, interior design of the office areas and
landscaping. We expect to start occupation of
the building from 2020, with practical completion
expected at the end of 2021. Following the
review of costs by the new construction
manager, the latest cost projection for the R&D
centre is in the region of $1.3 billion (c.£1.0
billion). Costs for the project have risen since
our original projection due to the complexity
of the build, construction cost inflation,
including the impact of a weakening pound,
and increased investment in new technologies
and equipment (for example, genomics
and screening lab) as part of our ongoing
investment in R&D in the UK. The project is
being funded out of operational cash flows.
Sustainability remains a key driver to our
infrastructure in Cambridge. We have built
Europe’s largest ground source heat pump
system that will generate energy for the R&D
centre. We remain committed to fostering
sustainable solutions within the building’s
operations strategy, such as harvesting rain
water from the roof, and solar tracked
blinds and lighting systems to maximise
natural daylight.
AstraZeneca Annual Report & Form 20-F Information 2019 / Business Review
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Link to strategy: Accelerate
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Next
level
patient experience
>270
global clinical trials
conducted in 2019
>123,000
patients involved
within these trials each year
>19,000
investigator sites
used annually
~60
countries
involved
(cid:53)(cid:72)(cid:71)(cid:72)(cid:430)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)
(cid:70)(cid:79)(cid:76)(cid:81)(cid:76)(cid:70)(cid:68)(cid:79)(cid:3)(cid:87)(cid:85)(cid:76)(cid:68)(cid:79)(cid:86)
Making clinical trials better
and easier for patients.
We are developing the use of digital solutions
to make clinical trials better and easier for
patients. For example, once patients are on a
clinical trial, we are seeking to reduce the
number of visits patients need to make to
clinics by:
> enabling 70% of the data we need to be
collected from home, using devices and
sensors
> using apps to help the patient know where
they are in their clinical trial and share
their own information with their doctor,
as well as providing feedback on
information collected and sharing the
result of the clinical trial.
We recently won the Prix Galien award for
best patient engagement technology for our
work with Voluntis and the National Cancer
Institute in the US developing a digital
solution that supports women undergoing
treatment for ovarian cancer in clinical trials
of cediranib plus Lynparza through tolerability
and (cid:80)anage(cid:80)ent of adverse e(cid:428)ects.
Our ambition is to develop digital health
solutions to support improved patient
outcomes, including digital therapeutics,
across our three therapy areas.
For more information see Research
& Development on page 25.
“ Our use of innovative digital tools
and technologies seeks to provide
patients with an industry-leading
clinical trial experience and
improved patient outcomes.”
(cid:45)(cid:82)(cid:86)(cid:168)(cid:3)(cid:37)(cid:68)(cid:86)(cid:72)(cid:79)(cid:74)(cid:68)
EVP, Oncology R&D
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Delivering growth
Delivering growth
Our return to Product Sales growth is
underpinned by our focus on our sales
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.
2019 overview
> Product Sales grew by 12% (15% at CER) to
$24 billion
> Emerging Markets sales increased by 18%
(24% at CER), with China sales growth of
29% (35% at CER); US sales increased by
13%; Europe sales declined by 2% (up by
2% at CER); Japan sales increased by 27%
(26% at CER)
> Sales of New Medicines increased by 59%
(62% at CER) to $10 billion, representing
42% of total Product Sales
> Working with payers to explore novel and
(cid:432)e(cid:91)ib(cid:79)e (cid:90)ays to assess and (cid:83)ay for our
medicines
> Committed to high ethical standards;
162 people removed from roles for breaches
> 106 successful market launches
> CDP Climate A List rating for the fourth year
running
> More than 730 collaborations around the
world
> Focus on cybersecurity with successful
employee awareness training
(cid:51)utting (cid:83)atients first
We believe that putting patients first, or patient
centricity, will make a real difference to the lives
of people living with serious and life-threatening
diseases. It requires us to walk as if in the shoes
of patients, listen to their experiences, embed
their insights and co-create with them to help
us innovate and strengthen the way we work in
order to deliver advances across the whole
patient experience – from prevention and
awareness, diagnosis, treatment and post-
treatment to wellness. Our thinking extends
beyond individual patients to include their
caregivers, family and friends, as well as
co-workers and healthcare professionals.
By understanding the people who are living with
the diseases we aim to treat, considering their
unique experiences and acting upon the
insights we uncover, we believe we can help
people in the most effective and compassionate
way. Further, by working across AstraZeneca,
from R&D to commercial development, and
with external partners in the broader healthcare
environment, we believe we can deliver the
healthcare experience and outcomes that
people care about most so that they can enjoy
fulfilling lives.
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Sales and marketing
Our Commercial teams, which comprised
around 41,000 employees at the end of 2019,
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 in 2019
was underpinned by our sales platforms.
As shown on page 20 and in the Financial
Review from page 78, these comprise our three
main therapy areas, together with Emerging
Markets and Japan. In 2019 they grew by 18%
(22% at CER) and represent 90% of Total
Revenue.
Sales of our New Medicines1 generated
incremental sales of $9.9 billion at CER and
represented 42% of total Product Sales. These
New Medicines are important platforms for
future growth. In Emerging Markets, they
represented 23% of sales, up from 15% in 2018
and, in the US, they represented 63% of
Product Sales, up from 48%. Overall, US
performance reflected the success of the new
Oncology medicines.
In Europe, Product Sales reflected a strong
performance by our Oncology medicines, offset
by a decline in Nexium and legacy Respiratory
medicines. New Medicines represented 41% of
Product Sales in Europe, up from 27% in 2018.
In Established Rest of World, New Medicines
represented 42% of sales in the year, up from
24% in 2018.
The pharmaceutical market remains highly
competitive. For example, our Diabetes
franchise continues to see pricing pressure. In
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.
1 (cid:3)(cid:55)a(cid:74)ri(cid:86)(cid:86)(cid:82)(cid:15)(cid:3)Imfinzi(cid:15)(cid:3)Lynparza(cid:15)(cid:3)(cid:38)a(cid:79)(cid:84)(cid:88)en(cid:70)e(cid:15)(cid:3)Bri(cid:79)inta(cid:15)(cid:3)(cid:41)ar(cid:91)i(cid:74)a(cid:15)(cid:3)
L(cid:82)(cid:78)e(cid:79)ma(cid:15)(cid:3)Be(cid:89)e(cid:86)pi(cid:15)(cid:3)Breztri and (cid:41)a(cid:86)enra(cid:17)
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Business Review
Delivering growth
(cid:70)(cid:82)ntin(cid:88)e(cid:71)
Regional Product Sales
1. Emerging Markets
3. Europe
18%
18% growth in the year
(24% at CER) to
$8,165m
(2)%
2% decline in the year
(2% growth at CER) to
$4,350m
2. US
13%
13% growth in the year
to $7,747m
4. Established
Rest of World
17%
17% growth in the year
(18% at CER) to
$3,303m
All numbers as at 31 December 2019.
4
2
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1
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Pricing and delivering value
Our medicines help address unmet medical
need, improve health and create economic
benefits. Treatments that are targeted and
effective as well as innovative and personalised,
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
specifications of regulatory and health
technology assessment (HTA) agencies or
other organisations that provide value
assessment of medicines. For example, we
have a leading role in the European IMI
ADAPT-SMART programme for exploring
adaptive licensing.
> We pursue a flexible pricing approach that
reflects the wide variation in global healthcare
systems. We have developed patient access
programmes that are aligned with a patient’s
ability to pay and a healthcare system’s
ability to respond. 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
working with payers to explore novel and
flexible ways to assess and pay for medicines
towards our shared goal of delivering the
outcomes that matter for patients through
innovative and personalised treatments. We are
collaborating with payers to conclude
outcomes- and value-based reimbursement
that improves patient outcomes and, in 2019,
entered into 44 such agreements across all
three of our main therapy areas. For more
information, see the case study on page 36.
We understand that our medicines will not
benefit patients if they are unable to afford them
which is why we offer a number of patient
assistance programmes that can help increase
patients’ access to medicines and reduce their
out-of-pocket costs. Through these
programmes, we support qualifying patients in
a variety of ways, including through discounts
and/or product donations. Outside the US,
we generally provide these programmes
in markets with limited or no public
reimbursement system, no coverage beyond
the most basic therapies, or where the
possibility of public reimbursement is unlikely,
or only after an extended period.
US
As the fifteenth largest prescription-based
pharmaceutical company in the US, we have
a 2.7% market share of US pharmaceuticals by
sales value. In 2019, Product Sales in the US
increased by 13% to $7,747 million (2018:
$6,876 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
utilisation covered by government-funded
programmes such as Medicaid, Department of
Defense (including TRICARE) and Department
of Veterans 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 legislation in
2018. As part of the Affordable Care Act, we
also pay a portion of an overall industry Patient
Protection and Affordable Care Act Branded
Prescription Drug Fee.
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Established Rest of World (ROW)*
Japan
Japan remains an attractive market for
innovative pharmaceutical companies. It is
currently positioned as the second largest
pharmaceutical market for R&D-driven
pharmaceutical companies. However, there is
continued pressure on healthcare spending.
Further to that, a cost-effectiveness evaluation
was introduced for certain categories of drugs
from April 2019. Discussions for further drug
budget restrictions are underway at the
Japanese health ministry.
In 2019, our Product Sales in Japan increased
by 27% at actual rate of exchange (26% at
CER) to $2,548 million (2018: $2,004 million),
positioning AstraZeneca as the seventh
largest prescription-based pharmaceutical
company in Japan with a 3.5% market share
of pharmaceutical sales by value.
Despite price cuts in October and repricing for
Tagrisso in November, we have outperformed
market growth. Results have been driven by the
strong achievement of our New Medicines,
particularly Oncology brands Tagrisso, Imfinzi
and Lynparza, together with Fasenra and
Forxiga, all with double digit growth in 2019.
In September, Breztri was launched in Japan,
becoming the first country for AstraZeneca
globally to provide the drug to patients. Breztri
is still the only triple-combination therapy in a
pressurised metered-dose inhaler device in
Japan.
Canada
In 2019, Product Sales in Canada decreased by
4% at actual rate of exchange (1% at CER) to
$470 million (2018: $489 million). This was
primarily due to the impact of divestments such
as Alvesco and Omnaris, accompanied by
continued competition in Pulmicort and
Onglyza. Given the significant future potential
of Forxiga, we continue to prioritise commercial
support over Onglyza. There continues to be
pricing pressure from both public and private
payers. We remain committed to exploring
innovative value-based pricing solutions that
improve patient outcomes. Despite these
conditions, we continued to launch and saw
strong performance in innovative medicines,
in particular Tagrisso, Lynparza, Imfinzi and
Fasenra. Oncology sales in Canada grew by
95% at actual rate of exchange (100% at CER).
In 2019, 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 $547 million (2018:
$432 million; 2017: $119 million).
In the US, there is significant pricing pressure
driven by payer consolidation, restrictive
reimbursement policies and cost control tools,
such as exclusionary formularies and price
protection clauses. Many formularies, which
specify particular medicines that are approved
to be prescribed in a healthcare system, or
under a health insurance policy, employ
‘generic first’ strategies and/or require
physicians to obtain prior approval for the use
of a branded medicine where a generic
alternative exists. These mechanisms can be
used by intermediaries to limit the use of
branded products and put pressure on
manufacturers to reduce net prices. In 2019,
84.8% of prescriptions dispensed in the US
were generic (2018: 84.8%). 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.
Over the course of 2019, Congress and the
Trump Administration have issued several
proposals designed to increase generic
competition, reform coverage and
reimbursement of drug therapies, reduce list
prices and out-of-pocket costs, limit price
increases, and increase regulatory rebate
liability, among other topics. Several hearings
have been held in Congress on drug pricing to
inform the development of specific policies. In
February 2019, our CEO, Pascal Soriot, testified
before the Senate Finance Committee, along
with the CEOs of other pharmaceutical
companies, on the topic of drug pricing.
AstraZeneca is actively supporting solutions
that provide access and affordability while
continuing to support scientific innovation.
In addition, lawmakers at both the federal and
state levels 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. 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 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 50.
Europe
The total European pharmaceutical market
was worth $195 billion in 2019. We are
the fifteenth largest prescription-based
pharmaceutical company in Europe (see
Market definitions on page 268) with a 1.8%
market share of pharmaceutical sales by value.
In 2019, our Product Sales in Europe decreased
by 2% at actual rate of exchange (2% increase
at CER) to $4,350 million (2018: $4,459 million).
Key drivers of the decline were the ongoing
impact of divestments such as Nexium, Alvesco
and Atacand, in addition to continued
competition from Symbicort analogues, which
we expect to persist in 2020. The continued
macroeconomic environment, pricing pressure
from payers and parallel trade across markets
also affected sales.
Despite these conditions, we continued to
launch and saw sustained performance of
innovative medicines, in particular with
Tagrisso, Imfinzi, Lynparza, Fasenra and
Forxiga. Reimbursement remains a key priority
to unlock potential and launch new medicines.
We are focused on partnering with payers to
develop innovative pricing solutions that deliver
value to patients. Oncology sales in Europe
grew by 35% at actual rate of exchange (42% at
CER), partly driven by emerging use of Tagrisso
for the treatment of patients in the 1st-line
EGFR7-mutated (EGFRm) NSCLC setting as
more countries gained reimbursement, as well
as continued strong levels of demand in the
2nd-line setting. Imfinzi sales of $179 million
(2018: $27 million) followed recent regulatory
approvals and launches. Lynparza sales grew
by 51% (59% at CER) to $287 million, benefiting
from the increasing levels of reimbursement
and BRCA-testing rates. Fasenra sales of
$118 million in the year represented an increase
of 268% (287% at CER), accompanied by
Forxiga sales growth of 18% (25% at CER).
AstraZeneca Annual Report & Form 20-F Information 2019 / Business Review
33
Business Review
Delivering growth
(cid:70)(cid:82)ntin(cid:88)e(cid:71)
13%
13% increase in Product Sales in
the US in 2019 to $7,747 million
29%
29% increase in Product Sales in
China in 2019 (35% at CER) to
$4,880 million
“ AstraZeneca was the
fastest-growing top 10
multinational
pharmaceutical
company in Emerging
Markets in 2019.”
Australia and New Zealand
Our sales in Australia and New Zealand
declined by 12% at actual rate of exchange
(6% at CER) in 2019. This was primarily due to
continued erosion of Symbicort with the impact
of an analogue that entered the market in 2018
and the imposition of some prescription
restrictions for the LABA/ICS class of
medicines as well as modest declines in some
of the more mature established brands such as
Seloken, Pulmicort and Losec. However, sales
in 2019 declined at a slower rate compared
with that seen in 2018. The pace of generic
erosion has moderated, notably with Crestor
and Atacand. Sales growth from new products
such as Tagrisso and Fasenra are helping to
partially offset this. However, sales in the
Forxiga family declined. Australia remains a
predominantly HTA reimbursed market with
products aiming to be reimbursed needing to
show a clear level of cost effectiveness and
benefit to patients versus existing standard of
care. Within this context, the Group’s pipeline
of new assets and indications provide good
opportunities for future growth.
* Established ROW comprises Australia and New Zealand,
Canada and Japan.
Emerging Markets
Emerging Markets, as defined in Market
definitions on page 268, comprise various
countries with dynamic, growing economies.
As outlined in Healthcare in a changing world
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 and investment by offering more
favourable market access conditions and
pricing is increasingly controlled by payers
through price referencing regulations in
addition to cost effectiveness and cost
minimisation approaches.
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 $8,165 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 2019.
China
In China, AstraZeneca is the second largest
pharmaceutical company by value in the
hospital sector, as measured by sales. Sales
in China in 2019 increased by 29% at actual
rate of exchange (35% at CER) to $4,880
million (2018: $3,795 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.
Forxiga, Lynparza and roxadustat were listed in
the National Reimbursed Drug List (NRDL) and
roxadustat was launched during 2019. Pricing
practices remain a priority for regulators, and
new national regulations, in addition to
provincial and hospital tenders, continue to put
increasing pricing pressures on pharmaceutical
companies in China. The introduction of the
Generics Quality Consistency Evaluation
(GQCE) in 2018 will have an impact on
pharmaceuticals’ budgets and pricing through
setting new standards for bioequivalence that
generic products must adhere to as part of
participation in a process called Value Based
Procurement (VBP) that covers up to 70% of
anticipated hospital volumes. 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.
In 2018, the first round of VBP, which involved
Crestor and Iressa, was announced with
implementation from early 2019. This resulted
in a level of sales decline for Crestor of 5% in
2019, while sales in Iressa grew by 5%. In 2019,
a further round of VBP was completed and
Crestor did not win any of the tender share.
The next round of VBP, with implementation
during 2020, may possibly involve additional
AstraZeneca brands.
34
AstraZeneca Annual Report & Form 20-F Information 2019 / Strategic Report
Compliance and Internal Audit Services on
page 112, our compliance programme is
delivered by dedicated compliance
professionals who advise on and monitor
adherence to our policy framework.
These professionals also support our line
managers locally in ensuring that their staff
meet our ethical standards. A network of
nominated signatories reviews our promotional
materials and activities against applicable
requirements. Our Internal Audit Services
department, in partnership with external audit
experts, also conducts compliance audits on
selected marketing companies.
For more information about the assurance provided by
Bureau Veritas, see page 266.
Approximately 41,000 employees are engaged
in our commercial activities and, in 2019, we
identified eight confirmed breaches of external
sales and marketing regulations or codes
(2018: four). There were 2,597 instances, most
of them minor, of non-compliance with our
policy framework (described in the panel on the
right) in our Commercial Business Units,
including instances by employees and third
parties (2018: 2,042). We removed a total of 162
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 713 others and provided
further guidance or coaching on our policies to
2,346 more. The Audit Committee is provided
with the breach statistics on a quarterly basis.
Further commentary on the most serious
breaches is also provided to the Audit
Committee.
Anti-bribery and anti-corruption BV
We do not tolerate bribery or any other form of
corruption. We conveyed our commitment to
ethical behaviour in the 2019 annual Code
training, reinforced through anti-bribery/
anti-corruption training materials delivered and
made available to relevant employees and third
parties, including mandatory training for
Commercial employees in 2019 which will be
followed by training for employees in other
business units in 2020.
Bribery and corruption remains a business risk
as we launch new medicines in markets across
the globe and enter into partnerships and
collaborations, and the 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. The majority of
marketing company audits include anti-bribery/
anti-corruption work programmes.
The industry-wide growth rate is expected
to be 5.7% over the next five years, 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,
in-licensing, strong underlying demand for
our more established medicines and the
emergence of innovative medicines such
as Tagrisso, Lynparza and roxadustat.
Several initiatives were announced in the latter
part of 2019 to support transformation of
healthcare in China. As described on page 29,
these included the creation of a global R&D
centre in Shanghai. A new AI Innovation Centre,
also in Shanghai, will be established to
capitalise on the latest digital technology in
R&D, manufacturing, operations and
commercialisation to help accelerate the
delivery of medicines to patients in China and
globally. Finally, an agreement was reached
with CICC, one of China’s leading investment
banks, to jointly create a healthcare investment
fund combining CICC’s strong investment and
capital management expertise with
AstraZeneca’s expertise in the Chinese
healthcare system. The fund’s target size is
$1 billion and will initially focus on domestic
companies and partners.
Emerging market healthcare BV
We continue to make our medicines affordable
to more people on a commercially and socially
sustainable basis. As, on average, almost half
of healthcare expenditure 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 healthcare 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 also have a variety of patient access
programmes in Emerging Markets, each
tailored to meet the needs of the local
community. These include patient assistance
programmes, such as Terapia Plus in Ukraine,
Karta Zdorovia in Russia and FazBem in Brazil
which offer products at a discounted cost.
For information on our access to healthcare
programmes in Emerging Markets and as one
of our sustainability priorities, please see pages
35 and 52 and our Sustainability Report.
Responsible sales and marketing BV
We are committed to employing high ethical
standards of sales and marketing practice
worldwide, in line with our Code of Ethics and
supporting requirements (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
S
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Transparency reporting BV
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
organisations, with full transparency where
recipients have provided consent and in
accordance with all current local, state and
global-level obligations covering the 45
markets with existing reporting requirements.
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.
Code of Ethics
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
applies to all Executive and Non-Executive
(cid:39)irectors(cid:15) o(cid:433)cers(cid:15) e(cid:80)(cid:83)(cid:79)oyees and te(cid:80)(cid:83)orary
sta(cid:428)(cid:15) in a(cid:79)(cid:79) co(cid:80)(cid:83)anies (cid:90)ithin our (cid:42)rou(cid:83)
worldwide. 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 is at the core
of our compliance programme. It has been
translated into approximately 40 languages
and 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 2019, 100% of all active
employees completed the annual training
on the Code of Ethics.
The Code includes four high-level Global
Policies covering Science, Interactions,
Workplace and Sustainability. These Global
Policies continue to be complemented by
under(cid:79)ying (cid:42)(cid:79)oba(cid:79) (cid:54)tandards(cid:15) (cid:90)hich define
the global requirements we follow to deliver
our business consistent with the Values,
behaviours, commitments and principles
embodied in our Code and Global Policies.
Our Code and Global Policies, together with
relevant Global Standards and Position
Statements, 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.
A Finance Code complements the Code
and a(cid:83)(cid:83)(cid:79)ies to the (cid:38)hief (cid:41)inancia(cid:79) (cid:50)(cid:433)cer(cid:15)
the (cid:42)rou(cid:83)(cid:350)s (cid:83)rinci(cid:83)a(cid:79) accounting o(cid:433)cers
(cid:11)inc(cid:79)uding (cid:78)ey (cid:41)inance sta(cid:428) in (cid:80)a(cid:77)or
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.
AstraZeneca Annual Report & Form 20-F Information 2019 / Business Review
35
The
Next
Link to strategy: Deliver Growth and
Therapy Area Leadership
stage
Improving patient access
Exploring new value-based
payment models.
44
What we’re doing
> We stand behind the value of our
medicines, taking on financial
risk and reimbursing those who
pay for our medicines if the
medicine does not perform as
expected.
> We are investing in innovative
value strategies, including
value-based agreements, where
we partner with payers to move
towards reimbursement based on
the value of our medicines and
collecting data to measure
real-world impact for patients.
> We are working with key
stakeholders to shape policies
that promote the implementation
of these sorts of agreements,
both for our own medicines and
those of others.
> For more information, see Pricing
and delivering value on page 32.
Globally, in 2019, we entered
into 44 value-based
agreements across our three
main therapy areas. With
these new agreements, we
have now entered into more
than 70 agreements in the
US alone.
For example, in the US, we entered into a
groundbreaking agreement for University of
Pittsburgh Medical Center (UPMC) Medicare
patients prescribed Brilinta that reduced
out-of-pocket costs for patients. What UPMC
pays for Brilinta will vary based on patient
outcomes, tying the cost of the medicine to
its real-world clinical performance.
“ Across our therapy areas, we
are committed to exploring
innovative value strategies to
improve patient access and
affordability. We are doing so
by focusing on the value
our medicines bring patients
and deliver to the wider
healthcare system.”
Ruud Dobber
EVP, BioPharmaceuticals
Business Unit
36
AstraZeneca Annual Report & Form 20-F Information 2019 / Strategic Report
Business Review
Delivering growth
(cid:70)(cid:82)ntin(cid:88)e(cid:71)
Operations
Our manufacturing and supply
function continues to support our
growth by ensuring, through our
Operations 2020 plan, that we deliver
new launches on time and in full,
combined with strong customer
service and product lead time
reductions.
Operations 2020 was launched in 2015 to
enhance supply capabilities in order to respond
better to the expanding patient and market
needs. It focuses on supporting the delivery of
our many 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. We are working to
ensure our new product launch capabilities
successfully support AstraZeneca’s promising
new product pipeline. By creating robust
standard launch processes for both small
molecules and biologics, we have achieved a
world-class new product launch platform – one
that is sustainable and fit for the future. In 2019,
we delivered 106 successful market launches
and 12 pre-registration launches.
We remain on course to achieve the primary
goals of Operations 2020 and have begun to
develop our Operations plan for 2025 aligned
to our refreshed strategy.
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 2019, these
measures helped us successfully achieve zero
critical observations from 31 independent
inspections. We review observations from
these inspections together with the outcomes
of internal audits and, where necessary,
implement improvement actions.
We are committed to maintaining the highest
ethical standards and compliance with internal
policies, laws and regulations. We review and
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comment upon evolving national and
international compliance regulations through
our membership of industry associations,
including IFPMA, EFPIA and PhRMA.
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 leaving the EU on
31 January 2020, we have continued to work
closely with our suppliers on their readiness for
the impact of the transition period ending on
31 December 2020 without an extension or
trade agreement being in place between the
UK and the EU, 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. We have seen
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 stock locations,
and assessment of the opportunity for supplier
substitution. 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
continued to engage 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
during, and after, the transition period.
Furthermore, we have revised our logistics
plans (including shipping routes) and continue
to maintain additional inventory in anticipation
of some level of border congestion at the end
of the transition period, 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, supported by
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 live in the US,
UK, Sweden and Germany. As of December
2019, the programme had 3,032 suppliers
enrolled and a potential early payment
balance of $492 million.
(cid:41)or (cid:80)ore infor(cid:80)ation on su(cid:83)(cid:83)(cid:79)y chain financing(cid:15) see (cid:49)ote
20 on page 199.
Responsible supply chain BV
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.
We monitor compliance through assessments
and improvement programmes and 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. We
conducted a total of 15,519 assessments in
2019 (2018: 12,967).
In 2019, we conducted 38 audits on high-risk
suppliers (external manufacturing partners),
seeking to ensure that they employ appropriate
practices and controls. 26% of these suppliers
met our expectations, with a further 68%
implementing improvement plans to address
minor instances of non-compliance. Through
our due diligence process, no high-risk
engagements were rejected.
For more information on our Responsible supply chain, see
www.astrazeneca.com/sustainability.
AstraZeneca Annual Report & Form 20-F Information 2019 / Business Review
37
Business Review
Delivering growth
(cid:70)(cid:82)ntin(cid:88)e(cid:71)
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.
In 2016, we sold our manufacturing site in
Avlon, UK, to Avara Avlon Pharma Services
Ltd. The company subsequently went into
administration. In 2019, we decided to set
aside a fund, to be administered
independently, to make sure our former
employees at the site receive redundancy
payments should the ongoing administration
of the site not generate enough funds to cover
redundancy costs.
In January 2020, AstraZeneca acquired the
Reims packing and distribution centre from
Avara Reims Pharmaceutical Services. This
transaction saw the site and former Avara
Reims employees transfer to AstraZeneca.
Reims will continue to pack and distribute
for the French domestic and other markets
currently served by the site.
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, we are completing
extensive qualification of our new biologics
drug product manufacturing facility in order
to commence manufacturing in 2020.
As part of our ongoing review of
manufacturing capabilities and capacity, we
announced changes to our network in 2019.
In January, we announced our decision to
discontinue operations at our Boulder and
Longmont, CO manufacturing facilities to
increase efficiencies in our global biologics
supply chain. This consolidated our biologics
drug substance manufacturing network to one
large-scale drug substance facility, the
Frederick Manufacturing Center, MD. The
sites at Boulder and Longmont, CO were
preserved for potential sale. As neither
Boulder nor Longmont were licensed for
commercial operations, there was no impact
to supply or global availability of any of our
biologics medicines.
Operational greenhouse gas
footprint emissions (tonnes CO(cid:457)e)¹
2019
2018
2017
2016
2015
1,974,949
1,852,104
1,768,071
1,739,046
1,845,505
1,974,949 tonnes CO(cid:457)e
Energy consumption (MWh)¹
2019
2018
2017
2016
2015
1,749,404 MWh
% total energy from renewables¹
2019: 29.4%
2018: 28.9%
2017: 27.0%
2016: 25.1%
2015: 6.2%
Waste production (tonnes)
2019
2018
2017
2016
2015
34,193 tonnes
Water use (million m³)
2019
2018
2017
2016
2015
1,749,404
1,863,931
1,757,895
1,799,669
1,828,712
34,193
31,080
31,199
31,899
30,785
3.55
4.01
3.89
4.02
4.32
3.55 million m³
1 Regular review of the data is carried out to ensure accuracy
and consistency. This has led to changes in the data from
previous years. The data quoted in this Annual Report are
generated from the revised data.
In September 2019, we announced our
intention to exit our manufacturing facility at
Wedel in Germany by late 2021. This decision
was taken after careful consideration of our
future product demand, existing production
capacity and our long-term business strategy.
We are committed to treating those
employees affected in a fair and respectful
manner, and to ensuring the consistent supply
of our products to patients during the
transition period. In line with this, we are
working closely with the local Works Council
to provide outplacement and transition
support.
At the end of 2019, approximately 12,800
people were employed at 25 Operations sites
in 16 countries. The Reims packing and
distribution centre acquired in January 2020
became our 26th Operations site.
Environmental protection BV
We follow the science to protect the planet by
managing our impact on the environment
across our value chain, from R&D activities,
our own operations, into our supply chain and
customer use of products. Our Code of Ethics
as described on page 35 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.
Our 2019 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
6% to 1,916 GWh
> limiting the increase in our waste generation
to less than 19% to 36,635 tonnes
> reducing water use by 8% to 3.98 million m3.
The tables on the right provide data on our
global GHG emissions, energy use, waste
production and water consumption for 2019.
The data coverage includes 100% of our
owned and controlled sites globally. 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 2019,
$15.5 million (2018: $19 million) was committed
to resource efficiency projects at our
manufacturing and R&D sites, and a further
$14 million has been committed for 2020.
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As part of our progress towards our 2025
environmental targets, our 2019 targets
included:
> Safe API discharges for AstraZeneca sites
(100%) and globally managed first tier
suppliers (>90%). Target met – at one
AstraZeneca supply site there was a single
measured API concentration that exceeded
our API discharge limits. This followed a
change implemented to reduce emissions.
Subsequently, further process
improvements and monitoring were
implemented, which reduced emissions
to below the safe API discharge limits.
> Management of PIE through our
ecopharmacovigilance programme. Target
met – programme delivered and a
manuscript published describing the
environmental risks of more than 120 APIs
resulting from patient use in 22 countries in
Europe.
We conduct collaborative research to
understand the fate, behaviour and impact of
pharmaceuticals on the environment. In 2019,
we co-authored 12 peer-reviewed publications
to enhance our knowledge of the risks
associated with this emerging issue. We also
hosted a stakeholder workshop in Nairobi,
Kenya to understand the environmental risks
associated with increased patient access to
medicines in emerging economies.
(cid:41)urther infor(cid:80)ation on our e(cid:428)orts in these areas(cid:15) inc(cid:79)uding
environmental risk assessment data for our medicines, is
available on our website, www.astrazeneca.com/
sustainability/environmental-sustainability.
Greenhouse gas emissions reduction
During 2019, our verified science-based targets
for Scope 1 and Scope 2 emissions were
confirmed to be in line with the most ambitious
scenario of the Paris Agreement – limiting
warming to under 1.5 degrees celsius. Progress
towards these targets has been made through
increased fuel efficiency of our sites and
commercial sales fleet and procurement of
electricity from certified renewable sources
increasing to represent 70% of total electricity
imports. Our total Scope 1 and Scope 2
emissions have been reduced by 36% from our
2015 baseline. Although our Scope 3 emissions
sources continue to fluctuate, we have made
progress towards our 2025 science-based
targets for these emission sources through
strategic developments, including committing
to changing the propellants used in our inhalers,
improving our switching of freighting of goods
from air to sea, and engaging our key suppliers
to set science-based targets and renewable
energy goals. Including emissions from patient
use of our inhaler therapies, our operational
GHG footprint totalled 1,974,949 metric tonnes
in 2019, an increase of 7% from our 2015
baseline.
For more information on our pressurised metered-dose
inhaler (pMDI) therapies, see the Product environmental
stewardship section below.
Energy use
Despite anticipated net increase in activity
across our site network in 2019, we aimed to
limit increases in total energy consumption to
6% above our 2015 baseline. Our resource
efficiency capital fund committed $14 million
to energy efficiency projects in 2019, such as
LED lighting and utility efficiency at our
Macclesfield, UK site. In 2019, our energy use
was 1,749 GWh, a decrease of 4% from our
2015 baseline. We have made further progress
on our target to use 100% renewable power
by 2025. In 2019, we used certified zero
emission power equivalent to 62% of total
power consumption, including 5,300 MWh of
renewable power generated on our sites.
For more information on GHG emissions reporting, see
Sustainability: supplementary information on page 266.
Waste management
Due to anticipated activity growth across our
site network in 2019, we aimed to limit increases
in our waste volumes to a 19% increase from
our 2015 baseline. In 2019, our total waste was
34,193 metric tonnes, an 11% 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 stewardship
We recognise the need to use water
responsibly and, where possible, to minimise
water use in our facilities. In 2019, we targeted
an 8% reduction from our 2015 water use. In
2019, our water footprint was 3.55 million m3,
an 18% reduction from our 2015 baseline.
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.
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 2019, we progressed a project
spanning all key functions in the business to
investigate alternative low-Global Warming
Potential propellant options available from an
environmental, technical, regulatory, medical
and commercial viewpoint.
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.
AstraZeneca Annual Report & Form 20-F Information 2019 / Business Review
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Business Review
Delivering growth
(cid:70)(cid:82)ntin(cid:88)e(cid:71)
>150
(cid:38)o(cid:80)(cid:83)(cid:79)eted (cid:80)ore than (cid:20)(cid:24)(cid:19) (cid:80)a(cid:77)or or
strategically important business
development transactions in the
last three years, including 29 in
2019 (2018: 80)
>730
We have more than 730
collaborations worldwide
Business development
(cid:37)usiness deve(cid:79)o(cid:83)(cid:80)ent(cid:15) s(cid:83)ecifica(cid:79)(cid:79)y
partnering, is an important element of
our business. It supplements and
strengthens our pipeline and our
e(cid:428)orts to achieve scientific (cid:79)eadershi(cid:83).
We work with others around the
world, including academia,
govern(cid:80)ents(cid:15) industry(cid:15) 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 730 collaborations
around the world.
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
> partnering activity to maximise the value of
our assets
> divestments of non-priority medicines.
Alliances, collaborations and acquisitions
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 company acquisitions were
completed in 2019.
Over the past three years, we have completed
more than 150 major or strategically important
business development transactions, including
some 29 in 2019. Of these transactions, eight
were completed on behalf of Oncology R&D
and eight on behalf of BioPharmaceuticals
R&D. Nine related to pre-clinical assets or
programmes and 12 to precision medicine,
genomics or access to genetic data1.
Collaboration activities that focus on the
development and/or commercialisation of
specific medicines are a component of our
strategy. They have an important role to play
in the delivery of our ambition as we continue
to focus on developing key products within
our main therapy areas. This activity can
create additional value from our existing and
potential medicines, and falls broadly into two
categories:
> collaborations that help us access therapy
area expertise through AstraZeneca and
non-AstraZeneca medicines
> 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.
Of particular note, we announced a global
development and commercialisation
collaboration agreement with Daiichi Sankyo for
Enhertu (DS-8201), a proprietary antibody-drug
conjugate (ADC) and potential new targeted
medicine for cancer treatment. AstraZeneca
and Daiichi Sankyo will jointly develop and
commercialise Enhertu worldwide, except in
Japan where Daiichi Sankyo will maintain
exclusive rights. Daiichi Sankyo will be solely
responsible for manufacturing and supply.
Under the terms of the agreement, AstraZeneca
agreed to pay Daiichi Sankyo an upfront
payment of $1.35 billion, half of which was
settled in the second quarter of 2019 with the
remainder payable 12 months later. Contingent
payments of up to $5.55 billion comprise up to
$3.8 billion for potential successful achievement
of future regulatory and other milestones, as
well as up to $1.75 billion of potential sales-
related milestones. AstraZeneca and Daiichi
Sankyo will share equally development and
commercialisation costs as well as profits from
Enhertu worldwide, except for Japan, where
Daiichi Sankyo will incur all costs and
AstraZeneca will receive a royalty on sales.
We also amended the existing agreement with
Ironwood in mainland China, China Hong Kong
and China Macau for Linzess, a first-in-class
new treatment for patients with irritable bowel
syndrome with constipation. The amended
agreement gives AstraZeneca sole
responsibility for developing, manufacturing
and commercialising Linzess in the above
markets. AstraZeneca will pay Ironwood three
non-contingent payments, totalling $35 million,
between 2021 and 2024. In addition, Ironwood
could receive up to $90 million in milestone
payments, contingent on the achievement of
certain sales targets. Ironwood will also be
eligible for royalties beginning in the mid-single
digit percent, based on the annual net sales of
Linzess in the above markets, where Ironwood
will no longer jointly fund the development and
commercialisation of Linzess or share in the
profit from sales.
In addition, we acquired an FDA Priority
Review Voucher from a subsidiary of Sobi for
a total cash consideration of $95 million.
1 Following the restructuring of R&D and the associated
realignment of Business Development teams across
AstraZeneca, the basis for reporting transaction activity has
changed. As a result, metrics for 2019 are not directly
comparable to those reported in previous years.
Collaboration Revenue
In March 2019, we announced an update to
the presentation of Total Revenue within our
Statement of Comprehensive Income,
effective 1 January 2019. Total Revenue now
includes ‘Collaboration Revenue’, which
comprises upfronts, milestone receipts and
royalties and other income arising from
transactions involving AstraZeneca’s
medicines along with income of a similar
nature arising from transactions where
AstraZeneca has acquired an interest in
a medicine and entered into an active
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collaboration with the seller. Collaboration
Revenue replaces the category of
Externalisation Revenue, which only included
income arising from transactions involving
AstraZeneca’s medicines.
Details of significant business development
transactions which give rise to Collaboration
Revenue are included in the Financial Review
from page 82. The change in revenue
category from Externalisation Revenue to
Collaboration Revenue is described within the
Group Accounting Policies on page 173. The
Collaboration Revenue generated in 2019 is
provided in Note 1 on page 181.
Divestments
We divest medicines that typically sit outside
our main therapy areas and that can be
deployed better by other companies, in order
to redirect investment and resources in our
main areas of focus, while ensuring continued
or expanded patient access. For example,
in 2019, we divested US rights to Synagis used
for the prevention of serious lower respiratory
tract infection caused by respiratory syncytial
virus to Sobi. Sobi now commercialises
Synagis in the US and around 130 AstraZeneca
employees transferred to Sobi as part of the
transaction. Sobi also gained the right to
participate in AstraZeneca’s share of US profits
and losses related to potential new medicine
MEDI8897. AstraZeneca will continue to
develop MEDI8897 in collaboration with Sanofi.
AstraZeneca received an upfront consideration
of $1.5 billion, consisting of $1.0 billion in cash
and $500 million in ordinary shares of Sobi.
AstraZeneca will also receive up to $470 million
in sales-related payments for Synagis: a
potential $175 million milestone following
the submission of the Biologics License
Application for MEDI8897; potential net
payments of approximately $110 million on
achievement of other MEDI8897 profit and
development-related milestones; and a total
of $60 million in non-contingent payments for
MEDI8897 during 2019-2021.
In 2019, we also divested global commercial
rights, excluding China, Japan, the US and
Mexico, for Losec and associated brands to
Cheplapharm. The divestment included
medicines containing omeprazole marketed
by AstraZeneca or its collaborators under the
Acimax, Antra, Mepral, Mopral, Omepral and
Zoltum medicine names. Losec is a proton
pump inhibitor discovered and developed by
AstraZeneca, which helps reduce the amount
of acid produced by the stomach in patients
with gastrointestinal reflux conditions and
ulcers. It has a number of approved
indications and is commonly prescribed for
patients with gastro-oesophageal reflux
disease. Cheplapharm paid AstraZeneca
$243 million on completion in the fourth
quarter and may also pay sales-contingent
milestones of up to $33 million across 2021
and 2022.
In addition, we completed the sale and licence
of the commercial rights to Seroquel and
Seroquel XR in Europe and Russia to
Cheplapharm. Seroquel and Seroquel XR,
used primarily to treat schizophrenia and
bipolar disorder, have lost their compound
patent protection in Europe and Russia.
AstraZeneca will continue to manufacture and
supply Seroquel and Seroquel XR to
Cheplapharm during a transition period.
Cheplapharm made an upfront payment of
$178 million to AstraZeneca and may also
make future sales-contingent payments of up
to $61 million.
In a separate transaction, we completed the
sale of commercial rights to Seroquel and
Seroquel XR in the US and Canada to
Cheplapharm. Seroquel and Seroquel XR
have lost their compound patent protection in
the US and Canada. Cheplapharm made an
upfront payment of $35 million to AstraZeneca
and may also make future sales-contingent
payments of up to $6 million.
We also completed the divestment of
commercial rights to Arimidex and Casodex
in a number of European, African and certain
other countries to Juvisé Pharmaceuticals.
The medicines, used primarily to treat breast
and prostate cancers, have lost their compound
patent protection in these countries. Juvisé
Pharmaceuticals made an upfront payment of
$181 million to AstraZeneca and may also make
future sales-contingent payments of up to $17
million. AstraZeneca already divested the rights
to both Arimidex and Casodex in the US in 2017.
These agreements will enable us to
concentrate our resources on bringing
multiple new medicines to patients.
Proceeds
The resulting revenue from these activities
supports our R&D investments in our main
therapy areas. A total of 11 transactions that
contribute to Collaboration Revenue or
generate income through divestment or
out-licensing were completed in 2019.
Intellectual Property
Our industry’s principal economic
safeguard is a well-functioning
system of patent and related
(cid:83)rotection that recognises our e(cid:428)orts
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
protection 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 221.
More information on our partnering activity in 2019 can
be found in the Financial Review from page 78 and Notes
1 and 2 to the Financial Statements from page 180.
For more information on the risks relating to patent
litigation and early loss and expiry of patents, see Risk
from page 246.
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.
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Delivering growth
(cid:70)(cid:82)ntin(cid:88)e(cid:71)
Patent expiries
The table on pages 243 to 245 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 with, 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 these proprietary data
are 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 molecule or biologic 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 being copied.
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.
Compulsory licensing and access
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.
More generally, we are committed to
expanding access to healthcare through
intellectual property and to providing
transparency about where our patents are
filed and enforced. See our Intellectual
Property statement on our website
www.astrazeneca.com to learn more about
our approach, and to view patent rights for
medicines used to treat Index diseases.
Information technology and
information services resources
In 2019, we continued to sharpen our
focus on running IT with high-quality
performance – improving IT cost
e(cid:433)ciency(cid:15) syste(cid:80)s (cid:83)erfor(cid:80)ance and
delivering higher levels of support for
business priorities.
Transforming the way we work
We believe the future of healthcare is one of
individualised healthcare solutions focused on
improved patient outcomes, driven by science
and data. We are therefore embarking on a
digital transformation, developing digital
solutions to: enhance the delivery of our
medicines; reduce inefficiencies and support
patients in engaging with their own health;
redefining the clinical trial experience through
the use of digital tools and technologies to
improve patient safety and outcomes;
harnessing data science and artificial
intelligence to transform the way we discover
and develop new medicines; and transforming
our Group operations using digital
technologies. Our drive towards integrated
care is dependent on building interoperable
and trusted health data frameworks to be able
to unlock the full potential of scientific data for
patients and healthcare systems.
With our IT foundation now firmly in place and
operating at high levels of efficiency, we have
a growing programme portfolio to support this
business transformation and which takes
advantage of data and analytics, artificial
intelligence, digital and the Internet of Things.
In order to deliver on these commitments, IT
has actively been strengthening its
capabilities through recruiting key external
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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. The
healthcare industry is increasingly becoming
a target of cyber criminals as medical records
often contain large volumes of valuable
personal data, which could be used for
criminal activity. Protecting our IT systems,
IP and confidential information against
cybercrimes continues to be a critical area of
focus and investment. Our implementation of
the National Institute of Standards and
Technology Cybersecurity Framework (NIST
CSF) 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.
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 and
third-party cybersecurity professionals. Our
participation in various cybersecurity-related
peer groups gives us the opportunity to
exchange important information about
cybersecurity threats from multiple industries.
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 246.
Link to strategy: Deliver Growth and
Therapy Area Leadership
Next
steps
Improving outcomes for patients
Establishing Health Innovation Hubs
to deliver patient-focused disease
management solutions.
What we’re doing
> Health Innovation Hubs put us at the centre of
interaction between the patient, medicine, technology,
healthcare professionals and policy makers to
reimagine how we can improve patient outcomes
through:
– better public-private partnerships based on a shared
innovation agenda
– innovation and co-creation with start-up companies
and technology partners
– bringing innovation to AstraZeneca as we work to
improve the entire patient experience with whole
disease solutions.
What’s next?
> We are collaborating with partners around the
world to deliver integrated care and holistic disease
management across all our therapy areas.
> Our network of hubs aims to solve, showcase and
scale innovative and holistic health solutions in
order to optimise health management, improve
patient outcomes and increase the value of our
medicines – both for patients and those who pay
for them.
10
We have 10 major Health
Innovation Hubs. See page 65 for
more information.
“ We are investing around the
world to meet the changing needs
of patients. With our Health
Innovation Hubs, we have
brought together R&D,
commercial and digital resources
to reimagine how we can improve
outcomes. We work with patients
to identify the main challenges
they face and then collaborate
with them and partners within
academia, medical professionals,
government, technology
companies and entrepreneurs to
co-develop and implement
solutions to those challenges.”
Iskra Reic
EVP, Europe & Canada
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A great place to work: Employees
Employees
We grow and prosper by recruiting,
retaining and developing talented
people. We do that by being a great
place to work, encouraging and
rewarding innovation,
entrepreneurship and high
performance. Our People strategy
supports our strategic priorities and is
built on three pillars: performing as an
enterprise team, being committed to
lifelong learning and being champions
of inclusion and diversity.
2019 overview
> Hired 16,100 permanent employees;
employees with less than two years’ service
now represent 36% of our global workforce
> Voluntary employee turnover increased to
10.5%
> High performers were promoted at twice the
rate of the wider employee population
> ‘Leading Business’ programme launched to
develop leadership capability
> 690 women have completed the ‘Women as
Leaders’ programme, while the proportion
of women in senior roles increased to 45.4%
A global business
> Launched Global Standards on sexual
harassment, and harassment and bullying
> Worked to create a ‘Speak Up’ culture to
prevent and detect any behaviour not in line
with our Values, Code of Ethics and Global
Standards
> Made further progress against our safety,
health and wellbeing targets
> Performed well in the results of real
earnings survey of all our employees
Performing as an enterprise team
We continue to develop workforce plans to
ensure we can attract and develop the critical
capabilities required to deliver our 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 in an optimum way and
continue to implement a significant number of
automation initiatives, including more than 20
in 2019, which allow our workforce to spend a
higher proportion of their time on higher-value
activity.
Attracting key talent and critical capabilities
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 have also implemented an
MBA Development programme in our US
Commercial Business, providing business
rotations to give our future leaders breadth
of experience.
Additionally, we offer a 12-week internship
opportunity for business school students to
contribute to key initiatives in our Oncology
therapy area.
The talent scout model implemented in 2018
continues to be successful in enhancing our
ability to attract key talent and critical
capabilities into senior roles. This has been
supported by an enhanced employee referral
scheme, which has become an increasingly
important source of hiring.
Employees by reporting region
By geographical area
Emerging Markets 48.3%
Europe 26.5%
US 18.1%
Established Rest
of World 7.1%
70,600
employees
Co-located around three
strategic R&D centres
1. Gaithersburg, MD, US
3,200
2. Cambridge, UK
2,800
3. Gothenburg, Sweden
2,200
1. US
12,800
18.1%
2. UK
7,100
10.1%
3. Sweden
6,500
9.1%
All numbers as at 31 December 2019.
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2
3
7
6
4
1
5
4. Canada
900
1.2%
5. Central and
South America
3,000
4.3%
6. Middle East
and Africa
1,700
2.5%
7. Other Europe
8,300
11.7%
8. Russia
1,200
1.7%
9. Other Asia
(cid:51)acific
6,900
9.8%
11
10
9
12
10. China
18,100
25.6%
11. Japan
3,000
4.3%
12. Australia and
New Zealand
1,100
1.6%
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Our ‘Women as Leaders’ programme aims to
encourage more women into senior roles.
Approximately 690 women had completed
the programme by the end of 2019, with
continuing feedback that it is providing
positive career outcomes for the participants.
In addition, we have developed women’s
networks in most countries, continued to hold
empowerment summits in various locations
around the world and to support mentoring
relationships, for example, introducing
mentoring by senior women for emerging
talent in Operations.
In 2018, we launched the ‘Rising Leaders
Experience’, a development programme
aimed at emerging talent who demonstrate
the potential to reach senior leadership roles.
The programme accelerates and supports
their development through a development
centre, a leadership workshop, executive
coaching, an AstraZeneca mentor, and a
stretch assignment.
In addition, in 2019, we launched a global
mentoring programme, with the aim of pairing
mentors and mentees in order to encourage
personal development and to support the
implementation of a culture of lifelong learning.
This has been successful, with over 900 mentors
registered and almost 400 mentor-mentee
relationships established.
In 2019, 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
2019, 18.3% 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
but below our 2019 target of 20%).
During 2019, we hired 16,100 permanent
employees. Hiring over recent years means
that employees with less than two years’
service now represent 36% of our global
workforce (up from 20% in 2012). This
provides a greater balance in terms of
refreshing talent and retaining organisational
experience. Most 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
recruits are performing strongly although, in
some areas of the business, retention of this
population is challenging.
Voluntary employee turnover increased to
10.5% (2018: 10.1%). The voluntary employee
turnover rate among our high performers
increased in 2019 to 7.0% (2018: 6.0%), while
the voluntary employee turnover of recent
hires remained stable at 14.4% (2018: 14.4%).
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 departure from
the EU could have an impact on hiring and
retaining staff in some business-critical areas.
Consequently, we continue to provide extensive
support and information to employees who
might be impacted, monitor trends in recruitment
and resignation closely, and guide new hires
through our recruitment process.
A culture of high performance
Continuing our emphasis on high
performance, in 2019 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 teams to develop individual
and team performance targets, and for
ensuring employees understand how they
contribute to our overall business objectives.
Our salary and bonus budgets are distributed
in line with our principles, allowing us to clearly
differentiate reward according to performance.
We encourage participation in various employee
share plans, some of which are described in
the Directors’ Remuneration Report from
page 125, and in Note 28 to the Financial
Statements from page 217. Additionally, in the UK,
we have made 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.
Listening to our workforce
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 2019) to the previous year
(December 2018), of the 20 items common to
both surveys, we improved in 19 items and
remained stable for one other. We continue to
score highly for ‘understanding and belief of
the future direction and strategy’, and we saw
good progress in items around senior leader
communication and prioritisation, although
there is still scope for improvement. We also
exceeded our scorecard target for ‘I would
recommend AstraZeneca as a great place to
work’. Although we saw a reduction in the
score for the proportion of employees who
felt ‘comfortable to speak up’ in our mid-year
June survey, a significant increase in the
score in our December 2019 survey meant
we exceeded the score for December 2018
and our scorecard target for this item. Despite
progress in the latest survey, there remains
further opportunity to simplify the way we work.
Developing a culture of lifelong learning
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 27,000 applications from
internal candidates through this platform in 2019.
In early 2019, we took a decision to review
how we support the learning and development
of our people. This work involved a substantial
investment to develop a culture of lifelong learning
and support the up-skilling and re-skilling of
our people. This included a new operating
model and global team, a technology roadmap
and associated technology investments, and an
integrated content strategy.
Developing our people
Following the successful launch of ‘Leading
People’ in 2017 (a social online learning
platform aimed at managers) and ‘Leading
Self’ in 2018 (aimed at employees below
manager level), and after a successful pilot
in 2018, in 2019, we launched our ‘Leading
Business’ programme, connecting 512
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. This is supported by
‘Manager Essentials’, launched in April 2019
to more than 9,000 people managers across
AstraZeneca, which is a curated set of digital
resources that support the development of
manager capability.
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A great place to work: Employees
continued
Champions of inclusion and diversity
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. We focus on inclusive leadership at
all levels, creating a culture where people feel
able to speak up, as well as building and
sustaining a diverse talent pipeline.
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.
We have also established an Inclusion and
Diversity Council, chaired by the CEO, in
addition to holding empowerment summits
across eight sites.
Gender diversity
Our commitments include a goal to increase
the number of women on our leadership
teams. As shown in the gender diversity figure
on this page, women comprise 50.0% of our
global workforce. There were four women on
our Board (33% of the total) at the end of 2019
with Shriti Vadera retiring from the Board with
effect from 1 January 2019. Below Board
level, the representation of women in senior
roles (i.e. roles at Career Level F or above
which constitute the six highest bands of our
employee population) increased to 45.4% in
2019 (2018: 44.6%), which exceeded our
scorecard target of 45.0% 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 2019, the Board changes
resulted in AstraZeneca ranking 39th in the
FTSE 100 ranking for Women on Boards, and
sixth place in the FTSE 100 for Women on
Executive Committees and Direct Reports,
as well as retaining our inclusion in the
Bloomberg Gender Equality Index.
Leadership oversight
Diversity is integrated into our Code of Ethics
and its associated Workforce Global Policy as
described on page 35. 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 Senior Executive Team
(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.
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 foster an inclusive
and diverse workforce where everyone feels
valued and respected because of their
individual ability and perspective. More
information on our Standards and Global Policy
framework can be found on page 35 and on our
website, www.astrazeneca.com/sustainability.
In addition to our Global Standard on Inclusion
and Diversity, we launched two further Global
Standards in 2019: on sexual harassment, and
harassment and bullying. Drawing on our
commitment to respect each other and uphold
equal opportunity, we aim to build a culture
where everyone feels safe to speak up. These
Standards are reinforced by training and
education 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 seriously and handled in
a manner that is sensitive to the confidentiality
and security of those making a report and is
subject to global oversight.
Gender diversity
Board of Directors of the Company
Men 8 (67%)
Women 4 (33%)
Men 8 (67%)
Women 4 (33%)
Men 50%
Women 50%
Senior Executive Team
AstraZeneca employees
All numbers as at 31 December 2019.
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Employee relations BV
We seek to follow a global approach to
employee relations guided by global
employment principles and standards, local
laws and good practice. In July 2019, we
established a new Global Function for
Employee Relations.
The purpose of this function is to build and
maintain a positive work environment where
every employee can feel safe, with the right
terms and conditions, productive, motivated
and able to speak up. The Board of Directors,
in collaboration with our Global Compliance
and Employee Relations functions, supports
our efforts to create a ‘Speak Up’ culture to
prevent and detect any behaviour not in line
with our Values, Code of Ethics and Global
Standards.
To achieve this objective, we also 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
2018 and concluded in February 2019, 67% of
our employees recognise and have a relationship
with trade unions. Where trade unions do not
exist in an area of operation, 97% of countries
have established arrangements to engage
similarly with their workforce.
Safety, health and wellbeing BV
We work to promote a safe, healthy and
energising work environment for our
workforce and partners. Our standards apply
globally and are stated in our Code of Ethics
as described on page 35 and available on
www.astrazeneca.com/sustainability. We have
established and monitor a set of safety, health
and wellbeing targets aimed at supporting our
workforce and keeping AstraZeneca among the
sector leaders in performance. Our performance
in this area is in the Sustainability Report and
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 266.
Safety
Vehicle collisions
Year
2019
2018
2017
2016
2015 baseline
Work-related injuries
Collisions
per million km
Target
2.84
3.74
4.05
4.66
4.13
3.39
3.58
3.76
4.00
Year
2019
2018†
2017
2016
2015 baseline
Reportable injury rate
per million hours worked
Target
1.05
1.32
1.48
1.57
1.78
1.37
1.50
1.60
1.69
† Data restated as a result of one injury case being reported late.
As shown above, we made further progress
against our strategic targets in 2019, achieving
a 31% reduction in vehicle collision rate and a
41% reduction in the work-related injury rate
from the 2015 baseline. In addition, there were
no work-related fatalities during 2019. 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 71% of our sites.
In 2019, 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), travel security, health and
wellbeing, potential serious incidents and fatal
events. We also explored organisational
cultural impact on safety, and developed and
rolled out a new workforce wellbeing strategy
to advance mental and physical health for our
employees and extended workforce.
Human rights BV
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.
In 2017, we signed up to the ‘Fair Wage’
database. These independently produced
data were used in our end of 2018 survey to
measure against the real earnings of all our
employees, in which we performed well.
For more information about the assurance provided by
Bureau Veritas, see page 266.
Managing change BV
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 established
dedicated teams who, guided by a clear set of
People Principles, ensured the transition was
executed as quickly as possible. When the
business undergoes a change we 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 78.
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Link to strategy: Be a Great
Place to Work up
Next
Being a great place to work
Attracting and retaining the best people.
Champions of inclusion and diversity
> Our Inclusion and Diversity Council, which was established in 2019
and is chaired by our CEO, Pascal Soriot, signed AstraZeneca up to
two United Nations initiatives that aim to tackle discrimination and
strive for diversity and equality in the workplace.
> Held five Empowerment Summits across eight sites, in the US, the
UK, Sweden, Poland and Brazil in 2019.
Increased emphasis on ‘Speak Up’
> The global campaign built understanding of what ‘Speak
Up’ means across the Group, and encouraged awareness and
provided guidance to all employees on how to identify and
challenge behaviours not aligned to our culture.
> Increased visibility of our Employee Resource Groups,
aligned them to organisational priorities and supported
them with structure and funding.
Building a culture of lifelong learning
and development
> Built a multi-tiered and blended Leader, Manager
& Employee learning and development offering to
encourage coaching and feedback, inclusive leadership,
leading in digital, sustainability, and patient centricity.
> Established multi-tiered development centres to support
our goal of building a diverse pipeline of future leaders.
“ To secure our current and future success,
we are nurturing a culture that encourages
our people to be themselves and helps
each of them to be the best they can be.”
Fiona Cicconi
EVP, Human Resources
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As a science-led, patient-focused
pharmaceutical company, our innovative
medicines impacted more than 120 million
patient lives in 2019. But our contribution to
society extends beyond this to include our
wider efforts to benefit people and the planet.
Additionally, wherever we work in the world,
we aim to make a positive impact on our
communities, making financial contributions,
supporting healthcare and STEM education
programmes, volunteering, and through
product donations.
Healthy Lung
The Healthy Lung initiative aims to support
increased awareness and prevention; earlier
diagnosis; improved treatment and disease
management; and establishing standards of
care in line with international best practice for
asthma and COPD. Launched in 2017, the
Healthy Lung Asia programme focused on
improving care for patients across nine Asian
countries (India, Indonesia, Malaysia,
Philippines, Singapore, South Korea, Taiwan,
Thailand and Vietnam).
As a major investor, employer and taxpayer,
we also make a significant contribution to the
economies of all the countries in which we
operate. We pay corporate income taxes,
customs duties, excise taxes, stamp duties,
employment and many other business taxes
where applicable in the jurisdictions in which
we operate. In addition, we collect and pay
employee taxes and indirect taxes such as
value added tax.
Access to healthcare BV
We recognise that providing access to
healthcare for all those who need it is a
significant and complex global challenge.
As one of the three priorities of our Sustainability
strategy (see page 52), we are working towards
a future where all people have access to
sustainable healthcare solutions for life-changing
treatment and prevention. The economic,
social and environmental factors affecting
access include the affordability of medicines,
the maturity of healthcare systems, the
existence or lack of supportive policies and
insurance coverage, and the robustness of
supply chains and distribution networks.
Further challenges include the availability of
trained staff, such as doctors, nurses and
community health workers, as well as
investment in primary healthcare and public
health services, such as disease prevention
and screening services.
Meeting these challenges requires innovation
and collaboration and we are working to
make a meaningful contribution to the
transformation of healthcare. Our approach
recognises that there is no single solution and
takes account of the varying barriers to
healthcare in different parts of the world. We
tailor our programmes and initiatives to meet
the needs of local communities, partner with
the experts on the ground, and share best
practice and replicate schemes when we can.
Our goal is to improve health for patients and
add value to society.
Below, we highlight some of our key access to
healthcare programmes and initiatives. Further
examples in this Annual Report include Lung
Ambition (see page 57) and Precision (see
page 69). For more information, see Emerging
market healthcare on page 35. More detail on
our access programmes can be found in our
2019 Sustainability Report, available on our
website, www.astrazeneca.com/sustainability.
Thus far, we have initiated 64 formal
partnerships and signed 23 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 53,000
healthcare professionals
> enable diagnosis of more than 1.1 million
cases of asthma and/or COPD
> activate more than 1,300 Respiratory
Centres
> align 28 national care guidelines and care
pathways to international best practice.
The programme now has a presence in Asia,
Latin America, and the Middle East and Africa.
Healthy Heart
Healthy Heart Africa (HHA) was designed to
contribute to the prevention and control of
hypertension and decreasing the burden of
cardiovascular disease across Africa. The
programme supports sustainable models by
working with local health systems. Each model
works independently with partners in the
country of implementation to address different
health challenges and health environments,
with the aim of providing a sustainable means
of fighting hypertension in Africa.
Since launching in Kenya five years ago and
subsequently expanding to Ethiopia in 2016,
Tanzania in 2018 and Ghana in 2019, HHA has:
> conducted more than 13.5 million blood
pressure screenings in the community and
in healthcare facilities
> trained more than 7,200 healthcare workers,
including doctors, nurses, community health
volunteers and pharmacists, to provide
education and awareness, screening and
treatment services for hypertension
> activated more than 750 healthcare facilities
in Africa to provide hypertension services,
including, where appropriate, the
establishment of a secure supply chain for
low-cost, high-quality antihypertensive
medicines
> identified more than 2.4 million elevated
blood pressure readings.
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Contributing to society
(cid:58)e ai(cid:80) to (cid:80)a(cid:78)e a significant financia(cid:79)
contribution to the communities in
which we operate. In addition, we
(cid:80)a(cid:78)e a non-financia(cid:79) contribution to
society that comprises our medicines
for patients and our sustainability for
people and the environment. 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.
2019 overview
> 64 Healthy Lung partnerships
> Fifth anniversary of Healthy Heart Africa
> Tenth anniversary of Young Health
Programme with new UNICEF partnership
> Gave more than $72 million through our
community investment activities
> Employees volunteered more than 28,000
hours on community projects globally
> Sustainability strategy focused on access to
healthcare, environmental protection, and
ethics and transparency
Business Review
A great place to work: Contributing to society
continued
Young Health Programme
In 2019, we celebrated the tenth year of our
award-winning Young Health Programme (YHP).
YHP is a philanthropic community investment
programme which focuses on young people
and non-communicable disease (NCD)
prevention. 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 2019, we reached
nearly one million young people with health
information on NCDs and risk behaviours and
trained more than 8,500 peer educators and
healthcare workers. Working with local
governmental and non-governmental groups,
we launched new programmes in Mexico,
Myanmar, Thailand and Vietnam. This brings the
total number of active YHP initiatives to 18. We
also announced a recommitment to the
programme through to 2025, with a pledge of
$35 million (£28 million) from 2021 to 2025.
We continue to deliver this programme in
partnership with leading non-profit
organisations that include Plan International UK,
NCD Child and the NCD Alliance, following a
model of investment in advocacy, research and
community-based programming. We support
the growth and development of young people
with our ongoing collaboration with One Young
World. In 2019, we offered 25 scholarships to
young global health leaders bringing the total
number of scholarships to 75.
In January 2020, we announced that YHP was
to partner with UNICEF to prevent NCDs among
young people. We will support UNICEF with a
$12.5 million grant to support programming
which will reach more than five million young
people, train 1,000 youth advocates and
positively shape public policy.
We were named Business of the Year at Third
Sector’s Business Charity Awards, which
recognise the outstanding contribution that UK
companies make to good causes.
Further information on YHP can be found on its website,
www.younghealthprogrammeyhp.com.
Responsible R&D
Our initiatives include a responsible R&D
strategy to drive global health outcomes. This
includes: integrating access considerations
into R&D governance to increase the speed
and breadth of patient access; driving
excellence in product life-cycle management
through our work on product safety and
product environmental stewardship; engaging
in scientific collaborations to build local
capacity for R&D; and investing in science
and technology, such as digitalisation and
precision medicine, which can help reduce
infrastructure costs and ensure effective
treatment.
Community investment BV
Our Global Standard on External Funding
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
2019, we gave more than $72 million (2018:
$57 million) through our community investment
activities to more than 900 non-profit
organisations in 53 countries. The increase
reflects a change in practice with a number of
larger contributions being transferred to our
Charitable Foundations. The amount includes
more than $27.4 million (2018: $17.5 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 products donated. In addition to these
community investments, we also donated
more than $801 million (2018: $686 million)
of medicines in connection with patient
assistance programmes around the world,
the largest of which is our AZ&Me programme
in the US.
Our global disaster relief partner is the British
Red Cross. In 2019, we continued to support
humanitarian efforts to provide healthcare to
people affected by armed conflict in Northern
Nigeria and we also responded to appeals for
support to Ebola and Cyclone Idai relief
efforts. Our global product donation partners
are Americares, Direct Relief International and
Health Partners International of Canada.
In 2019, our Step Up! Young Health Global Grants
Programme provided a total of $151,401 to 16
organisations that are innovating to improve the
health and wellbeing of young people.
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 2019, the AstraZeneca HealthCare
Foundation provided $775,000 in continuation
grants to 11 non-profit organisations for
programmes that aim to help prevent, better
manage and reduce cardiovascular disease.
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 2019, our employees volunteered
more than 28,000 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 from page 268.
50
AstraZeneca Annual Report & Form 20-F Information 2019 / Strategic Report
Product donation programmes
As noted above, in some countries, our patient
assistance programmes offer medicine for free
to patients who cannot afford to pay. These
programmes vary by country with the largest
being AZ&Me in the US. AZ&Me is governed
as a 501(c) (4) organisation, which categorises
the activity for the purpose of social welfare
and establishes specific governance
requirements, which keeps it separate from
our commercial business.
In 2019, we celebrated the eleventh year of
our collaboration with Americares and the
Sihanouk Hospital Center of Hope (SHCH) for
the Cambodia Breast Cancer Initiative. The
collaboration aims to strengthen existing
treatment services while expanding in scale to
reach additional patients. The programme
screened 843 new patients; provided
information on early detection and screening
to more than 10,000 individuals; diagnosed 82
cases of breast cancer and continued to treat
404 patients who were previously diagnosed;
and administered more than 15,000 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 33.
Learn more in our 2019 Sustainability Report on
www.astrazeneca.com/sustainability.
Health and the environment
During 2019, we continued with our pilot
programme in respiratory health at Lake
Victoria’s Dunga Beach, in Western Kenya,
which enables the local community to
transform waste into clean energy. The goal
of the programme is preventing exposure to
air pollutants by offering a substitute to
wood-burning cookstoves and improving the
respiratory health of the nearby community
with an alternative fuel source. By providing
a substitute for solid fuels, it also reduces the
time and effort dedicated by women and
children to collecting firewood, time which
is then invested in schooling and income-
generating activities.
The pilot is run with the Cambridge Institute
for Sustainability Leadership (CISL) who
studied the environmental impact of this
intervention, with base-line and end-line
reports published by CISL.
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Sustainability BV
We want to be valued and trusted by our
stakeholders as a source of great medicines
over the long term. We deliver 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.
Governance
Sustainability governance frames how 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 carried out in 2018
and as outlined in our Sustainability Report.
Katarina Ageborg is responsible for the global
strategy, and performance measures are
tracked by the SET on the quarterly Company
Scorecard.
Our Sustainability Advisory Board comprises
five SET members and four external
sustainability experts. It provided guidance
on strategic direction, recommendations for
opportunities, and insights and feedback
twice in 2019. Throughout the year, we
engaged with employees and external
stakeholders, including investors, Ministries
of Health, NGOs, patients and suppliers.
Our approach
Our approach is aligned with our Purpose and
business strategy, allowing us to maximise the
benefit for our patients, our business, broader
society and the planet. As outlined below,
we have a global strategy that integrates
sustainability practices throughout our
operations. In 2019, we put into operation
our updated approach based on a structured
sustainability materiality assessment that
engaged external and internal stakeholders.
We measure our progress through annual and
long-term targets, and sustainability-related
occurrences are incorporated into publicly
released quarterly results for investors.
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, Health Outcome Contribution and Social Reporting
FTSE4Good
> Named as a FTSE4Good Index series constituent, which is designed to measure the
performance of companies demonstrating strong Environmental, Social and
Governance (ESG) practices
CDP
> 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 A List – in recognition of our strategy and actions to reduce emissions
and mitigate climate change
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 266 and
the letter of assurance available on www.astrazeneca.com/sustainability.
We recognise the connection between
enterprise risk management and sustainability
management. Enterprise risk management
helped inform the sustainability materiality
assessment and we have better aligned our
risk and sustainability classifications.
Sustainability is considered throughout
our quarterly risk reviews.
We show performance in our Sustainability
Data Summary. Expanded discussion about
our sustainability journey is in our 2019
Sustainability Report.
Learn more on our website,
www.astrazeneca.com/sustainability.
AstraZeneca Annual Report & Form 20-F Information 2019 / Business Review
51
Business Review
A great place to work: Contributing to society
continued
Our sustainability strategy
At AstraZeneca, health is our business and our contribution to society. How we operate supports sustainable ecosystems for healthcare that
benefit people and our planet through science-based innovation.
Our aspiration is for the future to be healthy and that we are an active participant for a healthy society, planet and business. Our pioneering
medicines touch the lives of millions of people so it is a business imperative that we are partners and activists for solutions to global health. At the
heart of our sustainability approach is access to healthcare and its connection to environmental protection, and ethics and transparency.
Our pillars
1. Access to healthcare
Health is at the heart of
our business
2. Environmental protection
The health of the planet
impacts all life
3. Ethics and transparency
Equality and prosperity for all
fuels healthy societies
Our ambitions
to 2025
The connection
to human
health
Our material
issues
Why it matters
Work towards a future where all people have
access to sustainable healthcare solutions for
life-changing treatment and prevention
Innovating, partnering in and transforming
healthcare is essential for global health
Manage our environmental impact across all our
activities and our products
Create positive societal impact and promote
ethical behaviour in all markets across our value
chain
Supporting a healthy environment helps prevent
the onset of certain diseases and improve health
outcomes
Fostering a culture of doing the right thing across
our worldwide operations, including our supply
chain, promotes health and wellbeing
Disease prevention and treatment,
Responsible R&D, Investments in health
systems, Environment’s impact on health,
and Affordability
Product environmental stewardship, Greenhouse
gas reduction, Pharmaceuticals in the
environment, Water stewardship, and Waste
management
Ethical business culture, Inclusion and diversity,
Talent and workforce evolution, Workforce
wellbeing and safety, Responsible supply chain,
and Human rights
Access to healthcare at AstraZeneca goes
beyond our medicines. We are working
towards a future where all people have access
to sustainable healthcare solutions. We are
transforming the future of healthcare along the
continuum from prevention and awareness to
diagnosis and treatment. We innovate across
our therapy areas to address the challenges of
diseases for patients, and the unmet medical
need created by them. We recognise that
healthcare delivery systems may be complex
and multi-layered and we collaborate with
experts to foster patient-centred quality
healthcare designed to improve the health
outcomes of patients. Our internal initiatives
place a strong emphasis on the role of health
in workforce wellbeing and safety, our supply
chain and environmental stewardship.
Information in respect of our focus areas
in broadening access to healthcare can be
found in this Annual Report as follows:
> Investments in health systems and
Disease prevention and treatment – see
Access to healthcare – page 49
> Affordability – see Pricing and delivering
value – page 32
> The environment’s impact on health –
page 50
> Responsible R&D – page 50
We are taking climate action now because we
recognise the strong connection between a
healthy planet and healthy people. With health
at the heart of our business, we work to foster
environments in which all life can thrive – seeking
opportunities for environmental stewardship
and mitigating climate impacts by managing
natural resources and ensuring environmental
safety of our products across our operations
and value chain.
Information in respect of our focus areas in
protecting the environment can be found in this
Annual Report as follows:
> Greenhouse gas emissions reduction –
page 39
> Waste management – page 39
> Water stewardship – page 39
> Product environmental stewardship – page 39
> Pharmaceuticals in the environment – page 39
We want to be valued not only for our medicines,
but also for the way we work. We believe integrity,
respect and transparency comprise the foundation
of a healthy business culture. We build trust by
demonstrating ethical business practices and fair
treatment in everything we do across our value
chain and in society.
Information in respect of our focus areas in ethics
and transparency can be found in this Annual
Report as follows:
> Ethical business culture: Our Values and norms,
practices, standards and principles that guide
the actions and behaviour of employees,
including our Code of Ethics (see page 35), and
acting in an ethical manner that goes beyond
compliance with policies, laws and regulations.
This applies across all our operation and our
entire value chain and includes:
– Bioethics (including animal welfare) – page 28
– Anti-bribery and anti-corruption – page 35
– Intellectual Property – page 41
– Responsible sales and marketing – page 35
– Transparency reporting – page 35
> Inclusion and diversity – page 46
> Talent and workforce evolution – page 44
> Workforce wellbeing and safety – page 47
> Responsible supply chain – page 37
> Human rights – page 47
Our global
development
impact
For more information on our targets and performance, and contribution to the UN Sustainable Development Goals,
see our 2019 Sustainability Report available on our website, www.astrazeneca.com/sustainability.
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
(cid:54)trategic (cid:53)e(cid:83)ort(cid:15) a non-financia(cid:79) state(cid:80)ent containing
certain information. As required by the Regulations, the
Strategic Report contains information on the following
matters, which include references to our relevant policies,
due diligence processes and information on how we are
performing against various measures in these areas:
> Code of Ethics on page 35
> Environmental matters on pages 38-39 and page 266
> Employees on pages 44-47
> Social matters on pages 49-50 and page 52
> Respect for human rights on page 47
> Anti-corruption and anti-bribery matters on page 35
Information on the Group’s Principal Risks is included in Risk
(cid:50)vervie(cid:90) on (cid:83)ages (cid:26)(cid:23)-(cid:26)(cid:26) and infor(cid:80)ation on the non-financia(cid:79)
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.
52
AstraZeneca Annual Report & Form 20-F Information 2019 / Strategic Report
Link to strategy: Be a Great
Place to Work
Next Move
Zero carbon emissions
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Ambition Zero Carbon
Our strategy to eliminate
emissions by 2025 and be
carbon negative by 2030.
What are we doing?
Our Ambition Zero Carbon strategy is to
achieve zero carbon emissions from our
global operations by 2025 and ensure
our entire value chain is carbon negative
by 2030. It accelerates our existing
science-based targets, doubling energy
productivity and using renewable energy
for both power and heat. Our strategy
sets out to make our global operations
responsible for zero carbon emissions
without relying on offset schemes to
reach zero emissions on aggregate.
$1bn
We will invest up to $1 billion to
achieve our goals and to develop the
next-generation respiratory inhalers
with near-zero Global Warming
Potential (GWP) propellants.
100%
100% electric vehicle fleet
five years ahead of schedule.
50m
AZ Forest is our 50-million tree
reforestation initiative in collaboration
with local governments and One Tree
Planted, a non-profit organisation
focused on global reforestation.
“ The commitments AstraZeneca has made
as part of our Ambition Zero Carbon
strategy will enable us to speed up the
reduction of our impact on climate, bringing
forward our decarbonisation plans by more
than a decade, and inspire collaboration at
a global level to effect policy change.”
Pascal Soriot
Chief Executive Officer
AstraZeneca Annual Report & Form 20-F Information 2019 / Business Review
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Therapy Area Review
Oncolog(cid:92)
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.
Unmet medical need and world market
> Cancer is the second leading cause of death globally
> Lung cancer claims a life every 18 seconds; it has the
highest cancer mortality rate, followed by colorectal,
stomach, liver and breast cancer
> With over two million new cases for each in 2018, lung
cancer and breast cancer are the two most common
types of cancer
> Other common cancers include prostate and ovarian
cancer
A portfolio of DNA damage response
inhibitors that selectively kill cancer
cells while minimising the impact on
normal cells.
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AstraZeneca Annual Report & Form 20-F Information 2019 / Strategic Report
Estimated annual cancer cases (m)
2040
2030
2020
29.5
24.1
19
1.8m
Lung cancer was responsible
for the deaths of 1.8 million
people in 2018.
2.1m
Breast cancer is the most frequent
cancer among women, impacting
2.1 million women each year.
Therapy area world market
(MAT/Q3/19)
$124.4bn
Annual worldwide market value
Chemotherapy $24.4bn
Hormonal therapies $13.1bn
Monoclonal antibodies (mAbs) $30.0bn
Small molecule targeted agents $34.7bn
Immune checkpoint inhibitors $20.9bn
Other oncology therapies $0.1bn
Source: IQVIA.
AstraZeneca focuses on specific segments
within this overall therap(cid:92) area market.
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Revenue
Commentary
Approved in 80 countries, including the US, Japan, China and
the EU, for 1st-line EGFRm advanced non-small cell lung
cancer (NSCLC), and more than 85 countries, including the
US, Japan, China and the EU, for 2nd-line use in patients with
EGFRm T790M mutation-positive advanced NSCLC.
Approved in the curative-intent setting of unresectable, Stage
III NSCLC after chemoradiotherapy in 61 countries, including
the US, Japan, China and the EU. Also approved for
previously treated patients with advanced bladder cancer in
15 countries, including the US. Regulatory reviews are also
underway in small cell lung cancer (SCLC).
Approved in 73 countries for the maintenance treatment of
platinum-sensitive relapsed ovarian cancer, regardless of
BRCA status. Also approved in the US, the EU, Japan, China
and several other countries as 1st-line maintenance treatment
of BRCA-mutated (BRCAm) advanced ovarian cancer following
response to platinum-based chemotherapy. In 58 countries,
including the US and Japan, it is approved for germline
BRCAm, HER2-negative, metastatic breast cancer, previously
treated with chemotherapy; in the EU, this includes
locally-advanced breast cancer. Approved in the US as
a 1st-line maintenance treatment for germline BRCAm
metastatic pancreatic cancer.
Approved for the treatment of adult patients with CLL in the
US, Canada and Australia. Also approved for previously
treated patients with MCL in 12 countries, including the US,
Canada, Australia, Brazil, Qatar, the United Arab Emirates,
Israel, Mexico, Argentina, Singapore, Chile and India.
(cid:36)(cid:83)(cid:83)roved in the (cid:56)(cid:54) for (cid:426)(cid:22)rd-(cid:79)ine re(cid:79)a(cid:83)sed or refractory (cid:43)(cid:38)(cid:47).
In 2018, the commercialisation rights of Lumoxiti were
licensed to Innate Pharma for the US and EU.
Approved in the US for HER2-positive unresectable or
metastatic breast cancer following two or more prior
anti-HER2 based regimens. Regulatory reviews are also
underway in other jurisdictions for breast cancer.
Tagrisso
(osimertinib)
Lung cancer
$3,189m, up 71%
(74% at CER)
Imfinzi
(durvalumab)
Lung cancer
Bladder cancer
$1,469m, up
132% (133% at
CER)
(cid:47)(cid:92)n(cid:83)(cid:68)(cid:85)z(cid:68)
(olaparib)
Ovarian cancer
Breast cancer
Pancreatic cancer
$1,198m, up 85%
(89% at CER)
(cid:38)(cid:68)(cid:79)(cid:84)(cid:88)(cid:72)n(cid:70)(cid:72)
(acalabrutinib)
Lumoxiti
(moxetumomab
pasudotox-tdfk)
(cid:40)n(cid:75)(cid:72)(cid:85)(cid:87)(cid:88)
(trastuzumab
deruxtecan)
Legacy
Faslodex
(fulvestrant)
Zoladex
(goserelin
acetate(cid:98)i(cid:80)(cid:83)(cid:79)ant(cid:12)
Iressa
(cid:11)gefitinib(cid:12)
Mantle cell
lymphoma (MCL)
Chronic
lymphocytic
leukaemia (CLL)
Hairy cell
leukaemia (HCL)
Breast cancer
Breast cancer
Prostate cancer
(cid:37)reast(cid:98)cancer
Lung cancer
Arimidex
(anastrozole)
Breast cancer
Casodex/Cosudex
(bicalutamide)
Prostate cancer
Others
Full product information from page 243.
$164m, up 164%
(164% at CER)
$892m, down
13% (11% at
CER)
$813m, up 8%
(13% at CER)
$423m, down
18% (15% at
CER)
$225m, up 6%
(11% at CER)
(cid:7)(cid:21)(cid:19)(cid:19)(cid:80)(cid:15) (cid:432)at at (cid:19)(cid:8)
(up 3% at CER)
$94m, down 18%
(17% at CER)
Key marketed products and
revenues 2019
Our Oncology performance in 2019
was driven by the rapid and broad
market penetration of our new
medicines, with several launches
and new indications across our key
markets.
Oncology Product Sales
$8,667m
37% of total
(cid:21)(cid:19)(cid:20)(cid:27)(cid:29) (cid:7)(cid:25)(cid:15)(cid:19)(cid:21)(cid:27)(cid:80)
(cid:21)(cid:19)(cid:20)(cid:26)(cid:29) (cid:7)(cid:23)(cid:15)(cid:19)(cid:21)(cid:23)(cid:80)
Our strategy for Oncology
In 2019, we focused our Oncology business on
si(cid:91) (cid:78)ey areas that re(cid:432)ect both our co(cid:80)(cid:80)ercia(cid:79)
(cid:83)riorities and our (cid:78)ey scientific (cid:83)(cid:79)atfor(cid:80)s(cid:29)
> Tagrisso and tumour drivers and resistance
(TDR) mechanisms
> Imfinzi and immuno-oncology (IO)
> Lynparza and DNA damage response (DDR)
> Calquence and haematology
> Enhertu (DS-8201) and antibody-drug
conjugates (ADCs)
> Established portfolio.
Our Oncology activities have spanned across
our four strategic imperatives.
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 our 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 redefine
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. We
are also deploying new access solutions to
ensure that patients that need our medicines
can get them. 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 2019 / Therapy Area Review
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Oncolog(cid:92) continued
2019 pipeline highlights
In 2019, we had more than 75 new molecular
entities (NMEs) under investigation in various
stages of development from Phase I through
to Phase III.
Our late-stage pipeline delivered a strong
flow of new clinical data across our portfolio
and we continued to present our scientific
progress at major medical congresses.
We also continued to invest in new clinical
entities through partnerships and acquisitions.
Full details are given in the Development
Pipeline from page 238 and highlights from
the progress our Oncology pipeline made in
2019 against our KPIs are shown below.
Life-cycle phases – R&D
NME Phase II a/b starts/progressions
We have initiated Phase II clinical trials in various
solid tumours with MEDI5752, our novel bispecific
antibody which targets PD-1 and CTLA-4, and
with AZD9833, an oral SERD in development for
ER+ breast cancer. AZD4635, an A2AR antagonist
and oleclumab, our IgG1 mAb against CD73, are
being explored as a combination therapy in
patients with prostate cancer.
Product
AZD4635 + oleclumab
AZD9833
AZD9833 + palbociclib
MEDI5752
Cancer type
Prostate cancer
Breast cancer
ER + breast cancer
Solid tumours
NME and major life-cycle management
(LCM) positive Phase III investment
decisions
Product
None
Cancer type
–
Investment decisions have been made for eight projects, but clinical trials have yet to start.
NME and major LCM regional
submissions
Product
Cancer type
Bevacizumab (FKB238)
VEGF cancer treatment
2019 was a landmark year with submissions for
seven different medicines in 10 indications
across regions.
(cid:38)(cid:68)(cid:79)(cid:84)(cid:88)(cid:72)n(cid:70)(cid:72)
(cid:38)(cid:68)(cid:79)(cid:84)(cid:88)(cid:72)n(cid:70)(cid:72)
Imfinzi + SoC
Lumoxiti
(cid:47)(cid:92)n(cid:83)(cid:68)(cid:85)z(cid:68)
(cid:47)(cid:92)n(cid:83)(cid:68)(cid:85)z(cid:68)
(cid:47)(cid:92)n(cid:83)(cid:68)(cid:85)z(cid:68)
(cid:47)(cid:92)n(cid:83)(cid:68)(cid:85)z(cid:68)(cid:3)(cid:14)(cid:3)(cid:36)(cid:89)(cid:68)(cid:86)(cid:87)in
Selumetinib
(cid:40)n(cid:75)(cid:72)(cid:85)(cid:87)(cid:88)
Region
US, EU, Japan
EU, US
EU, US
Relapsed/refractory CLL (ASCEND)
1st-line CLL (ELEVATE-TN)
1st-line extensive-stage SCLC (CASPIAN)
US, EU, Japan
3rd-line HCL
EU
gBRCAm metastatic breast cancer (OlympiAD) China
1st-line pancreatic cancer (POLO)
Prostate cancer (PROfound)
Ovarian cancer (PAOLA-1)
(cid:49)eurofibro(cid:80)atosis ty(cid:83)e (cid:20) (cid:11)(cid:54)(cid:51)(cid:53)(cid:44)(cid:49)(cid:55)(cid:12)
US, EU
US, EU
US
US
HER2-positive unresectable or metastatic breast
cancer (DESTINY-Breast01)
US, Japan
Life-cycle phases – approvals
NME and major LCM regional
approvals
Our medicines expanded into new indications with
approvals for Calquence in CLL and for Lynparza in
germline BRCA-mutated (gBRCAm) pancreatic
cancer, and in new regions with Lynparza approved
in the EU for gBRCAm metastatic breast cancer
and Imfinzi approved in China for unresectable,
Stage III NSCLC. We also had the first global
approval for Enhertu in 2019 in HER2-positive
unresectable or metastatic breast cancer.
Discontinued projects
Plus one project where submissions have been made and regulatory acceptance is pending.
Product
(cid:38)(cid:68)(cid:79)(cid:84)(cid:88)(cid:72)n(cid:70)(cid:72)
(cid:38)(cid:68)(cid:79)(cid:84)(cid:88)(cid:72)n(cid:70)(cid:72)
(cid:40)n(cid:75)(cid:72)(cid:85)(cid:87)(cid:88)
Imfinzi
(cid:47)(cid:92)n(cid:83)(cid:68)(cid:85)z(cid:68)
(cid:47)(cid:92)n(cid:83)(cid:68)(cid:85)z(cid:68)
(cid:47)(cid:92)n(cid:83)(cid:68)(cid:85)z(cid:68)
Tagrisso
Product
AZD0156
AZD4547
AZD4785
AZD8186
Imfinzi + dabrafenib + trametinib
Imfinzi + Iressa
Imfinzi + MEDI0680
Imfinzi + tremelimumab
(cid:47)(cid:92)n(cid:83)(cid:68)(cid:85)z(cid:68) + AZD6738
MEDI3726
MEDI7247
Cancer type
Relapsed/refractory CLL (ASCEND)
1st-line CLL (ELEVATE-TN)
HER2-positive unresectable or metastatic breast
cancer (DESTINY-Breast01)
Region
US
US
US
Locally advanced (Stage III) NSCLC (PACIFIC) China
gBRCAm metastatic breast cancer (OlympiAD) EU
1st-line ovarian cancer (SOLO-1)
EU, Japan, China
1st-line pancreatic cancer (POLO)
1st-line NSCLC (FLAURA)
US
China
Cancer type
Solid tumours
Solid tumours
Solid tumours
Solid tumours
Melanoma
NSCLC
Solid tumours
1st-line NSCLC (NEPTUNE)
Gastric cancer
Prostate cancer
Reason
Strategic
(cid:54)afety(cid:18)e(cid:433)cacy
(cid:54)afety(cid:18)e(cid:433)cacy
Strategic
(cid:54)afety(cid:18)e(cid:433)cacy
(cid:54)afety(cid:18)e(cid:433)cacy
(cid:54)afety(cid:18)e(cid:433)cacy
(cid:54)afety(cid:18)e(cid:433)cacy
(cid:54)afety(cid:18)e(cid:433)cacy
(cid:54)afety(cid:18)e(cid:433)cacy
Haematological malignancies, solid tumours
(cid:54)afety(cid:18)e(cid:433)cacy
For more information on the
life-cycle of a medicine, see page 9.
Oleclumab + AZD4635
NSCLC
Savolitinib
Papillary renal cell carcinoma (SAVOIR)
Strategic
Strategic
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(cid:47)ung Ambition Alliance
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In collaboration with the International
Association for the Study of Lung
Cancer (IASLC), Guardant Health and
the Global Lung Cancer Coalition
(GLCC), in July 2019, we announced
the formation of the Lung Ambition
Alliance. It has the goal of one day
eliminating lung cancer as a cause of
death and has identified three areas of
focus that s(cid:83)an the (cid:83)atient e(cid:91)(cid:83)erience(cid:29)
1. Increasing lung cancer
3. Enhancing quality care
screening and early diagnosis
by raising awareness of the
e(cid:428)ectiveness of screening and
addressing barriers to early
detection, with continued
improvements to the ease and
reliability of diagnostics and
contributions to better
understanding of disease
progression.
2. Delivering innovative medicine
by enabling widespread paradigm
shifts to earlier intervention when
there is still potential for a cure.
by working with advocates and
policymakers to deliver projects that
address the challenges most urgent
to patients on the local level and by
improving coordination across the
multidisciplinary team of treaters.
(cid:55)hrough e(cid:428)ective activation of these
workstreams, the Alliance has set the
goa(cid:79) of doub(cid:79)ing five-year surviva(cid:79) for
lung cancer by 2025.
“ Through the Lung Ambition
Alliance, we are working together
with top oncology minds to
accelerate progress and help
patients with lung cancer live
longer and better lives.”
David Fredrickson
EVP, Oncology Business Unit
Other agents in early development include:
AZD9496, a selective oestrogen receptor
degrader (SERD) in Phase I development for
the treatment of oestrogen receptor positive
(ER+) breast cancer; AZD9833, a SERD in
Phase II development for the treatment of ER+
breast cancer; AZD5153, a bromodomain-4
inhibitor in Phase I for solid tumours; and in
our cell death portfolio, AZD5991 (MCL1
inhibitor) and AZD4573 (CDK9 inhibitor), which
are being investigated in haematological
malignancies.
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 continued its strong commercial
performance in 2019, building on its quick
adoption in the US and supported by new
approvals and accelerating growth in markets
outside the US.
Immuno-oncology (IO) is a promising therapeutic approach
that harnesses the patient’s own immune system to help
fight cancer. (cid:58)e ai(cid:80) to beco(cid:80)e scientific (cid:79)eaders in (cid:44)(cid:50) by
identifying novel approaches that enhance the immune
syste(cid:80)(cid:350)s abi(cid:79)ity to fight cancer(cid:15) both (cid:90)ith (cid:44)(cid:50) (cid:80)edicines on
their own, and in conjunction with other medicines.
Treating early-stage NSCLC
Imfinzi is the only immunotherapy to
demonstrate OS at three years in
unresectable Stage III NSCLC and represents
a new standard of care treatment. In 2019,
three-year OS results from the Phase III
PACIFIC trial showed a durable and sustained
OS benefit in patients with unresectable,
Stage III NSCLC who had not progressed
following concurrent chemoradiation therapy
(CRT), a previous standard of care treatment.
In December, Imfinzi was approved in China
for patients with unresectable Stage III
NSCLC.
2019 review – strategy in action
2019 saw stable performances from our
established Oncology products, steady
growth from our innovative new medicines
portfolio, and a generally positive news flow
from our late-stage pipeline in each of our four
strategic pillars.
Tagrisso and tumour drivers and
resistance mechanisms
Tagrisso is a 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 precision medicines with a biomarker-
driven approach to inhibit 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.
In 2019, it became our top-selling medicine
as we extended its global roll-out for 1st-line
NSCLC. Tagrisso also continues to be
investigated in NSCLC in the adjuvant setting
(ADAURA), in the locally-advanced
unresectable setting (LAURA), in combination
with chemotherapy (FLAURA2) in the
metastatic setting, and with potential new
medicines to address resistance to EGFR-
TKIs (SAVANNAH, ORCHARD).
In September 2019, Tagrisso was approved as
a 1st-line treatment in China for adults with
locally-advanced or metastatic NSCLC. Also in
September, the benefit of using Tagrisso in the
1st-line treatment of adult patients with
locally-advanced EGFRm NSCLC was
confirmed with the results of a key secondary
endpoint of the Phase III FLAURA trial. Results
showed a statistically significant and clinically
meaningful improvement in OS, for Tagrisso
versus gefitinib or erlotinib, both of which were
previous standard of care treatments.
Several other next-generation potential
medicines from our TDR platform moved into
or progressed in Phase III in 2019:
> Selumetinib: A MEK 1/2 inhibitor, and part of
a global strategic oncology collaboration
with MSD, selumetinib was granted
Breakthrough Therapy Designation by the
FDA in April 2019 for the treatment of
paediatric patients aged three years and
older with neurofibromatosis type 1 (NF1)
symptomatic and/or progressive, inoperable
plexiform neurofibromas (PN), a rare,
incurable genetic condition. In November
2019, we announced its filing acceptance by
the FDA for a potential indication in NF1.
> Savolitinib: A selective inhibitor of c-MET
receptor tyrosine kinase, savolitinib is being
investigated with Hutchison China MediTech
Limited (Chi-Med), both as a monotherapy
and in combination. It has shown promising
signs of clinical efficacy in patients with MET
gene alterations in lung cancer and gastric
cancer with an acceptable safety profile,
including promising preliminary efficacy and
safety results in the ongoing China Phase II
study of savolitinib monotherapy in NSCLC
patients with MET mutations. It also showed
promise in the TATTON Phase Ib expansion
cohort when combined with Tagrisso in
patients with EGFRm MET-amplified NSCLC;
this combination has been taken into a large
Phase II trial, SAVANNAH, which is ongoing.
> Capivasertib (AZD5363): Our AKT inhibitor,
capivasertib entered Phase III development
in the first half of 2019 for triple negative
breast cancer.
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Therapy Area Review
Oncolog(cid:92) continued
Lung cancer is a key area of focus for our IO
portfolio and we announced new trials in 2019
to investigate the full potential of Imfinzi in
early-stage NSCLC:
> ADJUVANT BR.31, an externally-sponsored
research study led by the Canadian Cancer
Trials Group, 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 CRT in Stage III NSCLC patients.
> PACIFIC-5 will assess the efficacy and
safety of Imfinzi in patients treated with
either sequential or concurrent CRT in
patients with unresectable Stage III NSCLC.
Late-stage NSCLC
Our clinical trial portfolio also explores 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 and POSEIDON
trials.
In August 2019, we announced that
NEPTUNE, a Phase III trial of Imfinzi in
combination with tremelimumab, an anti-
CTLA4 antibody, versus standard of care
platinum-based chemotherapy in the 1st-line
treatment of patients with Stage IV
(metastatic) NSCLC, failed to meet its primary
endpoint. We are continuing to analyse the
clinical and biomarker data from this trial to
gain further insights to improve IO approaches
for patients with metastatic NSCLC.
In October 2019, we announced positive PFS
results from the Phase III POSEIDON trial for
Imfinzi and tremelimumab when added to
chemotherapy in previously-untreated Stage
IV (metastatic) NSCLC. The trial met its
primary endpoint by showing a statistically
significant and clinically meaningful
improvement in the final PFS analysis in
patients treated with the combination of
Imfinzi and a broad choice of five standard of
care platinum-based chemotherapy options
versus chemotherapy alone. The triple
combination of Imfinzi plus tremelimumab
and chemotherapy also demonstrated a
statistically significant and clinically
meaningful PFS improvement versus
chemotherapy alone as a key secondary
endpoint. OS data from this trial are now
expected in 2021.
Imfinzi in SCLC
SCLC, which constitutes about 15% of all lung
cancer diagnoses, is a fast-growing cancer
that recurs and progresses rapidly. It is the
most aggressive type of lung cancer with only
6% of patients alive after five years.
In 2019, Imfinzi demonstrated both a
significant survival benefit and improved
responses in extensive-stage SCLC in the
Phase III CASPIAN trial. The FDA
subsequently granted Orphan Drug
Designation to Imfinzi for the treatment of
SCLC and, in November 2019, granted Priority
Review for the treatment of patients with
1st-line extensive-stage SCLC.
Lynparza and DNA damage response
Lynparza is our first and best-in-class oral
poly ADP-ribose polymerase (PARP) inhibitor,
and the first targeted treatment to block DDR
in cells/tumours harbouring a deficiency in
homologous recombination repair (HRR), such
as mutations in BRCA1 and/or BRCA2. We
have a global strategic oncology collaboration
with MSD to co-develop and co-
commercialise Lynparza.
Imfinzi is also being tested following
concurrent CRT in limited-stage SCLC in the
Phase III ADRIATIC trial.
Exploring other indications
Beyond lung cancer, we continue to explore
the potential of Imfinzi and tremelimumab in
head and neck squamous cell carcinoma
(HNSCC) (KESTREL), bladder cancer
(DANUBE, NILE, POTOMAC, NIAGARA) and
in hepatocellular carcinoma (HCC)
(HIMALAYA, EMERALD-1, and EMERALD-2).
Our IO pipeline
Our IO pipeline contains NMEs targeting
multiple pathways, novel mechanisms to
boost current immune response, and agents
to modify the tumour microenvironment both
alone and in combination with checkpoint
inhibition. We continue to explore the
adenosine pathway, which is increasingly
recognised as critical to tumour suppression
and represents a new frontier within IO. Some
of the 2019 highlights from our IO pipeline
include:
> Monalizumab: Our first-in-class humanised
anti-NKG2A antibody is being investigated in
HNSCC, colorectal cancer, and
haematological malignancies. Monalizumab
is now transitioning to a Phase III trial in
HNSCC in combination with cetuximab.
> Oleclumab is our Immunoglobulin G1 (IgG1)
mAb against CD73. It is being explored in
combination with Imfinzi and chemotherapy
in pancreatic cancer, as well as in
combination with Tagrisso, AZD4635 or
Imfinzi in lung cancer.
> AZD4635: An adenosine 2A receptor (A2AR)
inhibitor is being explored as monotherapy
and in combination with Imfinzi in solid
tumours in Phase II trials.
> AZD9150: danvatirsen, a STAT3 antisense
oligonucleotide (ASO) continues to be
investigated in Phase II in patients with
2nd-line HNSCC and in combination with
Calquence for haematological cancers.
> MEDI5752: A novel bispecific antibody
designed to target PD-1 and CTLA-4
checkpoints on immune cells is being studied
in a range of solid tumours.
> MEDI0457: a human papilloma virus (HPV)
vaccine currently tested in combination with
Imfinzi in HPV-positive HNSCC.
> MEDI5083: Preclinical data on this novel fusion
protein that activates the CD40 pathway were
presented at the 2019 American Association
for Cancer Research (AACR) meeting.
Our DNA damage response (DDR) platform exploits
mechanisms that selectively damage tumour cell DNA to
shrink tumours and improve PFS and 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.
In 2014, Lynparza became the world’s first
approved PARP inhibitor. Initially indicated for
the treatment of ovarian cancer, in 2017, it
became the first PARP inhibitor to
demonstrate benefits in certain types of
breast cancer. In 2019, Lynparza exceeded
$1 billion in sales worldwide, demonstrating
its uptake by physicians in need of treatment
options for multiple cancer types.
Leadership in ovarian cancer
We are committed to changing the way
advanced ovarian cancer is treated in the
1st-line setting. The positive SOLO-1 trial had
already demonstrated the significant benefit
of extending PFS much earlier, bringing the
goal of long-term remission and cure in
ovarian cancer closer for women with tumours
that harbour a BRCA mutation. In 2019, results
from the Phase III PAOLA-1 trial in the 1st-line
maintenance setting in women regardless of
biomarker status or surgical outcome and
a broader patient group than in SOLO-1,
showed that Lynparza, when added to the
standard of care, bevacizumab, delivered
a statistically significant and clinically
meaningful improvement in PFS. Women
taking the Lynparza-bevacizumab
combination lived longer without disease
progression or death compared with those
taking bevacizumab alone. The goal of 1st-line
treatment is to delay progression of the
disease for as long as possible, with the intent
of achieving complete remission or cure and
these data have the potential to change
clinical practice in how women with advanced
ovarian cancer are treated.
First PARP inhibitor to achieve positive Phase
III results in four different cancer types
In 2019, Lynparza became the first and only
PARP inhibitor with positive Phase III trial
results in four different tumour types: pancreatic
and prostate, as well as ovarian and breast.
The Phase III POLO trial explored the efficacy
of Lynparza tablets as 1st-line maintenance
monotherapy in patients with gBRCAm
metastatic pancreatic cancer whose disease
has not progressed on platinum-based
chemotherapy. POLO is the first positive
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Phase III trial of any PARP inhibitor in this
disease where there is a critical unmet
medical need.
Results from the POLO trial showed a
statistically significant and clinically
meaningful improvement in PFS, where
Lynparza nearly doubled the time patients
with gBRCAm metastatic pancreatic cancer
lived without disease progression or death to
a median of 7.4 months compared with 3.8
months on placebo. Based on these results,
Lynparza has now been approved in the US
for the maintenance treatment of adult
patients with deleterious or suspected
deleterious gBRCAm metastatic pancreatic
cancer whose disease has not progressed on
at least 16 weeks of a 1st-line platinum-based
chemotherapy regimen.
The Phase III PROfound trial of Lynparza in
men with metastatic castration-resistant
prostate cancer (mCRPC) showed a
statistically significant and clinically
meaningful improvement in radiographic PFS
with Lynparza versus enzalutamide or
abiraterone in men with mCRPC whose
tumours harbour mutations in one of 15
potential HRR genes, including BRCA1,
BRCA2 and ATM. The potential benefits of
Lynparza in mCRPC will continue to be tested
in the Phase III PROpel trial that will assess
the combination of Lynparza with abiraterone
in 1st-line mCRPC.
Progress across the DDR pipeline
Our DDR pipeline continues to expand and
progress:
> AZD7648, a potent and selective DNA-PK
inhibitor which could be an innovative new
way to target alternative DDR dependencies.
> Adavosertib (AZD1775), our WEE1 inhibitor
continues in Phase II development for
ovarian and other solid tumours in
combination with Lynparza, in combination
with chemotherapy, and as a monotherapy.
> Ceralasertib (AZD6738), an ataxia
telangiectasia and Rad3-related (ATR)
serine/threonine protein kinase inhibitor is
being evaluated in Phase I/II trials in solid
tumours and haematological malignancies
as monotherapy and in combination with
other targeted therapies, including Lynparza
in triple negative breast cancer. It is also
being investigated in combination with
Calquence in CLL, and in combination with
radiation therapy and chemotherapy.
> AZD2811 an aurora kinase B inhibitor in
development as monotherapy in Phase II in
SCLC and acute myeloid leukaemia.
> AZD1390, a blood-brain barrier penetrant
inhibitor of ATM is in Phase I for brain
tumours.
Calquence and haematology
Calquence is our irreversible oral Bruton’s
tyrosine kinase (BTK) inhibitor. It was
approved for the treatment of MCL in the US
in 2017.
In November 2019, the FDA approved
Calquence for adult patients with CLL or small
lymphocytic lymphoma (SLL). The US approval
was granted under the FDA’s Real-Time
Oncology Review and the newly established
Project Orbis programme which provides a
framework for concurrent submission and
review of oncology medicines among
international partners. The FDA, the Australian
Therapeutic Goods Administration, and Health
Canada collaborated on this review and
approval for CLL in Australia and Canada
followed shortly after. Approval was based on
positive results from the interim analyses of two
Phase III clinical trials – ASCEND and
ELEVATE-TN. The ASCEND trial compared
Calquence with rituximab combined with
delalisib or bendamustine in patients with
relapsed or refractory CLL and the ELEVATE-
TN trial evaluated the safety and efficacy of
Calquence alone or in combination with
obinutuzumab compared with chlorambucil in
combination with obinutuzumab in patients
with previously untreated CLL. Together, the
trials showed that Calquence in combination
with obinutuzumab or as a monotherapy
significantly reduced the relative risk of disease
progression or death versus the comparator
arms in both 1st-line and relapsed or refractory
CLL. Across both trials, the safety and
tolerability of Calquence were consistent with
its established profile.
There was also progress made in our
haematology early-phase clinical programme,
with AZD5991 (an MCL1 inhibitor), AZD4753 (a
CDK9 inhibitor) and AZD0466 (a dual inhibitor
of Bcl2 and Bcl-xL), all being investigated as
part of our cell death programme, as well as
ADCs, MEDI7247 and MEDI2228. In addition,
the BTK and STAT3 combination is being
explored in Phase I trials with Calquence and
danvatirsen (AZD9150), a STAT3 ASO.
Enhertu and antibody-drug conjugates
In March 2019, we added Enhertu (DS-8201,
trastuzumab deruxtecan), a new targeted
medicine for cancer treatment to our ADC
portfolio by signing a global development and
commercialisation collaboration agreement
with Daiichi Sankyo. The agreement enables
both companies to jointly develop and
commercialise the medicine worldwide,
except in Japan, where Daiichi Sankyo will
maintain exclusive rights.
Enhertu is currently in development for the
treatment of multiple HER2-expressing
cancers, including breast, gastric, colorectal
and NSCLC. Following positive top-line results
from the pivotal Phase II DESTINY-Breast01
trial in May 2019, regulatory submissions were
completed in the US and Japan for previously
treated patients with HER2-positive,
unresectable and/or metastatic breast cancer.
In October 2019, the FDA accepted the BLA
application for Enhertu and granted Priority
Review and, in December 2019, Enhertu
received Accelerated Approval by the FDA for
the treatment of adult patients with
unresectable or metastatic HER2-positive
breast cancer who have received two or more
prior anti-HER2 based regimens in the
metastatic setting. Detailed results of the
DESTINY-Breast01 trial demonstrated an
overall response rate of 60.9% and a median
PFS of 16.4 months, based upon a median
duration of follow-up of 11.1 months.
The use of antibody-drug conjugates (ADCs) 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.
We are also progressing with the development
of our early stage ADC pipeline – MEDI7247 in
haematological malignancies and solid
tumours and MEDI2228 in multiple myeloma.
Established portfolio and biosimilars
In 2019, our established oncology brands –
Faslodex, Zoladex and Iressa – performed
well, with growth in Zoladex and moderate
sales decreases of Faslodex and Iressa.
Faslodex showed a slower decline than
expected, largely led by growth in
combination use with CDK4/6 inhibitors and
slower generic competition in the EU. Decline
in the second half of the year was primarily
driven by generic competition in the US.
Iressa sales continued to decline due to
generic entries in select markets, the uptake
of Tagrisso in 1st-line EGFRm advanced
NSCLC, and the pricing impact on Iressa from
centralised procurement in China.
Zoladex double-digit 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
Emerging Markets.
We are partnering with Fuji Kirin Biologics and
Samsung Biologics to develop two biosimilar
molecules within joint venture companies.
Both programmes progressed in 2019, with
the more advanced biosimilar bevacizumab
programme reporting positive clinical data
and achieving a successful BLA submission
with the US and EU regulators. Bevacizumab
is a cornerstone of VEGF cancer treatment
with some 15 approved indications either as
monotherapy or in combination.
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Therapy Area Review
continued
Cardiovascular, Renal
& Metabolism
Our mission is to protect the lives of people from the often devastating
consequences of heart failure, cardiovascular, metabolic and renal
diseases, and to change clinical practice to address unmet medical need.
We are committed to the seamless management of diseases, improving
patient outcomes and decreasing the mortality rate.
Unmet medical need and world market
Cardiovascular, Renal & Metabolism (CVRM) diseases are
the leading causes of death across the globe, killing more
than 20 million people each year.
Messenger RNA being read by
a ribosome to produce signalling
proteins.
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425m
Number of people living
with diabetes.
64m
Number of people living
with heart failure and
cardiovascular disease which
are responsible for the deaths
of 17.9 million people per year.
200m
Number of people living with
chronic kidney disease.
Therapy area world market
(MAT/Q3/19)
$194.4bn
Annual worldwide market value
High blood pressure $34.1bn
Abnormal levels of blood cholesterol $17.0bn
Diabetes $89.9bn
Thrombosis $7.6bn
CKD $10.1bn
CKD associated anaemia $6.9bn
Hyperkalaemia $0.4bn
Other CV $45.3bn
Source: IQVIA.
AstraZeneca focuses on specific segments
within this overall therapy area market. Sales
for CKD and CKD associated anaemia fall
outside the CVRM total market. All sales for
CKD associated anaemia ($6.9bn) fall within
the CKD market and should not be double-
counted.
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Revenue
Commentary
Brilinta/Brilique
(ticagrelor)
Farxiga/
Forxiga
(cid:11)da(cid:83)ag(cid:79)i(cid:432)o(cid:93)in(cid:12)
Bydureon
(exenatide XR
injectable
suspension)
Onglyza
(saxagliptin)
Acute coronary
syndromes (ACS) and
high-risk patients with
history of myocardial
infarction (MI)
Type-2 diabetes,
Type-1 diabetes
Type-2 diabetes
Type-2 diabetes
Byetta (exenatide
injection)
Type-2 diabetes
Type-2 diabetes
Type-2 diabetes
Hyperkalaemia
Symlin
(pramlintide
acetate)
Qtern (metformin
hydrochloride,
saxagliptin and
da(cid:83)ag(cid:79)i(cid:432)o(cid:93)in(cid:12)
Lokelma (sodium
(cid:93)irconiu(cid:80)
cyclosilicate (SZC))
Legacy
Approved in more than 110 countries for ACS and more
than 70 countries for high-risk patients with history of
heart attack; included in major guidelines. Brilinta
delivered consistent quarter-over-quarter growth in 2019
in all regions.
Approved in 100 countries to improve glycaemic control
in adult patients with type-2 diabetes; included in major
guidelines. Farxiga delivered consistent, solid growth
quarter-over-quarter in 2019. Approval for type-1
diabetes in EU and Japan. Complete Response Letter
received from FDA for type-1 diabetes.
Approved in more than 70 countries to improve
glycaemic control in adults with type-2 diabetes;
included in major guidelines. In 2019, Bydureon
continued launch progress with BCise in a highly
dynamic GLP-1 class.
Approved in more than 85 countries for the treatment of
adults with type-2 diabetes; included in guidelines.
Onglyza maintained a strong performance in 2019 in
Emerging Markets, driven by China, while facing US
price pressure.
$1,581m, up
20% (23% at
CER)
$1,543m, up
11% (14% at
CER)
$549m, down
6% (5% at
CER)
$527m, down
3% (0% at
CER)
$110m, down
13% (11% at
CER)
$34m,
movement n/m
$18m, up 261%
(276% at CER)
(cid:44)n (cid:21)(cid:19)(cid:20)(cid:28)(cid:15) our co(cid:80)bination thera(cid:83)y of da(cid:83)ag(cid:79)i(cid:432)o(cid:93)in(cid:15)
saxagliptin and metformin hydrochloride was approved
in the US as Qternmet XR and in the EU as Qtrilmet.
$14m,
movement n/m
Approved with launches under way in the US, EU,
Canada and China for the treatment of adults with
hyperkalaemia.
Crestor (rosuvastatin
calcium)
Dyslipidaemia
Hyper-
cholesterolaemia
$1,278m, down
11% (8% at
CER)
Financial impact has stabilised following patent expiries
in the US (2016) and EU/Japan (2017). Licensed from
Shionogi. The extension of the global license agreement
with Shionogi for Crestor beca(cid:80)e e(cid:428)ective (cid:20) (cid:45)anuary
2014.
Seloken/Toprol-XL
(metoprolol
succinate)
Hypertension
Heart failure
Angina
Atacand/Atacand
HCT/Atacand Plus
(candesartan cilexitil)
Hypertension
Heart failure
Others
$760m, up 7%
(12% at CER)
Divested rights in Europe to Recordati in May 2017.
(cid:39)ivested (cid:56)(cid:54) rights to (cid:36)ra(cid:79)e(cid:93) e(cid:428)ective (cid:50)ctober (cid:21)(cid:19)(cid:20)(cid:25).
$221m, down
15% (11% at
CER)
Divested rights to Cheplapharm in 28 European markets
in July 2018. Licensed from Takeda Chemicals
Industries Ltd.
$273m, down
9% (6% at
CER)
Our ambition in CVRM
Our aim is to develop and grow a portfolio of
medicines that address the multiple risk factors
or co-morbidities across CVRM. Our efforts are
built on global randomised clinical trials (RCTs)
that are as close as possible to clinical practice
and real-world evidence (RWE) research. These
help us gather vital insights into patient needs
and clinical practice, and develop treatments
that meet the requirements of both patients
and HCPs.
Our ambition is as follows:
> Cardiovascular: to help eliminate CV risk
factors and stop disease progression.
> Heart failure: to help prevent, treat and cure
this leading cause of death.
> Renal: to help treat life-threatening
complications and slow disease progression.
> Metabolism: to treat beyond HbA1C
(average blood glucose levels), prevent
cardio-renal complications and explore
non-alcoholic steatohepatitis (NASH).
With our existing medicines and those in
late-stage development, we are already
delivering life-changing results in the four CVRM
disease areas and their complications.
> Cardiovascular: Brilinta
> Heart failure: Farxiga, Lokelma
> Renal: Lokelma, roxadustat, Farxiga
> Metabolism: Brilinta, Farxiga, Bydureon,
Qtern
We additionally have a pipeline of more than 25
therapies and therapy combinations and believe
we have a comprehensive portfolio of potential
medicines that might combat these life-
threatening conditions.
Beyond our research, we also invest in strategic
partnerships to better educate stakeholders
about these diseases and improve patient
access to healthcare worldwide.
AstraZeneca Annual Report & Form 20-F Information 2019 / Therapy Area Review
61
Key marketed products and
revenues 2019
Brilinta and Farxiga continued to
provide a foundation for continued
growth in the therapy area and our
renal franchise made progress, with
Lokelma launching in the US and
progressively in Europe. Overall
CVRM Product Sales were up 3%
on 2018 (6% at CER).
CVRM Product Sales
$6,906m
29% of total
2018: $6,710m
2017: $7,266m
Our strategy for CVRM
We have divided CVRM into four distinct but
interrelated disease areas: cardiovascular
disease, heart failure, metabolic and renal
diseases. In developing targeted medicines for
these diseases, we recognise that, in addition
to their di(cid:428)erences(cid:15) these four areas are
interconnected. Whereas shared risk factors
are often currently neither diagnosed nor
addressed, science suggests that, by
considering common mechanisms of CVRM
diseases, we can work with healthcare
practitioners (HCPs) to improve outcomes in
(cid:83)atients (cid:90)ith one s(cid:83)ecific diagnosis before
co-morbidities emerge.
Therapy Area Review
Cardiovascular, Renal
& Metabolism continued
2019 pipeline highlights
Our pipeline includes biologics, antisense
oligonucleotides, mRNA, ProTACs and cell
therapy. We are researching pioneering
approaches in the field of disease regression
and organ regeneration for conditions such as
CKD, ACS, coronary artery disease (CAD),
chronic heart failure (HF) and NASH.
Full details are given in the Development
Pipeline from page 238 and highlights from
the progress our CVRM pipeline made in 2019
against our KPIs are shown below.
Life-cycle phases – R&D
New molecular entity (NME) Phase II a/b
starts/progressions
We have initiated Phase II clinical trials,
exploring NASH and diabetic kidney disease
(DKD).
Product
Cotadutide
MEDI3506
Verinurad
NME and major life-cycle management
(LCM) positive Phase III investment
decisions
Product
None
NME and major LCM regional
submissions
Farxiga entered a new disease area for the
treatment of heart failure and we also
submitted label updates for diabetes based
on results from the DECLARE trial. Our renal
portfolio made regulatory filings for both
Lokelma and roxadustat, plus data
submissions for Brilinta.
Life-cycle phases – approvals
NME and major LCM regional
approvals
We made progress in providing new
medicines such as Lokelma and roxadustat to
renal patients where significant unmet medical
need remains. The breadth of Farxiga’s
indications grew with the label updated based
on positive CV and renal outcomes data from
the DECLARE trial in type-2 diabetes.
Product
Brilinta
Farxiga/Forxiga
Farxiga/Forxiga
Lokelma
Roxadustat
Product
Bydureon BCise
Bydureon
Bydureon BCise
Farxiga/Forxiga
Farxiga/Forxiga
Farxiga/Forxiga
Lokelma
Qternmet (cid:59)(cid:53) (cid:11)sa(cid:91)ag(cid:79)i(cid:83)tin (cid:14) da(cid:83)ag(cid:79)i(cid:432)o(cid:93)in (cid:14)
metformin)
Qtrilmet (cid:11)sa(cid:91)ag(cid:79)i(cid:83)tin (cid:14) da(cid:83)ag(cid:79)i(cid:432)o(cid:93)in (cid:14)
metformin)
Roxadustat1
Disease
NASH
DKD
CKD
Disease
–
Disease
Region
CV outcomes trial in patients with CAD and
type-2 diabetes without a previous history of MI
or stroke (THEMIS)
US, EU, Japan, China
Type-2 diabetes (DECLARE)
EU, China
Worsening heart failure or cardiovascular death
in patients with chronic heart failure (DAPA-HF)
US, EU
Hyperkalaemia
Japan, China
Anaemia in CKD/end-stage renal disease
(ROCKIES/OLYMPUS)
US
Disease
Region
Type-2 diabetes cardiovascular outcomes trial
(CVOT) (EXSCEL)
Type-2 diabetes CVOT (EXSCEL)
Type-2 diabetes CVOT (DURATION
programme harmonisation)
Type-2 diabetes (DERIVE)
US
US
US
US
Type-1 diabetes (DEPICT)
Japan, EU
Type-2 diabetes CVOT (DECLARE)
Hyperkalaemia
Type-2 diabetes
Type-2 diabetes
Hyperkalaemia
EU, US
China
US
EU
Japan
Discontinued projects
1 Development and commercialisation collaboration with FibroGen in China. FibroGen holds the NDA. Approved in 2019 in
China for non-dialysis dependent patient population (2018 approval was for dialysis-dependent patient population).
Product
Epanova
Disease
Reason
CV outcomes study in statin-treated patients at
high CV risk, with persistent
hypertriglyceridaemia plus low
HDL-cholesterol (STRENGTH)
(cid:54)afety(cid:18)e(cid:433)cacy
For more information on the life-cycle of a medicine,
see page 9.
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Improving Care for Cardiovascular
Disease in China
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Care for Cardiovascular Disease in
China (CCC) is a multi-year project
focused on improving compliance
with evidence-based therapy for
patients with acute coronary
syndromes (ACS) and atrial
fibri(cid:79)(cid:79)ation (cid:11)(cid:36)(cid:41)ib(cid:12) in a(cid:79)(cid:80)ost (cid:21)(cid:19)(cid:19)
tertiary and secondary hospitals
across China. The programme is a
co(cid:79)(cid:79)aborative e(cid:428)ort bet(cid:90)een the
American Heart Association, the
Chinese Society of Cardiology, and it
is supported by funding from an
independent educational grant from
AstraZeneca.
Four core pillars of the programme
– data collection, analysis, feedback
and process improvement – address
the quality of ACS and AFib care in
its entirety, from assessing gaps in
guideline compliance, through
recommending and training on
opportunities for improvement, to
recognising best-practice solutions.
Regular data collection, which was
first used to evidence the guide(cid:79)ine
compliance gap, now serves to verify
the ongoing success and quality
improvement achieved by the
programme. For example, an 80.7%
compliance rate in guideline-led care
for ACS patients among those
hospitals enrolled compares with
75.2% before the programme started.
81%
compliance rate in guideline(cid:16)led
care for ACS patients among
hospitals enrolled
200
CCC projects in action in almost
200 tertiary and secondary
hospitals across China
the rate of hospitalisation from HF. In the US,
the FDA granted Fast Track designation for the
development of Farxiga in HF, followed by
Priority Review for patients with HFrEF. It opens
up the possibility of a once-daily pill changing
the current treatment for HF. Our extensive
clinical programme includes several more
Phase III trials for the potential cardio-renal
benefits of Forxiga, DAPA-CKD, DELIVER and
DETERMINE. These will explore its
effectiveness in addressing areas of high
unmet medical need in HF, chronic HF and
CKD.
HF patients are often prescribed life-saving
renin-angiotensin-aldosterone system
inhibitors (RAASi), which lead to elevated
potassium levels. These patients have an
increased risk of developing hyperkalaemia,
which can be life-threatening if left untreated.
Lokelma is a treatment for hyperkalaemia
which was launched in the US and EU in 2019.
Currently under way, the Phase II PRIORITIZE-
HF trial is designed to evaluate the benefits and
risks of using Lokelma to initiate and intensify
RAASi therapy in HF patients.
We are also exploring innovative approaches,
previously regarded as impossible, such as
regenerating the heart by growing heart muscle
back and studying novel molecules such as
VEGF-A mRNA to work toward vascular
regeneration and cardiac repair.
2019 review – strategy in action
As noted above, our CVRM strategy includes
rigorous clinical programmes evaluating the
use of our medicines in large patient
populations:
> Randomised clinical trials: More than
22,500 patients are currently participating in
our R&D-led CVRM trials at more than 3,000
sites worldwide in both Established and
Emerging Markets. 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 have included CVD-REAL and
DISCOVER, which both set out to deliver
innovative data from large-scale settings.
Metabolism
Data from the landmark Phase III DECLARE-
TIMI 58 trial for Farxiga, part of the DapaCare
clinical programme which demonstrated the
effective reduction in heart failure (HF) risk in
a broad range of people with type-2 diabetes,
provided the basis for the label updates in both
the EU and the US. The FDA approved Farxiga
to reduce the risk of hospitalisation for HF in
adult patients with type-2 diabetes and
established CV disease or multiple CV risk
factors, based on results from DECLARE.
This was following the EMA’s label update for
Forxiga to include CV outcomes and renal
data from DECLARE. Farxiga is also currently
under regulatory review in China with a
decision anticipated in the first half of 2020.
Throughout 2019, additional subanalyses from
the DECLARE trial showed additional benefits
for renal and metabolic health through earlier
treatment. We are also working to illustrate the
economic value and wider societal benefits of
this integrated approach for type-2 diabetes
and HF risk which, through earlier treatment,
can avoid more serious outcomes for patients.
Another common metabolic disease is
non-alcoholic fatty liver disease (NAFLD).
With an estimated 25% of people worldwide
currently living with NAFLD, we are exploring
deeper into the mechanisms and complications
of NASH, a subtype of NAFLD, and finding
potential treatments through molecules such
as cotadutide (MEDI0382) and AZD2693.
Heart failure
As part of our efforts to prevent, treat and
cure HF as a leading cause of death, we are
developing treatments that include earlier
intervention across interconnected conditions
like type-2 diabetes. As indicated above, the
DECLARE-TIMI 58 trial provided evidence of
Farxiga’s effectiveness in the prevention of HF,
and in cardio-renal protection. We are now
looking beyond type-2 diabetes in trials that
have enrolled patients with and without type-2
diabetes, and are moving from the prevention
to the treatment of HF.
During 2019, full results from the landmark
Phase III DAPA-HF trial, the first HF outcomes
trial with a sodium-glucose cotransporter 2
(SGLT2) inhibitor in patients with and without
type-2 diabetes, and the first to explore SGLT2
inhibitors for use outside of diabetes, showed
that Farxiga reduced the risk of CV death and
AstraZeneca Annual Report & Form 20-F Information 2019 / Therapy Area Review
63
Therapy Area Review
Cardiovascular, Renal
& Metabolism continued
Cardiovascular disease
In working towards our objective of eliminating
CV residual risk and stopping disease
progression, we believe we are already making
a difference in patients with coronary artery
disease (CAD), including those who previously
experienced a heart attack, by reducing the
risk of experiencing further life-threatening CV
events. In those patients who have not
experienced a heart attack or stroke, but are at
a high risk of a CV event, the Phase III THEMIS
trial met its primary endpoint and showed that
Brilinta plus aspirin reduced the risk for the
composite of CV death, heart attack, or stroke
compared with aspirin alone, a statistically
significant relative reduction of 10%, in patients
with CAD and type-2 diabetes. Furthermore, in
patients with CAD and type-2 diabetes who
had undergone percutaneous coronary
intervention, a 15% relative risk reduction was
observed for Brilinta for CV events. We have
applied to regulators in the EU, US and Japan
to add a new indication to the Brilinta label
based on the THEMIS study.
Strokes remain a significant cause of mortality
and disability, and a transient ischaemic attack
(TIA) can be a warning of a future stroke – these
individuals are at a high risk of a subsequent
CV event. High-level results from the Phase III
THALES trial showed Brilinta, taken with aspirin
for 30 days, reached a statistically significant
and clinically meaningful reduction in the risk of
the composite endpoint of stroke and death,
compared to aspirin alone.
In January 2020, following the recommendation
from an independent Data Monitoring
Committee, we decided to close the Phase III
STRENGTH trial for Epanova due to its low
likelihood of demonstrating a benefit to patients
with mixed dyslipidaemia.
We also continue to investigate new molecules
such as MEDI5884, AZD6615, AZD3366 and
AZD5718 with the aim of helping to reach and
transform the lives of more patients living with
CV disease. We believe these molecules have
the potential to prevent both primary and
secondary CV events in multiple high CV risk
patient groups, such as those with
atherosclerosis in acute and chronic conditions
after MI and hypercholesterolaemia (elevated
cholesterol).
Crestor is approved in more than 115 countries
for the treatment of dyslipidaemia and
hypercholesterolaemia and the financial impact
has stabilised following patent expiries in the
US (2016) and EU/Japan (2017). Crestor is now
subject to generic competition in a majority of
markets.
Renal diseases
A CKD diagnosis currently means a rapid
progression towards end-stage renal disease
(ESRD), with the potential for dialysis and
serious life-threatening complications. To help
transform the lives of more patients, we are
investigating the potential of roxadustat,
Lokelma and Farxiga to treat these
complications and halt disease progression.
Roxadustat is a first-in-class, oral hypoxia
inducible factor prolyl hydroxylase inhibitor
(HIF-PHI) that has the potential to transform the
lives of people living with anaemia in CKD, both
those on dialysis and not on dialysis. In August
2019, roxadustat was approved in China for the
treatment of anaemia in non-dialysis
dependent (NDD) patients, making China the
first and only country where roxadustat is
approved for CKD patients regardless of
whether they are on dialysis. The approvals in
China were supported by two Phase III trials in
China in dialysis dependent CKD and
NDD-CKD patients.
64
AstraZeneca Annual Report & Form 20-F Information 2019 / Strategic Report
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In May 2019, we announced positive top-line
results from the pooled CV safety analyses of
the global Phase III programme for roxadustat,
the largest clinical programme in the world to
investigate a HIF-PHI. Results from the Phase
III OLYMPUS and ROCKIES trials and detailed
results from the pooled efficacy and CV safety
analyses showed positive efficacy and no
increased CV risk in NDD, dialysis dependant
and incident dialysis patients with anaemia in
CKD versus placebo, epoeitin alfa, and
epoeitin alfa, respectively. Further analyses
informed the NDA filing in the US, which we
submitted in December 2019 with our partner
FibroGen. A regulatory decision is anticipated
in the second half of 2020.
People living with CKD are at an increased risk
of developing hyperkalaemia and, in addition to
the launch of Lokelma referred to above, in
June 2019, we announced results from
DIALIZE, the first ever randomised, placebo-
controlled Phase IIIb trial to evaluate Lokelma
in patients on stable haemodialysis. Label
updates for Lokelma have been submitted in
the US and EU and decisions are expected in
the first half of 2020. Lokelma was approved in
China and is also under regulatory review in
Japan with a decision expected in the first half
of 2020.
In order to help meet the unmet medical need
in CKD, we are exploring the clinical science
behind our medicines with DAPA-CKD and
DELIGHT, an exploratory Phase II/III trial, also
part of the DapaCare programme. The two
trials evaluate the potential benefits of Farxiga
in the treatment of CKD, renal or CV death in
CKD patients with and without albuminuria.
DAPA-CKD will be the first trial evaluating
Farxiga, an antidiabetic SGLT2 inhibitor by
origin, in CKD patients without type-2 diabetes.
We are also progressing verinurad, a novel
renal urate transporter (URAT1) inhibitor
currently in Phase IIb development for the
treatment of CKD. Results from the Phase IIa
CITRINE trial demonstrated that treatment with
verinurad plus febuxostat decreased
albuminuria and serum urate in patients with
type-2 diabetes mellitus, potentially slowing
progression of CKD. In August 2019, the first
subject was dosed in the Phase IIb SAPPHIRE
trial for verinurad.
Our ambition is to transform the standard of
care for CKD from day-to-day management to
one that can identify and address root causes
to aggressively prevent, treat, manage, modify
and even halt progression of the disease. We
also continue to investigate new molecules
such as MEDI8367, MEDI3506 (IL33) and
AZD2373 (APOL1) with the aim of stopping the
progression of ESRD, treating patients with
DKD and developing the first precision
medicine in CKD.
Beyond research
We invest in programmes to educate
stakeholders about CVRM and improve patient
access to healthcare.
Some of our most notable programmes include
Healthy Heart, which addresses hypertension
and the increasing burden of CV disease (see
page 49 for more information); Improving
Cardiovascular Care in China (see page 63); and
One Brave Idea, which aims to understand the
molecular events surrounding the earliest
transition from wellness to disease in coronary
heart disease.
In 2019, we launched Accelerate Change
Together (ACT), a cross-functional programme
in diabetes, HF and CKD to drive policy and
healthcare system change to better manage
cardio-renal complications in type-2 diabetes,
reduce incidence of HF and support earlier
diagnosis of CKD.
We have taken this thinking one step further by
reimagining how we can improve outcomes for
patients across their personal health experience.
We have created Health Innovation Hubs and a
network comprising both structural locations
and virtual partnerships to deliver patient-centric
disease management solutions across all our
therapy areas. The map below shows the 10
major hubs that form the foundation of our
global Health Innovation Hub network. For more
information, see page 43.
The Health Innovation Hub network
By geographical area
1
2
3
6
4
5
8
Health Innovation Hubs
Public-Private Partnerships
AstraZeneca + technology/start-up
companies + government/health system
in a physical location
System Partnership
AstraZeneca + government/health system
7
10
Start-up Hubs
9
Start-up Hubs/Models
Incubator/accelerator models whereby we
work with start-up companies to identify and
solve challenges, and scale ideas
Experience Design Centres
Internal (AstraZeneca Teams/Brands)
(cid:37)ring innovation to (cid:36)stra(cid:61)eneca to redefine
how we take products, services and
experiences to market
External (HCP/patient)
Work with HCPs/patients to observe and
design solutions, and test innovation
AstraZeneca Annual Report & Form 20-F Information 2019 / Therapy Area Review
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1. US Hub
Boston
2. Brazil Hub
Sao Paulo
3. Argentina Hub
Buenos Aires
4. UK Hub
Cambridge
5. France Hub
Paris
6. Sweden Hub
Gothenburg
7. Israel Hub
Tel-Aviv
8. Russia Hub
Moscow
9. India Hub
Bangalore
10. China Hub
Wuxi
(cid:55)hera(cid:83)y (cid:36)rea (cid:53)evie(cid:90)
continued
Respiratory
We aim to transform the treatment of respiratory diseases
with our growing portfolio of inhaled combinations at the
core of care(cid:15) bio(cid:79)ogics for the un(cid:80)et (cid:80)edica(cid:79) needs of s(cid:83)ecific
(cid:83)atient (cid:83)o(cid:83)u(cid:79)ations and scientific advance(cid:80)ents in disease
(cid:80)odification (cid:90)ith the a(cid:80)bition of achieving re(cid:80)ission
or even cures for (cid:83)atients.
Unmet medical need and world market
Today, more than 700 million people have asthma or
chronic obstructive pulmonary disease (COPD). Of the 250
million people who are in our eight largest commercial
markets, more than 65 million of those with asthma and
124 million with COPD 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 6% annual growth over the next decade,
reaching $47 billion by 2028.
Antibody that binds to upstream
e(cid:83)ithe(cid:79)ia(cid:79) cyto(cid:78)ines to (cid:83)revent a range
of in(cid:432)a(cid:80)(cid:80)atory res(cid:83)onses.
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339m
(cid:22)(cid:22)(cid:28) (cid:80)i(cid:79)(cid:79)ion individua(cid:79)s (cid:90)or(cid:79)d(cid:90)ide
have asth(cid:80)a(cid:15) (cid:90)ith (cid:83)reva(cid:79)ence
e(cid:91)(cid:83)ected to rise.
50%
(cid:54)evere asth(cid:80)a accounts for about
10% of asthma patients but 50%
of the physical and socio-
econo(cid:80)ic burden of asth(cid:80)a.
384m
(cid:42)(cid:79)oba(cid:79)(cid:79)y(cid:15) (cid:22)(cid:27)(cid:23) (cid:80)i(cid:79)(cid:79)ion (cid:83)eo(cid:83)(cid:79)e have
COPD, and it is the third leading
cause of death (cid:90)or(cid:79)d(cid:90)ide. (cid:38)(cid:50)(cid:51)(cid:39)
exacerbations represent a
significant burden for (cid:83)atients(cid:15)
carers and society. (cid:38)(cid:50)(cid:51)(cid:39) costs
are estimated to exceed $100
bi(cid:79)(cid:79)ion (cid:83)er year g(cid:79)oba(cid:79)(cid:79)y.
Therapy area world market
(MAT/Q3/19)
$69.9bn
Annual worldwide market value
Asthma $20.9bn
COPD $16.7bn
Other $32.0bn
Source: IQVIA.
AstraZeneca focuses on specific segments
within this overall therap(cid:92) area market.
Key marketed products
and revenues (cid:21)(cid:19)(cid:20)(cid:28)
Our Respiratory business
strengthened its growth in 2019,
(cid:90)ith sa(cid:79)es u(cid:83) (cid:20)(cid:19)(cid:8) (cid:11)(cid:20)(cid:22)(cid:8) at (cid:38)(cid:40)(cid:53)(cid:12).
Symbicort continued vo(cid:79)u(cid:80)e (cid:80)ar(cid:78)et
(cid:79)eadershi(cid:83) and beca(cid:80)e the va(cid:79)ue
leader in 2019 in the inhaled
corticosteroid (ICS)/long-acting
beta(cid:21)-agonist (cid:11)(cid:47)(cid:36)(cid:37)(cid:36)(cid:12) c(cid:79)ass.
Pulmicort continued to de(cid:79)iver
strong revenue gro(cid:90)th(cid:15) (cid:79)ed by
Emerging Markets in which China
stood out. Breztri Aerosphere
(cid:11)(cid:51)(cid:55)(cid:19)(cid:20)(cid:19)(cid:12) (cid:90)as a(cid:83)(cid:83)roved and (cid:79)aunched
in (cid:45)a(cid:83)an(cid:15) and a(cid:83)(cid:83)roved in (cid:38)hina. (cid:44)n
biologics, Fasenra has been
a(cid:83)(cid:83)roved in (cid:24)(cid:22) countries for severe
eosinophilic asthma and is
currently reimbursed in 36
countries.
Respiratory Product Sales
$5,391m
23% of total
2018: $4,911m
2017: $4,706m
Our strategy for Respiratory
Our respiratory medicines reached
more than 53 million patients
receiving acute and (cid:80)aintenance
thera(cid:83)y in (cid:21)(cid:19)(cid:20)(cid:28). (cid:58)e have a strong
pipeline with more than 10,300
(cid:83)atients active(cid:79)y (cid:83)artici(cid:83)ating in (cid:51)hase
I-IV respiratory clinical trials across
the (cid:90)or(cid:79)d.
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. An exciting early- and mid-stage
pipeline.
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Disease area
(cid:53)evenue
Commentary
Symbicort
(budesonide/
formoterol)
Asthma
COPD
$2,495m, down
3% (0% at CER)
(cid:38)ontinued vo(cid:79)u(cid:80)e (cid:80)ar(cid:78)et (cid:79)eadershi(cid:83) and beca(cid:80)e the va(cid:79)ue
leader of the ICS/LABA class led by strong growth in
(cid:40)(cid:80)erging (cid:48)ar(cid:78)ets.
Pulmicort
(budesonide)
Asthma
$1,466m, up 14%
(18% at CER)
Brand growth led by Emerging Markets with leadership
in (cid:38)hina. (cid:42)ro(cid:90)th in (cid:38)hina due to increased (cid:80)edica(cid:79) access
su(cid:83)(cid:83)orted by nebu(cid:79)isation roo(cid:80) e(cid:91)(cid:83)ansion and i(cid:80)(cid:83)roved
coverage of e(cid:80)erging(cid:18)county hos(cid:83)ita(cid:79)s.
Fasenra
(benralizumab)
(cid:54)evere asth(cid:80)a
$704m, up 137%
(139% at CER)
Fasenra leads the IL-5 class in new prescriptions in the US,
(cid:45)a(cid:83)an(cid:15) (cid:42)er(cid:80)any and (cid:41)rance.
Daliresp/Daxas
(cid:11)ro(cid:432)u(cid:80)i(cid:79)ast(cid:12)
COPD
$215m, up 14%
(15% at CER)
(cid:42)ro(cid:90)th driven by favourab(cid:79)e a(cid:428)ordabi(cid:79)ity-(cid:83)rogra(cid:80)(cid:80)e
changes and inventory (cid:80)ove(cid:80)ents in the (cid:56)(cid:54).
Duaklir
(aclidinium/
formoterol)
COPD
Tudorza/Eklira
(aclidinium)
COPD
Bevespi Aerosphere
(glycopyrrolate/
formoterol)
COPD
COPD
Breztri Aerosphere
(budesonide/
glycopyrrolate/
formoterol)
$77m, down 19%
(15% at CER)
(cid:42)ro(cid:90)th in (cid:40)uro(cid:83)e is in (cid:79)ine (cid:90)ith e(cid:91)(cid:83)ectations. Duaklir was
a(cid:83)(cid:83)roved in the (cid:56)(cid:54) and (cid:79)aunched by (cid:38)ircassia in (cid:50)ctober
(cid:21)(cid:19)(cid:20)(cid:28). (cid:36)stra(cid:61)eneca (cid:90)i(cid:79)(cid:79) continue to su(cid:83)(cid:83)(cid:79)y the (cid:80)edicine.
$72m, down 35%
(32% at CER)
(cid:53)e(cid:432)ects the (cid:432)at (cid:79)ong-acting (cid:80)uscarinic antagonist (cid:11)(cid:47)(cid:36)(cid:48)(cid:36)(cid:12)
(cid:80)ar(cid:78)et. (cid:54)a(cid:79)es in the (cid:56)(cid:54) are no(cid:90) boo(cid:78)ed by (cid:38)ircassia
fo(cid:79)(cid:79)o(cid:90)ing its ac(cid:84)uisition of the (cid:83)roduct in (cid:45)anuary (cid:21)(cid:19)(cid:20)(cid:28).
$42m, up 26%
(26% at CER)
Bevespi Aerosphere revenue and gro(cid:90)th is in (cid:79)ine (cid:90)ith other
(cid:79)ong-acting (cid:80)uscarinic antagonists(cid:18)(cid:47)(cid:36)(cid:37)(cid:36) (cid:79)aunches.
$2m,
(cid:80)ove(cid:80)ent n(cid:18)(cid:80)
Breztri Aerosphere revenue is in (cid:79)ine (cid:90)ith other (cid:79)aunches in
(cid:38)(cid:50)(cid:51)(cid:39) under (cid:45)a(cid:83)an(cid:350)s (cid:53)yotan(cid:78)i restriction.
Others
Asthma
COPD
$390m, down 13%
(9% at CER)
Inhaled medicines
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 short-acting beta2-agonist
(SABA) reliever monotherapy and advancing
anti-inflammatory reliever therapy, evidenced
by the approvals of Symbicort Turbuhaler as
an anti-inflammatory reliever as-needed in
mild asthma in multiple countries in 2019.
Symbicort continued its leadership in the ICS/
LABA class, and remains a cornerstone of
current asthma and COPD care. We expect to
be one of only two key global players to offer
the leading inhaled combination therapy
classes for COPD in all major regions. Based
on the full Phase III data results, Breztri
Aerosphere has a highly competitive clinical
profile across a broad range of patients and at
two doses of ICS.
Biologics
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 approved for severe eosinophilic
asthma and is also being investigated for
other eosinophil-driven diseases. 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
treat a broad population of severe asthma
patients, including those patients who are
ineligible for biologic therapies today, if the
Phase III programme reflects the positive
Phase IIb data.
In the pipeline
Our mid-stage and early portfolios include
novel and inhaled biologics, early biology-led
treatment, lung repair and regeneration.
Beyond Fasenra and tezepelumab
programmes, we have one new molecular
entity in Phase III, six new molecular entities in
Phase II, four new molecular entities in Phase
I, two life-cycle management projects and a
robust pre-clinical pipeline. In addition to
asthma and COPD we are also investigating
other respiratory opportunities in idiopathic
pulmonary fibrosis (IPF) and chronic cough.
Our respiratory market leadership in China
positions us well to support improvements in
acute treatment using our leading nebulisation
portfolio, which is supported with more than
17,500 nebulisation centres, and establishing
maintenance inhaled treatment as the
standard of care (SoC) in asthma and COPD.
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:55)hera(cid:83)y (cid:36)rea (cid:53)evie(cid:90)
67
(cid:55)hera(cid:83)y (cid:36)rea (cid:53)evie(cid:90)
Respiratory continued
2019 pipeline highlights
The progress of our pipeline in 2019 reflects
our commitment to transforming critical areas
of care in respiratory.
In inhaled medicine, we reported Phase III trial
results in COPD for Breztri Aerosphere
(PT010), our triple-combination therapy and it
was approved for COPD in Japan and China.
We also advanced Symbicort Turbuhaler and
PT027 (ICS/SABA combination) as anti-
inflammatory reliever therapies in asthma,
with the approval of Symbicort Turbuhaler as
an anti-inflammatory reliever therapy in 11
countries and the continuation of the Phase III
clinical trial programme for PT027 by our
co-development partner, Avillion.
Full details of our pipeline are given in the
Development Pipeline from page 238 and
highlights from the progress of our Respiratory
pipeline made against our KPIs in 2019 are
shown below.
In line with our strategy to transform
outcomes with respiratory biologics, Fasenra
was granted additional regulatory approvals
and is now approved in 50 countries around
the world for severe eosinophilic asthma.
Life-cycle phases – R&D
New molecular entity (NME) Phase IIa/b
starts/progressions
Product
AZD7594
NME and major life-cycle management
(LCM) positive Phase III investment
decisions
In 2019, the first patients were enrolled in the
Phase III RESOLUTE trial of Fasenra in COPD.
Product
Fasenra
Fasenra
Fasenra
Disease
Asthma
Disease
COPD (RESOLUTE)
Eosinophilic granulomatosis with polyangiitis
Nasal polyps (China, Japan)
(cid:51)(cid:79)us t(cid:90)o (cid:83)ro(cid:77)ects (cid:90)here an invest(cid:80)ent decision (cid:90)as (cid:80)ade(cid:15) but the c(cid:79)inica(cid:79) tria(cid:79) is yet to start.
NME and major LCM regional
submissions
In the second half of 2019, Symbicort received
regulatory filing acceptance by the National
Medical Products Administration (NMPA) in
China for use in mild asthma.
Product
Breztri Aerosphere
Symbicort
Disease
COPD (KRONOS)
Mild asthma
1 (cid:38)(cid:53)(cid:47) issued by the (cid:41)(cid:39)(cid:36) re(cid:79)ating to the (cid:49)(cid:39)(cid:36). (cid:54)ee (cid:83)age (cid:26)(cid:19).
Life-cycle phases – approvals
NME and major LCM regional
approvals
Breztri Aerosphere received the first global
approval for the treatment of COPD in Japan,
with subsequent approval in China. Bevespi
Aerosphere was also approved for COPD in
Japan.
Discontinued projects
Product
Breztri Aerosphere (budesonide/glycopyrronium/
formoterol fumarate)¹
Bevespi Aerosphere
Disease
COPD
COPD
Fasenra self-administration auto-injector
(cid:54)evere asth(cid:80)a
1 (cid:46)no(cid:90)n as budesonide(cid:18)g(cid:79)yco(cid:83)yrroniu(cid:80)(cid:18)for(cid:80)otero(cid:79) fu(cid:80)arate in (cid:38)hina.
Region
US¹, EU
China
Region
Japan, China
Japan
US, EU
Product
AZD1419
Disease
Asthma
Reason
(cid:54)afety(cid:18)e(cid:433)cacy
(cid:41)or (cid:80)ore infor(cid:80)ation on the (cid:79)ife-cyc(cid:79)e of a (cid:80)edicine(cid:15) see (cid:83)age (cid:28).
68
AstraZeneca Annual Report & Form 20-F Information 2019 / Strategic Report
Redefining care for severe
asthma patients
Severe asthma affects approximately
34 million people worldwide and, for
many, can mean a life of frequent,
severe attacks, with reduced lung
function and a poor quality of life.
There are significant challenges to
managing severe asthma as standard
treatments alone often do not work
sufficiently. Contributing to the
problem, in many countries, patients
can spend years in primary care
without getting referred to a specialist
for proper diagnosis and care.
We have made a long-term investment
to improve severe asthma patient care
through a multi-disciplinary
programme called PRECISION.
PRECISION brings together leading
experts in asthma and healthcare
policy to ensure severe asthma patients
routinely receive the right care, at the
right time, in the most appropriate
setting. Our efforts are focused on
accelerating appropriate referrals to
specialists, building capability and
capacity, and improving healthcare
system policies and access.
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PRECISION is already operating
across 45 countries and, with the
involvement of more than 100,000
healthcare professionals, transforming
clinical standards and patient referral
pathways and identifying patients
most at risk based on potential
over-reliance on oral corticosteroids.
34m
people affected worldwide by
severe asthma
45 countries
in which PRECISION
is already operating
In 2019, the Global Initiative for Asthma
published its latest report on asthma
management, calling it the most significant
change in asthma management in over 30
years. The report recommended low dose
ICS-formoterol combination therapy (the
molecules in Symbicort) as-needed as the
preferred reliever therapy across all asthma
severities and the preferred controller and
reliever therapy in mild asthma. SABA
monotherapy is no longer the preferred reliever
recommended for patients with mild asthma,
due to increased airway inflammation and risk
of serious asthma attacks, specifically the risk
of serious attacks in those receiving three or
more SABA canisters per year. The changes
in preferred reliever therapy reflect evidence
gathered during many years of our research,
including more than 25 trials. In 2019,
Symbicort Turbuhaler was approved as an anti-
inflammatory reliever as-needed in mild asthma
in Australia, New Zealand, Brazil, Canada,
Chile, Haiti, Russia, Singapore, South Korea,
Egypt and Iran. Regulatory reviews are ongoing
to extend the indication in additional countries.
In July 2019, the regulatory submission in the
EU for Symbicort Turbuhaler in mild asthma
was withdrawn and a new submission is
anticipated during the first half of 2020. In the
fourth quarter of 2019, Symbicort received
regulatory filing acceptance by the National
Medical Products Administration (NMPA) in
China for use in mild asthma.
Our commitment to working to prevent
attacks by reducing over-reliance on reliever
monotherapy and advancing anti-
inflammatory reliever therapy continues with
the development of PT027. PT027 is an
investigational fixed-dose combination of
budesonide, an ICS and albuterol, a SABA.
In 2019, our co-development partner, Avillion,
initiated the second Phase III trial of PT027
in patients with mild-to-moderate asthma.
Results from both the MANDALA and DENALI
trials are expected to read out in 2020.
2019 review – strategy in action
Strength in inhaled combination medicines
In 2019, the strength of our inhaled
combination medicines was reflected with the
performance of Symbicort, which continued
its volume market leadership as the number
one ICS/LABA combination globally and
became the value leader within the ICS/LABA
class globally – a major achievement for a
medicine 19 years after launch.
This performance has been driven by growth
in Emerging Markets in response to high
unmet medical need and rapid adoption of
better medical treatment, offset by continued
pricing pressure in established markets in line
with expectations as prices rebase through
generic entries. Growth has been particularly
strong in China, where there is increased
government intervention to address the unmet
medical need in respiratory diseases,
including, for example, the Pulmonary and
Critical Care Medicine initiative to improve
quality standards and COPD being listed in
the China 2030 state plan. In addition,
Symbicort has been included in the Essential
Drugs List, had its 2nd-line restriction
removed in the National Reimbursement Drug
List (NRDL) and has preferred positioning
within updated national guidelines versus
other treatments.
In 2019, positive results were reported from
two key trials, which were designed to reflect
real-world practice and assess the
effectiveness of Symbicort Turbuhaler taken
as-needed, as anti-inflammatory reliever
therapy in adults with mild or mild-to-
moderate asthma. Data from the Novel START
open-label trial showed a 51% reduction in the
rate of annual asthma exacerbations with
Symbicort Turbuhaler compared with
albuterol. There was no difference in the
exacerbation rate between Symbicort
Turbuhaler and twice-daily maintenance
budesonide plus albuterol, despite a 52%
reduction in the mean steroid dose with
Symbicort Turbuhaler. Results from
PRACTICAL, a peer-reviewed trial that was
independently funded by the Health Research
Council of New Zealand, showed that
Symbicort Turbuhaler used as an anti-
inflammatory reliever in mild-to-moderate
asthma reduced the rate of severe
exacerbations versus maintenance
budesonide plus terbutaline taken as-needed,
a comparator regimen representative of usual
care in this patient population. The safety and
tolerability for Symbicort Turbuhaler as-
needed, in both trials, was consistent with the
known profile of the medicine. These data
build on the results from our Phase III SYGMA
trials of Symbicort Turbuhaler and add to the
body of evidence which demonstrate the
potential of Symbicort Turbuhaler, used
as-needed, as an important treatment option
for patients with mild disease at risk of asthma
attacks. The trials follow on from previous
studies which demonstrated the ability of
Symbicort Turbuhaler to reduce severe
exacerbations, when used as-needed for
moderate-to-severe patients prescribed
maintenance and reliever therapy.
AstraZeneca Annual Report & Form 20-F Information 2019 / Therapy Area Review
69
Early science
In line with our aim to develop biologics that
treat the remaining unmet medical needs of
severe asthma patients, we continued to
progress the development of tezepelumab
through the ongoing Phase III PATHFINDER
programme, with our partner Amgen, and
presented further results of the biomarker
analysis from the Phase IIb PATHWAY trial at
the American Thoracic Society 2019
International Conference in May. In the first
quarter of 2019, the FDA granted saracatinib
Orphan Drug Designation for the potential
treatment of idiopathic pulmonary fibrosis.
Saracatanib is a small molecule, highly-potent
and selective inhibitor of src tyrosine kinase
previously in clinical development in oncology
which has completed Phase I development.
Other compounds in early-stage development
include: MEDI3506 (Phase I in COPD; Phase II
in atopic dermatitis), an anti-IL-33 mAb that
inhibits IL-33, a key upstream epithelial
cytokine that is functionally distinct from
TSLP; AZD0449 (Phase I), a potential
first-in-class inhaled JAK-inhibitor being
developed for a broad population of asthma
patients, intended as a step-through therapy
between ICS therapy and biologics; and
AZD8154 (Phase I), a potent selective, dual
phosphoinositide 3-kinase delta-gamma
inhibitor which has the potential to be the first
inhaled treatment to affect lung function
through targeting mixed T2/T1/T17-cell
phenotypes.
(cid:55)hera(cid:83)y (cid:36)rea (cid:53)evie(cid:90)
Respiratory continued
In August 2019, top-line results from the
Phase III ETHOS trial of PT010, our triple-
combination therapy showed a significant
reduction in the rate of moderate and severe
exacerbations, compared with dual-
combination therapies. The trial also showed,
for the first time, the benefit of fixed-dose
triple-combination therapy at two inhaled
corticosteroid (ICS) doses, which could
transform treatment practice by allowing
physicians to select the optimal dose for
individual patients. Safety and tolerability of
PT010 were consistent with the known profiles
of the dual comparators in the trial. We also
received the first approvals for the treatment
of COPD in Japan and China, as Breztri
Aerosphere. In the US, the FDA issued a CRL
regarding the NDA in September, and we are
now working closely with the FDA regarding
next steps, including submitting for review
results from the positive Phase III ETHOS trial,
which was not completed at the time the NDA
was originally submitted.
Bevespi Aerosphere’s progress also
continued in 2019 with regulatory approval
in Japan.
Our medicines in the US partnered with
Circassia also made progress. In October
2019, Duaklir was launched in the US for the
maintenance treatment of COPD. Duaklir was
approved based on a broad clinical database,
including data from three Phase III studies,
ACLIFORM, AUGMENT and AMPLIFY, and the
label includes data on exacerbation reduction
from the Phase IV ASCENT study. In April, the
FDA approved an sNDA for Tudorza which
includes unique positive safety language
related to COPD patients with cardiovascular
disease or risk factors.
Biologic medicines
Our first respiratory biologic, Fasenra,
continued rapid market expansion in 2019
and saw the total number of patients treated
reach 50,000. It was also approved for
self-administration in the EU (via a pre-filled
syringe and new auto-injector device, the
Fasenra Pen) and in the US (via Fasenra Pen).
The main factors driving biologic treatment
rates in severe uncontrolled asthma include:
> access to approved biologics
> patient self-administration (which could
capture approximately two-thirds of
patients and frees up capacity in clinics
to treat more patients)
> improved clinical capabilities and
confidence in treating severe asthma
> evidence enabling the reduction or
discontinuation of maintenance OCS use.
AstraZeneca is investing in accelerating these
drivers in respiratory disease ‘beyond the
medicine’ which should support biologics
having the kind of impact that they have had
in other inflammatory diseases.
For example, we recently launched Connect
360, a new, comprehensive global patient
support programme designed to provide best-
in-class education and support to Fasenra
patients around the world.
In 2019, we completed enrolment of patients
into our Phase IIIb PONENTE trial that is
designed to further investigate the potential of
Fasenra to eliminate maintenance oral
corticosteroid use in patients with severe
refractory eosinophilic asthma. PONENTE is
the largest steroid-sparing trial undertaken in
severe asthma to date and results are
expected in 2020.
Beyond asthma, we are following the science
and investing in Fasenra’s potential in other
diseases where eosinophils are a direct cause
or thought to play a critical role. This includes
nasal polyps, COPD, eosinophilic esophagitis
(EOE), eosinophilic granulomatosis with
polyangiitis (EGPA) and hypereosinophilic
syndrome (HES).
The OSTRO Phase III trial to investigate
Fasenra in nasal polyps completed enrolment
in 2019 and the first patient was enrolled in
our Phase III MANDARA trial for Fasenra in
EGPA.
In September 2019, further analysis of data
from the two Phase III trials, GALATHEA
and TERRANOVA, for Fasenra in patients
with moderate-to-very-severe COPD were
presented at the European Respiratory
Society International Congress 2019 and
published in The Lancet Respiratory Medicine.
Building on these analyses, the first patients
were enrolled in the Phase III RESOLUTE trial
that will investigate the efficacy and safety of
Fasenra 100mg in patients with moderate-to-
very-severe COPD who are treated with triple
inhaled therapy, have a history of frequent
exacerbations and have elevated peripheral
blood eosinophils. We previously reported
that the GALATHEA and TERRANOVA
trials did not meet their respective primary
efficacy endpoints.
In April 2019, positive results from a Phase II
trial, showed that Fasenra can achieve
near-complete depletion of eosinophils and
improve clinical outcomes in HES. In August
2019, the FDA granted Orphan Drug
Designation for Fasenra for the treatment of
EOE.
Positive results from the Fasenra Phase IIIb
ANDHI trial in patients with severe eosinophilic
asthma were also reported. In ANDHI, Fasenra
on top of standard of care, demonstrated a
statistically significant reduction in the annual
rate of asthma exacerbations compared with
placebo in patients with baseline blood
eosinophil counts greater than or equal to
150 cells per microlitre (the primary endpoint).
The safety and tolerability of Fasenra were
consistent with the known profile of the
medicine.
70
AstraZeneca Annual Report & Form 20-F Information 2019 / Strategic Report
Other Disease Areas
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(cid:58)e have (cid:80)edicines and vaccines in other disease areas
that have an i(cid:80)(cid:83)ortant i(cid:80)(cid:83)act for (cid:83)atients. (cid:36)s such(cid:15) (cid:90)e
are se(cid:79)ective(cid:79)y active in the areas of autoi(cid:80)(cid:80)unity(cid:15)
infection, neuroscience and gastroenterology, where we
fo(cid:79)(cid:79)o(cid:90) an o(cid:83)(cid:83)ortunity-driven a(cid:83)(cid:83)roach and often (cid:90)or(cid:78)
through (cid:83)artnershi(cid:83)s.
Unmet medical need and world market
(cid:55)he (cid:58)(cid:43)(cid:50) esti(cid:80)ates that seasona(cid:79) in(cid:432)uen(cid:93)a (cid:80)ay
resu(cid:79)t in near(cid:79)y one bi(cid:79)(cid:79)ion cases of in(cid:432)uen(cid:93)a and
290,000 to 650,000 deaths each year due to
in(cid:432)uen(cid:93)a-re(cid:79)ated res(cid:83)iratory diseases.
(cid:49)ano(cid:83)artic(cid:79)es circu(cid:79)ating in b(cid:79)ood strea(cid:80).
Key marketed products
and(cid:98)revenues (cid:21)(cid:19)(cid:20)(cid:28)
Nexium is continuing to perform
strongly in China, while sales for the
rest of the world are in line with
e(cid:91)(cid:83)ectations(cid:15) given (cid:83)ressures fro(cid:80)
generic co(cid:80)(cid:83)etition. Fluenz Tetra/
FluMist (cid:52)uadriva(cid:79)ent 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
(cid:83)aediatric nationa(cid:79) in(cid:432)uen(cid:93)a
vaccination (cid:83)rogra(cid:80)(cid:80)es.
Product
Infection
Synagis
(cid:11)(cid:83)a(cid:79)ivi(cid:93)u(cid:80)ab(cid:12)
Fluenz Tetra/
FluMist
(cid:52)uadriva(cid:79)ent
(cid:11)(cid:79)ive attenuated
in(cid:432)uen(cid:93)a vaccine(cid:12)
Neuroscience
Seroquel IR/
Seroquel XR
(quetiapine fumarate)
Disease area
(cid:53)evenue
Commentary
Respiratory
syncytia(cid:79) virus
(RSV)
(cid:44)n(cid:432)uen(cid:93)a
$358m, down
46% (46% at
CER)
(cid:39)ivested (cid:56)(cid:54) rights to (cid:54)obi. (cid:36)bb(cid:57)ie
holds rights to Synagis outside the
(cid:56)(cid:54).
$113m, up 3%
(5% at CER)
(cid:36)(cid:83)(cid:83)roved in the (cid:56)(cid:54)(cid:15) (cid:40)(cid:56)(cid:15) (cid:38)anada(cid:15)
(cid:44)srae(cid:79) and (cid:43)ong (cid:46)ong. (cid:39)aiichi
Sankyo holds rights to Fluenz Tetra/
FluMist (cid:52)uadriva(cid:79)ent in (cid:45)a(cid:83)an.
Schizophrenia
Bipolar disease
$191m, down
47% (46% at
CER)
Other Product Sales
$2,601m
11% of total
2018: $3,400m
2017: $4,156m
Movantik/
Moventig
(naloxegol)
Opioid-induced
constipation
$98m, down
10% (10% at
CER)
Vimovo
(naproxen and
esomeprazole)
Osteoarthritic
pain
$37m, down
47% (44% at
CER)
(cid:39)ivested rights in (cid:40)uro(cid:83)e and (cid:53)ussia
in October 2019 and in US and
Canada in December 2019 to
(cid:38)he(cid:83)(cid:79)a(cid:83)har(cid:80). (cid:47)uye (cid:51)har(cid:80)a ho(cid:79)ds
rights to Seroquel and Seroquel XR in
the UK, China and other international
(cid:80)ar(cid:78)ets. (cid:55)he rights to Seroquel and
Seroquel XR in Japan are partnered
(cid:90)ith (cid:36)ste(cid:79)(cid:79)as.
(cid:47)icensed fro(cid:80) (cid:49)e(cid:78)tar (cid:55)hera(cid:83)eutics.
Kyowa Kirin has held rights in the EU
since (cid:48)arch (cid:21)(cid:19)(cid:20)(cid:25). (cid:46)night
(cid:55)hera(cid:83)eutics (cid:44)nc. has he(cid:79)d rights in
Canada and Israel since December
(cid:21)(cid:19)(cid:20)(cid:25). (cid:38)o-co(cid:80)(cid:80)ercia(cid:79)isation in the (cid:56)(cid:54)
(cid:90)ith (cid:39)aiichi (cid:54)an(cid:78)yo.
(cid:47)icensed fro(cid:80) (cid:51)o(cid:93)en and divested
worldwide rights (ex-US) to
(cid:42)r(cid:187)nentha(cid:79) in (cid:50)ctober (cid:21)(cid:19)(cid:20)(cid:27). (cid:39)ivested
(cid:56)(cid:54) rights to (cid:43)ori(cid:93)on (cid:51)har(cid:80)a (cid:44)nc.
since (cid:49)ove(cid:80)ber (cid:21)(cid:19)(cid:20)(cid:22).
Gastroenterology
Nexium
(esomeprazole)
Losec/
Prilosec
(omeprazole)
Proton pump
inhibitor to treat
acid-related
diseases
Proton pump
inhibitor to treat
acid-related
diseases
$1,483m,
down 13%
(11% at CER)
(cid:39)ivested (cid:40)uro(cid:83)ean rights to
(cid:42)r(cid:187)nentha(cid:79) in (cid:50)ctober (cid:21)(cid:19)(cid:20)(cid:27).
$263m, down
3% (up 1% at
CER)
(cid:44)n (cid:50)ctober (cid:21)(cid:19)(cid:20)(cid:28)(cid:15) divested g(cid:79)oba(cid:79)
commercial rights, excluding China,
Japan, the US and Mexico to
(cid:38)he(cid:83)(cid:79)a(cid:83)har(cid:80).
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:55)hera(cid:83)y (cid:36)rea (cid:53)evie(cid:90)
71
(cid:55)hera(cid:83)y (cid:36)rea (cid:53)evie(cid:90)
Other Disease Areas
continued
Our strategy for Other Disease Areas and
2019 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.
Life-cycle phases – R&D
Full details of our pipeline are given in the
Development Pipeline from page 238 and
highlights from the progress of our Other
Disease Areas pipeline made in 2019 against
our KPIs are shown below.
New molecular entity (NME) Phase II
starts/progressions
Product
None
Disease
–
NME and major life-cycle management
(LCM) positive Phase III investment
decisions
Product
(cid:49)irsevi(cid:80)ab
Disease
(cid:51)assive (cid:53)(cid:54)(cid:57) i(cid:80)(cid:80)unisation
NME and major LCM regional
submissions
Product
None
Disease
–
Region
–
Life-cycle phases – approvals
NME and major LCM regional
approvals
Product
Linzess
Disease
Region
Irritable bowel syndrome with constipation
China
Discontinued projects
Product
MEDI0700
MEDI8852
Prezalumab
Disease
Systemic lupus erythematosus
(cid:44)n(cid:432)uen(cid:93)a (cid:36) treat(cid:80)ent
Reason
Strategic
Economic
Primary Sjögren’s syndrome
(cid:54)afety(cid:18)e(cid:433)cacy
(cid:41)or (cid:80)ore infor(cid:80)ation on the (cid:79)ife-cyc(cid:79)e of a (cid:80)edicine(cid:15) see (cid:83)age (cid:28).
(cid:21)(cid:19)(cid:20)(cid:28) revie(cid:90) – strategy in action
Infection
Seasonal influenza is a serious public health
problem that causes severe illness and death
in high-risk populations. For the 2019-20
influenza season, 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. Over five
million doses were delivered to support the
childhood vaccinations through the UK’s
national immunisation programme during the
2019-20 season, and the programme is
scheduled to continue during the 2020-21
season. In addition, we participate in both the
Centers for Disease Control and Prevention
Vaccine for Children programme and adult
vaccine programme, which are federally
funded programmes that ensure under or
uninsured children and adults have access to
vaccines at little or no cost. We also have an
ongoing agreement with the WHO to donate
and supply stock at reduced prices in the
event of an influenza pandemic.
In May 2019, Public Health England published
provisional end of season vaccine
effectiveness (VE) data for the 2018-19 season
in the UK. In children two to 17 years old,
adjusted VE with Fluenz was 48.6% against all
circulating strains, 49.9% against circulating
A/H1N1pdm09, and 27.1% against circulating
A/H3N2 strains. These latest data support the
real-world effectiveness demonstrated by
Fluenz Tetra and reinforce the public health
importance of influenza vaccination as the
most effective way to prevent influenza
disease.
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 most
deaths occurring in developing countries.
Since its initial approval in 1998, Synagis has
become the global standard of care for RSV
72
AstraZeneca Annual Report & Form 20-F Information 2019 / Strategic Report
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.
Nirsevimab, formerly MEDI8897, an extended
half-life RSV mAb being investigated for the
prevention of LRTI caused by RSV in all
infants, is progressing in collaboration with
Sanofi. It is being developed for use among a
broad population of infants, so that they may
only require one dose during an RSV season.
In July 2019, we initiated pivotal Phase III and
Phase II/III trials to measure the safety and
efficacy of nirsevimab to prevent LRTI caused
by RSV in full-term, healthy late pre-term and
high-risk babies.
S
t
r
a
t
e
g
i
c
R
e
p
o
r
t
Our products
(cid:58)hi(cid:79)e this (cid:55)hera(cid:83)y (cid:36)rea (cid:53)evie(cid:90)
concentrates on our key marketed products,
many of our other products are crucial to
our business in certain countries in
(cid:40)(cid:80)erging (cid:48)ar(cid:78)ets.
For more information on our potential
new products and product life-cycle
deve(cid:79)o(cid:83)(cid:80)ents(cid:15) (cid:83)(cid:79)ease see the (cid:55)hera(cid:83)y
Area pipeline tables on pages 56, 61 and
(cid:25)(cid:26) and the (cid:39)eve(cid:79)o(cid:83)(cid:80)ent (cid:51)i(cid:83)e(cid:79)ine tab(cid:79)e
fro(cid:80) (cid:83)age (cid:21)(cid:22)(cid:27). (cid:41)or infor(cid:80)ation on (cid:51)atent
Expiries of our Key Marketed Products,
see fro(cid:80) (cid:83)age (cid:21)(cid:23)(cid:22).
Indications for each product described
in this (cid:55)hera(cid:83)y (cid:36)rea (cid:53)evie(cid:90) (cid:80)ay
vary a(cid:80)ong countries. (cid:51)(cid:79)ease see
local prescribing information for
country-s(cid:83)ecific indications for any
(cid:83)articu(cid:79)ar (cid:83)roduct.
For those of our products subject to
litigation, information about material
legal proceedings can be found in
Note 29 to the Financial Statements
fro(cid:80) (cid:83)age (cid:21)(cid:21)(cid:19).
(cid:39)etai(cid:79)s of re(cid:79)evant ris(cid:78)s are set
out in (cid:53)is(cid:78) fro(cid:80) (cid:83)age (cid:21)(cid:23)(cid:25).
The pivotal Phase III (MELODY) study will
determine if nirsevimab will prevent medically
attended RSV-confirmed LRTIs in healthy
infants born at 35 weeks or older, entering
their first RSV season. This study will also
confirm the safety of nirsevimab. The pivotal
Phase II/III (MEDLEY) trial is a randomised,
double-blind, palivizumab-controlled study to
evaluate the safety, pharmacokinetics (PK),
anti-drug antibody (ADA) response, and
descriptive efficacy for nirsevimab in high-risk
infants (pre-term or with chronic lung disease
or congenital heart disease) eligible to receive
Synagis when entering their first or second
RSV season. The full results of both trials are
anticipated in 2023.
Neuroscience
We are progressing MEDI7352, a bispecific
molecule which targets both nerve growth
factor and tumour necrosis factor alpha, in
both painful diabetic neuropathy in Phase II
and osteoarthritis pain in Phase I. Also in
Phase I is MEDI0618, an anti-PAR2 (protease-
activated receptor 2) antibody which we are
also developing for osteoarthritis pain and
AZD4041, a selective orexin 1 receptor
antagonist, which is being developed for
substance use disorder in a collaborative
effort between AstraZeneca, Eolas
Therapeutics and NIH.
We continue our collaboration with Takeda on
MEDI1341 for Parkinson’s disease, which is in
Phase I.
In April 2019, alongside our alliance partner
Lilly, we announced the termination of the
collaboration on lanabecestat, an oral beta
secretase-cleaving enzyme inhibitor. We
collaborate with Lilly on MEDI1814, an
antibody selective for amyloid-beta 1-42 that
is currently in Phase I trials as a potential
disease-modifying treatment for Alzheimer’s
disease.
Autoimmunity and inflammation
In August 2019, we announced that
anifrolumab, a developmental mAb that
inhibits the activity of all type I interferons
(IFN), met the primary endpoint in the TULIP 2
Phase III trial in systemic lupus erythematosus
(SLE). The results from TULIP 2 were
presented in a late-breaking oral presentation
at the American College of Rheumatology
Congress (ACR) 2019, and published in
The New England Journal of Medicine in
December.
Results from the previous Phase III trial,
TULIP 1, which did not meet the primary
endpoint, were also presented at ACR 2019,
and simultaneously published in The Lancet
Rheumatology. The safety and tolerability
findings in TULIP 1 and TULIP 2 were
consistent with the known profile of
anifrolumab.
In January 2020, it was announced that
the Group will recover the global rights
to brazikumab (formerly MEDI2070),
a monoclonal antibody targeting IL23, from
Allergan. Brazikumab is currently in a Phase
IIb/III programme in Crohn’s disease (CD) and
a Phase IIb trial in ulcerative colitis (UC).
Brazikumab adds to the growing presence in
immunology where AstraZeneca has
longstanding research and development
capabilities. With our return to growth we are
now in a strong position to competitively
commercialise an immunology biologic like
brazikumab, in addition to anifrolumab,
Fasenra, tezepelumab and MEDI3506.
Given the increasing number of potential new
medicines in development in immunology and
the shared pathways and disease drivers
across respiratory and immunology, in 2020,
AstraZeneca plans to rename the therapy area
of ‘Respiratory’ to ‘Respiratory &
Immunology’.
Gastrointestinal
In October 2019, we announced an agreement
to sell the global commercial rights, excluding
China, Japan, the US and Mexico, for Losec
and associated brands to Cheplapharm. The
divestment includes medicines containing
omeprazole marketed by AstraZeneca or its
collaborators under the Acimax, Antra,
Mepral, Mopral, Omepral and Zoltum
medicine names.
Use of Nexium continued to grow in a limited
number of markets such as China and Japan
in 2019. This growth is expected to continue
into 2020. Nexium is subject to generic
competition globally, except for Japan.
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. In September 2019, AstraZeneca
amended its collaboration agreement with
Ironwood in China mainland, China Hong
Kong and China Macau for Linzess. The
amended agreement gives AstraZeneca sole
responsibility for developing, manufacturing
and commercialising Linzess in China
mainland, China Hong Kong and China
Macau. Ironwood will no longer be involved in
the research and development or the
commercialisation of Linzess in China; it will
also transfer manufacturing responsibility to
AstraZeneca. The two companies first entered
into a collaboration to co-develop and
co-commercialise Linzess in 2012.
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:55)hera(cid:83)y (cid:36)rea (cid:53)evie(cid:90)
73
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 and Emerging
risks facing the Group. 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. The
procedures in place to identify emerging risks
are explained below.
Managing risk
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.
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. The
Board believes that existing processes
provide it with adequate information on the
risks and uncertainties we face. Further
information on our key risk management and
assurance processes can be found in Risk
from pages 246 to 257, 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.
Emerging risks
Emerging risks are ‘new’ risks which may
challenge us in the future. They have the
potential to crystallise at some point in the
future but are unlikely to impact the business
during the next year. The outcome of such
risks is often more uncertain. They may begin
to evolve rapidly or simply not materialise.
We monitor our business activities and
external and internal environments for new,
emerging and changing risks to ensure that
these are managed appropriately. Annually,
we combine input from each SET function
and external insight to scan the horizon for
emerging risks. A summary of emerging
risks is presented for assessment to Audit
Committee and the Board. Emerging risks
continue to be monitored as part of our
ongoing risk management processes.
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. 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. We continue
to work on developing our risk management
standards and guidelines. Global Compliance,
Finance and Internal Audit Services support
SET by advising on policy and standard
setting, monitoring and auditing, and
communication and training, as well as
reporting on the adequacy of line
management processes as they apply to
risk management.
74
AstraZeneca Annual Report & Form 20-F Information 2019 / Strategic Report
S
t
r
a
t
e
g
i
c
R
e
p
o
r
t
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 on page 112 and the Business Review
on page 35.
Viability statement
In accordance with provision 31 of the 2018
UK Corporate Governance Code, the Board
has determined that a three-year period to
31 December 2022 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 76 and 77.
> Scenario 1 Principal Risks: pricing,
affordability, access and competitive
pressures; failures or delays in the quality
and execution of commercial strategies;
failure to obtain, defend and enforce
effective IP protection. 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: failure or delay in
the delivery of our pipeline or launch of new
products. Assumes no launches of new
products.
> Scenario 3 Principal Risk: failure to
maintain supply of compliant, quality
product. Major equipment failure or
significant regulatory observation at one
of our major manufacturing sites results in
a 12-month supply interruption for one of
our key oncology products.
> Scenario 4 Principal Risk: failure to achieve
strategic plans or meet targets and
expectations. Income from divestment of
core assets reinvested into core therapy
areas and new products reduced by half
in 2020.
> Scenario 5 Principal Risk: pricing,
affordability, access and competitive
pressures. An uncontrolled exit of the UK
from the EU with associated disruption to
supply and distribution channels leads to
inability to supply a key product from the
UK for six months following a ‘no deal
Brexit’ outcome.
> Scenario 6 Principal Risks: pricing,
affordability, access and competitive
pressures; failures or delays in the quality
and execution of commercial strategies.
A significant incident leads to ongoing
reputational damage in a key market
resulting in an ongoing reduction in
market share.
> Scenario 7 Principal Risks: failure in
information technology, data protection
or cyber crime; failure to meet regulatory
and ethical expectations on commercial
practices and scientific exchanges. Legal
or regulatory non-compliance results in
the levy of a significant fine.
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 existing cash, cash
equivalents and short-term fixed income
investments, 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
Board has 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). Following Royal
Assent of the European Union (Withdrawal
Agreement) Act on 23 January 2020 and
ratification of the Withdrawal Agreement by
the European Parliament on 24 January 2020,
the UK left the EU on 31 January 2020 and
became a third country with a transition
period running to 31 December 2020. The
progress of current negotiations between the
UK Government and the EU on their future
relationship and the ratification of the outcome
of those negotiations will likely determine the
future terms of the UK’s relationship with the
EU following the end of the transition period.
Until these negotiations 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 expected to
increase volatility and may have an economic
impact, particularly in the UK and Eurozone.
Since the time of the referendum in 2016, 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. The
vast majority of these actions have already
been implemented based on an assumption
that the UK would have left the EU without a
deal in 2019 (hard Brexit/no deal) such that
the Group has been able to mitigate the risks
arising from variable external outcomes. In
January 2020, the assumption was updated to
assume no extension to the transition period
beyond 31 December 2020/no trade deal
between the EU and UK agreed and ratified at
that time, the effect of which would be similar
to the previous hard Brexit/no deal
assumption. Currently, the vast majority of the
operational actions necessary to respond to
this scenario have been implemented
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, redesign 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 July 2019 and
continues to assess its impact.
AstraZeneca Annual Report & Form 20-F Information 2019 / Risk Overview
75
Risk Overview
continued
Principal Risks
Strategy key
Trend key
Deliver Growth and
Therapy Area Leadership
Accelerate Innovative Science
Be a Great Place to Work
Achieve Group Financial Targets
Increasing risk
Decreasing risk
Unchanged
Risk category and Principal Risks
Context/potential impact
Management actions
Trend versus prior year
Product pipeline and intellectual property
Failure or
delay in
delivery of
pipeline or
launch of new
products
Failure to
meet
regulatory or
ethical
requirements
for drug
development
or approval
Failure to
obtain, defend
and enforce
effective IP
protection or
IP challenges
by third
parties
Commercialisation
Pricing,
affordability,
access and
competitive
pressures
Failure or
delays in the
quality or
execution of
commercial
strategies
> 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
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
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,
and face competition from generic or biosimilar
products, 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
Operating in more than 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, which may lead
to a reduction in our revenue, profits and cash flow
> Focus on sales 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 related launch costs
> Focus on sales platforms
> Accelerate and risk share through business
development and strategic collaborations
and alliances
Global economic and
political conditions
placing downward
pressure on healthcare
pricing and spending,
and therefore
on revenue
Maximising the
commercial potential of
our new products
underpins the success of
our strategy and the
delivery of our short- and
medium-term targets
Supply chain and business execution
Failure to
maintain
supply of
compliant,
quality
products
Delays or interruptions in supply can lead to recalls,
product shortages, regulatory action, reputational
harm and lost sales revenue
> Establishment of new manufacturing
facilities, creating capacity and technical
capability to support new product launches
> Contingency plans including dual sourcing,
multiple suppliers, and close monitoring
and maintenance of stock levels
> Business continuity and resilience
initiatives, disaster and data recovery and
emergency response plans
> Quality management systems
76
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Risk category and Principal Risks
Context/potential impact
Management actions
Trend versus prior year
Supply chain and business execution continued
Failure in
information
technology,
data
protection or
cybercrime
Failure to
attract, develop,
engage and
retain a diverse,
talented and
capable
workforce
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
> Regular cybersecurity and privacy training
Growing multi-faceted
cyber threat. Tougher
legislative environment
governs data protection
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
for employees
> Targeted recruitment and retention
strategies deployed
> Identification and active support of staff
potentially impacted by Brexit
> Development of our employees
> Evolve our culture
Legal, regulatory and compliance
Safety and
efficacy of
marketed
products is
questioned
Adverse
outcome of
litigation
and/or
governmental
investigations
Failure to
meet
regulatory
and ethical
expectations
on commercial
practices 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
Investigations or legal proceedings could be costly,
divert management attention and/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
> 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
> 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
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
(cid:40)cono(cid:80)ic and financia(cid:79)
Failure to
achieve
strategic plans
or meet
targets or
expectations
Failure to implement successfully 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 sales 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
AstraZeneca Annual Report & Form 20-F Information 2019 / Risk Overview
77
Financial Review
2019 generated accelerating Product Sales growth
from outstanding New Medicine uptake, driving an
increase to (cid:38)ore (cid:50)(cid:83)erating (cid:83)rofit.
“ 2019 delivered Product Sales growth of
12% (CER: 15%) to $23.6 billion, with
growth across all three main Therapy
Areas and markets and outstanding
performances by New Medicines with
growth of 59% (CER: 62%)…”
Accelerating Product Sales growth
2019 delivered Product Sales growth of 12%
(CER: 15%) to $23.6 billion, with growth
across all three main Therapy Areas and
markets and outstanding performances by
New Medicines with growth of 59% (CER:
62%), led by Tagrisso, Brilinta and Farxiga,
with Lynparza and Imfinzi also each delivering
Product Sales of more than $1 billion in the
year. New Medicine sales represented 42% of
Product Sales in 2019. Emerging Markets
sales continued to grow at pace, increasing by
18% (CER: 24%), with China growth of 29%
(CER: 35%) underpinned by encouraging New
Medicine sales, which represented 19% of
China Product Sales. New CVRM increased
by 9% (CER: 12%) to $4.4 billion with Farxiga
and Brilinta continuing to demonstrate strong
demand, achieving sales growth of 11% (CER:
14%) and 20% (CER: 23%), respectively, and
delivering combined sales in excess of
$3 billion for 2019.
Collaboration Revenue declined by 21% (CER:
20%) to $819 million. In spite of the anticipated
reduction in collaboration activity, ongoing
Collaboration Revenue from the MSD
arrangement on Lynparza and selumetinib
continues to contribute significantly, with
$610 million in 2019 (2018: $790 million).
Investing in future growth
Reported R&D expenses increased by 2%
(CER: 5%) and Core R&D expenses increased
by 1% (CER: 4%), both of which were partly
driven by the promising investment in the
development of Enhertu with Daiichi Sankyo.
Reported SG&A expenses increased by 16%
(CER: 20%) and Core SG&A expenses
increased by 5% (CER: 8%), primarily due to
the investment in additional personnel to
support the China expansion strategy.
Divestment activity
2019 Reported Other operating income was
$1.5 billion and included income from various
disposal transactions, including the sale of the
US rights to Synagis to Sobi and the sale of
the global rights to Losec (excluding China,
Japan, US and Mexico) to Cheplapharm.
Reported Operating profit declined by 14%
(CER: 16%) to $2.9 billion due to higher
intangible asset impairments. Core Operating
profit grew by 13% (CER: 13%) to $6.4 billion
in the year, driven by the growth of Product
Sales. Reported EPS was $1.03 and Core EPS
was $3.50.
Share issuance generated $3.5 billion
We generated a Net cash inflow from
operating activities of $3.0 billion in the year.
In April 2019, we completed a placing of new
Ordinary Shares, which generated proceeds
of $3.5 billion to fund the initial commitments
arising from the Daiichi Sankyo collaboration
as well as to support a reduction in Net debt.
We ended the year with total gross debt of
$18.2 billion: $6.3 billion of cash, investments
and derivatives; with Net debt of $11.9 billion
down from $13.0 billion in 2018.
Marc Dunoyer
(cid:38)hief (cid:41)inancia(cid:79) (cid:50)(cid:433)cer
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Highlights
Financial performance
S
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E P S
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fi
o
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a
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e
p
O
Pro
d
u
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S
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s
C
ollaboration R
e
v
enue
Product Sales
$23.6bn
Reported and Core
(2018: $21.0bn)
Collaboration
Revenue
$0.8bn
Reported and Core
(2018: $1.0bn)
(cid:50)(cid:83)erating (cid:83)rofit
EPS
$2.9bn
$1.03
14% decline – Reported
(CER: 16%)
40% decline – Reported
(CER: 44%)
$6.4bn
13% growth – Core
(CER: 13%)
$3.50
1% growth – Core
(CER: 0%)
Sales platforms
Emerging Markets
Respiratory
18%
Growth
(CER: 24%)
10%
Growth
(CER: 13%)
New CVRM
9%
Growth
(CER: 12%)
Japan
27%
Growth
(CER: 26%)
Oncology
44%
Growth
(CER: 47%)
Summary performance in 2019
Product Sales
Collaboration Revenue
Total Revenue
Cost of Sales
Gross profit
Operating expenses
Other operating income and expense
Operating profit
Net finance expense
Share of after tax losses of joint ventures and associates
Profit before tax
Taxation
Profit after tax
Basic earnings per share ($)
Reported
CER
Core
2019
$m
2018
$m % change
23,565
21,049
819
1,041
24,384
22,090
(4,921)
(4,936)
19,463
17,154
(18,080)
(16,294)
1,541
2,924
2,527
3,387
(1,260)
(1,281)
(116)
1,548
(321)
1,227
1.03
(113)
1,993
57
2,050
1.70
12
(21)
10
–
13
11
(39)
(14)
(2)
3
(22)
(663)
(40)
(40)
CER
growth1
$m
3,155
(210)
2,945
(226)
2,719
(2,295)
(969)
(545)
(55)
(5)
(605)
(370)
(975)
(0.79)
Growth
due to
exchange
effects
$m % change
2019
$m
2018
$m % change
(639)
(12)
(651)
241
(410)
509
(17)
82
76
2
160
(8)
152
0.12
15
(20)
13
5
16
14
(38)
(16)
(29)
(44)
23,565
21,049
819
1,041
24,384
22,090
(4,761)
(4,317)
19,623
17,773
(14,748)
(14,248)
1,561
6,436
(765)
(116)
5,555
(1,109)
4,446
3.50
2,147
5,672
(736)
(113)
4,823
(540)
4,283
3.46
12
(21)
10
10
10
4
(27)
13
4
3
15
105
4
1
1 As detailed on page 81, CER growth is calculated using prior (cid:92)ear actual results ad(cid:77)usted for certain exchange rate effects including hedging.
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Review
79
Financial Review
continued
Business background and results
overview
The business background is covered in the
Healthcare in a changing world section from
page 11 and the Therapy Area Review from
page 54, which describe in detail the
developments in our products.
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.
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 243.
> 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 74 and Risk from page 246.
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 issued by the
IASB (IFRS) and as adopted by the EU.
> Core performance: Core financial measures
are adjusted to exclude certain significant
items, using a set of established principles.
Readers should refer to our explanation of
Core measures on page 81 for a detailed
definition of this measure.
Use of non-GAAP performance measures
Non-GAAP financial measures: Core financial
measures, EBITDA, Net debt, Ongoing
Collaboration Revenue and Initial
Collaboration Revenue are non-GAAP
financial measures because they cannot be
derived directly from the 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.
By disclosing non-GAAP financial and growth
measures, in addition to our Reported
financial information, we are enhancing
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.
As shown in the 2019 Reconciliation of
Reported results to Core results table on page
84 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 Summary
performance in 2019 table, our reconciliation
of Core financial measures to Reported
financial information in the 2019 Reconciliation
of Reported results to Core results table and
the Excluded from Core results table on page
84 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.
Non-GAAP measures: definitions
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.
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.
Definitions of non-GAAP measures are
described on the next page.
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Non-GAAP measures: definitions
Revenue
Constant
exchange rate
(CER) growth
rates
Reconciliation,
see page 84
Definition: Retranslation of the current year’s performance at the previous
year’s average exchange rates, adjusted for other exchange effects,
including hedging.
Ongoing
Collaboration
Revenue
Reconciliation,
see page 83
Definition: Ongoing Collaboration Revenue is defined as Collaboration
Revenue excluding Initial Collaboration Revenue (which is defined as
Collaboration Revenue that is recognised at the point in time control is
transferred). Ongoing Collaboration Revenue comprises, among other
items, milestones, profit sharing and royalties. The updated category of
Collaboration Revenue includes all income previously included within
Externalisation Revenue. For more information please see Group
Accounting Policies from page 172.
(cid:51)rofitabi(cid:79)ity
Core measures
Reconciliation,
see page 84
Core financial measures are adjusted to exclude certain significant items.
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 are (i)
outside the normal course of business, (ii) incurred in a pattern that is
unrelated to the trends in the underlying financial performance of our
ongoing business, or (iii) 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 2019
Reconciliation of Reported results to Core results table on page 84 for
a reconciliation of Reported to Core performance, as well as further
details of the adjustments.
Core financial measures merely allow investors to differentiate between
different kinds of cost and they should not be used in isolation.
Restructuring costs, including charges that relate to the impact of our
global restructuring programmes on our capitalised manufacturing
facilities and IT assets. These 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.
Why we use them: 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.
Why we use it: This measure provides us with an understanding of the
ongoing value derived from our collaboration arrangements, removing any
distortion driven by the upfront income.
Intangible amortisation and impairments, including impairment reversals
but excluding any charges relating to IT assets. These 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.
Other 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 and legal
settlements. It should 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 settlements costs, along with other acquisition-related costs, may
recur in the future.
Gross margin
percentage
Definition: The margin, as a percentage, by which Product Sales exceed
the Cost of sales, calculated by dividing the difference between the two
by the sales figure.
Why we use it: This measure sets out the progression of key performance
margins and illustrates the overall quality of the business.
Reconciliation,
see page 84
EBITDA
Reconciliation,
see page 85
Definition: 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.
Why we use it: EBITDA allows us to understand our baseline profitability,
removing any ‘non-operational’ expenses that are not considered by
management to be reflective of the underlying performance of the Group.
(cid:38)ash (cid:432)o(cid:90) and (cid:79)i(cid:84)uidity
Net debt
Definition: Interest-bearing loans and borrowings net of Cash and cash
equivalents, Other investments and Net derivative financial instruments.
Reconciliation,
see page 87
Why we use it: Net debt is a measure that provides valuable additional
information regarding the Group’s net financial liabilities and is a measure
commonly used by investors and rating agencies. It facilitates the tracking
of one of our key financial priorities: deleveraging.
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Review
81
Financial Review
continued
Revenue
Total Revenue for the year was up 10% (CER:
13%) to $24,384 million, comprising Product
Sales of $23,565 million up 12% (CER: 15%)
and Collaboration Revenue of $819 million;
a decrease of 21% (CER: 20%).
Product Sales
By Geography
Product Sales in Emerging Markets continued
to increase with growth of 18% (CER: 24%) to
$8,165 million in 2019. China Product Sales
comprised 60% of Emerging Markets in the
year, increasing by 29% (CER: 35%) to $4,880
million. New Medicine sales, primarily driven
by Tagrisso and Lynparza in Oncology and
Brilinta and Farxiga in New CVRM represented
19% of China Product Sales. US Product
Sales were up 13% to $7,747 million, reflecting
the success of the new Oncology medicines.
In Europe, Product Sales declined by 2%
(CER: increased by 2%) to $4,349 million,
reflecting a strong performance in Oncology,
offset by a decline in Nexium of 73% (CER:
72%) and legacy Respiratory of 10% (CER:
5%) in the year. Established Rest of World
Product Sales increased by 17% (CER: 18%)
to $3,305 million with sales in Japan up 27%
(CER: 26%) to $2,548 million.
By Product
Our largest selling products in 2019 were
Tagrisso ($3,189 million), Symbicort ($2,495
million), Brilinta ($1,581 million) and Farxiga
($1,543 million). Tagrisso sales grew by 71%
(CER: 74%) reflecting strong penetration across
all markets. Global sales of Symbicort declined
by 3% (CER: stable) with 11% growth in
Emerging Markets (CER: 17%) being more than
offset by declines in the US and Europe due to
the impact of continued pricing pressure and
managed market rebates. Brilinta Product
Sales grew by 20% (CER: 23%), demonstrating
continued strong patient uptake. Farxiga sales
increased by 11% (CER: 14%), with growth of
40% in Emerging Markets (CER: 48%), offset
by a 9% decline in the US (CER: 9%), where
despite strong underlying demand, sales
growth was adversely impacted by gross to
net adjustments. There were also strong
performances in the year from Imfinzi and
Lynparza, with Imfinzi growing by 132% (CER:
133%) to $1,469 million and Lynparza by 85%
(CER: 89%) to $1,198 million.
Sales platforms
Our sales platforms include products in our
three main Therapy Areas, and a focus on
Emerging Markets and Japan. Sales platforms
grew by 19% (CER: 22%), representing 90%
of Total Revenue after removing the effect of
certain Product Sales which are included in
more than one sales platform.
Oncology
Product Sales of Oncology medicines
increased to $8,667 million in 2019 (2018:
$6,028 million), $3,189 million of which came
from Tagrisso (2018: $1,860 million), which
continues to be our leading medicine for the
22
47
24
13
12
26
Sales platforms
Total sales platform Product Sales
2019
Product
Sales
$m
21,894
2018
Product
Sales
$m
18,464
Actual
growth
%
19
CER
growth
%
Individual sales platform Product Sales: (Certain Product Sales are included in more than one sales platform)
Oncology (total Oncology Product Sales)
Emerging Markets
Respiratory
New CVRM (incorporating Brilinta and Diabetes)
Japan
8,667
8,165
5,391
4,376
2,548
6,028
6,891
4,911
4,004
2,004
44
18
10
9
27
Reconciliation to Note 1 Revenue (page 180) as follows:
Sum of individual sales platforms
Add: Product Sales not included in sales platforms
Less: Product Sales double counted for Emerging Markets
Oncology
Respiratory
New CVRM
Less: Product Sales double counted for Japan
Oncology
Respiratory
New CVRM
29,147
23,838
1,672
2,585
(2,211)
(1,987)
(1,133)
(1,436)
(377)
(110)
(1,528)
(1,644)
(850)
(934)
(318)
(100)
Total Product Sales
23,565
21,049
treatment of lung cancer and had received
regulatory approval in more than 80 countries
by the end of 2019.
Collaboration Revenue
Details of our significant business
development transactions which give rise
to Collaboration Revenue are given below:
Emerging Markets
Product Sales in Emerging Markets grew
by 18% compared with 2018 (CER: 24%)
to $8,165 million partly driven by strong
performances from New Medicines. Product
Sales in China increased by 29% in 2019
(CER: 35%), representing 60% of Emerging
Markets Product Sales in the year.
Respiratory
Product Sales of Respiratory medicines
increased by 10% (CER: 13%) to $5,391
million, 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
New CVRM grew by 9% (CER: 12%) with
revenue of $4,376 million. Within New CVRM,
sales of Brilinta in the year were $1,581 million,
an increase of 20% (CER: 23%). Brilinta sales
in the US were up 21% to $710 million, as it
remained the branded oral anti-platelet
market leader. Diabetes Product Sales were
4% (CER: 6%) higher than in 2018, driven
primarily by growth of 11% in Farxiga (CER:
14%) with global sales of $1,543 million as it
continued to be our largest-selling Diabetes
medicine.
Japan
Japan Product Sales grew by 27% (CER: 26%)
to $2,548 million with Tagrisso growing by 100%
(CER: 97%) and Forxiga by 16% (CER: 14%).
MEDI8897 (Sanofi)
> 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 subject to a participation
agreement with Sobi, entered into in
November 2018, effective 23 January 2019.
> In July 2019, AstraZeneca received
notification that the Phase III clinical
milestone had been triggered, resulting in
Collaboration Revenue of $33 million being
recognised in 2019.
Zoladex (TerSera)
> 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 a 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.
82
AstraZeneca Annual Report & Form 20-F Information 2019 / Strategic Report
Lynparza/selumetinib (MSD)
> 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, 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 Collaboration 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 Collaboration
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
Collaboration 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.
Collaboration Revenue1
Initial Collaboration Revenue
Crestor (Almirall) – milestone
Other
Total Initial Collaboration Revenue
Ongoing Collaboration Revenue
Lynparza/selumetinib (MSD) – option exercised
Lynparza/selumetinib (MSD) – milestone
Zoladex (TerSera) – milestone
Crestor (Almirall) – milestone
MEDI8897 (Sanofi) – milestone
Royalties
Other
Total Ongoing Collaboration Revenue
Total Collaboration Revenue
2019
$m
–
–
–
100
510
–
39
33
62
75
819
819
S
t
r
a
t
e
g
i
c
R
e
p
o
r
t
2018
$m
61
51
112
400
390
35
–
–
49
55
929
1,041
1 (cid:55)he updated categor(cid:92) of Collaboration Revenue includes all income previousl(cid:92) included within Externalisation Revenue. (cid:41)or
more information please see Group Accounting Policies on page 173.
Crestor (Almirall)
> 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 10 years.
> In 2019, AstraZeneca received notification
that the three sales-related milestones
had been met, triggering a payment of
€35 million. Collaboration Revenue of
$39 million has been recognised in respect
of these payments.
> In December 2018, AstraZeneca was
notified of an FDA approval of Lynparza,
which triggered the SOLO-1 $70 million
milestone payment to AstraZeneca.
> In April 2019, AstraZeneca was notified that
the Committee for Medicinal Products for
Human Use (CHMP) of the European
Medicines Agency had adopted a positive
opinion recommending Lynparza as a
1st-line maintenance treatment of BRCA-
mutated advanced ovarian cancer, which
triggered an approval milestone, resulting
in Collaboration Revenue of $30 million.
> In June 2019, AstraZeneca was notified
that Lynparza had been approved in the EU
as a maintenance treatment after 1st-line
chemotherapy in patients with BRCA-
mutated advanced ovarian cancer. This
triggered an approval milestone, resulting
in Collaboration Revenue of $30 million.
> In September 2019, AstraZeneca was
notified that net sales of Lynparza had
reached the $750 million cumulative sales
threshold, triggering a sales-related
milestone, resulting in Collaboration
Revenue of $200 million.
> In October 2019, MSD notified AstraZeneca
of its intention to exercise the third and final
licence option of the agreement. The
payment of $100 million was received in
November 2019 and was recognised as
Collaboration Revenue for 2019.
> In November 2019, AstraZeneca received
notification that net sales of Lynparza had
reached the $1 billion cumulative sales
threshold triggering a sales-related
payment of $250 million, which has been
recognised as Collaboration Revenue
for 2019.
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Review
83
Financial Review
continued
Income Statement
2019 Reconciliation of Reported results to Core results
Gross profit
Product Sales gross margin %4
Distribution expenses
Research and development expenses
Selling, general and administrative expenses
Other operating income and expense
Operating profit
Operating margin as a % of Total Revenue
Net finance expense
Taxation
Basic earnings per share ($)
2019
Reported
$m
Restructuring
costs
$m
Intangible
amortisation
and
impairments
$m
Diabetes
Alliance1
$m
19,463
79.1
(339)
(6,059)
(11,682)
1,541
2,924
12.0
(1,260)
(321)
1.03
73
–
101
173
–
347
–
(66)
0.22
87
–
638
1,771
1
2,497
–
(519)
1.52
–
–
–
(126)
–
(126)
287
(54)
0.08
Other2
$m
–
–
–
775
19
794
208
(149)
0.65
2018 Reconciliation of Reported results to Core results
Gross profit
Product Sales gross margin %4
Distribution expenses
Research and development expenses
Selling, general and administrative expenses
Other operating income and expense
Operating profit
Operating margin as a % of Total Revenue
Net finance expense
Taxation
Basic earnings per share ($)
Restructuring
costs
$m
Intangible
amortisation
and
impairments
$m
Diabetes
Alliance1
$m
Other 2
$m
432
–
94
181
(10)
697
–
(146)
0.43
187
–
572
1,582
4
2,345
–
(487)
1.47
–
–
–
(60)
–
(60)
337
(73)
0.16
–
–
–
(323)
(374)
(697)
208
109
(0.30)
2018
Reported
$m
17,154
76.6
(331)
(5,932)
(10,031)
2,527
3,387
15.3
(1,281)
57
1.70
1. Relating to the 201(cid:23) ac(cid:84)uisition of (cid:37)MS(cid:350)s share of Global Diabetes Alliance.
2. See page 81 for further details of other ad(cid:77)ustments.
3. Each of the measures in the Core column in the above table is a non(cid:16)GAAP measure.
(cid:23). Gross margin as a (cid:8) of Product Sales re(cid:432)ects Gross profit derived from Product Sales, divided b(cid:92) Product Sales.
Core 2019 compared with
Core 20183
Actual
growth
%
10
CER
growth
%
13
2
1
5
(27)
13
7
4
8
(26)
13
1
–
Core 2018 compared with
Core 2017 3
Actual
growth
%
CER
growth
%
(4)
7
(3)
10
10
(17)
(4)
6
(3)
9
10
(17)
(19)
(19)
2019
Core3
$m
19,623
79.8
(339)
(5,320)
(9,089)
1,561
6,436
26.4
(765)
(1,109)
3.50
2018
Core3
$m
17,773
79.5
(331)
(5,266)
(8,651)
2,147
5,672
25.7
(736)
(540)
3.46
Excluded from Core results
Restructuring costs
> Restructuring expenses totalling $347 million (2018: $697 million) were driven by the Wedel site closure ($62 million) and Finance
Transformation ($92 million), offset by a reversal of the 2018 impairment resulting from the announcement of the US Biologics site
closures in Longmont and Boulder, CO ($93 million).
Intangible amortisation
and impairments
> Amortisation totalling $1,466 million (2018: $1,663 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 10 to the Financial Statements from page 190.
> Intangible impairment charges of $1,031 million (2018: $683 million) excluding those related to IT. 2019 charges include $533 million
relating to the write down of the Epanova intangible asset. Further details relating to intangible asset impairments are included in
Note 10 to the Financial Statements from page 190.
Diabetes Alliance
> Costs associated with our acquisition of BMS’s share of our Global Diabetes Alliance in February 2014 amounting to $161 million
(2018: $277 million), including a fair value credit of $516 million, amortisation charges of $390 million and discount unwind in
Sweden and the US of $287 million.
Other
> Other charges which include net legal provisions amounted to $1,002 million (2018: credit of $489 million). Further details of legal
proceedings in which we are currently involved are contained within Note 29 to the Financial Statements from page 220.
> Also included in other charges are a $208 million discount unwind charge (2018: $208 million) and a $69 million charge (2018: credit
of $126 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 20 to the Financial Statements from page 199.
84
AstraZeneca Annual Report & Form 20-F Information 2019 / Strategic Report
S
t
r
a
t
e
g
i
c
R
e
p
o
r
t
Gross profit
Reported Gross profit increased by 13%
(CER: 16%) to $19,463 million. Core Gross
profit increased by 10% (CER: 13%) to
$19,623 million. These increases reflected
the growth in Product Sales.
Operating expenses
Reported R&D expenses increased by 2%
(CER: 5%) to $6,059 million and Core R&D
expenses increased by 1% (CER: 4%) to
$5,320 million. The increase of both Reported
and Core R&D expenses in the year was partly
as a result of investment in the development
of Enhertu.
Reported SG&A expenses increased by 16%
(CER: 20%) to $11,682 million and Core SG&A
expenses increased by 5% (CER: 8%) to
$9,089 million. The increase of both Reported
and Core SG&A expenses was primarily
driven by investment in headcount to support
the China expansion strategy, as well as
support for New Medicines. The difference
between growth of Reported and Core SG&A
expenses partly reflected the fair value
adjustments arising on acquistion-related
liabilities recognised in 2019, an increase
in legal provisions and higher intangible
impairment charges.
Other operating income and expense
Reported Other operating income and
expense in the year was down 39% (CER:
38%) at $1,541 million and includes $515
million on the sale of the US rights to Synagis
to Sobi, $243 million from the sale of the
global rights to Losec, excluding the US,
Japan, China and Mexico to Cheplapharm,
$213 million from the sale of the rights to
Seroquel and Seroquel XR in the US, Canada,
Europe and Russia to Cheplapharm and $181
million on the sale of the rights to Arimidex
and Casodex to Juvisé.
As these elements of our income arose from
product divestments, where we no longer
retain significant ongoing economic interest,
in accordance with our Collaboration Revenue
definition in the Accounting Policy note on
page 173 and the requirements of IFRS 15
‘Revenue from Contracts with Customers’,
proceeds from these divestments are
recorded as Other operating income and
expense.
Operating profit
Reported Operating profit declined by 14%
(CER: 16%) to $2,924 million in the year. The
Reported Operating margin declined by three
percentage points (CER: four percentage
points) to 12% of Total Revenue. Core
Operating profit grew 13% (CER: 13%) in the
year to $6,436 million. The Core Operating
profit margin increased by one percentage
point to 26% of Total Revenue, as a result of
operating leverage offset by a reduction in
Other operating income and expense.
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
Net finance expense
Reported Net finance expense decreased by
2% (CER: increased by 4%) in the year to
$1,260 million (2018: $1,281 million). Core Net
finance expense increased by 4% (CER: 10%)
in the year to $765 million. The increase to
Reported and Core Net finance expense at
CER partly reflected an adverse movement in
loan interest, as well as the effect of the
adoption of IFRS 16.
Profit before tax
Reported Profit before tax declined by 22%
(CER: 29%) in the year to $1,548 million (2018:
$1,993 million), reflecting the increase in
Operating expenses and the decrease in
Other operating income and expense. Pre-tax
adjustments to arrive at Core Profit before tax
amounted to $4,007 million in 2019 (2018:
$2,830 million), comprising $3,512 million
adjustments to Operating profit (2018: $2,285
million) and $495 million to Net finance
expense (2018: $545 million). EBITDA
decreased by 6% (CER: 6%) to $6,686 million.
Taxation
The Reported tax rate in the year was 21%
and the Core tax rate was 20%. These tax
rates were higher than the UK Corporation
Tax Rate due to the impact of the
geographical mix of profits.
The income tax paid for the year was $1,118
million (72% of Reported Profit before tax).
This was $797 million higher than the
Reported tax charge for the year, which
benefited from a net deferred tax credit of
$988 million (2018: $806 million), relating to
the elimination of unrealised profit on
inventory, intangible amortisation and
impairment, other deferred tax items and $218
million provision releases following the expiry
of the statute of limitations or the conclusion
of tax authority review, partially offset by net
increases in provisions for tax contingencies.
Additional information on these items is
contained in Note 4 from page 183 to the
Financial Statements.
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.
2019
$m
1,548
1,260
116
3,762
6,686
2018
$m
1,993
1,281
113
3,753
7,140
Actual
growth
%
(22)
(2)
3
–
(6)
CER
growth
%
(29)
4
5
3
(6)
Total comprehensive income
Total comprehensive income decreased by
$375 million from the prior year, resulting in
net income of $616 million for 2019. The
decrease in Other comprehensive income was
primarily driven by the Remeasurement of the
defined benefit pension liability of $364 million
(2018: $46 million), Foreign exchange losses
arising on designating borrowings in net
investment hedges of $252 million (2018: $520
million) and Fair value movements on cash
flow hedges of $101 million (2018: $37 million).
EPS
Reported EPS of $1.03 in the year represented
a decline of 40% (CER: 44%). The performance
was driven by a decline in Collaboration
Revenue and Other operating income and
expense and increased Operating expenses.
Core EPS in the year grew by 1% (CER: stable)
to $3.50. The difference between the Reported
and Core performance in 2019 was due to an
increase in legal provisions, revaluation
movements on acquisition-related liabilities and
higher intangible impairment charges.
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 expenses,
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 2020, with benefits
expected to be $1.1 billion in 2020. 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,
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Review
85
Financial Review
continued
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 2019, the Phase 4
programme had incurred costs of $3.6 billion,
creating headroom for investment in our
pipeline and launch capability. The Phase 4
programme is now expected to complete in
2022 with total programme costs estimated
to be $3.8 billion and annualised benefits of
$1.2 billion.
The second step was initiated in 2016 and
relates to multi-year transformation
programmes within our SG&A functions
(principally Finance and HR) with anticipated
costs by the end of 2018 of $270 million. At
the time of the announcement, we expected
these transformation programmes to deliver
annualised benefits of $111 million by 2020.
By the end of 2019, these programmes had
incurred costs of $398 million with total
expected costs rising to $441 million.
The aggregate restructuring charge incurred
in 2019 across all our restructuring
programmes was $347 million (2018: $697
million), net of a $93 million credit relating to
the impairment reversal on Longmont and
Boulder, CO, and including the ongoing
integration of other acquired assets. Final
estimates for programme costs, benefits and
headcount impact in all functions are subject
to completion of the requisite consultation in
the various areas.
Our priority as we undertake these
restructuring initiatives is to work with our
affected employees on the proposed
changes, acting in accordance with relevant
local consultation requirements and
employment law.
Brexit 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
negotiated the terms on which the UK would
leave the EU and the framework for the future
relationship. In January 2020, Royal Assent of
the European Union (Withdrawal Agreement)
Act by the UK Parliament was granted and the
Withdrawal Agreement was ratified by the
European Parliament. The UK left the EU on
31 January 2020 with a transition period
running to 31 December 2020. Immediately
after the UK left the EU, the UK Government
and European Commission began the
process of negotiating the future relationship
which, if the negotiations are successfully
concluded and ratified in the UK and EU,
would apply after the end of the transition
period. At this time, it remains unclear whether
an agreement will be reached on the future
relationship before the end of the transition
period and if it would be ratified by the UK
Parliament and the European Parliament.
In the absence of a ratified future relationship
agreement at the end of the transition period,
it is unclear what trading relationships the
UK will have with the EU and other significant
trading partners after 31 December 2020
given the range of political and legal options.
Until the future relationship negotiation
process is completed, it is difficult to
anticipate the potential impact on our market
share, sales, profitability, cash flows and
results of operations.
In response to the UK referendum outcome
and in light of the UK parliamentary impasse
on Brexit since the date of the referendum until
the UK general election on 12 December 2019,
the Group took 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
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 the introduction or
amendment of existing tariffs or processes
and associated IT systems reconfiguration. In
addition, the Group engaged with its major
suppliers to assess their readiness and
continues to work with them to mitigate the
risk of disruption to supply chains which could
arise at the end of the transition period.
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 approximately $40 million.
However, until the process to determine the
future relationship 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.
(cid:38)ash (cid:432)o(cid:90) and (cid:79)i(cid:84)uidity – for the year
ended 31 December 2019
Net cash generated from operating activities
was $2,969 million for 2019 (2018: $2,618
million). The increase to Operating cash inflows
reflected the underlying improvement in
business performance, combined with
favourable working capital movements, partly
offset by an increase in Tax paid, reflecting the
phasing of tax payments between periods and
the impact of 2018 refunds.
Net investment cash outflows were $1,130
million (2018: inflow of $443 million).
Investment cash outflows for 2019 include
$709 million (2018: $349 million) of Payments
of contingent consideration arising on business
combinations and $1,481 million (2018: $328
million) for the purchase of other intangible
assets, including the first of two $675 million
86
AstraZeneca Annual Report & Form 20-F Information 2019 / Strategic Report
upfront payments to Daiichi Sankyo, as part
of the strategic collaboration on Enhertu and
the impact of a final true up net payment of
$413 million to MSD.
Investment cash inflows include $2,076 million
(2018: $2,338 million) from the sale of intangible
assets, including $821 million on the sale of the
US rights to Synagis to Sobi, $243 million from
the sale of the global rights to Losec excluding
the US, Japan, China and Mexico to
Cheplapharm, $181 million on the sale of the
rights to Arimidex and Casodex to Juvisé and
$178 million from the sale of the rights to
Seroquel and Seroquel XR in Europe and
Russia to Cheplapharm. The comparative
period in 2018 included $700 million on the 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.
Net cash distributions to shareholders were
$67 million (2018: $3,450 million), including
proceeds from the issue of Share capital of
$3,525 million (2018: $nil) and the proceeds
from the exercise of share options of $32 million
(2018: $34 million) less dividends paid of
$3,592 million (2018: $3,484 million).
Bonds
In 2019, AstraZeneca repaid a $1.0 billion
1.95% bond, which matured in September
2019. There were no bonds issued in 2019.
In August 2018, AstraZeneca issued $3.0
billion of bonds in the US dollar debt capital
markets with maturities of five, 10 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.
Debt
At 31 December 2019, outstanding gross debt
(interest-bearing loans and borrowings) was
$18,227 million (2018: $19,113 million). Of the
gross debt outstanding $2,010 million is due
within one year (2018: $1,754 million).
On 1 January 2019, the Group adopted IFRS 16,
which eliminates the classification of leases as
either operating or finance leases. The adoption
of the new standard has resulted in the initial
recognition of Lease liabilities of $720 million at
1 January 2019. Net debt at 31 December 2019
was $11,904 million, compared with $13,003
million at the beginning of the year, as a result of
the cash flows and Lease liabilities as described
above. At 31 December 2019, Cash and cash
equivalents and liquid investments totalled
$6,280 million (2018: $5,726 million) and
undrawn committed cash facilities totalled
$4,125 million (2018: $4,125 million).
Summary cash flows
Net debt brought forward at 1 January
Profit before tax
Sum of changes in interest, depreciation, amortisation, impairment
and share of after tax losses on joint ventures and associates
Movement in working capital and short-term provisions
Tax paid
Interest paid
2019
$m
2018
$m
2017
$m
(13,003)
(12,679)
(10,657)
1,548
1,993
2,227
5,138
(346)
(1,118)
(774)
5,147
(639)
(537)
(676)
4,486
(50)
(454)
(698)
Gains on disposal of intangible assets
(1,243)
(1,885)
(1,518)
Fair value movements on contingent consideration arising from
business combinations
Non-cash and other movements
Net cash available from operating activities
Disposal of intangibles (net of purchases)
Non-contingent payments on business combinations
Payment of contingent consideration from business combinations
Other capital expenditure (net)
Investments
Dividends
Share proceeds
Distributions
Lease liabilities: IFRS 163
Other movements
(614)
378
2,969
595
–
(709)
(1,016)
(1,130)
(3,592)
3,525
(67)
(675)
2
(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
(3,450)
(3,476)
–
65
–
(3)
Net debt carried forward at 31 December
(11,904)
(13,003)
(12,679)
Bonds issued in 2019 and 2018
Bonds issued in 2019:
Total 2019
Bonds issued in 2018:
3.5% USD bond
Floating rate USD notes
4% USD bond
4.375% USD bond
Total 2018
Net debt reconciliation
Cash and cash equivalents
Other investments1,2
Cash and investments
Overdraft and short-term borrowings
Lease liabilities
Current instalments of loans
Loans due after one year
Loans and borrowings
Net derivative financial instruments
Net debt
Repayment
dates
Face value
of bond
$m
Net book
value of
bond at 31
December
2019
$m
–
–
850
400
1,000
750
3,000
2018
$m
4,831
895
5,726
(755)
–
–
–
845
400
992
736
2,973
2017
$m
3,324
1,300
4,624
(845)
(5)
2023
2023
2029
2048
2019
$m
5,369
911
6,280
(225)
(675)³
(1,597)
(999)
(1,397)
(15,730)
(17,359)
(15,560)
(18,227)
(19,113)
(17,807)
43
384
504
(11,904)
(13,003)
(12,679)
1. Other investments in 2019 include (cid:7)62 million (2018(cid:29) (cid:7)(cid:23)6 million) of non(cid:16)current (cid:55)reasur(cid:92) investments.
2. Other investments include non-current investments, which are included within the balance of $1,401 million (2018: $833
million) in the Statement of (cid:41)inancial Position on page 169. (cid:55)he e(cid:84)uivalent GAAP measure to Net debt is (cid:349)liabilities arising
from financing activities(cid:350), which excludes the amounts for cash and overdrafts, other investments and non(cid:16)financing
derivatives shown above and includes the Acerta Pharma put option of $2,146 million (2018: $1,838 million) shown in
non(cid:16)current other pa(cid:92)ables.
Included in the Net debt reconciliation for 2019 are (cid:47)ease liabilities of (cid:7)67(cid:24) million, which arose on the adoption of I(cid:41)RS 16 on
1 Januar(cid:92) 2019. Please see (cid:349)Group Accounting Policies(cid:350) from page 172 and Note 8 (cid:349)(cid:47)eases(cid:350) on page 189 for more information.
3
S
t
r
a
t
e
g
i
c
R
e
p
o
r
t
Financial position – 31 December 2019
All data in this section is on a Reported basis.
Property, plant and equipment
In 2019, Property, plant and equipment
increased by $267 million to $7,688 million with
additions of $996 million (2018: $1,034 million),
impairments of $53 million (2018: charge
of $291 million) and exchange adjustments
of $3 million (2018: credit of $301 million)
offset by depreciation of $647 million
(2018: $614 million) and disposals and other
movements of $138 million (2018: $22 million).
Right-of-use assets
Following the adoption of IFRS 16 on
1 January 2019, the Group have recognised
Lease liabilities and corresponding Right-of-
use assets for arrangements that were
previously classified as Operating leases.
Right-of-use assets at 31 December 2019
were $647 million (2018: $nil).
Business combinations
No business acquisitions were made in 2019,
2018 or 2017.
Goodwill and intangible assets
Our goodwill of $11,668 million (2018: $11,707
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 $20,833 million
at 31 December 2019 (2018: $21,959 million).
The decrease was mainly driven by
amortisation in the year of $1,928 million
(2018: $2,165 million). Intangible asset
additions were $2,001 million in 2019 (2018:
$513 million), $1.7 billion of which arose from
the strategic collaboration with Daiichi Sankyo
on Enhertu. Impairment charges in the year
were $1,033 million (2018: $683 million)
including impairments on Epanova, Bydureon,
Qtern, Eklira and FluMist. Disposals of
intangible assets totalled $10 million in the
year (2018: $339 million).
Further details of our additions to Intangible
assets, and impairments recorded, are
included in Note 10 to the Financial
Statements from page 190.
Assets held for sale
Assets held for sale of $70 million comprise
tangible assets relating to the Boulder
manufacturing site. In 2018, Assets held for
sale of $982 million comprised mainly tangible
assets relating to the US rights to Synagis
arising from the acquisition of MedImmune.
Receivables, payables and provisions
Total current and non-current Trade and other
receivables increased by $412 million with
current Trade and other receivables increasing
by $187 million to $5,761 million as a result of
higher invoiced sales in China and a reduction
in debt factoring in the US.
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Review
87
Financial Review
continued
Trade and other payables increased by $667
million in 2019 to $20,278 million. The increase
was due to the recognition of payables in
relation to the strategic collaboration, entered
into during the year, with Daiichi Sankyo on
Enhertu, offset by reductions in contingent
consideration liabilities arising on business
combinations.
The increase to Provisions of $673 million
in 2019 was primarily driven by a $444 million
increase to legal provisions. Further details
of the charges made against provisions are
contained in Notes 21 and 29 to the Financial
Statements from pages 200 and 220 respectively.
The divestment of the US rights to Synagis,
which completed in 2019, included $150
million held as a financial liability. AstraZeneca
will also receive $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.
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, 2018 and 2019.
Our agreement with BMS provides for
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 20
to the Financial Statements from page 199.
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.
Summary statement of financial position – 31 December
All data in this section are on a Reported basis
Property, plant and equipment
Right-of-use assets
Goodwill and intangible assets
Assets held for sale
Inventories
Trade and other receivables
Net deferred tax assets
Trade and other payables
Provisions
Net income tax payable
Retirement benefit obligations
Non-current other investments
(excluding Treasury investments of
$62m in 2019 (2018: $46m))
Investments in associates and joint
ventures
Net debt
Net assets
2019
$m
7,688
647
32,501
70
3,193
6,501
228
(20,278)
(1,564)
(1,076)
(2,807)
Movement
$m
267
647
(1,165)
(912)
303
412
1,135
(667)
(673)
(119)
(296)
1,339
552
58
(11,904)
14,596
(31)
1,099
552
2018
$m
7,421
–
Movement
$m
(194)
–
2017
$m
7,615
–
33,666
(4,347)
38,013
982
2,890
6,089
(907)
(19,611)
(891)
(957)
(2,511)
787
89
(13,003)
14,044
982
(145)
233
899
(130)
577
(131)
72
–
3,035
5,856
(1,806)
(19,481)
(1,468)
(826)
(2,583)
(76)
863
(14)
(324)
103
(12,679)
(2,598)
16,642
Contingent consideration arising on business combinations
Acquisition of
BMS’s share
of Diabetes
Alliance
$m
Other
business
combinations
$m
3,983
(454)
(516)
287
3,300
1,123
(255)
(98)
69
839
2019
Total
2019
$m
5,106
(709)
(614)
356
4,139
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
3,983
1,123
5,106
At 1 January
Settlements
Fair value adjustments
Discount unwind
At 31 December
Payments due by period
Bank loans and
other borrowings1
Lease liabilities2
Operating leases
Contracted capital
expenditure
Total
Less than
1 year
$m
1-3 years
$m
3-5 years
$m
Over
5 years
$m
Total
2019
$m
Total
2018
$m
2,441
205
3,794
275
3,547
129
–
–
–
–
–
–
15,906
25,688
27,923
128
–
396
737
–
396
–
684
625
2,646
4,069
3,676
16,430
26,821
29,232
1
2
(cid:37)ank loans and other borrowings include interest charges pa(cid:92)able in the period, as detailed in Note 27 to the (cid:41)inancial
Statements from page 210.
(cid:47)ease liabilities arose on the adoption of I(cid:41)RS 16 on 1 Januar(cid:92) 2019. Please see Note 8 (cid:352)(cid:47)eases(cid:353) on page 189 for more
information.
Dividends for 2019
First interim dividend
Second interim dividend
Total
$
0.90
1.90
2.80
Pence
71.9
146.4
218.3
SEK
8.49
18.32
26.81
Payment date
9 September 2019
30 March 2020
88
AstraZeneca Annual Report & Form 20-F Information 2019 / Strategic Report
Both the Discount unwind and any movements
on the fair value of the underlying future
payments can result in significant income
statement movements. As detailed in the
Excluded from Core section on page 84, these
movements are treated as non-Core items in
our Reconciliation of Reported results to Core
results. In 2019, we recorded an interest charge
of $356 million on the Discount unwind on
contingent consideration arising on our
business combinations, and a net fair value
decrease on contingent consideration of $614
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, particularly relating to
Farxiga, due to the competitiveness of the
diabetes market. At 31 December 2019, our
contingent consideration liability was $4,139
million (2018: $5,106 million) with the
movements of the balance detailed in the table
on page 88.
Tax payable and receivable
Net income tax payable has increased by
$119 million (2018: $131 million) to $1,076
million, principally due to cash tax timing
differences. The tax receivable balance of
$285 million (2018: $207 million) principally
relates to cash tax timing differences.
Net deferred tax liabilities reduced by
$1,135 million (2018: $899 million) in the
year, resulting in a Net deferred tax asset of
$228 million, due to movements in deferred
tax arising on the elimination of unrealised
profit on inventory and associated with
intangible amortisation and impairment.
Additional information on the movement in
deferred tax balances is contained in Note 4 to
the Financial Statements from page 183.
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. In the UK and US, we have
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.
Retirement benefit obligations increased
by $296 million in 2019 (2018: decrease of
$72 million) to $2,807 million. Net remeasurement
adjustments of $364 million arose principally
from lower discount rate assumptions in the
UK, US and Sweden driven by falls in long-term
bond yields, which increased the present value
of the liabilities, partially offset by higher than
expected investment performance. Employer
contributions to the pension schemes of
$175 million helped offset the increase in the
net obligations. Benefits paid amounted to
$512 million (2018: $620 million).
In the UK, a High Court judgment was issued
on 26 October 2018 relating to an element of
pension benefits known as Guaranteed
Minimum Pensions (GMPs). The ruling
requires the equalisation of member benefits
to address gender inequality in instances
where GMP benefits are currently unequal.
The Group made a provision in 2018 of
£17 million ($23 million) in past service costs
for the estimated financial impact of this ruling
on the UK pension fund. Discussions between
the Trustee and the Company are ongoing to
determine the exact impact.
Separate from this, following a review of the
UK Pension Fund’s administrative practice
and Fund Rules, a decision was made in July
2019 to change the way in which GMP is
calculated. This change applies to all future
pension payments from November 2019.
A past service net credit of £38 million
($49 million) has been recognised in respect
of these changes for the year ended
31 December 2019.
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 22
to the Financial Statements from page 201.
S
t
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a
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i
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R
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p
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r
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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 172.
We also have taxation contingencies. These
are described in the Taxation section in the
Critical accounting policies and estimates
section from page 91 and in Note 29 to the
Financial Statements from page 220.
Off-balance sheet transactions
and commitments
We have no off-balance sheet arrangements
and our derivative activities are non-speculative.
The table on page 88 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 220. 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 150 major or
strategically important business development
transactions over the past three years.
In addition to the business development
transactions detailed under Collaboration
Revenue from page 82 of this Financial
Review, the following significant collaborations
remain in the development phase:
Daiichi Sankyo
> In March 2019, AstraZeneca announced
it had entered into an alliance with Daiichi
Sankyo to develop and commercialise
Enhertu for multiple cancer types.
In markets where Daiichi Sankyo is selling
the product, AstraZeneca is entitled to
receive a royalty (in Japan) or a profit share
(in other territories). Royalty income and the
AstraZeneca share of gross margin from
sales made by Daiichi Sankyo are
recognised as Collaboration Revenue.
Enhertu launched in the US on
31 December 2019, and a nominal amount
of Collaboration Revenue has been
recognised in respect of sales for 2019.
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Review
89
Financial Review
continued
Innate Pharma
> 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 and the premium paid over
market price for the investment in Innate
Pharma have been capitalised as intangible
assets. 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.
FibroGen
> 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
from 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.
Moderna
> 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
therapies 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.
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 2019 was 1,312 million (2018:
1,267 million). In April 2019, AstraZeneca
completed an issuance of 44,386,214 new
Ordinary Shares of $0.25 each at a price of
£60.50 per share, resulting in an increase in share
capital of $11 million and an increase in share
premium of $3,479 million, net of transaction
costs of $22 million. In addition, 0.7 million
Ordinary Shares were issued upon share option
exercises for total proceeds of $32 million.
Shareholders’ equity increased by $659 million
to $13,127 million at the year end. Non-controlling
interests were $1,469 million (2018: $1,576
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 (146.4 pence, 18.32 SEK) to
be paid on 30 March 2020. This brings the
full-year dividend to $2.80 (218.3 pence, 26.81
SEK). Against Reported Earnings per share,
the Group had a dividend cover ratio of 0.4:1
in 2019 (2018: 0.6:1). Against Core Earnings per
share, the Group had a dividend cover ratio of
1.25:1 in 2019 (2018: 1.2:1). 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.
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.
As at 31 December 2019, the overwhelming
majority of the profit and loss reserve of the
Parent Company (2019: $11,998 million, 2018:
$11,602 million) was available for distribution
subject to the filing of these Financial
Statements with the UK Companies House,
details are included in the Parent Company’s
Statement of Changes in Equity on page 232.
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The distributable reserves are sufficient to pay
dividends for a number of years, as, when
required, the 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:
> Deliver Growth and Therapy Area
Leadership
> Accelerate Innovative Science
> Be a Great Place to Work.
For more information, see Our strategic priorities from
page 18.
Full year 2020: additional commentary
The Group has conducted an assessment of
the impact of the recent novel coronavirus
(Covid-19) outbreak in China. All guidance and
indications take account of scenario analyses
that assume an unfavourable impact in China
on Total Revenue and Core EPS lasting up to
a few months. Depending on the impact of the
epidemic, Total Revenue in 2020 is expected
to increase by a high single-digit to a low
double-digit percentage and Core EPS is
expected to increase by a mid- to high-teens
percentage. The Group is focused on
improving operating leverage in 2020. Capital
Expenditure is expected to be broadly stable
versus 2019 and a Core Tax Rate of 18% to
22% is expected for 2020.
These targets represent management’s
current estimates and are subject to change.
Please see the Cautionary statement
regarding forward-looking statements on
page 272.
Financial risk management
Financial risk management policies
Insurance
Our risk management processes are
described in Risk Overview from page 74.
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
to a number of sources of funding to meet
anticipated funding requirements, including
committed bank facilities, cash resources and
use of debt factoring. We also use supply
chain financing. For further information on our
supply chain financing arrangements, please
refer to the Business Review on page 37.
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 aim to hedge
the currency exposure that arises between
the booking and settlement dates on material
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 212 and in Risk Overview from page 74.
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 215.
Critical accounting policies and estimates
Our Financial Statements are prepared in
accordance with IFRS as issued by the IASB
and as adopted by the EU (adopted IFRS), and
the accounting policies employed are set out
in the Group Accounting Policies section in
the Financial Statements from page 172. 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 the following areas and align with the
accounting policies containing our key
accounting judgements and significant
accounting estimates as disclosed in the
Financial Statements on page 173: KJ SE
> revenue recognition – see Revenue
Accounting Policy on page 174 KJ and Note
1 on page 180 SE .
> expensing of internal development
expenses – see Research and Development
Policy on page 174 KJ .
> impairment review of Intangible assets –
see Note 10 on page 191 SE .
> useful economic life of Intangible assets –
see Research and Development Policy on
page 175 KJ and Note 10 on page 192 SE .
> business combinations and Goodwill (and
Contingent Consideration arising from
business combinations) – see Business
Combinations and Goodwill Policy on page
177 KJ and Note 20 on page 200 SE .
> litigation liabilities – see Litigation and
Environmental liabilities within Note 29 on
page 221 KJ .
> operating segments – see Note 6 on page
186 KJ .
> employee benefits – see Note 22 on page
207 SE .
> taxation – see Taxation Accounting Policies
on page 175, Note 29 on page 225 KJ and
Note 29 on page 224 SE .
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 payments
are also discounted 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 the receipt of goods by the
customer, depending on local trading terms.
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Review
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continued
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 to the right.
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.
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
Movements in accruals
US pharmaceuticals
2019
$m
18,354
(2,429)
(1,380)
(5,467)
(303)
(44)
(105)
(879)
7,747
2018
$m
16,538
(2,224)
(1,304)
(4,600)
(286)
(119)
(140)
(989)
6,876
2017
$m
14,637
(2,299)
(1,462)
(3,598)
(30)
(37)
3
(1,045)
6,169
Brought forward
at
1 January 2019
$m
271
892
1,542
4
361
52
144
Provision for
current year
$m
2,458
Adjustment in
respect of
prior years
$m
Returns and
payments
$m
(29)
(2,455)
Carried forward
at
31 December
2019
$m
245
731
1,477
5,613
303
44
111
879
(97)
(1,541)
(146)
(5,070)
1,939
–
–
(6)
–
(288)
(225)
(31)
(878)
19
180
126
145
3,266
10,885
(278)
(10,488)
3,385
Brought forward
at
1 January 2018
$m
206
749
1,267
4
386
63
151
2,826
Brought forward
at
1 January 2017
$m
562
807
1,443
6
473
260
161
3,712
Provision for
current year
$m
2,220
Adjustment in
respect of
prior years
$m
Returns and
payments
$m
4
(2,159)
1,482
(178)
(1,161)
4,685
286
119
99
989
(85)
–
–
41
–
(4,325)
(286)
(144)
(151)
(996)
Carried forward
at
31 December
2018
$m
271
892
1,542
4
361
52
144
9,880
(218)
(9,222)
3,266
Provision for
current year
$m
2,432
Adjustment in
respect of
prior years
$m
Returns and
payments
$m
(133)
(2,655)
1,568
(106)
(1,520)
3,815
(217)
29
36
105
1,030
9,015
1
1
(108)
15
(547)
(3,774)
(32)
(124)
(194)
(1,055)
(9,354)
Carried forward
at
31 December
2017
$m
206
749
1,267
4
386
63
151
2,826
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
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Overall adjustments between gross and net
US Product Sales amounted to $10,374 million
in 2019 (2018: $9,662 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 173.
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.
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’. The
determination of a transaction being a
business combination or asset acquisition is
considered to be a key judgement as detailed
in the accounting policy on page 177.
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.
No business combinations were made in 2017,
2018 or 2019.
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 20 to
the Financial Statements from page 199.
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 9 to the
Financial Statements on page 190. 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. We are satisfied that the carrying
values of our Intangible assets as at
31 December 2019 are fully justified by
estimated future cash flows. The accounting
for our Intangible assets is fully explained in
Note 10 to the Financial Statements from page
190, 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 220.
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.
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Review
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Strategic Report
The following sections make up the Strategic
Report, which has been prepared in
accordance (cid:90)ith the re(cid:84)uire(cid:80)ents of the
Companies Act 2006:
> AstraZeneca at a glance
> Chairman’s Statement
> (cid:38)hief (cid:40)(cid:91)ecutive (cid:50)(cid:433)cer(cid:350)s (cid:53)evie(cid:90)
> Business model and life-cycle of a
medicine
> Healthcare in a changing world
> 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 2020
Financial Review
continued
The position could change over time, and
there can, therefore, be no assurance that any
losses that result from the outcome of any
legal proceedings will not exceed the amount
of the provisions that have been booked in
the accounts.
Although there can be no assurance regarding
the outcome of legal proceedings, we do not
currently expect them to have a material
adverse effect on our financial position, but
they could significantly affect our financial
results in any particular period.
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 (e.g.
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.
Section 172(1) statement
When making decisions, the Directors of
AstraZeneca PLC must act in the way they
consider, in good faith, is most likely to
promote the success of the Company for the
benefit of its (cid:80)e(cid:80)bers as a (cid:90)ho(cid:79)e(cid:15) (cid:90)hi(cid:79)e a(cid:79)so
considering the broad range of stakeholders
who interact with and are impacted by our
business. Throughout the year, while
discharging their duties, section 172(1)
(cid:11)s.(cid:20)(cid:26)(cid:21)(cid:11)(cid:20)(cid:12)(cid:12) re(cid:84)uires a director to have regard(cid:15)
amongst other matters, to the:
> (cid:79)i(cid:78)e(cid:79)y conse(cid:84)uences of any decisions in
the long term
> interests of the company’s employees
> need to foster the company’s business
relationships with suppliers, customers
and others
> impact of the company’s operations on
the community and environment
> desirability of the company maintaining
a reputation for high standards of
business conduct and
> need to act fairly as between members of
the company.
In discharging their s.172(1) duties the
Directors have had regard to the factors set
out above, as well as other factors relevant to
the decision being made. The Board
acknowledges that every decision made will
not necessarily result in a positive outcome for
all stakeholders. By considering our Purpose
and Values, together with our strategic
priorities, the Board aims to ensure that the
decisions made are consistent and intended to
promote the Company’s long-term success.
The Group engaged with key stakeholders
throughout the year to understand the issues
and factors that are significant for these
stakeholders, and a number of actions were
taken as a result of this engagement. The
interaction with stakeholders, and the impact
of these interactions, is set out in the
Connecting with our stakeholders section
from page 104 and throughout the Strategic
Report. The consideration and impact of the
Group’s operations on the environment are
contained throughout the Strategic Report,
including on pages 38-39 and Ambition Zero
Carbon on page 53. Information on how the
Group has considered other factors, such as
Communities, are also set out in Contributing
to society, from page 49 and Connecting with
our stakeholders on page 104.
Details of how the Board operates and matters
considered by the Board are set out in the
Corporate Governance Report from page 102.
Examples of how Directors discharged their
s.172(1) duties when making Principal
Decisions during 2019 are set out on page 106.
Principal Decisions are decisions and
discussions which are material or strategic to
the (cid:42)rou(cid:83)(cid:15) but a(cid:79)so those that are significant
to any of our stakeholder groups.
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AstraZeneca Annual Report & Form 20-F Information 2019 / Strategic Report
Corporate
Governance
Chairman’s Introduction 96
Corporate Governance Overview 97
Board of Directors 98
Senior Executive Team (SET) 100
Corporate Governance Report 102
Science Committee Report 113
Nomination and Governance
Committee Report 114
Audit Committee Report 116
Directors’ Remuneration Report 125
Remuneration Policy 149
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AstraZeneca Annual Report & Form 20-F Information 2019 / Corporate Governance
95
Chairman’s
Introduction
Good corporate governance is a prerequisite for a well-run
co(cid:80)(cid:83)any and this (cid:38)or(cid:83)orate (cid:42)overnance (cid:53)e(cid:83)ort re(cid:432)ects
the new regulations which encourage transparency in
governance reporting and enhance understanding of how
AstraZeneca is managed.
“ Transparency is another
essential element in any well-
run company. It is integral to
the way AstraZeneca operates.”
An engaged Board
If good corporate governance is at the heart of
a well-run company, it requires talented and
committed Directors, like those we have at
AstraZeneca, to bring it to life in the way they
carry out their responsibilities. We were
therefore delighted when Michel Demaré joined
the Board as a Director in September. He has a
great deal of industrial, financial and board-level
experience across a range of sectors, including
science and technology, that is enabling him to
contribute well to the work of our Board and
Audit Committee.
Earlier in the year, Rudy Markham retired at our
AGM after ten years on the Board. He had
been an exceptional Director, latterly acting as
our senior independent Non-Executive Director
and chairing the Audit Committee. Graham
Chipchase took over as senior independent
Non-Executive Director at the start of 2019,
while Philip Broadley succeeded Rudy as
Chairman of the Audit Committee. I am grateful
to them both, and to Nazneen Rahman who
chairs the Science Committee, for taking on
and discharging so ably these important
additional responsibilities.
Greater transparency
Transparency is another essential element in
any well-run company. It is integral to the way
AstraZeneca operates – including the operation
of the Board and its sub-committees. I would
therefore urge you to explore the sections in this
Corporate Governance Report that describe
how the Board operates in a manner that
encourages open and frank discussion, as well
as how we engage with and consider the views
of stakeholders and, in particular, how we
engage with our talented workforce.
Collaboration with Daiichi Sankyo and
share placing
In March 2019, we announced that we had
entered into a global development and
commercialisation collaboration agreement
with Daiichi Sankyo for Enhertu. Enhertu is a
proprietary antibody-drug conjugate which, in
December, received accelerated approval in the
US for the treatment of adult patients with
HER2-positive breast cancer. We believe it
could become a transformative new medicine in
a number of other cancers.
In April 2019, to fund the upfront payment and
near-term milestone payments under the
transaction, repay a bond that was falling due,
as well as for other corporate purposes, we
raised approximately $3.5 billion through a
placing of new Ordinary Shares in the
Company. Our decision to fund the transaction
with equity is in line with our capital allocation
priorities which are to invest in the business,
maintain a progressive dividend and retain a
strong investment grade credit rating. It is also
in line with our strategy of investing in assets
with growth potential.
Appreciation
In closing, I would like to thank all the
Directors for their contribution to the Board’s
deliberations and, more broadly, thank Pascal,
Marc and the entire AstraZeneca team for
their efforts which resulted in a year of
innovation for patients in 2019, with the
promise of more to come.
Leif Johansson
Chairman
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AstraZeneca Annual Report & Form 20-F Information 2019 / 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
(cid:80)anage(cid:80)ent. (cid:55)hey a(cid:79)so have various res(cid:83)onsibi(cid:79)ities concerning the integrity of financia(cid:79) infor(cid:80)ation(cid:15)
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.
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The Board has delegated some of its powers to the CEO and operates with the assistance of four Committees:
Board
Corporate Governance Report from page 102
Audit
Committee
Report from page 116
Remuneration
Committee
Report from page 125
Nomination and
Governance Committee
Report from page 114
Science
Committee
Report from page 113
In addition to the SET, we have two senior-level governance bodies:
Senior Executive Team (SET)
Details of our SET on pages 100 and 101
Early Stage Portfolio Committee
Page 100
Late Stage Portfolio Committee
Page 100
Attendance in 2019
Board or Committee Chairman
Name
Board
Audit Remuneration
Nomination and
Governance
Board Committee membership and meeting attendance in 2019
The Board held seven meetings in 2019,
including its usual annual strategy
review. Five took place in London, UK;
one was held at AstraZeneca’s facilities
in Shanghai and Wuxi, China; and one
was held as a teleconference/
videoconference call.
The Board is currently scheduled to
meet six times in 2020 and will meet at
such other times as may be required
to conduct business.
Geneviève Berger
Philip Broadley
Graham Chipchase
Michel Demaré – appointed 1 September 2019
Deborah DiSanzo
Marc Dunoyer
Leif Johansson
Rudy Markham – retired 26 April 2019
Sheri McCoy
Tony Mok
Nazneen Rahman
Pascal Soriot
Marcus Wallenberg
5(7)
7(7)
7(7)
3(3)
7(7)
7(7)
7(7)
3(3)
7(7)
7(7)
7(7)
7(7)
6(7)
6(6)
2(2)
6(6)
3(3)
6(6)
5(5)
5(5)
5(5)
1(1)
5(5)
4(4)
5(5)
5(5)
3(3)
5(5)
Science
2(2)
2(2)
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 2019 on page 98.
For more information on attendance at Board and Committee meetings, see Role of Non-Executive Directors on page 110.
AstraZeneca Annual Report & Form 20-F Information 2019 / Corporate Governance
97
Board of Directors
as at 31 December 2019
Board composition
as at 31 December 2019
Gender split of Directors
Directors’ nationalities
Men 8
Women 4
British 3
French 3
American 2
Swedish 2
Canadian 1
Belgian 1
Length of tenure of Non-Executive Directors
<3 years
6-9 years
6
Philip Broadley
Michel Demaré
Deborah DiSanzo
Sheri McCoy
Tony Mok
Nazneen Rahman
3
Leif Johansson
Geneviève Berger
Graham Chipchase
3-6 years
>9 years
0
1
Marcus Wallenberg
Changes to the composition
of the Board and its
Committees for the year
ended 31 December 2019
Philip Broadley
Appointed as Chairman of
the Audit Committee and
became a member of the
Nomination and Governance
Committee on 1 March 2019.
Tony Mok
Appointed as a Non-
Executive Director and
became a member of the
Science Committee on
1 January 2019.
Graham Chipchase
Became senior independent
Non-Executive Director on
1 January 2019.
Michel Demaré
Appointed as a Non-
Executive Director and
became a member of the
Audit Committee on
1 September 2019.
Rudy Markham
Stepped down as Chairman
of the Audit Committee on
1 March 2019 and as senior
independent Non-Executive
Director on 1 January 2019.
Retired from the Board on
26 April 2019 after 10 years
of service.
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.
Other appointments: Pascal is a Director of
Viela Bio, Inc.
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 is a Director of
Orchard Therapeutics Plc.
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 brand.
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.
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AstraZeneca Annual Report & Form 20-F Information 2019 / Corporate Governance
Geneviève Berger S
Non-Executive Director
(April 2012*)
Philip Broadley A R NG
Non-Executive Director
(April 2017*)
Michel Demaré A
Non-Executive Director
(September 2019*)
Deborah DiSanzo A
Non-Executive Director
(December 2017*)
Skills and experience: Geneviève was Chief
Science Officer at Unilever PLC & NV, and a
member of the Unilever Leadership Executive
from 2008 to April 2014. She holds three
doctorates – in physics, human biology and
medicine – and was appointed Professor of
Medicine at 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 an initial term of four years. This
appointment was renewed for a further
four-year term in May 2019. 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. Philip was also
previously a board member and Chairman of
the Audit Committee of Stallergenes Greer plc.
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. Until March
2019, Philip was a member of the Oxford
University Audit Committee.
Other appointments: Philip chairs the Audit
Committee of Legal & General Group plc. He is
Treasurer of the London Library and Chairman
of the Board of Governors of Eastbourne
College.
Skills and experience: Michel was previously
Vice-Chairman of UBS Group AG (2010 to
2019), Chairman of Syngenta and the Syngenta
Foundation for Sustainable Agriculture (2013 to
2017) and Chairman of SwissHoldings (2013 to
2015). Between 2005 and 2013, Michel was
CFO of ABB Ltd and also acting interim CEO
during 2008. He joined ABB from Baxter
International Inc., where he was CFO Europe
from 2002 to 2005. Prior to that, he spent 18
years at The Dow Chemical Company, in
several international finance functions,
including the CFO of Dow’s Global Polyolefins
and Elastomers division between 1997 and
2002. He began his career as a banking officer
at Continental Illinois’ Belgian subsidiary.
Michel graduated with an MBA from the
Katholieke Universiteit Leuven, Belgium, and
holds a degree in applied economics from the
Université Catholique de Louvain, Belgium.
Other appointments: Michel is a Non-Executive
Director of Vodafone Group Plc, Chairman of
IMD Business School in Lausanne and Deputy
Chairman of Louis Dreyfus Company Holdings
BV. He is also a member of the University of
Zurich’s Advisory Board of the Department of
Banking and Finance.
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Skills and experience: Deborah previously
served as General Manager for IBM Watson
Health, the business unit founded to advance
AI in health. Prior to joining IBM, she was CEO
of Philips Healthcare, having previously held
management roles at Agilent and Hewlett-
Packard. Deborah has a distinguished career
working at the intersection of healthcare and
technology, and is a sought-after speaker on
topics ranging from the future of healthcare to
women in technology. A dedicated community
leader, Deborah is focused on domestic and
global programmes with organisations
including Aspen Health Strategy Group, Project
Hope and the American Heart Association.
Deborah has been honoured by multiple
organisations as a top health influencer
including Health Data Management, Modern
Healthcare and Xconomy. Babson College
recognised Deborah’s impact as one of the
institution’s 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 and a
Director of Novanta, Inc.
Sheri McCoy A R
Non-Executive Director
(October 2017*)
Tony Mok S
Non-Executive Director
(January 2019*)
Nazneen Rahman S NG
Non-Executive Director
(June 2017*)
Marcus Wallenberg S
Non-Executive Director
(April 1999*)
Skills and experience: Marcus has international
business experience across various industry
sectors, including the pharmaceutical industry
from his directorship with Astra prior to 1999.
Other appointments: Marcus is Chairman of
Skandinaviska Enskilda Banken AB, Saab AB
and FAM AB. He is a member of the boards of
Investor AB, Temasek Holdings Limited, and
the Knut and Alice Wallenberg Foundation.
Skills and experience: Until February 2018,
Sheri was Chief Executive Officer and a
Director of Avon Products, Inc. Prior to joining
them in 2012, she had a distinguished 30-year
career at Johnson & Johnson, latterly serving
as Vice Chairman of the Executive Committee,
responsible for the Pharmaceuticals and
Consumer business segments. Sheri joined
Johnson & Johnson as an R&D scientist and
subsequently managed businesses in every
major product sector, 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, in connection with which she chairs
Certara, and serves on the boards of Aldevron
and Galderma. Sheri is a trustee for Stonehill
College, Easton, Massachusetts.
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.
Skills and experience: Nazneen has significant
scientific, medical and data analysis
experience. Her research 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 recognition of her
contribution to medical sciences.
Other appointments: Nazneen is an adviser in
the field of genetics to US venture capital
company, Foresite Capital.
AstraZeneca Annual Report & Form 20-F Information 2019 / Board of Directors
99
Senior Executive Team (SET)
as at 31 December 2019
Pascal Soriot
CEO
Marc Dunoyer
CFO
Katarina Ageborg
Executive Vice-President, Sustainability
and Chief Compliance Officer
José Baselga
Executive Vice-President,
Oncology R&D
See page 98.
See page 98.
In addition to the SET, we have two senior-level governance
bodies accountable for making key decisions regarding our
portfolio and pipeline.
Early Stage Portfolio Committee (ESPC)
The ESPC is a senior-level, cross-functional
governance body with accountability for
oversight of our early-stage small molecule
and biologics portfolio across all therapy
areas, from candidate drug investment
decisions to Phase IIb. It is co-chaired by the
EVP, Oncology R&D and the EVP,
BioPharmaceuticals R&D.
Late Stage Portfolio Committee (LSPC)
The LSPC is also a senior-level governance
body, accountable for the quality of the
portfolio post-Phase III investment decision.
It is chaired by the CEO and co-chaired
by the EVP, Oncology R&D and the EVP,
Oncology Business Unit, and by the EVP,
BioPharmaceuticals R&D and the EVP,
BioPharmaceuticals Business Unit.
The ESPC seeks to deliver a flow of products
for Phase III development through to launch.
The ESPC also seeks 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 ESPC has responsibility for
the following:
> approving early-stage investment
decisions
> prioritising the early-stage portfolio
> licensing activity for products in Phase I
and earlier
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
> decisions to invest in Phase III
development based on commercial
opportunity and our plans to develop the
medicine
> evaluations of the outcomes of
development programmes and decisions
to proceed to regulatory filing
> decisions to invest in life-cycle
management activities for the late-stage
assets
> delivering internal and external
> decisions to invest in late-stage business
opportunities
development opportunities
> reviewing allocation of R&D resources
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.
José joined AstraZeneca in January 2019 as
Executive Vice-President, Oncology R&D 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 and
Professor of Medicine at Weill Cornell
Medical College. Previously, he led the
Division of Oncology at the Massachusetts
General Hospital and was Professor of
Medicine at Harvard Medical School, as well
as the founding Director of the Vall d’Hebron
Institute of Oncology. José is an international
thought leader on innovation in cancer care
and research. His work has led to the
approval of life-saving cancer therapies and
the creation of several biopharmaceutical
companies. He is a past President of ESMO
and AACR, 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 has
received multiple awards including the ESMO
Lifetime Achievement Award, the Sergio
Lombresso Award, the Rey Jaime I Award
and the AACR Rosenthal Award.
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. 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 and, in particular, making sure
AstraZeneca achieves its ambition to be a
Great Place to Work. Fiona’s responsibilities
are focused on attracting and retaining
people with the right skills who share the
AstraZeneca Values; stewarding a culture
which is high performing, vibrant and
collaborative; and providing the opportunity
to AstraZeneca employees to learn and
develop in an inclusive and diverse
environment which nurtures creativity and
innovation in order to deliver life-changing
medicines to patients across the world. Fiona
started her career at General Electric, where
she held a number of human resources roles
in GE Oil and Gas. She then joined Cisco,
where she had responsibility for Southern
Europe and Employee Relations for Europe,
Middle East and Africa. Subsequently, she
joined Roche where she had a number of
human resources roles and, prior to joining
AstraZeneca, was responsible for Pharma
Technical Operations.
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Ruud Dobber
Executive Vice-President,
BioPharmaceuticals Business Unit
David Fredrickson
Executive Vice-President,
Oncology Business Unit
Menelas Pangalos
Executive Vice-President,
BioPharmaceuticals R&D
Ruud was appointed Executive Vice-President,
BioPharmaceuticals Business Unit in January
2019 and is responsible for product strategy
and commercial delivery for CVRM and
Respiratory, including immunology. 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 Astra 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 the European,
Middle East and Africa 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,
Oncology Business Unit in October 2017
and is responsible for driving growth and
maximising the commercial performance of
the AstraZeneca global Oncology portfolio.
He has global accountability for marketing,
sales, medical affairs and market access in
Oncology and plays a critical leadership role
in setting the Oncology portfolio and product
strategy. Previously, Dave served as President of
AstraZeneca K.K. in Japan, and Vice-President,
Specialty Care in the US. While in Japan, Dave
also served as Vice Chairman of the European
Federation of Pharmaceutical Industries and
Associations Japan and was a Director of
the Japan Pharmaceutical Manufacturers
Association. Before joining AstraZeneca, Dave
worked at Roche/Genentech, where he served
in several functions and leadership positions,
including Oncology Business Unit Manager in
Spain, and strategy, marketing and sales roles
in the US. Prior to this, Dave worked at the
Monitor Group, LLC (now Monitor Deloitte
Group, LLC), a global strategy consultancy.
Dave is a graduate of Georgetown University
in Washington DC.
Mene was appointed as Executive
Vice-President, BioPharmaceuticals R&D in
January 2019 and is responsible for R&D from
discovery through to late-stage development
across CVRM, Respiratory, neuroscience and
infection. 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 the
transformation of our R&D. Mene previously
held senior R&D roles at Pfizer, Wyeth and
GSK. Mene 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. He is
on the Boards of The Francis Crick Institute,
The Judge Business School and Dizal Pharma.
Mene has been awarded honorary doctorates
from Glasgow University and Imperial College
London, was recently awarded with a 2019 Prix
Galien Medal, Greece and a knighthood from
The Queen. Mene also oversees the creation of
AstraZeneca’s new Global R&D Centre in
Cambridge.
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.
C
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Iskra Reic
Executive Vice-President, Europe
and Canada
Leon Wang
Executive Vice-President,
International and China President
Iskra was appointed Executive Vice-President,
Europe and Canada in February 2019 and is
responsible for our BioPharmaceuticals sales,
marketing and commercial operations across
our businesses in 30 European countries and
Canada. 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. In 2012, she
joined AstraZeneca Russia as Marketing
Director. She was appointed General Manager
in 2014 and, under her leadership, AstraZeneca
achieved a leading share in its three main
therapy areas and, during this period, became
a top-seven prescription medicine
pharmaceutical company. Iskra’s
responsibilities were expanded in 2016 to cover
both Russia and the Eurasia Area where she
drove strong performance from a 1,500-strong
team in a complex and dynamic region. Iskra
was appointed EVP, Europe in April 2017. Iskra
has an International Executive MBA from the
IEDC-Bled School of Management, Slovenia.
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
third largest market worldwide, and
AstraZeneca has become the second largest
and the third fastest-growing multinational
pharmaceutical company in China. In
January 2017, Leon was promoted to
Executive Vice-President, Asia Pacific
Region. Prior to joining AstraZeneca, Leon
held positions of increasing responsibility in
marketing and business leadership at
Roche, where he was a Business Unit
Vice-President. In addition, Leon holds
several positions in local trade associations
and other prominent organisations in China.
Leon holds an EMBA from China Europe
International Business School, and a
Bachelor of Arts from Shanghai International
Studies University.
AstraZeneca Annual Report & Form 20-F Information 2019 / Senior Executive Team
101
Corporate
Governance Report
Activities of the Board
All Directors are collectively responsible
for the success of the Company.
Principal matters considered by the Board in 2019
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.
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 principal matters considered by the
Board during 2019 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 108.
Area of focus
Strategic priority
Strategic matters
> The Group’s strategy, including its long-range plan, annual budget, strategic
options and the overall state of the pharmaceuticals industry
> (cid:55)he (cid:42)rou(cid:83)(cid:350)s ca(cid:83)ita(cid:79) structure(cid:15) inc(cid:79)uding financing needs(cid:15) credit rating and
capital strategy, as well as the £2.69 billion placing of new Ordinary Shares
completed in April 2019
> Requests for approval of business development transactions of a size
requiring Board approval, including the co-development and
co-commercialisation agreement with Daiichi Sankyo for Enhertu
> Dividend decisions
Operational
matters
> Executive management reports, including business performance reports,
R&D pipeline updates, the results of key clinical trials, a review of the
formation of the dedicated Oncology R&D organisation and new
BioPharmaceuticals R&D and commercial units; and a review of the Group’s
R&D capabilities in China
> 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 and philanthropic matters
> Review of the Board’s Inclusion and Diversity Policy
> Visits to Commercial and Operations sites in China and a review of the
Group’s Chinese 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
> Review of the Group’s approach to tackling sexual harassment and bullying
Key
> (cid:53)evie(cid:90) of the first (cid:90)or(cid:78)force cu(cid:79)ture and e(cid:80)(cid:83)(cid:79)oyee engage(cid:80)ent re(cid:83)ort
Deliver Growth and Therapy Area Leadership
Accelerate Innovative Science
Be a Great Place to Work
> Year-end governance and assurance reports
Achieve Group Financial Targets
> The Group’s viability, risk appetite and Modern Slavery Act statements
> The annual review of the performance of the Board, its Committees
and individual Directors
> Private discussions between Non-Executive Directors only
102
AstraZeneca Annual Report & Form 20-F Information 2019 / Corporate Governance
Board performance evaluation
2019 Overview
During the year, the Board conducted the
annual evaluation of its own performance and
that of its Committees and individual Directors.
The 2019 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.
Lintstock has no other commercial relationship
with the Company or any individual Directors.
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 January 2020 and was also used by
the Chairman as the basis for individual
conversations with each Board member prior to
the full Board discussion.
2019 Outcomes
As part of each Director’s individual discussion
with the Chairman during the Board evaluation,
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.
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 late 2020.
As part of the Board performance evaluation,
Directors are asked to consider the
composition and diversity of the Board, as well
as how effectively members are working
together.
The Nomination and Governance Committee
also reviews the composition of the Board, to
ensure that it has the appropriate expertise
while also recognising the importance of
diversity. For more information on the
Nomination and Governance Committee’s
work, see the Nomination and Governance
Committee Report from page 114.
The outcomes of the 2019 evaluation are set out
in the table.
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Main areas covered
Main conclusions and recommendations
> Board composition and dynamics
> Stakeholder oversight
> Board meeting management and support
> Board Committees
> Board oversight
> Risk management and internal control
> (cid:54)uccession (cid:83)(cid:79)anning and(cid:98)hu(cid:80)an resource (cid:80)anage(cid:80)ent
> Priorities for change
> (cid:55)he (cid:37)oard o(cid:83)erates e(cid:428)ective(cid:79)y and in a (cid:80)anner that encourages o(cid:83)en and fran(cid:78) discussion (cid:90)here a(cid:79)(cid:79) (cid:37)oard (cid:80)e(cid:80)bers fee(cid:79)
free to express their views.
> The Board actively discussed its composition and the varied skills and experience of Directors.
> The Board’s relationship with management was positive with a good balance between support and challenge.
> An appropriate focus on structured succession planning for the most senior Board roles was being maintained.
> (cid:36)reas for i(cid:80)(cid:83)rove(cid:80)ent identified inc(cid:79)uded considering (cid:90)ays to reduce the (cid:79)ength of (cid:37)oard (cid:80)eeting (cid:83)a(cid:83)ers(cid:15) such as (cid:80)a(cid:78)ing
more use of executive summaries, while ensuring the Board received all the information it needed, and further focus in
2020 on sustainability and aspects of digital technology such as AI.
> (cid:55)he revie(cid:90)s of the (cid:37)oard(cid:350)s (cid:38)o(cid:80)(cid:80)ittees did not raise any significant (cid:83)rob(cid:79)e(cid:80)s and conc(cid:79)uded that the (cid:38)o(cid:80)(cid:80)ittees are
o(cid:83)erating e(cid:428)ective(cid:79)y.
> (cid:44)n res(cid:83)ect of the (cid:21)(cid:19)(cid:20)(cid:28) annua(cid:79) (cid:83)erfor(cid:80)ance eva(cid:79)uation(cid:15) it (cid:90)as conc(cid:79)uded that each (cid:39)irector continues to (cid:83)erfor(cid:80) e(cid:428)ective(cid:79)y
and to demonstrate commitment to his or her role.
Chairman evaluation
Process
Overall conclusion
The 2019 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.
The Chairman continued to perform very well in all aspects of his role. His leadership of the Board and management of its
(cid:80)eetings (cid:90)as e(cid:428)ective(cid:15) inc(cid:79)usive and underta(cid:78)en in a (cid:90)ay that drove decisions. (cid:43)e (cid:90)as a good (cid:79)istener and faci(cid:79)itated o(cid:83)en and
informed debate at Board meetings. His relationship with the Executive Directors, especially the CEO, as well as other senior
executive management was strong. He was visible to employees, approachable and willingly participated in internal Company
meetings, such as the annual senior leaders’ meeting and Gaithersburg science festival. He drew on his deep industry
e(cid:91)(cid:83)erience in (cid:83)erfor(cid:80)ing the ro(cid:79)e of (cid:38)hair(cid:80)an and invested significant ti(cid:80)e bet(cid:90)een (cid:37)oard (cid:80)eetings on the (cid:42)rou(cid:83)(cid:350)s a(cid:428)airs.
His time commitment to the role included several overseas visits on behalf of the Company to represent its interests across a
broad range of topics at senior government levels and with other stakeholders in numerous countries. The senior independent
Non-Executive Director provided feedback to the Chairman after the review of his performance. This included a minor
suggestion about ho(cid:90) he (cid:80)ight (cid:80)ore e(cid:428)ective(cid:79)y (cid:80)anage (cid:37)oard discussions on scientific to(cid:83)ics.
Actions against prior year recommendations
2018 evaluation
2019 actions taken
Improve the Board’s understanding of our competitors’
strategies and performance
Improve management of the late stages of the recruitment
process for new Non-Executive Directors
(cid:39)eve(cid:79)o(cid:83) and refine the ro(cid:79)e of the (cid:54)cience (cid:38)o(cid:80)(cid:80)ittee to
ensure it meets the needs of the Board
Continue to develop a deep understanding of digital
technology and its application in the pharmaceutical industry
During the Board’s visit to China and at two Board meetings held in London, the Board received presentations from external
speakers about the state of the pharmaceutical industry and the Company’s competitive position versus its peers. After the
annual strategy review, the Board guided management as to additional information that might be included in future reviews
relating to our competitors’ strategies.
Two new Non-Executive Directors were appointed – Tony Mok and Michel Demaré. The recruitment processes ran smoothly.
Nazneen Rahman, Chairman of the Science Committee led a review of the Committee’s overall purpose, meeting format,
agendas and the way it supports the work of the Board and its Committees. Some limited changes in these areas were endorsed
by the Board and implemented.
Several Board presentations and discussions during the year focused on or included topics relating to digital technology and
its application to many aspects of the Company’s business, including various parts of the annual strategy review, for example
the digital transformation in R&D; adopting patient-centric business models; transformative technologies and science;
Operations of the future; and Be a Great Place to Work. The Board also visited the Company’s China Commercial Innovation
Centre in Wuxi, which included insights into digital technology.
AstraZeneca Annual Report & Form 20-F Information 2019 / Corporate Governance Report
103
Corporate
Governance Report
Connecting with
our stakeholders
When making decisions, the Directors of AstraZeneca
PLC act in the way they consider is most likely to promote
the success of the (cid:38)o(cid:80)(cid:83)any(cid:15) for the benefit of its (cid:80)e(cid:80)bers
as a whole, while also considering the broad range of
stakeholders who interact with the business.
Shareholders,
Investors & Analysts
Patients
Healthcare Practitioners
(HCPs)
Suppliers
Government and payers
Communities
How we engage as a Company
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 as a result we have
a number of key stakeholder groups.
Considering the interests of our
stakeholders is fundamental to the way
in which the Group operates. 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 identifies our key
stakeholders, as well as summarising
the engagement that has been
undertaken across the business
during 2019. In addition, the Board’s
engagement with our workforce is set
out on page 107. How the Board
understands the interests of
stakeholders, and how the Board
considers stakeholders’ interests in
decision making, including examples
of principal decisions made in 2019 are
summarised on page 106.
The s.172(1) statement is set out on page 94.
For more information about our Code of Ethics, see
page 35.
A full list of our stakeholders can be found in our
2019 Sustainability Report at www.astrazeneca.
com/sustainability.
Overview
(cid:54)ignificance of the
stakeholder to
the business
The Board and management
maintain a regular and
constructive dialogue with
investors to communicate
the Company’s strategy and
performance to promote
investor confidence and
ensure continued access
to capital.
We see every patient as a person first and
put them at the core of what we do. We do
this by walking in their shoes, listening to
their experiences, embedding their
insights and co-creating with them. By
doing this we believe we can deliver
advances along the entire patient
experience.
Interests
Issues and factors
which are most
important to the
stakeholder group
> Exposure to macro-
> Customised support and their input
economic risk
> Strategy, commercial
operations and financial
performance
> R&D productivity and
successful pipeline
development
> Culture, values and
included throughout the entire patient
experience
> Commitment to affordable access to
our medicines
> Designing clinical trials that reflect
real-world clinical practice, are
minimally burdensome to patients, and
measure outcomes they care about
behaviours
> Information provided is easy to
> Climate and sustainability
matters
understand, accessible, reliable and
transparent
> Ensuring the safety and efficacy of our
medicines
Engagement
Examples of
engagement in 2019
> Annual General Meeting
> Engaged patients in our development
in April 2019
and clinical trial programmes
> Directors met investors,
analysts and investor
bodies
> Collaboration with patient advocacy
groups and establishment of patient
advisory boards
> Quarterly financial results
> Established patient support and
affordability programmes
> Grew our Patient Partnership
Programme across 11 diseases
> Co-created patient-centric materials
with patients
> Engaged in key steps of product
research and development
webcasts
> One-to-one meetings
with analysts and
institutional investors
> Extensive investor
outreach programme
including regular
roadshows and site visits;
attending conferences
and events
> Topical investor science
conference calls where
important pipeline data
are presented
Overview
HCPs positively influence our
In 2019, we spent approximately
Government policy can impact the
We aim to make a positive
business to enhance the lives of
$14 billion with suppliers on goods
business operating environment.
impact on the communities in
patients. HCPs are essential
or services critical to the effective
Health technology assessment
which we operate, as well as
partners in clinical research, as
operation of our entire value chain
agencies, national and regional
those which our medicines
advisers and study investigators.
– from discovery to development,
healthcare insurance funds and
reach. Communities expect us
We provide HCPs with
manufacturing and supply of our
government bodies appraise the
to support the initiatives that
information about our medicines
medicines to patients.
clinical and economic value of our
intersect with our business.
to support rational prescribing,
Our business-critical operations are
medicines following successful
Communities have a direct
and they provide insights that
delivered and managed with the
regulatory approval.
improve our medicines for
support of our suppliers.
influence on the health of
patients, caregivers and families.
patients.
Interests
> Development of medicines
> Understanding of AstraZeneca’s
> Attracting business investment
> How our activities and plans
for unmet clinical needs
strategy and how the supplier
> Investment in research and
impact on local communities
> Education and information on
can best create value through
scientific collaborations
> Raising awareness of
advances in medical science
innovative and new opportunities
> Access to innovative
healthcare
> Accurate and balanced
> Creating a collaborative and
medicines
> Promotion of science-based
information on licenced
medicines, including
up-to-date safety data
trusting environment between
> Pricing of medicines, including
education and careers
the supplier and AstraZeneca
breakthrough therapies, and
> Investment in local
> That AstraZeneca acts ethically,
the impact on public budgets
infrastructure and capacity-
> Uninterrupted supply of
lawfully, protects the
> Containment of reimbursement
building initiatives
quality medicines
> Ethical and transparent
interactions with industry
environment and benefits society
expenditure
and its partners
> The safety and efficacy
of drugs
> Support for programmes,
platforms and policies that
make healthcare accessible
Engagement
> Established HCP advisory
> Engaged with suppliers via
> Discussions with governments
> Reached nearly one million
boards
summits and workshops, to
and policy makers to increase
> Engaged HCPs in clinical
partner on procuring sustainable
understanding of supporting
young people through the
Young Health Programme
trials and supported HCP-led
goods and services
investment in life sciences,
> AstraZeneca HealthCare
externally sponsored
research studies
> Enabled 1st- and 2nd-tier small
regulation of the
Foundation provided
and diverse suppliers access to
pharmaceutical industry and
$775,000 in continuation
> Responded to more than
business opportunities through
improve access to new
grants to prevent and reduce
80,000 HCP enquiries and
processed 18,000 adverse
event reports from HCPs
our participation in outreach
events, collaborations, and
memberships with various
medicines
CV disease
> Engaged in discussions on
> Donated more than $801 million
evolving the current
of medicines to patient
assistance programmes
> Provided and supported HCP
industry groups and diversity
reimbursement system for
educational events including
councils
medicines in the US
globally
independent events and
> Prioritised supplier collaboration
> Hosted site visits and tours at
> Delivered $151,000 in grants
congresses
and innovation activities with key
our manufacturing and R&D
via Step Up! Young Health
suppliers
facilities for international and
Global Grants Programme to
local politicians
support early innovation work
Outcomes
Any actions which
resulted
> Periodic focus on R&D
> Expanding patient insight into work,
Outcomes
> Advisory boards helped
> Expanded our supply base
> Established working
> Expansion of disease
productivity and pipeline
development within our
investor materials
> Increased focus on
climate and sustainability
matters within our
quarterly results
announcements
including strategy development, digital
technologies and clinical trials
> Introduced Group-wide initiative to
evolve, enhance and embed our
commitment to patient centricity
> Increased number of programmes to
support patients throughout their
experience
> Changed corporate materials, including
training, new hire and development
programmes, key marketing, commercial
and medical planning materials
shape our clinical research,
bringing innovative solutions to
relationships with key
products and services
deliver more medicines to more
government stakeholders
prevention programming in
connection with government
> Clinical study data has driven
patients, through extending the
> Regular meetings, roundtables
and NGO partnerships in Asia
new product licences,
providing new treatment
alternatives for patients
supplier diversity programme to
more countries, establishing a
and events have been
organised to increase
and Latin America
> Increased investment in
distributor alliance programme,
understanding about how
public-private partnerships as
> Exchange of information and
and enriching our supply base
governments can support life
a mechanism to address
safety data with HCPs and
with smaller, niche vendors
sciences investment and
global and local health issues
HCP education all to improve
> Collaborated with suppliers to
improve patient access to new
> Recognition as UK Business of
patient care
> HCP feedback is used to
improve standards for our
interactions with HCPs
medicines
establish a robust disaster
recovery plan for high-risk
regions to mitigate force majeure
risks and enable sustainable
operation (e.g. Puerto Rico and
Maihara, Japan)
the Year for our Philanthropic
activities by Third Sector
Business Charity Awards
104
AstraZeneca Annual Report & Form 20-F Information 2019 / Corporate Governance
Shareholders,
Investors & Analysts
Patients
Overview
(cid:54)ignificance of the
stakeholder to
the business
The Board and management
We see every patient as a person first and
maintain a regular and
put them at the core of what we do. We do
constructive dialogue with
this by walking in their shoes, listening to
investors to communicate
their experiences, embedding their
the Company’s strategy and
insights and co-creating with them. By
performance to promote
investor confidence and
doing this we believe we can deliver
advances along the entire patient
ensure continued access
experience.
to capital.
Interests
Issues and factors
which are most
important to the
stakeholder group
> Exposure to macro-
> Customised support and their input
economic risk
included throughout the entire patient
> Strategy, commercial
experience
operations and financial
> Commitment to affordable access to
performance
our medicines
> R&D productivity and
> Designing clinical trials that reflect
successful pipeline
development
real-world clinical practice, are
minimally burdensome to patients, and
> Culture, values and
measure outcomes they care about
behaviours
> Information provided is easy to
> Climate and sustainability
understand, accessible, reliable and
matters
> Ensuring the safety and efficacy of our
transparent
medicines
Engagement
Examples of
> Annual General Meeting
> Engaged patients in our development
in April 2019
and clinical trial programmes
engagement in 2019
> Directors met investors,
> Collaboration with patient advocacy
analysts and investor
groups and establishment of patient
> Quarterly financial results
> Established patient support and
advisory boards
affordability programmes
bodies
webcasts
> One-to-one meetings
> Grew our Patient Partnership
with analysts and
Programme across 11 diseases
institutional investors
> Co-created patient-centric materials
> Extensive investor
with patients
outreach programme
> Engaged in key steps of product
including regular
research and development
roadshows and site visits;
attending conferences
and events
> Topical investor science
conference calls where
important pipeline data
are presented
Outcomes
Any actions which
resulted
> Periodic focus on R&D
> Expanding patient insight into work,
productivity and pipeline
including strategy development, digital
development within our
technologies and clinical trials
investor materials
> Increased focus on
> Introduced Group-wide initiative to
evolve, enhance and embed our
climate and sustainability
commitment to patient centricity
matters within our
quarterly results
announcements
> Increased number of programmes to
support patients throughout their
experience
> Changed corporate materials, including
training, new hire and development
programmes, key marketing, commercial
and medical planning materials
Overview
Healthcare Practitioners
(HCPs)
HCPs positively influence our
business to enhance the lives of
patients. HCPs are essential
partners in clinical research, as
advisers and study investigators.
We provide HCPs with
information about our medicines
to support rational prescribing,
and they provide insights that
improve our medicines for
patients.
Suppliers
Government and payers
Communities
In 2019, we spent approximately
$14 billion with suppliers on goods
or services critical to the effective
operation of our entire value chain
– from discovery to development,
manufacturing and supply of our
medicines to patients.
Our business-critical operations are
delivered and managed with the
support of our suppliers.
Government policy can impact the
business operating environment.
Health technology assessment
agencies, national and regional
healthcare insurance funds and
government bodies appraise the
clinical and economic value of our
medicines following successful
regulatory approval.
We aim to make a positive
impact on the communities in
which we operate, as well as
those which our medicines
reach. Communities expect us
to support the initiatives that
intersect with our business.
Communities have a direct
influence on the health of
patients, caregivers and families.
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Interests
> Development of medicines
for unmet clinical needs
> Education and information on
advances in medical science
> Understanding of AstraZeneca’s
strategy and how the supplier
can best create value through
innovative and new opportunities
> Attracting business investment
> Investment in research and
scientific collaborations
> How our activities and plans
impact on local communities
> Raising awareness of
> Access to innovative
healthcare
> Accurate and balanced
information on licenced
medicines, including
up-to-date safety data
> Uninterrupted supply of
quality medicines
> Ethical and transparent
interactions with industry
> Creating a collaborative and
medicines
trusting environment between
the supplier and AstraZeneca
> That AstraZeneca acts ethically,
lawfully, protects the
environment and benefits society
and its partners
> Pricing of medicines, including
breakthrough therapies, and
the impact on public budgets
> Containment of reimbursement
expenditure
> The safety and efficacy
of drugs
> Promotion of science-based
education and careers
> Investment in local
infrastructure and capacity-
building initiatives
> Support for programmes,
platforms and policies that
make healthcare accessible
Engagement
> Established HCP advisory
boards
> Engaged HCPs in clinical
trials and supported HCP-led
externally sponsored
research studies
> Responded to more than
80,000 HCP enquiries and
processed 18,000 adverse
event reports from HCPs
> Provided and supported HCP
educational events including
independent events and
congresses
> Engaged with suppliers via
summits and workshops, to
partner on procuring sustainable
goods and services
> Enabled 1st- and 2nd-tier small
and diverse suppliers access to
business opportunities through
our participation in outreach
events, collaborations, and
memberships with various
industry groups and diversity
councils
> Prioritised supplier collaboration
and innovation activities with key
suppliers
> Discussions with governments
and policy makers to increase
understanding of supporting
investment in life sciences,
regulation of the
pharmaceutical industry and
improve access to new
medicines
> Reached nearly one million
young people through the
Young Health Programme
> AstraZeneca HealthCare
Foundation provided
$775,000 in continuation
grants to prevent and reduce
CV disease
> Engaged in discussions on
> Donated more than $801 million
evolving the current
reimbursement system for
medicines in the US
of medicines to patient
assistance programmes
globally
> Hosted site visits and tours at
our manufacturing and R&D
facilities for international and
local politicians
> Delivered $151,000 in grants
via Step Up! Young Health
Global Grants Programme to
support early innovation work
Outcomes
> Advisory boards helped
> Expanded our supply base
> Established working
> Expansion of disease
shape our clinical research,
products and services
> Clinical study data has driven
new product licences,
providing new treatment
alternatives for patients
> Exchange of information and
safety data with HCPs and
HCP education all to improve
patient care
> HCP feedback is used to
improve standards for our
interactions with HCPs
bringing innovative solutions to
deliver more medicines to more
patients, through extending the
supplier diversity programme to
more countries, establishing a
distributor alliance programme,
and enriching our supply base
with smaller, niche vendors
> Collaborated with suppliers to
establish a robust disaster
recovery plan for high-risk
regions to mitigate force majeure
risks and enable sustainable
operation (e.g. Puerto Rico and
Maihara, Japan)
relationships with key
government stakeholders
> Regular meetings, roundtables
and events have been
organised to increase
understanding about how
governments can support life
sciences investment and
improve patient access to new
medicines
prevention programming in
connection with government
and NGO partnerships in Asia
and Latin America
> Increased investment in
public-private partnerships as
a mechanism to address
global and local health issues
> Recognition as UK Business of
the Year for our Philanthropic
activities by Third Sector
Business Charity Awards
AstraZeneca Annual Report & Form 20-F Information 2019 / Connecting with our stakeholders
105
Corporate Governance Report
Connecting with our stakeholders
continued
How our Board understands the interests
of our stakeholders
To promote and facilitate Directors’
understanding of the interests of our
stakeholders, the Board is able to review
the stakeholder matrix, which sets out
management’s engagement with stakeholders
and highlights the most significant issues to
each group. This provides assurance to the
Board that management has engaged with
stakeholders and allows the Board to consider
stakeholder impact, as well as other factors,
when making decisions. The stakeholder
matrix is refreshed annually to ensure that
stakeholders and methods of engagement
remain relevant to the business.
In addition, during 2019, the Board periodically
received updates on sustainability matters,
including access to healthcare programmes.
These updates provided the Directors with
an understanding of the various initiatives that the
Group leads, and the relationship between the
Group and the communities in which it operates.
Throughout 2019, Directors also had direct
engagement with various stakeholders,
including the workforce, to understand the
issues that concern and impact them most.
Examples of workforce engagement are set
out on page 107. The CEO, CFO, Chairman
and Remuneration Committee Chairman all
met with investors throughout the year to
understand their views on a range of issues.
Understanding in action
In October 2019, Board members met a group
of Young Health Programme (YHP) peer
educators visiting London from Kenya and
Indonesia, and participated in a peer
education session. The peer educators took
the Board through a typical education session
on the importance of physical activity, using
the same approach and questions they would
use in their home country. How can you
exercise when there are no open spaces or
the environment is not safe? What can you do
to be more physically active and live a
healthier life? Together, the young peer
educators brought YHP to life for the Board.
For more information on the Young Health Programme,
see page 50.
How our Board considers stakeholders’
interests in decision making
Throughout the year, Directors recognised
their responsibility to act in good faith to
promote the success of the Company for the
benefit of shareholders, while also considering
the impact of their decisions on wider
stakeholders and other factors relevant to the
decision being made. Clear communication
and proactive engagement to understand the
issues and factors which are most important
to stakeholders is fundamental to this.
The Board acknowledges that every decision
made will not necessarily result in a positive
outcome for all stakeholders. By considering
our Purpose and Values, together with our
strategic priorities, the Board aims to ensure
that the decisions made are consistent and
intended to promote the Company’s
long-term success.
In addition to the stakeholder considerations
set out on pages 104 to 107, the Board has
also had regard to other factors such as
environmental factors and community interests.
For more information on the environmental
factors considered by the business, see pages
38 and 39, Next Move Zero carbon emissions
on page 53 and the CEO review from page 5.
For more information on the community factors
considered by the business, see from page 49.
The table to the right provides examples of
how key stakeholders were considered in
Principal Decisions made by the Board
during 2019.
For the s.172(1) statement, see page 94.
Principal decisions in 2019
Overview
We define ‘Principal Decisions’ as decisions and discussions, which are material or strategic to
the Group, and also those that are significant to any of our stakeholder groups. We consider
the following items to be examples of Principal Decisions made by the Board during 2019.
Principal Decisions
During 2019, the Board discussed the continuing success of the relocation of the Group’s global corporate headquarters to
Cambridge, UK. At the end of 2019, approximately 2,800 employees were based in Cambridge and the construction of the new
strategic R&D centre continued to progress. The Board considered the Group’s increased presence in Cambridge and the impact
on the local community, noting that the Group continued to work with local authorities and other service providers to ensure further
development of the surrounding infrastructure and amenities, such as improvements to local transportation. The Board also
discussed the scientific and strategic (cid:83)artnershi(cid:83)s(cid:15) (cid:90)hich the (cid:42)rou(cid:83)(cid:350)s (cid:83)resence in (cid:38)a(cid:80)bridge had faci(cid:79)itated. (cid:54)uch co(cid:79)(cid:79)aborations
were focused on training the next generation of scientists and entrepreneurs; health research; and data science and digital, all of
(cid:90)hich benefited the (cid:79)oca(cid:79) co(cid:80)(cid:80)unity (cid:90)hi(cid:79)e a(cid:79)so assisting the (cid:79)ong-ter(cid:80) de(cid:79)ivery of the (cid:42)rou(cid:83)(cid:350)s science-(cid:79)ed innovation.
For more information on the Group’s presence in Cambridge, including details of the construction and the sustainability
considerations of the new R&D centre, see page 29.
During 2019, the Group entered a Commercialisation Collaboration Agreement (the Agreement) with Daiichi Sankyo for Enhertu,
a potential new targeted medicine for cancer treatment. A number of factors were taken into account in reaching this decision.
The Board discussed the opportunity Enhertu presented and the unmet medical need that the drug might be able to address,
while also considering patient safety. It was concluded that the entry into the Agreement was most likely to promote the long-term
success of the Company and, if successful, could help transform the treatment of patients. The Group’s capital allocation priorities
and the ba(cid:79)ance bet(cid:90)een the interests of the business(cid:15) shareho(cid:79)ders and financia(cid:79) creditors(cid:15) as (cid:90)e(cid:79)(cid:79) as achieving the (cid:42)rou(cid:83)(cid:350)s
financia(cid:79) targets (cid:90)ere a(cid:79)so considered. (cid:36)fter carefu(cid:79) consideration of these factors(cid:15) it (cid:90)as decided that it (cid:90)as in the best interests
of the Company to proceed with a share placing, which among other things helped fund entry into the Agreement.
For more information, see Business development from page 40, and the Oncology Therapy Area Review from page 54. For
information on the placing, see the Directors’ report from page 263.
Throughout 2019, the Board continued to consider pricing of medicines, which remains an area of focus for governments and
payers globally. The Board discussed the Group’s innovative value strategies (IVS), which are intended to reduce clinical or
financia(cid:79) uncertainty for the (cid:83)ayer(cid:15) (cid:90)hi(cid:79)e enab(cid:79)ing (cid:83)atient access. (cid:55)he (cid:42)rou(cid:83) continued to (cid:90)or(cid:78) (cid:90)ith govern(cid:80)ents and (cid:83)ayers to
shape polices and promote the implementation of IVS, which link the cost of the medicine to its real-word clinical performance,
creating a sustainab(cid:79)e and fair a(cid:83)(cid:83)roach to (cid:83)ricing. (cid:55)he (cid:37)oard (cid:90)as su(cid:83)(cid:83)ortive of (cid:80)anage(cid:80)ent(cid:350)s e(cid:428)orts to date and noted that
e(cid:428)orts shou(cid:79)d continue to be (cid:83)rogressed. (cid:44)n addition to addressing sta(cid:78)eho(cid:79)ders(cid:350) concerns(cid:15) a fair and trans(cid:83)arent a(cid:83)(cid:83)roach to
pricing is an important factor in maintaining the Company’s reputation for high standards of business conduct.
For more information, see Pricing and delivering value on page 32 and Improving patient access on page 36.
106
AstraZeneca Annual Report & Form 20-F Information 2019 / Corporate Governance
Engaging with our workforce
AstraZeneca is committed to being a great
place to work. Engagement with employees
is an important element in fostering this
and ensuring an environment in which all
employees are respected, and where
openness is valued, diversity celebrated and
every voice heard. We rely on our global
workforce and their commitment to uphold
our Values, deliver our strategic priorities and
make the changes necessary to sustain and
improve short- and long-term performance.
For AstraZeneca, ‘global workforce’ includes
all AstraZeneca’s full-time and part-time
employees, fixed-term workers and external
contractors working full- or part-time,
regardless of their geographical location.
In 2019, in response to the provision in the
2018 UK Corporate Governance Code
prescribing certain methods that the Board
could use to engage with the workforce,
the Board reviewed the various mechanisms
already in place across the Group that enable
and facilitate such engagement. The Directors
believe that the Board as a whole should
continue to take responsibility for gathering
the views of the workforce. Consequently,
the Board chose not to implement any of the
three methods set out in the 2018 Code.
Instead, the multiple, long-standing channels
of engagement which already exist in the
organisation are being developed and
enhanced to ensure that the Board continues
to understand the global workforce’s views
on a wide variety of topics. The methods of
engagement are set out below. In addition,
further information on the Audit Committee’s
engagement can be found from page 117.
The Board believes that this alternative
approach is the best model of engagement
for the Group. The channels outlined below
ensure that the Board has access to the views
of the workforce, regardless of their location,
and provide meaningful information and data
that the Board can use when considering the
impact of the strategic decisions on
employees. Additionally, the chosen
mechanisms allow all Directors to engage
directly with a wider cross-section of the
global workforce and provide opportunity for
meaningful dialogue. The Board considers
these views and the potential impacts on the
workforce when it makes key decisions.
For more information, see A great place to work:
Employees, from page 44.
Workforce culture
During 2019 the Board reviewed a new workforce
trends report, which demonstrated how our
Values and behaviours are embedded
throughout all levels of the workforce. Within the
report, there is a summary metrics dashboard,
which is divided into five categories reflecting
various key aspects of AstraZeneca’s culture
(Performance and Development, Integrity,
Engagement, Reputation and Sustainability).
The dashboard is compiled from data across the
global workforce including scores from the Pulse
surveys and promotion and resignation rates.
Directors also receive information on compliance
issues and grievance cases. The Board monitors
the data for trends and to ensure that a culture
consistent with our Values is being fostered.
The report also contains a list of approximately 10
further analyses that reference culture and
workforce engagement and help the Board to
judge our culture and whether it reflects our
Values. This information is made available to
Directors via the Board portal.
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Investing in and rewarding our workforce
The Remuneration Committee considers
remuneration arrangements for our global
workforce, aiming to ensure the global total
reward offering is competitive, compelling and
aligned to our business performance; while
supporting a culture where everyone feels
valued and included.
The workforce trends report is reviewed by the
Board twice per annum. Where the Board has
concerns that the culture does not reflect our
Values, the Board seeks assurances from
management that remedial action has been
taken, and where necessary, requests senior
management’s attendance at Board meetings
to discuss corrective actions.
For more information, see the Directors’ Remuneration
Report from page 125.
For more information on how individual Committees monitor
culture, see the Audit Committee Report from page 116.
‘High potential’ employees and local
leadership team meetings
The Board, its Committees and individual
Directors have held meetings and hosted
lunches/dinners as part of visits to provide
exposure to talent and leadership, and
provide opportunity for dialogue.
‘Town hall’ meetings
Both Non-Executive Directors (including the
Chairman) and Executive Directors regularly
participate in ‘town hall’ style meetings across
the world – either virtually or in person. These
enable direct engagement between the Board
and employees, including Q&A sessions.
Site visits
Directors have visited various Group sites across
the world including those in China, India, Brazil,
Sweden, Mexico, the UK, the US and Russia.
These enabled direct insights and understanding
into business operations and engagement
between the Board and employees.
>10
more than 10 meetings with ‘high potential’
employees and leadership teams
Workforce trends report and Annual
Global Remuneration Overview
The Board was provided with information
outlining progress against a range of metrics
related to workforce culture and engagement.
This information is provided biannually to
enable Directors to monitor trends and, if
required, take action. The Remuneration
Overview provides evidence of how the
workforce is rewarded in line with our
principles.
>10
>15
more than 10 ‘town hall’ meetings held
more than 15 site visits
Employee opinion surveys (Pulse)
Twice a year the workforce are invited to take
part in an employee opinion survey, which
seeks employees’ views of the business. The
results are reviewed by management and
trends are monitored. The results are shared
with the Board, which enables them to
understand the views and sentiments of the
workforce.
Actions and outcomes
The Board considered the workforce throughout
its Principal Decisions in 2019. Directors ensured
that, where required, queries raised during
engagements, were fed-back to management
or discussed by the wider Board. In 2019, the
Board discussed the formation of a dedicated
Oncology R&D organisation and the new
BioPharmaceuticals R&D and commercial units.
The Board received regular updates on how the
workforce had been considered and supported
during the reorganisation. The Board also
discussed the Group’s transformation in
learning, which forms one pillar of the People
strategy, and the use of modern technology
across all aspects of learning.
94%
90%
of employees stated they believe strongly in
AstraZeneca’s future direction and key
priorities in the December 2019 Pulse survey
of employees took part in the December 2019
Pulse survey
AstraZeneca Annual Report & Form 20-F Information 2019 / Connecting with our stakeholders
107
Corporate Governance Report
Compliance with the UK
Corporate Governance Code
How we have complied with the UK
Corporate Governance Code
We have prepared this Annual Report with
reference to the UK Corporate Governance
Code published by the UK Financial Reporting
Council (FRC) in July 2018.
Our statement of compliance (together
with the wider 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.
Board Leadership and Company Purpose
A. Board’s role
The Board is comprised of skilled individuals from a diverse
range of nationalities and professional backgrounds, as set out
in their biographies on pages 98 and 99 and the skills matrix on
page 115. It is this diversity of experience and ability to exercise
independent and objective judgement which helps the Board to
operate effectively and establish a governance framework to
assist the Group in the delivery of its strategy.
B. Our Purpose, Values
and culture
The Board believes that our Purpose, to push the boundaries
of science to deliver life-changing medicines, positions
AstraZeneca for long-term, sustainable success. Our strategy,
which was refreshed in 2019, remains relevant for the current
status of our business and the evolving external environment.
Our Values, and the behaviours that align with these Values,
support a culture in which our people are empowered and
inspired to make a difference to patients, society and our
company, and makes AstraZeneca a great place to work.
The Board reviews a workforce culture and employee
engagement report twice per year. For more information,
see page 107. Individual Committees also monitor culture
throughout the year.
C. Resources and
controls
The Board ensures that necessary resources are in place to
help the Company to meet objectives and measure
performance.
Global Compliance provides direct assurance to the Audit
Committee on compliance matters, including an analysis of
compliance breaches and associated disciplinary actions,
as well as commentary on the most serious breaches.
D. Engagement
Shareholder engagement
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 reporting to shareholders and other interested parties,
we aim to present a balanced and understandable assessment
of our strategy, financial position and prospects. Our corporate
website, www.astrazeneca.com, contains a wide range of data
of interest to institutional and private investors.
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.
The Board discharges its responsibilities as set out in the
Corporate Governance Overview on page 97 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.
For information on the Principal matters considered by the Board
in 2019, see page 102.
The Audit Committee received quarterly updates from the
Internal Audit Services (IA) and Compliance functions. These
updates, which included reports on whistleblowing and
compliance issues as well as the results of internal audits,
provided insight into the culture both within the Group, and
within individual areas of the business. The Committee reviewed
the steps taken by senior management to address weaknesses
identified. Where concerns remained, the Committee ensured
further action was taken, including requesting further information
monitoring, follow-up audits and, if required, management’s
attendance at Committee meetings.
As part of its considerations, the Remuneration Committee also
reviewed the Company’s approach to rewarding the workforce.
For more information, see page 145.
Complementing this, IA carries out a range of audits that include
compliance-related audits and periodically reviews the
assurance activities of other Group assurance functions. The
results from these activities are reported to the Audit Committee.
Global Compliance and IA work with specialist compliance
functions throughout our organisation to share outcomes and to
coordinate reporting on compliance matters.
The Board has a formal system in place for Directors to declare
a conflict, or potential conflict of interest.
(cid:41)or (cid:80)ore infor(cid:80)ation(cid:15) see (cid:38)on(cid:432)icts of interest on (cid:83)age (cid:21)(cid:24)(cid:28).
All Board members ordinarily attend the AGM to answer
questions raised by shareholders, including private investors.
Details of proxy voting by shareholders, including votes withheld,
are given at the AGM and are posted on our website following the
AGM.
The Company’s 2019 AGM was held in London, UK on 26 April
2019. The Company’s 2020 AGM will be held on 29 April 2020
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, at least one month in advance.
Wider stakeholder engagement
The Directors recognise the fundamental importance of
promoting the success of the Company for the long term. Clear
communication and proactive engagement to understand the
issues and factors which are most important to stakeholders
are fundamental to this.
A summary of our approach to stakeholder engagement and
impact on decision making is set out on pages 104 and 105.
Our s.172(1) statement is set out on page 94.
108
AstraZeneca Annual Report & Form 20-F Information 2019 / Corporate Governance
Board Leadership and Company Purpose continued
D. Engagement
continued
Our Investor Relations team act 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. Directors including the CEO, CFO, and the
Chairman, as well as certain members of SET, also attended
investor roadshows throughout the year in various locations to
discuss the business performance, strategy and governance of
the Group.
During 2019, the Chairman of the Remuneration Committee
consulted major institutional shareholders to discuss and
understand their views on remuneration matters, including the
updated Remuneration Policy. Details of this engagement are
set out in the Remuneration Report from page 125.
Workforce engagement
We rely on our global workforce and their commitment to uphold
our Values, deliver our strategic priorities and make the changes
necessary to sustain and improve short- and long-term
performance. Engagement with the workforce is key to ensuring
that the Board understands the employee voice.
The Board chose not to implement one of the three methods set out
in the UK Corporate Governance Code and has instead adopted a
different approach, choosing to gather the views of the workforce
through a series of formal and informal channels. For more
information see page 107.
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E. Our workforce policies Our Code of Ethics (the Code) is based on our Values, expected
behaviours and key policy principles. The Board is given access
to the Code training undertaken by employees. 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.
For more information, see Code of Ethics on page 112.
Division of responsibilities
F. The role of the
Chairman
G. Composition
of the Board
Leif Johansson, our Non-Executive Chairman, is responsible for
leadership of the Board and promoting a culture of openness
and constructive debate.
He was considered to be independent upon his appointment as
Chairman.
The Board comprises 10 Non-Executive Directors, including
the Chairman, and two Executive Directors – the CEO, Pascal
Soriot, and the CFO, Marc Dunoyer. Its responsibilities are set
out in the Corporate Governance Overview on page 97.
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 3.93% interest in
the issued share capital of the Company as at 14 February 2020.
The roles of the Board, Board Committees, Chairman and
CEO are documented, as are the Board’s reserved powers
and delegated authorities. The CEO is responsible to the
Board for the management, development and performance of
our business for those matters for which he has been delegated
authority from the Board. Although the CEO retains full
responsibility for the authority delegated to him by the Board,
he has established, and chairs, the SET, which is the vehicle
through which he exercises that authority in respect of our
business.
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.
During 2019, 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 membership of the Board as at 31 December 2019 and information
about individual Directors is contained in Board of Directors on pages
98 and 99.
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Corporate Governance Report
Compliance with the UK
Corporate Governance Code continued
Division of responsibilities continued
H. Role of the Non-
Executive Directors
The role of the Non-Executive Directors is to provide constructive
challenge, strategic guidance, offer specialist advice and hold
management to account. 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.
Time commitment
Our expectation is that Non-Executive Directors should be
prepared to commit 15 days a year, as an absolute minimum,
to the Group’s business. In practice, Board members’ time
commitment exceeds this minimum expectation when all
the work that they undertake for the Group is considered,
particularly in the case of the Chairman of the Board and the
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, 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.
Subject to specific Board approval, 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.
Senior independent Non-Executive Director
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.
For more information, see Board Committee membership and meeting
attendance in 2019 on page 97.
I. The Company Secretary 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.
Composition, Succession and Evaluation
J. Appointments to the
Board and succession
planning
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 2019, the Board appointed two new Non-Executive
Directors, Tony Mok and Michel Demaré. During 2019, the
Committee engaged search firms MWM Consulting and Spencer
Stuart. For information on the appointments and Director
inductions, please see the Nomination and Governance
Committee Report from page 114.
The Nomination and Governance Committee’s role is to
recommend to the Board any new Board appointments and
to consider, more broadly, succession plans to both senior
executive management and Board-level positions. As part of
their consideration, the Nomination and Governance Committee
evaluates the balance of skills, knowledge, experience and
diversity on the Board. 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.
K. Skills, experience and
knowledge of the Board
As part of its role, the Nomination and Governance Committee
is responsible for reviewing the composition of the Board, to
ensure that it has the appropriate expertise while also
recognising the importance of diversity.
L. Board evaluation
In 2019, the Board undertook an internal evaluation. The Board
expects to commission the next externally-facilitated review in
late 2020, in line with the UK Corporate Governance Code
guidance that the evaluation should be externally facilitated at
least every three years.
Re-election of Directors
In accordance with Article 66 of the Articles, all Directors retire at
each AGM and may offer themselves for re-election by
shareholders. Accordingly, all the Directors will retire at the AGM in
April 2020. The Notice of AGM will give details of those Directors
seeking election or re-election.
For more information, see the Nomination and Governance Report from
page 114.
The Committee 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.
For more information, see Board performance evaluation on page 103.
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Audit, Risk and Internal Control
M. Internal and external
audit
N. Fair, balanced and
understandable
assessment
O. Risk management and
internal controls
Remuneration
P. Policies and practices
Q. Procedure for
developing remuneration
policy
R. Exercising
independent judgement
The Audit Committee reviews the Company’s relationship with
its external auditors, PricewaterhouseCoopers LLP (PwC),
including the independence of the external auditors. The
Committee maintains a policy (the Audit and Non-Audit
Services Policy) for the pre-approval of all audit services and
permitted non-audit services undertaken by the external
auditor. The principal purpose is to ensure that the
independence of the auditor is not impaired.
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 page 112.
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 2019, the
Directors continued to review the effectiveness of our system
of controls, risk management (including a robust assessment of
the emerging and principal risks) 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. These
were supported by management assurance of the maintenance
of controls reports from IA, as well as the external auditor on
matters identified in the course of its statutory audit work.
The Remuneration Committee is responsible for determining,
approving and reviewing the Company’s global remuneration
principles and frameworks, to ensure they support the strategy of
the Company and are designed to promote long-term success.
During 2019, the Remuneration Committee reviewed the
Directors’ Remuneration Policy to ensure it continues to: align
with corporate governance best practice; support the
Company’s ability to recruit and retain executive talent to deliver
against its strategy; and promote the delivery of long-term
strategy. As part of the process for developing the Directors’
Remuneration Policy, the Chairman of the Remuneration
Committee consulted major institutional shareholders on the
Committee’s proposals.
Details of this engagement are set out in the Directors’
Remuneration Report from page 125.
The Remuneration Committee exercises independent
judgement when determining remuneration outcomes. The
Committee takes into account factors such as wider business
and individual performance during the year, including
achievements across the enterprise, such as advancing our
Great Place to Work priorities and environmental, social and
governance (ESG) goals.
The Audit Committee also reviews the independence and
effectiveness of Internal Audit Services.
For more information, see Risk Management and Controls on page 112.
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The Board considers this Annual Report, taken as a whole, to be
fair, balanced and understandable, and provides the information
necessary for shareholders to assess AstraZeneca’s position and
performance, business model and strategy.
The system of controls is designed to manage rather than
eliminate the risk of failure to achieve business objectives and can
only provide reasonable (not necessarily absolute) assurance of
effective operation and compliance with laws and regulations.
The Directors believe that the Group maintains an effective,
embedded system of internal controls and complies with the
FRC’s guidance entitled ‘Guidance on Risk Management, Internal
Control and Related Financial and Business Reporting’.
For more information about the ways in which we manage our business
risks, our procedures for identifying our emerging risks, how we describe
our principal risks and uncertainties and our Viability statement, see the
Risk Overview from page 74 and Risk from page 246.
For more information on the Remuneration Committee’s work during 2019,
see the Director’s Remuneration Report from page 125.
The Directors’ Remuneration Policy, which is to be put to shareholders for
approval at the 2020 AGM, can be found from page 149.
For more information on 2019 Remuneration Outcomes, see the Directors’
Remuneration Report from page 125.
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111
External auditor
A resolution will be proposed at the AGM on
29 April 2020 for the reappointment of
PricewaterhouseCoopers LLP (PwC) as auditor
of the Company. During 2019, PwC undertook
various non-audit services. More information about
this work and the audit and non-audit fees that we
have paid are set out in Note 30 to the Financial
Statements on page 225. 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 124, 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 2019.
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.
Corporate Governance Report
Other Governance information
Risk Management and Controls
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 core members of the
Disclosure Committee in 2019 were: the CFO, who
chaired the Disclosure Committee; the General Counsel;
the Vice-President, Corporate Affairs; the Head of
Investor Relations; and the Vice-President Finance,
Group Controller. The EVP, BioPharmaceuticals R&D
and the EVP, BioPharmaceuticals were members of the
Disclosure Committee for BioPharmaceuticals-related
matters. The EVP, Oncology R&D and the EVP,
Oncology were members of the Disclosure Committee
for Oncology-related matters. Other personnel 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.
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 a globally-aligned
approach to compliance that addresses key risk
areas across the business, including risks relating to
third parties and anti-bribery/anti-corruption. Our
priorities include reinforcing and strengthening
compliant behaviours through effective policies,
training, advice and communications; monitoring
adherence to 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.
We take all alleged compliance breaches and
concerns extremely seriously, including appropriate
investigation, as well as disciplinary action, and
other remediation to address misconduct and
prevent reoccurrence. 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. 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 compliance matters,
including an analysis of compliance breaches
and associated disciplinary actions, as well as
commentary on the most serious breaches.
Complementing this, IA carries out a range of
audits that include compliance-related audits and
periodically reviews the assurance activities of other
Group assurance functions.
The results from these activities are reported to the
Audit Committee. Global Compliance and IA work
with specialist compliance functions throughout our
organisation to share outcomes and to coordinate
reporting on compliance matters.
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.
Among others, internal control objectives
considered by IA include:
> compliance with significant policies, plans,
procedures, laws and regulations
> consistency of operations or programmes with
established objectives and goals and effective
performance
> 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) is based on our
values, expected behaviours and key policy
principles. 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
approximately 40 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 has updated the AZethics
webpages in all languages to provide enhanced
dialling information and to highlight the alternate 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
2019 Code training. In addition, in 2019, 556 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 2018 there were
428 reports.
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Science
Committee Report
Our focus during 2019
> R&D new structure and
organisation
> Cambridge R&D centre
progress
> (cid:42)othenburg scientific
leadership through
strategic collaborations
and partnerships
> Corporate scorecard
achievements and targets
“ The Science Committee’s core role
is to provide assurance to the Board
regarding the quality, competitiveness
and integrity of(cid:98)the (cid:42)rou(cid:83)(cid:350)s
R&D activities.”
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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
Activities during 2019
The Science Committee met twice in person
in 2019, in London, UK and Cambridge, UK.
Key areas of focus for the Science Committee
in 2019 included:
> R&D Structure & Strategy reviews: the
new AstraZeneca R&D organisational
structure, leadership, operating model,
key pipeline assets and strategy.
> AstraZeneca Gothenburg: how
AstraZeneca Gothenburg is leading in
science and impacting the R&D pipeline
through creation of a thriving ecosystem of
collaborations and partnerships and
transformation to a ‘Health Innovation’
campus.
> benchmarking against industry and
> AstraZeneca Cambridge: how the new
scientific best practice, where appropriate.
The Science Committee periodically reviews
important bioethical issues that we face and
assists in the formulation of, and agrees on
behalf of the Board, appropriate policies in
relation to such issues. It may also consider,
from time to time, future trends in medical
science and technology. The Science
Committee does not review individual R&D
projects but does review, on behalf of the
Board, the R&D aspects of specific business
development or acquisition proposals and
advises the Board on its conclusions.
Membership of the Committee
During 2019, the members of the Science
Committee, all of whom have a knowledge of,
or an interest in, life sciences, were Nazneen
Rahman (Chair), Geneviève Berger, Marcus
Wallenberg and the newest member Tony
Mok. As usual, the EVP, Oncology R&D and
the EVP, BioPharmaceuticals R&D
participated in meetings of the Science
Committee as co-opted members in 2019.
The Vice-President, Chief Operating Officer
acts as secretary to the Science Committee.
R&D centre is progressing and its potential
impact on science and collaboration.
> Biologics device differentiation: how the
current market and technology landscape
is influencing our product portfolio and
development strategies.
> Corporate scorecard outturn and goal
setting: providing insight and feedback to
the Remuneration Committee in support of
2019 achievements and 2020 goal setting.
> Daiichi Sankyo collaboration: providing
a review to the Board of the scientific
case supporting the development and
commercialisation agreement with
Daiichi Sankyo for Enhertu.
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 2019 / Science Committee Report
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Nomination and
Governance
Committee Report
Our focus during 2019
> Composition of the Board
> Inclusion and Diversity
> Inductions and training
> Succession planning for
the Board
> Developments in
Corporate Governance
“ The Nomination and Governance
Committee recommends to the Board
new Board appointments and
considers, more broadly, succession
plans at Board level.”
Composition of the Board
As part of its role, the Nomination and
Governance Committee is responsible for
reviewing the composition of the Board, to
ensure that it has the appropriate expertise
while also recognising the importance of
diversity. The Committee 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 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.
Inclusion and Diversity
Diversity is integrated across our Code of
Ethics and associated workforce policy, and
we promote a culture of diversity, respect and
equal opportunity, where individual success
depends only on personal ability and
contribution. We strive to treat our employees
with fairness, integrity, honesty, courtesy,
consideration, respect and dignity, regardless
of gender, race, nationality, age, sexual
orientation or other forms of diversity. The
Board is provided each year with a
comprehensive overview of the AstraZeneca
workforce, covering a wide range of metrics
and measures (including trends around
gender diversity, leadership ethnic diversity
and age profile). In November 2019, the
Hampton-Alexander Review named
AstraZeneca PLC as one of the top ten best
performers in the FTSE 100 for representation
of women on the combined executive
committee and their direct reports. For the
year ended 31 December 2019, women
represented 39.2% of senior management
and their direct reports.
The Board views gender, nationality and cultural
diversity among Board members as important
considerations when reviewing its composition.
Considering diversity in a wider sense, the
Board aims to maintain a balance in terms of
the range of experience and skills of individual
Board members, which includes relevant
international business, pharmaceutical industry
and financial experience, as well as appropriate
scientific and regulatory knowledge. The
biographies of Board members set out on
pages 98 and 99 give more information about
current Directors in this respect.
The Board has adopted an Inclusion and
Diversity policy (the Policy), 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.
While 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.
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Non-Executive Directors’ experience, as at 31 December 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
Michel Demaré
Deborah DiSanzo
Sheri McCoy
Tony Mok
Nazneen Rahman
Marcus Wallenberg
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 46.
Inductions and training
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. During
2019, two independent Non-Executive
Directors, Tony Mok and Michel Demaré,
were appointed and provided with ongoing
induction programmes intended to quickly
provide an understanding of the Group, as
well as their duties as a Director of a listed
company. While elements of their inductions
were adjusted for their existing expertise and
Committee membership, key areas of their
inductions during 2019 included:
> meetings with members of the Board,
SET and other senior management
> meeting with external legal advisers
> meeting with the external auditors
> visits to various sites including R&D centres,
commercial sites and operations facilities in
China, Sweden, the UK and the US
> access to a reading room which provides
information on the Group, including
financial performance, pipeline information,
policies including the AstraZeneca Securities
Dealing Code and rules relating to inside
information, investor and analyst reports,
and media updates. In addition, the reading
room contains guidance on directors’
duties and listed company requirements.
Ongoing training and development
AstraZeneca is committed to developing
a culture of lifelong learning, including for
Directors. 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. In addition, Directors are
encouraged to attend site visits during the
year. During these visits, Directors meet with
local management and have tours of both
AstraZeneca sites and facilities, as well as
those of our strategic partners. These site
visits further Directors’ understanding of the
Group’s business and operations, as well as
providing an insight into the particular
challenges faced in those regions.
Additionally, such visits provide Directors
with an opportunity to engage with key
stakeholders.
Succession planning
The Nomination and Governance Committee
considers both planned and unplanned
(unanticipated) succession scenarios and met
five times in 2019. The Committee split 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. The search
firms MWM Consulting and Spencer Stuart
were engaged to assist the Committee with
its work. Spencer Stuart periodically
undertakes executive search assignments
for the Company.
Corporate governance
The Nomination and Governance Committee
also advises the Board periodically on
significant developments in corporate
governance and the Company’s compliance
with the UK Corporate Governance Code.
During the year, the Committee received
regular updates on corporate governance
requirements and how these would impact
AstraZeneca. These included updates on the
revised UK Corporate Governance Code,
which was updated in July 2018 and was
applicable to AstraZeneca for the financial
year beginning 1 January 2019. As part of its
considerations, the Committee reviewed the
methods used by the Board to monitor the
culture of the Group and how this was
embedded throughout the organisation. The
Committee also reviewed the Board’s
channels of engagement with the workforce.
Membership of the Committee
During 2019, the members of the Nomination
and Governance Committee were Leif
Johansson (Chairman of the Committee),
Graham Chipchase and Nazneen Rahman.
Philip Broadley joined the Committee on
1 March 2019. Rudy Markham was a member
of the Committee until he retired from the
Board at the Company’s AGM in April 2019.
Each member is a Non-Executive Director and
considered independent by the Board; all
other members are 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 97. 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.
Leif Johansson
Chairman
The Nomination and Governance Committee’s terms of
reference are available on our website,
www.astrazeneca.com.
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(cid:36)udit (cid:38)o(cid:80)(cid:80)ittee
(cid:53)e(cid:83)ort
(cid:50)ur focus during (cid:21)(cid:19)(cid:20)(cid:28)
> (cid:41)inancia(cid:79) re(cid:83)orting(cid:15) interna(cid:79)
contro(cid:79)s(cid:15) and the (cid:84)ua(cid:79)ity and
e(cid:428)ectiveness of the e(cid:91)terna(cid:79) audit
> (cid:53)is(cid:78) (cid:80)anage(cid:80)ent(cid:15) inc(cid:79)uding
the identification(cid:15) (cid:80)itigation(cid:15)
(cid:80)onitoring and re(cid:83)orting of
ris(cid:78)s(cid:15) and (cid:79)ines of (cid:80)anage(cid:80)ent
accountabi(cid:79)ity
> (cid:38)o(cid:80)(cid:83)(cid:79)iance (cid:80)atters(cid:15) inc(cid:79)uding
continued (cid:90)or(cid:78) on fostering a
(cid:349)(cid:54)(cid:83)ea(cid:78) (cid:56)(cid:83)(cid:350) cu(cid:79)ture(cid:15) and on anti-
bu(cid:79)(cid:79)ying and anti-harass(cid:80)ent
> (cid:38)ybersecurity and infor(cid:80)ation
governance
> (cid:37)usiness continuity (cid:83)(cid:79)anning
and resi(cid:79)ience
“ The integrity of AstraZeneca’s
financia(cid:79) re(cid:83)orting is under(cid:83)inned by
e(cid:428)ective interna(cid:79) contro(cid:79)s(cid:15) a(cid:83)(cid:83)ro(cid:83)riate
accounting (cid:83)ractices and (cid:83)o(cid:79)icies(cid:15) and
the e(cid:91)ercise of e(cid:91)(cid:83)erienced (cid:77)udge(cid:80)ent
by the (cid:38)o(cid:80)(cid:80)ittee and the (cid:37)oard.(cid:353)
This Report describes the work of the Audit
Committee (the Committee) and the
significant issues it considered in 2019.
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.
(cid:41)inancia(cid:79) re(cid:83)orting
The integrity of AstraZeneca’s financial
reporting is underpinned by effective internal
controls, appropriate accounting practices
and policies, and the exercise of experienced
judgement by the Committee and the Board.
At least once per quarter, the Committee
reviewed the Group’s significant accounting
matters, including contingent liabilities and
provisions, revenue recognition, impairment
triggers for intangible assets, and deferred
tax. Where appropriate, the Committee
challenged management’s decisions before
approving the proposed accounting
treatment. During 2019, 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 reviewed the Group’s approach
to operating segment accounting. The
Committee also reviewed the renaming and
redefinition of Externalisation Revenue to
Collaboration Revenue in AstraZeneca’s
Consolidated Statement of Comprehensive
Income. For more information on
Collaboration Revenue, please refer to the
Financial Review from page 82.
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 April 2019, serving
for the third 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.
In August 2019, the Company received a letter
from the Corporate Reporting Review Team
(the CRRT) of the Financial Reporting Council
(the FRC), as part of its regular review and
assessment of the quality of corporate
reporting in the UK, requesting further
information in relation to the Company’s 2018
Annual Report and Accounts1. The letter
focused on the clarity of disclosures of Critical
Accounting Judgements and Significant
Estimates. The CRRT sought information
regarding how the Company’s description of
these matters satisfied the disclosure
requirements of IAS 1 ‘Presentation of
Financial Statements’ in respect of a key
judgement or a significant estimate. The letter
also asked about the Group-specific nature of
the judgements that were made and how they
were concluded on.
(cid:20)(cid:20)(cid:25)
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:38)or(cid:83)orate (cid:42)overnance
We responded to the CRRT’s questions
providing clarifying information and
proposing specific enhancements to
AstraZeneca’s 2019 Annual Report and
Accounts. On this basis, the CRRT
subsequently confirmed in writing that it had
closed its enquiries.
All the proposed specific enhancements to
the 2019 Annual Report and Accounts have
been applied in this Annual Report and 20-F
Information.
(cid:53)is(cid:78) identification and (cid:80)anage(cid:80)ent
During the year, the Committee continued its
regular reviews of the Group’s approach to
risk management, the operation of its risk
reporting framework and risk mitigation. The
Committee has further strengthened its links
with the Company’s Science Committee, with
Nazneen Rahman (Science Committee Chair)
attending three meetings of the Committee,
allowing it to deepen its understanding of the
clinical compliance risk facing the Group.
When identifying risks, the Committee
considers the total landscape of risks which
are long-standing and business-as-usual
in nature: enduring risks. We then consider
more specific and current risks which are
challenging our business presently: key active
risks. Finally, we scan the horizon and identify
risks which may challenge us in the future:
emerging risks. This framework provided the
context for the 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 these scenarios assumes that the
significant risks modelled in the planning
process will crystallise and that management
will take mitigating actions against those risks.
The Committee considered in detail the validity
of each scenario. This included obtaining
additional analysis from management as to the
indirect or unintended consequences of its
proposed mitigating actions, including, for
example, assessing the likely response of a
broader range of stakeholders. The Committee
also assessed whether the proposed mitigations
were viable.
(cid:41)or (cid:80)ore infor(cid:80)ation on the (cid:57)iabi(cid:79)ity state(cid:80)ent(cid:15) see (cid:53)is(cid:78)
(cid:50)vervie(cid:90) fro(cid:80) (cid:83)age (cid:26)(cid:23).
(cid:38)
o
r
(cid:83)
o
r
a
t
e
(cid:42)
o
v
e
r
n
a
n
c
e
The Committee’s consideration of risk
management was supported by regular
information security and information
technology updates and ‘deep dive’ reviews
of key activities, including:
> manufacturing and supply activities,
including product security, capacity
management, inventory management,
and technology trends
(cid:40)ngage(cid:80)ent (cid:90)ith e(cid:80)(cid:83)(cid:79)oyees and other
sta(cid:78)eho(cid:79)ders
The Committee regularly interacts with
members of management below the SET and
seeks wider engagement with the Group’s
employees and other stakeholders. Over the
course of 2019, members of the Committee
visited a wide range of the Group’s sites,
including:
> the implementation, and impact, of the
> in April, Rudy Markham visited the Group’s
reorganisation of the business into Oncology
and BioPharmaceuticals R&D and Business
Units announced in January 2019
marketing company headquarters in
Shanghai, China and I visited the Group’s
offices in Cambridge, UK
> material litigation matters
> Good practice (GxP) risk management,
including regulatory inspection and quality
assurance audit.
(cid:41)urther infor(cid:80)ation on the dee(cid:83) dive revie(cid:90)s can be
found in the (cid:37)usiness u(cid:83)dates section on (cid:83)age (cid:20)(cid:21)(cid:19).
As discussed below, members of the
Committee also visited a number of the
Group’s sites and engaged with Group
personnel to enhance their understanding
of risks arising in key markets and
internal controls.
(cid:41)or (cid:80)ore infor(cid:80)ation on the (cid:42)rou(cid:83)(cid:350)s (cid:51)rinci(cid:83)a(cid:79) (cid:53)is(cid:78)s(cid:15)
see (cid:53)is(cid:78) (cid:50)vervie(cid:90) fro(cid:80) (cid:83)age (cid:26)(cid:23).
(cid:38)o(cid:80)(cid:83)(cid:79)iance (cid:90)ith the (cid:38)ode of (cid:40)thics
The Committee’s priorities continue to include
overseeing compliance with AstraZeneca’s
Code of Ethics, and ensuring high ethical
standards, and that we operate within the law
in all countries where we operate. 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 continued to monitor
and review 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. The Committee also
monitored and reviewed the impact of the
implementation of our new Global Standards
of behaviour on 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.
(cid:41)or (cid:80)ore infor(cid:80)ation on our (cid:38)ode of (cid:40)thics(cid:15) see the
(cid:37)usiness (cid:53)evie(cid:90) on (cid:83)age (cid:22)(cid:24) and the (cid:38)or(cid:83)orate (cid:42)overnance
(cid:53)e(cid:83)ort on (cid:83)age (cid:20)(cid:20)(cid:21).
> in August, members of the Committee
visited the Group’s sites in Mexico: its
marketing company headquarters in Mexico
City, its operations site in Lomas Verdes
and its global technology centre in
Guadalajara. We also visited the National
Institute of Respiratory Diseases and met
physicians involved in the treatment of
COPD and other respiratory conditions
> in September, I visited the Group’s offices
in Wilmington, DE, Gaithersburg, MD and
Washington, DC and our Biologics
Manufacturing Center in Frederick, MD
> in October, I visited the Group’s marketing
company headquarters in Moscow, Russia,
its manufacturing site in Vorsino, Russia,
and its marketing and global hub site in
Warsaw, Poland.
These visits provided the Committee with
valuable insights from local management
about the key local and global issues and
challenges relating to, and current and
emerging risks associated with, our activities
in these countries. They also enabled
AstraZeneca personnel from all parts of the
business to meet Committee members and
share their perspectives on the Group and the
work they do. In Mexico, Moscow
and Warsaw, I took part in town hall events
with employees at which I described the
work of the Board and the Committee and
participated in question and answer sessions
with the audiences.
Members of the Committee also met
informally with employees from the Finance,
Operations and Legal teams.
During 2019, the Committee monitored the
Group’s engagements with external
stakeholders relevant to the Committee’s
areas of oversight, including the following
UK-based stakeholders: the Competition and
Markets Authority; HMRC; the FRC; and the
Department for Business, Energy & Industrial
Strategy.
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:36)udit (cid:38)o(cid:80)(cid:80)ittee (cid:53)e(cid:83)ort
(cid:20)(cid:20)(cid:26)
(cid:36)udit (cid:38)o(cid:80)(cid:80)ittee
(cid:53)e(cid:83)ort continued
(cid:38)hanges to the (cid:80)e(cid:80)bershi(cid:83)
of the (cid:38)o(cid:80)(cid:80)ittee
I succeeded Rudy Markham as Chair of the
Committee following Rudy’s retirement from
the Board at the Company’s AGM in April
2019. I had the benefit of working with Rudy
as a member of the Committee for two years
before becoming Chair, and I thank him for
his leadership, wise counsel and significant
contribution to the Committee’s work.
In preparation for chairing the Committee,
I also had the benefit of an extensive
induction programme.
We welcomed Michel Demaré as a member of
the Committee in September 2019. Michel
brings significant international business and
financial experience from his senior executive,
chief financial officer and non-executive
director roles at large international businesses
to assist the Committee with its work.
There have been no other changes to the
Committee’s membership during the year.
We hope that you find this information helpful
in understanding the work of the Committee.
(cid:20) When reviewing the Company’s 2018 Annual Report and Accounts, the FRC made clear to the Company the limitations of its
review as follows:
> Its review is based on the 2018 Annual Report and Accounts onl(cid:92) and does not benefit from a detailed knowledge of the
Group’s business or an understanding of the underlying transactions entered into.
> Communications from the FRC provide no assurance that the Company’s 2018 Annual Report and Accounts are correct in all
material respects and are made on the basis that the (cid:41)RC (and its o(cid:433)cers, emplo(cid:92)ees and agents) accepts no liabilit(cid:92) for
reliance on them by the Company or any third party, including but not limited to investors and shareholders.
> The FRC’s role is not to verify information provided but to consider compliance with reporting requirements.
Our dialogue with our shareholders and
other stakeholders is valued greatly and
we welcome your feedback on this Report.
(cid:51)hi(cid:79)i(cid:83) (cid:37)road(cid:79)ey
(cid:38)hair(cid:80)an of the (cid:36)udit (cid:38)o(cid:80)(cid:80)ittee
(cid:55)he ro(cid:79)e of the (cid:38)o(cid:80)(cid:80)ittee and ho(cid:90) (cid:90)e
have co(cid:80)(cid:83)(cid:79)ied
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 Philip Broadley (Committee Chairman),
Michel Demaré, Deborah DiSanzo and Sheri McCoy.
In December 2019, 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 Philip Broadley
and Michel Demaré 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 Philip
Broadley has served as a Non-Executive Director
of the Company since April 2017, Michel Demaré
has experience of working in an innovation and
science-driven environment from his role as Chairman
of Syngenta, Deborah DiSanzo has healthcare sector
experience from her role at IBM Watson Health,
and Sheri McCoy has had a 30-year career in the
pharmaceutical industry. The Board of Directors’
biographies on pages 98 and 99 contain details of
each Committee member’s skills and experience.
The Committee held six meetings in 2019 and the
Committee members’ attendance is set out in the
table on page 97.
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 and estimates
contained within them
> monitoring the work of the Disclosure Committee
which manages the Company’s other public
disclosures
> ensuring the Company’s Annual Report
and Accounts presents 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 and its
Compliance function
> reviewing the effectiveness of 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 IA function or the Group
Compliance function. 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 when
required by the Committee.
In addition, the Committee, and separately the
Committee Chair, 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 2019.
(cid:20)(cid:20)(cid:27)
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:38)or(cid:83)orate (cid:42)overnance
(cid:51)rinci(cid:83)a(cid:79) activities focused on by the (cid:38)o(cid:80)(cid:80)ittee in (cid:21)(cid:19)(cid:20)(cid:28)
(cid:39)uring (cid:21)(cid:19)(cid:20)(cid:28) and in (cid:45)anuary (cid:21)(cid:19)(cid:21)(cid:19)(cid:15) the (cid:38)o(cid:80)(cid:80)ittee considered and discussed the fo(cid:79)(cid:79)o(cid:90)ing ite(cid:80)s(cid:29)
Financial
reporting
> Key elements of the Financial Statements and the estimates
> The preparation of the Directors’ viability statement and the
and judgements contained in the Group’s financial
disclosures. Accounting matters considered included the
areas described in the Financial Review under ‘Critical
accounting policies, judgements and estimates’ (with a focus
on accounting issues relevant to revenue recognition,
litigation and taxation matters, goodwill and intangible asset
impairment) from page 91.
> Monitoring the accounting for Collaboration Revenue in the
Group’s Consolidated Statement of Comprehensive Income
arising from externalisation and/or collaboration activities,
including the collaboration with Daiichi Sankyo announced in
March 2019.
> The Company’s issue of additional shares in April 2019.
> 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 173.
adequacy of the analysis supporting the assurance provided by
that statement.
> Adoption of IFRS 16 ‘Leases’ in the Group’s 2019 Financial
Statements; adoption of IFRIC 23 ‘Uncertainty over Income Tax
Treatments’; the anticipated amendment to IFRS 3 on the definition
of business combinations; iXBRL tagging requirements; and
developments in payment practice reports.
> 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.
(cid:38)
o
r
(cid:83)
o
r
a
t
e
(cid:42)
o
v
e
r
n
a
n
c
e
(cid:41)or (cid:80)ore infor(cid:80)ation(cid:15) see (cid:54)arbanes-(cid:50)(cid:91)(cid:79)ey (cid:36)ct (cid:54)ection (cid:23)(cid:19)(cid:23) in the (cid:41)inancia(cid:79) (cid:53)evie(cid:90)
on (cid:83)age (cid:28)(cid:23).
Risk and
compliance
> 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.
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.
> 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.
> 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.
> 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.
(cid:41)urther infor(cid:80)ation about the (cid:51)rinci(cid:83)a(cid:79) (cid:53)is(cid:78)s faced by the (cid:42)rou(cid:83) is set out in the
(cid:53)is(cid:78) (cid:50)vervie(cid:90) section fro(cid:80) (cid:83)age (cid:26)(cid:23).
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:36)udit (cid:38)o(cid:80)(cid:80)ittee (cid:53)e(cid:83)ort
(cid:20)(cid:20)(cid:28)
(cid:36)udit (cid:38)o(cid:80)(cid:80)ittee
(cid:53)e(cid:83)ort continued
(cid:51)rinci(cid:83)a(cid:79) activities focused on by the (cid:38)o(cid:80)(cid:80)ittee in (cid:21)(cid:19)(cid:20)(cid:28) continued
External
audit
> Monitoring the effectiveness and quality of the external audit
process through: examination and review 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.
> 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 on page 124.
(cid:41)urther infor(cid:80)ation about the audit and non-audit fees for (cid:21)(cid:19)(cid:20)(cid:28) is disc(cid:79)osed in (cid:49)ote
(cid:22)(cid:19) to the (cid:41)inancia(cid:79) (cid:54)tate(cid:80)ents on (cid:83)age (cid:21)(cid:21)(cid:24).
Performance
assessment
> An effectiveness review of IA by considering its performance
against the internal audit plan and key activities. 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 noted IA’s continued contributions in
supporting and delivering value to the business and the
Committee during the year. The Committee supports IA’s
continued efforts to deploy its resources in line with the
shape and size of the overall organisation.
> The Committee conducted the annual evaluation of its own
performance, with each Committee member responding to a
web-based questionnaire prepared by an external third party.
The effectiveness of the Committee was rated highly overall.
The amount of time devoted by the Committee to its responsibilities
was noteworthy. It was thought that the Committee had achieved
a good balance of time devoted to controls, risk and accounting. It
was recommended that there continued to be more targeted deep
dives on specific areas of focus. It was felt that there continued to
be opportunities to enhance working with the Science Committee
on risk and governance matters with respect to medical or R&D
activities outside of financial controls.
Business
updates
> An overview of the Group’s manufacturing and supply
activities, including product security, capacity management,
inventory management, and technology trends.
> Assessing the implementation impact of the Group’s
organisational changes announced in January 2019 on the
Group and its financial systems.
> An overview of the Group’s approach to managing material
intellectual property and product liability litigation matters.
> An overview of the Group’s GxP risk management, including
outcomes of regulatory inspections, GxP risk management
processes and oversight, key active and emerging risk areas,
the Quality Assurance (QA) Audit programme, and the evolution
of the role of QA.
> 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 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 liability.
(cid:20)(cid:21)(cid:19)
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:38)or(cid:83)orate (cid:42)overnance
(cid:54)ignificant financia(cid:79) re(cid:83)orting issues considered by the (cid:38)o(cid:80)(cid:80)ittee in (cid:21)(cid:19)(cid:20)(cid:28)
(cid:53)e(cid:83)orting issue
(cid:53)ationa(cid:79)e
(cid:38)o(cid:80)(cid:80)ittee res(cid:83)onse
(cid:38)o(cid:80)(cid:80)ittee conc(cid:79)usion(cid:18)
actions taken
Revenue
recognition
(cid:41)inancia(cid:79) (cid:53)evie(cid:90)
fro(cid:80) (cid:83)age (cid:26)(cid:27) and
(cid:49)ote (cid:20) to the (cid:41)inancia(cid:79)
(cid:54)tate(cid:80)ents fro(cid:80)
(cid:83)age (cid:20)(cid:27)(cid:19).
The US is our largest single market and
sales accounted for 33% of our Product
Sales in 2019. Revenue recognition,
particularly in the US, is affected by
rebates, chargebacks, returns, other
revenue accruals and cash discounts.
The Committee pays 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 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 recognised the close
monitoring and control by management
to maintain the accuracy in forecasting
for managed market rebates and excise
fees and the stabilisation of the overall
gross-to-net deductions.
The Committee was satisfied with the
accounting and reporting assessment
performed by management and was
satisfied with the adoption of this
new policy.
(cid:38)
o
r
(cid:83)
o
r
a
t
e
(cid:42)
o
v
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r
n
a
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c
e
The Committee considered the
proposed new presentation of revenue
and discussed the proposed changes
in detail with management. The
Committee noted the presentation of
equivalent income by AstraZeneca’s
peer organisations.
The Committee discussed the
components that would constitute a
business, and therefore a business
combination under IFRS 3 .
The Committee considered and
supported the conclusion reached by
management that the collaboration was
an asset acquisition rather than a
business combination, and accounted
for accordingly.
Collaboration
Revenue
(cid:41)inancia(cid:79) (cid:53)evie(cid:90) fro(cid:80)
(cid:83)age (cid:26)(cid:27) and (cid:49)ote (cid:20) to
the (cid:41)inancia(cid:79)
(cid:54)tate(cid:80)ents
fro(cid:80) (cid:83)age (cid:20)(cid:27)(cid:19).
Daiichi Sankyo
collaboration
accounting
As a result of the growing importance
of collaborations to AstraZeneca,
an update to the presentation of Total
Revenue within its Statement of
Comprehensive Income was announced
in March 2019. Effective from 1 January
2019, Total Revenue includes the
updated category of Collaboration
Revenue, which replaces the category
of Externalisation Revenue. Collaboration
Revenue comprises upfronts, milestone
receipts and royalties and other income
arising from transactions involving
AstraZeneca’s medicines or transactions
where AstraZeneca has acquired an
interest in a medicine and entered into
an active collaboration with the seller.
Externalisation Revenue only included
income arising from transactions
involving AstraZeneca’s medicines.
The Daiichi Sankyo collaboration
required a judgement on whether the
collaboration resulted in a business
combination or whether it should be
accounted for as an asset acquisition.
Management had concluded that the
collaboration was an asset acquisition.
Operating
Segments
(cid:41)inancia(cid:79) (cid:53)evie(cid:90) fro(cid:80)
(cid:83)age (cid:26)(cid:27) and (cid:49)ote (cid:25) to
the (cid:41)inancia(cid:79)
(cid:54)tate(cid:80)ents fro(cid:80)
(cid:83)age (cid:20)(cid:27)(cid:24).
In January 2019 the Group announced
key changes to the way the commercial
and R&D organisations were structured
driving a reassessment of the Group’s
Operating Segment reporting
requirements. Management concluded
that the business continued to operate
as one Operating Segment.
The Committee discussed and
understood the key changes to the
Group structure along with the resulting
changes made to internal reporting
used by the Chief Operating Decision
Maker on which to base key strategic
and resource allocation decisions.
The Committee considered the factors
presented and was satisfied that they
supported the conclusion that there
should be no change to management’s
determination that the business
continued to operate as one Operating
Segment following the reorganisation.
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:36)udit (cid:38)o(cid:80)(cid:80)ittee (cid:53)e(cid:83)ort
(cid:20)(cid:21)(cid:20)
(cid:36)udit (cid:38)o(cid:80)(cid:80)ittee
(cid:53)e(cid:83)ort continued
(cid:54)ignificant financia(cid:79) re(cid:83)orting issues considered by the (cid:38)o(cid:80)(cid:80)ittee in (cid:21)(cid:19)(cid:20)(cid:28) continued
(cid:53)e(cid:83)orting issue
(cid:53)ationa(cid:79)e
(cid:38)o(cid:80)(cid:80)ittee res(cid:83)onse
The Committee considered the
impairment reviews of the Group’s
intangible assets. Significant reviews
included the full impairment of the value
of Epanova following the decision to
close the Phase III STRENGTH trial, and
the partial impairments of Bydureon,
Qtern, Eklira/Tudorza and Flumist.
(cid:38)o(cid:80)(cid:80)ittee conc(cid:79)usion(cid:18)
actions taken
The Committee assured 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 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 2019, the more significant
included: the favourable resolution of the
Calquence IP litigation and the
continued defence of the Nexium and
Prilosec product liability litigation in the
US. The Group continues to defend the
allegations arising from the Seroquel
Antitrust, Iraq DOJ, Array, and
Amplimmune litigations, and to manage
patent challenges to Symbicort, Tagrisso
and Farxiga in the US, Faslodex in
Europe and Brilinta in China.
The Committee was satisfied that the
Group was effectively managing its
litigation risks including seeking
appropriate remedies and continuing to
vigorously defend its IP rights.
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.
The Committee was satisfied with the
Group’s practices regarding tax
liabilities, including, most notably, the
tax accounting impact of collaboration
and divestment activity.
Valuation of
intangible assets
(cid:41)inancia(cid:79) (cid:53)evie(cid:90) fro(cid:80)
(cid:83)age (cid:26)(cid:27) and (cid:49)ote
(cid:20)(cid:19) to the (cid:41)inancia(cid:79)
(cid:54)tate(cid:80)ents fro(cid:80)
(cid:83)age (cid:20)(cid:28)(cid:19).
Litigation and
contingent
liabilities
(cid:49)ote (cid:21)(cid:28) to the
(cid:41)inancia(cid:79) (cid:54)tate(cid:80)ents
fro(cid:80) (cid:83)age (cid:21)(cid:21)(cid:19).
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
reports on 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.
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.
Tax charges and
liabilities
AstraZeneca’s
(cid:349)(cid:36)(cid:83)(cid:83)roach to
(cid:55)a(cid:91)ation(cid:350)(cid:15) (cid:90)hich (cid:90)as
(cid:83)ub(cid:79)ished in
(cid:39)ece(cid:80)ber (cid:21)(cid:19)(cid:20)(cid:28) and
covers its a(cid:83)(cid:83)roach to
governance(cid:15) ris(cid:78)
(cid:80)anage(cid:80)ent and
co(cid:80)(cid:83)(cid:79)iance(cid:15) ta(cid:91)
(cid:83)(cid:79)anning(cid:15) dea(cid:79)ing
(cid:90)ith ta(cid:91) authorities
and the (cid:79)eve(cid:79) of ta(cid:91)
ris(cid:78) the (cid:38)o(cid:80)(cid:83)any is
(cid:83)re(cid:83)ared to acce(cid:83)t(cid:15)
can be found on our
(cid:90)ebsite(cid:15) (cid:90)(cid:90)(cid:90).
astra(cid:93)eneca.co(cid:80).
(cid:49)ote (cid:23) to the
(cid:41)inancia(cid:79) (cid:54)tate(cid:80)ents
fro(cid:80) (cid:83)age (cid:20)(cid:27)(cid:22).
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.
(cid:20)(cid:21)(cid:21)
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:38)or(cid:83)orate (cid:42)overnance
(cid:54)ignificant financia(cid:79) re(cid:83)orting issues considered by the (cid:38)o(cid:80)(cid:80)ittee in (cid:21)(cid:19)(cid:20)(cid:28) continued
(cid:53)e(cid:83)orting issue
(cid:53)ationa(cid:79)e
(cid:38)o(cid:80)(cid:80)ittee res(cid:83)onse
Retirement benefits
(cid:41)inancia(cid:79) (cid:53)evie(cid:90)
fro(cid:80) (cid:83)age (cid:26)(cid:27) and
(cid:49)ote (cid:21)(cid:21) to the
(cid:41)inancia(cid:79) (cid:54)tate(cid:80)ents
fro(cid:80) (cid:83)age (cid:21)(cid:19)(cid:20).
Accounting for defined benefit pension
and other retirement benefits is an
important area of focus, recognising
both the present value of the Group’s
pension fund liabilities and the sensitivity
of this amount to small changes in
interest rates, and the wider regulatory
environment.
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 and the funding requirements in
each case.
The Committee reviews the Group’s
global funding objective and principles
on an annual basis, the level of
engagement with local fiduciary bodies,
and comparisons of funding solvency
relative to the wider market. In addition,
the Committee reviews the
reasonableness of the key actuarial
assumptions used to determine the
value of the Group’s liabilities.
(cid:38)o(cid:80)(cid:80)ittee conc(cid:79)usion(cid:18)
actions taken
The Committee was reassured by the
sustained improvement in the US
pension scheme funding position, and
the Group’s engaged and balanced
approach to managing the risks
associated with the funding of the UK
and Swedish pension funds.
The Committee is cognisant of the need
to adhere to local funding regulations
and best practice and to the security
provided by the Group which
underwrites obligations to members.
The Committee was satisfied that the
Group’s contribution policy and actuarial
assumptions used were appropriate
during the year.
(cid:38)
o
r
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t
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(cid:42)
o
v
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n
a
n
c
e
(cid:41)air(cid:15) ba(cid:79)anced and understandab(cid:79)e
assess(cid:80)ent
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 111.
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:36)udit (cid:38)o(cid:80)(cid:80)ittee (cid:53)e(cid:83)ort
(cid:20)(cid:21)(cid:22)
(cid:36)udit (cid:38)o(cid:80)(cid:80)ittee
(cid:53)e(cid:83)ort continued
(cid:44)nterna(cid:79) contro(cid:79)s
The Committee receives a report of the
matters considered by the Disclosure
Committee during each quarter. At the
January 2020 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 2019. 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 Audit,
Risk and Internal Control section in the
Corporate Governance Report on page 111.
(cid:40)(cid:91)terna(cid:79) 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 April 2019, PwC were
reappointed as the Company’s auditor for the
financial year ending 31 December 2019.
Richard Hughes continues to be 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 policy is significantly restricted
such that no tax services are pre-approved
under the policy, and no tax services were
performed for the year ended 31 December
2019, with the exception of tax audits and tax
regulatory certificates issued by the external
auditor. 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.
Audit/non-audit services
2019
2018
Statutory audit fees
Assurance services
Taxation services
Other corporate projects
$14.9m
$17.4m
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 Audit
and 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 30 to the Financial
Statements on page 225.
Assessing external audit effectiveness
In accordance with its normal practice, the
Committee considered the performance of
PwC and its compliance with the
independence criteria under the relevant
statutory, regulatory and ethical standards
applicable to auditors.
The Committee assessed PwC’s effectiveness
principally against four key factors, namely:
judgement; mindset and culture; skills,
character and knowledge; and quality control.
As part of that assessment, it also took
account of the views of senior management
within the Finance function and regular
Committee attendees.
The Committee concluded that the PwC audit
was effective for the financial year ended
31 December 2019.
In January 2020, the Committee
recommended to the Board the
reappointment of PwC as the Company’s
auditor for the financial year ending
31 December 2020. Accordingly, a resolution
to reappoint PwC as auditors will be put to
shareholders at the Company’s AGM in
April 2020.
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,
require approval by the Committee on a
case-by-case basis. Given the nature of the
Group’s non-audit services, no services
required approval by the Committee. In 2019,
PwC provided non-audit services including an
interim review of the results of the Group for
the six months ended 30 June 2019, and
audit-related assurance services in respect of
the Group’s debt issuance activities, including
its US shelf registration prospectus renewal.
Fees for non-audit services amounted to 7%
of the fees paid to PwC for audit, audit-related
and other services in 2019 (2018: 13%).
(cid:20)(cid:21)(cid:23)
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:38)or(cid:83)orate (cid:42)overnance
Directors’
Remuneration
Report
“ We have sought to be clear and transparent in how we link
remuneration of our executives to successful delivery of our
strategy and shareholder returns.”
C
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“ The stretching targets set in 2019
incentivised strong performance,
resulting in total shareholder return
over the year of 26%.”
2019 AGM voting outcome
Directors’ Remuneration Report
Votes for 95.9%
Votes against 4.1%
At the 2020 AGM, we will be seeking
shareholder approval for a renewed Directors’
Remuneration Policy (the Policy). The current
Policy expires at the 2020 AGM and, although
we believe it has served us well, we have
taken this opportunity to review all elements
of the Policy. This has enabled us to consider
the new requirements of the 2018 UK
Corporate Governance Code and practice in
the global pharmaceutical talent market.
We have also taken into account the
perspectives of shareholders, gathered from
an extensive consultation undertaken during
2019. I met 16 of AstraZeneca’s top
shareholders over the course of three months
to discuss our proposals and was pleased
with the level of engagement, feedback and
support received. I have summarised the new
proposals later in this letter, and our new
Policy can be found on pages 149 to 159.
Changes to our Remuneration
Reporting
We have made a number
of changes to the Directors’
Remuneration Report this
year to enhance transparency.
We are also proposing a new
Directors’ Remuneration Policy
for shareholder approval at our
2020 AGM.
The Directors’ Remuneration
Report now contains the
following sections:
> Chairman’s letter, page 125
> Remuneration at a glance,
page 129
> How our performance
measures for 2020 support
the delivery of our strategy,
page 130
> How the Remuneration
Committee ensures targets
are stretching, page 131
> Annual Report on
Remuneration, page 132
> Directors’ Remuneration
Policy, page 149
As Chairman of the Remuneration Committee
(the Committee), I am pleased to present
AstraZeneca’s Directors’ Remuneration
Report for the year ended 31 December 2019.
2019 has been another very successful year.
Our focus on our pipeline has resulted in
continued positive growth in Product Sales.
Our Revenue has created sufficient cash flow
to fund future research and innovation,
ensuring sustainable results for our patients,
our employees and our shareholders.
For executive remuneration, the Committee
focuses on a balanced delivery of financial
growth, research innovation and shareholder
return. We are confident that this approach
has been instrumental in focusing our leaders
to deliver the results we have achieved. We
have sought to be clear and transparent in
how we link remuneration of our executives
to successful delivery of our strategy and
shareholder returns.
In response to feedback from shareholders,
we provided more details in our 2018
Remuneration Report to explain the context
in which the Committee makes decisions. Our
shareholders appreciated this improvement
in disclosure and we were pleased to receive
a vote of 95.9% in favour of our 2018
Remuneration Report at the 2019 AGM.
AstraZeneca Annual Report & Form 20-F Information 2019 / Directors’ Remuneration Report
125
Directors’ Remuneration
Report continued
Alongside considering the Policy, during 2019,
as has been our practice for several years, the
Committee reviewed broader workforce trends
and analyses to assess the effectiveness of
rewarding for performance in line with our
principles. This included assessing an annual
workforce remuneration review, demonstrating
how variable pay is differentiated to reward
performance and potential, the increasing
representation of women at senior levels within
the organisation (as at 31 December 2019,
45.4% of our employees at senior career levels
are female), retention and higher promotion
rates of high performers, the CEO pay ratio
analysis and our gender pay gap analysis. Our
approach to reward for the wider workforce is
covered in more detail on page 145.
2019 performance highlights
2019 was a year of strong performance, with
Product Sales growing by 12%. New Medicines
delivered $9,906 million of sales in 2019, a
growth of 59% representing 42% of Product
Sales. Core earnings per share increased to
$3.50 ($3.46 at budget exchange rates) with net
cash flow from operating activities improving by
$351 million compared to the prior year.
I would like to take this opportunity to highlight
how our executives and employees have
delivered against the 2019 Group scorecard.
The stretching targets set in 2019 incentivised
strong performance resulting in total
shareholder return over the year of 26%. This
was significantly ahead of the vast majority of
our competitors and the broader FTSE 100
index in 2019, and higher than the value
returned to shareholders in 2018 (24%).
AstraZeneca’s delivery of Phase III investment
decisions, regulatory submissions and
approvals has also been consistently strong
relative to our peers and our investment.
To assist the Committee in this consideration
of performance, the Science Committee
considers a range of data to assess
AstraZeneca’s performance relative to
peers and then informs the Committee.
While the Committee has taken into account
some disappointments, such as the impact on
2019 Core earnings and the intangible
impairment charge arising from the decision to
close the Phase III STRENGTH trial for Epanova
in early 2020, on balance the positives have far
outweighed the negatives. As outlined from
page 54, our commercial and scientific
progress in 2019 has been strong across all our
therapy areas, but I would like to highlight some
key achievements.
Oncology: 114,000 new patients in 70
countries have been treated with a new
AstraZeneca oncology medicine in 2019, with
Imfinzi and Lynparza achieving blockbuster
status, with each now generating more than
$1 billion in sales in the year.
How we have performed in 2019
Total shareholder return (TSR)
450
400
350
300
250
200
150
100
12 months1
+26%
AstraZeneca
2017-191
Pharmaceutical peers average
FTSE 100
+83%
Jan
10
Jan
11
Jan
12
Jan
13
Jan
14
Jan
15
Jan
16
Jan
17
Jan
18
Jan
19
Dec
19
AstraZeneca
Pharmaceutical peers average
FTSE 100
1 12 month (cid:55)SR and 36 month (cid:55)SR have been calculated using three(cid:16)month calendar averages, from 1 October to 31(cid:98)December,
prior to the start and at the end of the relevant periods.
Delivery against strategy – 2019 Group scorecard performance2
Deliver Growth and Therapy Area Leadership
Product Sales from growth platforms
$20,232m
$21,004m
Target
2019
outcome
Accelerate Innovative Science
Pipeline progression events
Regulatory events
Achieve Group Financial Targets
Cash flow
Core EPS
Total Product Sales
17
28
$3.9bn
$3.50
$22.8bn
17
37
$4.2bn
$3.46
$23.8bn
2 For reconciliation with KPIs disclosed from page 20 of this Annual Report and a description of performance measures,
see page 135.
We also made a strong start to our
collaboration with Daiichi Sankyo on Enhertu,
achieving a regulatory approval in the US
in December.
BioPharmaceuticals: in Respiratory, launches
of Fasenra continued, now having benefitted
some 50,000 patients with severe asthma. In
CVRM, the positive outcome of the DAPA-HF
trial meant that Farxiga became the first in its
class to demonstrate efficacy and safety data
for the treatment of patients with heart failure,
with and without type-2 diabetes, on top of
standard of care.
2019 remuneration outcomes
The Committee always seeks to ensure that
the remuneration of our Executive Directors
reflects the underlying performance of the
business. When approving outcomes, we
therefore considered the Group scorecard
along with wider business and individual
performance over 2019, including other
achievements across the enterprise, such as
advancing our Great Place to Work priorities
and environmental, social and governance
(ESG) goals. In that context, we believe that
the payments outlined below fairly reflect
performance.
We have sustained our strong growth trajectory
across Emerging Markets, most notably in
China, delivering approvals and launches for
our New Medicines and accelerating our
performance in all therapy areas in this
important market. This progress has been
supported by another year of excellent
execution by our Operations team. Their work
led to the successful outcome of 31 regulatory
inspections with zero critical observations last
year. Our inspection record builds trust
amongst regulatory authorities globally and
enhances our already high reputation in this
space. Further detail can be found in the
Strategic Report from page 37.
Annual bonus – 83.3% of maximum
When determining bonus outturns, the
Committee considered the formulaic outcome
from the Group scorecard along with wider
business and individual impact and
performance in 2019, including ESG
achievements. The Committee exercised its
judgement and awarded annual bonuses
equivalent to 83.3% of maximum (150% of
salary) and 83.3% of maximum (125% of
salary) to Mr Soriot and Mr Dunoyer
respectively. Details of the factors considered
to determine the bonuses are provided on
pages 134 to 136.
126
AstraZeneca Annual Report & Form 20-F Information 2019 / Corporate Governance
One third of each Executive Director’s bonus
for 2019 will be deferred into AstraZeneca
shares for three years to ensure further
alignment with shareholders. This will increase
to 50% deferral for the 2020 performance year
under the new Policy.
Long-term incentives
2017 PSP – 97% of maximum
The three-year performance period for
Performance Share Plan (PSP) awards
granted to Executive Directors in 2017 ended
on 31 December 2019. Awards will vest at
97% of maximum, as shown on page 138.
This is in part driven by our strong TSR
performance of 83% over the performance
period, ranking second (upper quartile) in our
comparator group of pharmaceutical peers.
2016 AZIP – 50% of maximum
The final award under the AstraZeneca
Investment Plan (AZIP) was granted in 2016.
The two performance tests (progressive
dividend and 1.5 times dividend cover)
attached to this award were both met in two
of the four years in the performance period
ended 31 December 2019. This will result in
50% of this AZIP award vesting. The shares
are subject to a further four-year holding period.
Policy review and remuneration in 2020
The Directors’ Remuneration Policy is due for
renewal and shareholders are being asked to
approve a new version of the Policy at the
Company’s AGM on 29 April 2020. The new
Policy is intended to remain in effect for three
years from the date of the AGM. During 2019,
the Committee reviewed the Policy to ensure
that it continues to:
> be aligned with corporate governance best
practice
> support the Company’s ability to recruit and
retain executive talent to deliver against its
strategy; and
> promote the delivery of long-term
shareholder value.
The Committee took shareholders’ feedback
into account on the proposed changes to
the Policy, and we would like to take this
opportunity to thank all those who took part
for their constructive engagement.
Our consultation focused on a number of key
areas: simplification and alignment to strategy,
ensuring flexibility to meet the challenges
of a highly competitive global talent market,
and improved shareholder alignment. In
developing our proposals, the Committee has
been mindful of the broader context and the
need to create an environment where orderly
succession of key individuals over the coming
years can be planned.
2019 remuneration outcomes
(cid:54)ing(cid:79)e tota(cid:79) figure of re(cid:80)uneration
CEO
£1.8m
£1.9m
£6.3m
£4.3m
CFO
£1.0m
£1.0m
£3.0m
£2.0m
£14.3m
£7.0m
Fixed remuneration
Annual bonus
Long-term incentives and dividend equivalents, of which:
proportion attributable to share price appreciation and dividends
£7.7m
2019 Annual bonus scorecard performance
Accelerate Innovative Science
Deliver Growth and Therapy Area Leadership
Achieve Group Financial Targets
2017 PSP performance
TSR
EBITDA
Achieve Scientific Leadership
Return to Growth
Achieve Group Financial Targets – Cash flow
EBITDA
Relative TSR
C
o
r
p
o
r
a
t
e
G
o
v
e
r
n
a
n
c
e
Achieved
Lapsed
75%
88%
71%
25%
12%
29%
Achieved
Lapsed
Achieved
Lapsed
100%
100%
100%
85%
100%
0%
0%
0%
15%
0%
Achieved
Lapsed
The Committee’s considerations included the
market positioning of our CEO’s remuneration
opportunity against our FTSE 30 and global
pharmaceutical comparator groups and we
recognise that our CEO’s total compensation
opportunity has fallen behind that of his peers
in the global pharmaceutical talent market.
This is illustrated in the chart on the following
page, showing Mr Soriot’s on-target
opportunity relative to these comparator
groups. The importance of retaining our
talented and successful CEO has been a key
theme in consultation discussions with our
shareholders.
Changes to the Policy and how it will be
implemented are summarised on the following
page and in more detail on page 149. The
Policy is set out from page 150.
There will be no base salary increase for the
two Executive Directors, effective 1 January
2020. The UK all-employee salary increase
budget for 2020 is 3%.
Target annual bonus opportunity for Mr Soriot
and Mr Dunoyer in 2020 remains unchanged
at 100% and 90% of base salary respectively.
We have sought to bring the approach for the
Executive Directors in line with the wider
workforce, such that maximum bonus equals
200% of target. Therefore, the maximum
bonus opportunity has been changed to
200% of salary for Mr Soriot and to 180% of
salary for Mr Dunoyer. Half (previously one
third) of any earned bonus will be deferred into
shares.
Awards under the PSP will be unchanged for
Mr Dunoyer at 400% of base salary, and
increased to 550% of base salary (from 500%)
for Mr Soriot, subject to shareholder approval
of our revised Policy and amended rules of the
PSP at the AGM.
AstraZeneca Annual Report & Form 20-F Information 2019 / Directors’ Remuneration Report
127
Directors’ Remuneration
Report continued
The Committee is mindful of the spectrum of
views amongst investors in terms of timescale
to reduce executive directors’ contractual
pension contributions to the average of the
wider workforce. Our approach, making a very
significant reduction to our CEO’s pension now,
and capping the contribution going forward,
was supported by the vast majority of our
shareholders during consultation. We will
continue to listen to our shareholders’ views on
this subject as we consider implementation of
the Policy over the coming years.
ESG metrics
AstraZeneca recognises the importance of
ESG factors in operating a sustainable
business, and has made a number of clear
commitments in this area – for example,
Ambition Zero Carbon, our strategy to
eliminate emissions by 2025 and be carbon
negative by 2030.
Currently, the Committee considers ESG
achievements when determining bonus
outturns in the round, beyond the formulaic
scorecard. Looking ahead, the Committee will
be seeking to include one or more ESG
metrics into executive incentive arrangements
for the 2021 performance year, to underline
the importance we place on these issues.
Next steps
I hope that you find this Remuneration Report
clear in explaining the implementation of our
Remuneration Policy during 2019. We trust
that we have provided the information you
need to be able to support the resolution to be
put to shareholders on the new Policy and this
Remuneration Report at the Company’s AGM
in April 2020.
Our ongoing dialogue with shareholders and
other stakeholders is valued greatly and, as
always, we welcome your feedback on this
Directors’ Remuneration Report.
2020 Remuneration Policy
Pension alignment with wider
workforce
(cid:54)i(cid:80)(cid:83)(cid:79)ified and strengthened
link to strategy, with
stretching targets
Responding to competitive
pressure of global
pharmaceutical talent market
> (cid:51)ension (cid:79)eve(cid:79) for (cid:38)(cid:40)(cid:50) has been significant(cid:79)y reduced fro(cid:80) (cid:22)(cid:19)(cid:8)
of salary to 20%
> Monetary values of current Executive Directors’ pensions have
been fi(cid:91)ed(cid:15) so that they reduce further as a (cid:83)ercentage of sa(cid:79)ary
overtime towards wider workforce level
> Pension for any newly appointed Executive Directors will be in
line with the applicable wider workforce level
> We conducted a thorough review of the performance measures to
ensure continued alignment with strategy
> (cid:55)he annua(cid:79) bonus and (cid:51)(cid:54)(cid:51) have been si(cid:80)(cid:83)(cid:79)ified by reducing the
nu(cid:80)ber of (cid:83)erfor(cid:80)ance (cid:80)easures fro(cid:80) five to four in each and
moving our focus from growth platforms to Total Revenue
> The Committee has, and will continue to, rigorously assess
performance targets under each measure to ensure goals are
su(cid:433)cient(cid:79)y stretching
We recognise that our CEO’s total compensation opportunity has
fallen behind that of his peers in the global pharmaceutical talent
market. Given the importance of retaining our talented and
successful CEO, while recognising the need to align pay to
performance and investor experience, the renewed Policy and its
implementation for 2020 will be as follows:
> No change to annual bonus Policy maximum
> For 2020, CEO maximum bonus opportunity will be below the
Policy maximum at 200% of salary (2019: 180%) and the
proportion of bonus deferred will be increased (see below)
> Increased maximum limit under PSP from 500% to 550% of
salary. The PSP awards will be subject to appropriately
stretching targets
> In the context of the above changes, we are proposing no salary
increase for 2020
Improved shareholder
alignment
> Increased mandatory bonus deferral into shares from 33% to
50% of any bonus earned from performance year 2020 onwards
> Increased shareholding guidelines to align with the respective
Executive Director’s annual PSP opportunity
Market positioning of CEO on-target remuneration for 2019
CEO
Global pharma peers
FTSE 30
Lower quartile to median
Median to upper quartile
Current position
£4.9m
£6.2m
£8.0m
£13.7m
Graham Chipchase
Chairman of the Remuneration Committee
Remuneration includes base salary, target annual bonus and the expected value of Long-term Incentives (LTI) awards. For
Mr Soriot in 2019, target annual bonus was 100% of base salary and the expected value of LTI awards was 250% of base salary.
Benchmarking data has been provided by the Committee’s independent adviser.
128
AstraZeneca Annual Report & Form 20-F Information 2019 / Corporate Governance
Remuneration
at a glance
C
o
r
p
o
r
a
t
e
G
o
v
e
r
n
a
n
c
e
What our Executive Directors earned
2019 outcomes
Fixed remuneration
Annual bonus
PSP
AZIP
The bonus outcome was
83.3% of maximum, equating
to 150% of salary for the CEO
and 125% of salary for the
CFO
The PSP outcome was 97%
of maximum
The AZIP outcome was 50%
of maximum
CEO salary: £1,288,530
Benefits fund
Pension: 30% salary
CFO salary: £765,290
Benefits fund
Pension: 24% salary
Salaries increased 3%,
effective 1 January 2019
Looking ahead
Shareholding
guideline
Post-cessation
guideline
Holding
requirement:
550% salary
Holding
requirement:
400% salary
Shareholding
guideline
increased to
mirror PSP
award value
Holding
requirement:
shares up to
550% salary
for two years
post-cessation
Holding
requirement:
shares up to
400% salary
for two years
post-cessation
Post-cessation
guideline was
introduced
in 2019
Executive Directors’ remuneration for 2020
Pascal Soriot
(CEO)
Fixed remuneration
Annual bonus
Long-term incentives
Salary: £1,288,530
Benefits fund
Pension: £257,706
(equivalent to 20%
of 2019 salary)
Max: 200% salary
Target: 100% salary
Deferred: 50% for
three years
Max: 550% salary
Performance
period: three years
Holding period:
two years
Marc Dunoyer
(CFO)
Salary: £765,290
Benefits fund
Pension: £183,670
(equivalent to 24%
of 2019 salary)
Max: 180% salary
Target: 90% salary
Deferred: 50% for
three years
Max: 400% salary
Performance
period: three years
Holding period:
two years
Change from
2019
No change to
salaries
Policy maximum
unchanged
Policy maximum
increased
Benefits in line
with 2019
CEO pension
reduced
Pensions frozen at
fixed monetary
values
Maximum
opportunities
increased
Target
opportunities
unchanged
PSP maximum for
CEO increased
Moved from five to
four measures –
simplification and
focus on most
important metrics
Proportion
deferred increased
Moved from five to
four measures –
simplification and
focus on most
important metrics
AstraZeneca Annual Report & Form 20-F Information 2019 / Directors’ Remuneration Report
129
How our performance measures for
2020 support the delivery of our strategy
As part of our consultations with major
shareholders during 2019, we discussed
which performance measures should be used
for the annual bonus and PSP awards in 2020.
AstraZeneca aims to continue to deliver great
medicines to patients while maintaining cost
discipline and a flexible cost base, driving
operating leverage and increased cash
generation. To incentivise and reward delivery
of great performance over the short and
longer term, the Committee carefully
considered the balance of science and
financial measures between the annual bonus
and PSP. Our focus on incentivising innovative
science aligns with our patient-centric culture,
as we strive to push the boundaries of science
to deliver life-changing medicines to patients.
This is reflected in a greater weighting for
science measures across both plans in 2020.
The mix of financial measures between the
annual bonus scorecard and PSP reflects
the focus required on near-term cost
discipline and longer-term cash generation
and creation of sustainable value for our
shareholders. The 2020 performance
measures are closely aligned with our
strategic priorities, as shown below.
Read more about our strategic priorities from page 17.
Read more about the 2020 performance measures on
pages 137 and 141.
Key
Annual bonus
PSP
KPI
Strategic pillar
Strategic pillar
Financial targets
Accelerate
Innovative Science
Deliver Growth and
Therapy Area Leadership
Achieve Group
Financial Targets
Remuneration performance measures
Remuneration performance measure
Remuneration performance measures
Science indices
Our science measures incentivise the
development of new molecular entities (NMEs)
and the maximisation of the potential of existing
medicines.
Bonus performance is assessed on pipeline
progressions through Phase II and Phase III
c(cid:79)inica(cid:79) tria(cid:79)s. (cid:55)hese re(cid:432)ect the outco(cid:80)e of
nearer-term strategic investment decisions,
whereas in contrast PSP performance is
assessed on the volume of NMEs in Phase III
and the registration stage (cid:90)hich re(cid:432)ects the
outcome of longer-term strategic investment
decisions.
Additionally, we measure regulatory
submissions and approvals for bonus and
regulatory approvals for PSP to drive the
conversion of scientific (cid:83)rogress into
commercial revenue over the short term
(bonus) and the longer term (PSP).
Together, these science measures incentivise
innovation and sustainable success along the
length and breadth of the pipeline, leading to
commercial growth.
Strategic pillar
Be a Great Place to Work
Being a Great Place to Work is critical to
delivering our ambition. Assessment of
performance against this pillar is captured
through a holistic review of each Executive
Director’s individual performance as part of
the fina(cid:79) deter(cid:80)ination of annua(cid:79) bonus(cid:15)
including consideration of our progress
against our ESG aspirations through:
Total Revenue
In 2020, a Total Revenue measure is included
in the bonus and the (cid:51)(cid:54)(cid:51)(cid:15) re(cid:432)ecting the
importance of incentivising focus on both the
short and longer term for our growth to be
sustainable. These measures incentivise
revenue performance in line with the 2023
tra(cid:77)ectory described at the ti(cid:80)e of the (cid:51)fi(cid:93)er
bid in 2014.
(cid:38)ash (cid:432)o(cid:90)
Extremely important for the phase of strategy
our business has now entered, as we aim to
sustain investment in our pipeline and
therapy areas while at the same time meeting
our ca(cid:83)ita(cid:79) a(cid:79)(cid:79)ocation (cid:83)riorities. (cid:38)ash (cid:432)o(cid:90) is
included in both the bonus and the PSP, so as
to motivate a focus on the importance of both
short and (cid:79)onger ter(cid:80) cash (cid:432)o(cid:90) generation
and balance sheet strength.
Core EPS
(cid:44)ncentivises o(cid:83)erationa(cid:79) e(cid:433)ciency and cost
discipline, remains a key measure of our
(cid:83)rofitabi(cid:79)ity and is a (cid:78)ey focus of our investors.
Total shareholder return (TSR)
Assessed relative to our peer group of
companies, the measure rewards positive
performance that our shareholders also
direct(cid:79)y benefit fro(cid:80). (cid:55)his (cid:80)easure
incentivises outperformance versus our peer
group, and promotes the delivery of long-term
sustainable returns for our shareholders.
> Contribution to the enterprise – their
achievement of embedding a culture of
life-long learning and development, and
performing as an enterprise team, as well
as advancement of our inclusion and
diversity strategy; and
> Contribution to society – their delivery
across access to healthcare, environmental
protection, ethics and transparency to lead
in sustainability.
During 2020, the Committee intends to
develop one or more ESG metrics to be
introduced into executive remuneration
arrangements in the 2021 performance
year, to assess AstraZeneca’s performance
against its sustainability goals.
130
AstraZeneca Annual Report & Form 20-F Information 2019 / Corporate Governance
How the Remuneration Committee
ensures targets are stretching
We set stretching targets which incentivise our leaders to deliver exceptional performance, to drive sustainable results for our patients, our
employees and our shareholders. We take the following robust process to setting annual bonus and PSP targets:
Stage 1 –
Target setting
Science targets are based on a cohort of scientific opportunities
specified at the start of the performance period. Opportunities
represent potential achievements through 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. Stretch of proposed targets is
reviewed by the Science Committee taking into account factors
such as past performance, the external regulatory environment
and internal resourcing and efficiencies. Targets for realisation of
these opportunities are ambitious.
Stage 2 –
Committee review
and approval of
targets
The Committee thoroughly reviews and challenges initial targets
proposed by management, before final targets are agreed and
approved. Draft targets are reviewed in December, with final
target setting and approval in January, once the prior year’s final
results are available to inform decisions.
The Committee is provided with considerable supporting
material for each metric. 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.
The Committee tracks projected outcomes throughout the
performance period. At the end of the period, final performance
against each metric is assessed. Outcomes are calculated based
on performance against each weighted metric. Each
performance measure is assessed on a standalone basis, so that
underperformance against one measure cannot be compensated
for by overperformance against another.
Stage 3 –
Performance
assessment
Stage 4 –
Determination of
Executive Directors’
bonuses
For annual bonus, the fairness of the formulaic Group scorecard
outcome is considered in the context of overall business
performance and the experience of shareholders. Such
considerations include TSR performance and each Executive
Director’s personal impact on the delivery of the strategy, ESG
performance and other organisational achievements, such as
inclusion and diversity targets and the realisation of technology-
based milestones. Each year there are important individual
deliverables beyond the scorecard metrics which are taken into
account when determining individual bonuses.
Deliver Growth and Therapy Area Leadership and Achieve
Group Financial Targets metrics align with the business’s Long
Range Plan (LRP), which sets out the financial framework for
delivering our ambitious strategy over the short, medium and
long term. The LRP process includes detailed business reviews
during which plans and efficiencies of each unit are challenged,
leading to a proposed LRP for the Board to review and
challenge. The Committee sets targets based on the Board-
approved LRP, considering consensus expectations,
independent analytics and anticipated challenges and
opportunities. This range of data is used by the Committee to
ensure the stretching nature of performance targets is robustly
tested. Additionally, the PSP TSR measure is designed to
reward strong performance relative to our peers.
Committee members participate in the full Board discussions
on the strategy, LRP and budget which form the basis for the
targets. The Committee considers how proposed financial
targets align 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. Statistical analysis conducted
by the Committee’s independent adviser is also used to assess
the proposals. This includes an assessment of historic levels of
performance volatility.
C
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The Science Committee independently considers and informs
the Committee whether science achievements represent a fair
and balanced outcome, reflecting genuine achievements and
pipeline progression. Apart from Cash flow, which is set at
actual rates of exchange, 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.
The Committee is, however, provided with data to allow it to
conduct year-on-year analyses.
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.
“We set stretching targets which
incentivise our leaders to deliver
exceptional performance, to drive
sustainable results for our patients,
our employees and our shareholders.”
2020 targets
> The 2020 Group scorecard and PSP targets require
growth above prior year outturns
> Financial performance goals would require growth
in excess of the average expected of the industry
> The Committee has reviewed the proposed targets
against internal and external forecasts including
market consensus and is comfortable that the level
of stretch promotes exceptional performance
AstraZeneca Annual Report & Form 20-F Information 2019 / Directors’ Remuneration Report
131
Annual Report
on (cid:53)e(cid:80)uneration
Key:
Audited information
Content contained within the Audited panel
indicates that all the information within has
been subject to audit.
Audited
Planned implementation for 2020
Content contained within a grey box indicates
planned implementation for 2020.
(cid:40)(cid:91)ecutive (cid:39)irectors(cid:350) re(cid:80)uneration
This section of the Remuneration Report sets out the Executive Directors’ remuneration for the year ended 31 December 2019 alongside the
remuneration that will be paid to Executive Directors during 2020.
(cid:40)(cid:91)ecutive (cid:39)irectors(cid:350) sing(cid:79)e tota(cid:79) figure of re(cid:80)uneration for (cid:21)(cid:19)(cid:20)(cid:28)
The single total figure table sets out all elements of remuneration receivable by the Executive Directors in respect of the year ended 31 December
2019, alongside comparator figures from the prior year.
Audited
£’000
Pascal Soriot
Marc Dunoyer
Base
salary
Taxable
benefits
Pension
Total fixed
Annual
bonus
Long-term
incentives1
Total
variable
2019
2018
2019
2018
1,289
1,251
765
743
124
122
63
74
387
375
184
178
1,800
1,748
1,012
995
1,933
1,858
957
919
10,487
9,180
4,935
3,851
12,420
11,038
5,892
4,770
Other
110
82
56
59
Single total
figure
14,330
12,868
6,960
5,824
(cid:20) Long-term incentive values disclosed in 2018 have been recalculated using the average closing share price for the three months ended 31 December 2019, see page 138.
£3,283,450 of Pascal Soriot’s 2019 single total figure of remuneration is attributable to share price appreciation on Long-term incentive awards
during the relevant performance periods. £1,539,949 of Marc Dunoyer’s 2019 single total figure of remuneration is attributable to share price
appreciation on Long-term incentive awards during the relevant performance periods. The Committee did not exercise any discretion in relation
to the Long-term incentive outcomes.
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 from page 133 and the Long-term
incentives section from page 138. Information about the Executive Directors’ remuneration arrangements for the coming year, ending
31 December 2020, is highlighted in grey boxes.
Fixed remuneration
Base salary
When awarding salary increases, the
Committee considers, among other factors,
salary increases applied across the UK
employee population. The Executive Directors’
salaries for 2020 remain the same as their
2019 salaries. The UK all-employee salary
increase budget for 2020 is 3%.
£’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 2019, 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
(cid:20)(cid:22)(cid:21)
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:38)or(cid:83)orate (cid:42)overnance
Audited
2019
Base
salary
1,289
765
Increase
from 2018
3%
3%
Change
from 2019
0%
0%
2020
Base
salary
1,289
765
Audited
2019
Taken in
benefits
Taken
as cash
Total taxable
benefits
15
6
109
57
124
63
2020
Taxable
benefits
in line
with 2019
in line
with 2019
Fixed remuneration continued
Pension
The Executive Directors receive a pension
allowance calculated as a percentage of base
salary. During 2019, 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. Pension arrangements for 2020 are
described on page 151.
£’000
Pascal Soriot
Marc Dunoyer
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 2015) were
released during 2019 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.
£’000
Pascal Soriot
Marc Dunoyer
Audited
2019
2020
Pensionable
salary
Pension
allowance
Cash in lieu
of pension
Fixed pension
allowance
1,289 30% salary
765
24% salary
387
184
258
184
(cid:38)
o
r
(cid:83)
o
r
a
t
e
(cid:42)
o
v
e
r
n
a
n
c
e
Audited
Dividend equivalents
received on
DBP awards
released in year
Total Other items
in the nature of
remuneration
110
56
110
56
£’000
Pascal Soriot
Marc Dunoyer
Audited
Annual bonus in respect of performance during 2019
Bonus potential
as % of salary
Target
Maximum
Bonus
payable in
cash1
Bonus
deferred into
shares
100%
180%
1,289
90%
150%
638
644
319
Total bonus
awarded
1,933
83.3% max
957
83.3% max
(cid:20) Mr Soriot elected to waive £7,984 of the cash portion of his bonus in order to make a personal contribution to pension.
Mr Dunoyer elected to waive £17,201 of the cash portion of his bonus in order to make a personal contribution to pension.
Annual bonus
2019 Annual bonus
Annual bonuses earned in respect of
performance during 2019 are included in the
single total figure table. Detailed information
on the Committee’s approach to target setting
and assessment of performance is set out on
page 131.
Under the DBP a proportion of each Executive
Director’s pre-tax bonus is compulsorily
deferred into Ordinary Shares which are
released three years from the date of deferral,
ordinarily subject to continued employment.
The proportion of the 2019 bonus deferred is
one third. Under the Directors’ Remuneration
Policy proposed for approval at the 2020
AGM, one half of any bonus awarded in
respect of performance during 2020 will be
deferred. Bonuses are not pensionable.
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort on (cid:53)e(cid:80)uneration
(cid:20)(cid:22)(cid:22)
Annual Report
on (cid:53)e(cid:80)uneration
continued
Annual bonus continued
2019 Group scorecard assessment
Performance against the 2019 Group scorecard is set out below. As explained on page 130, 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 the following page.
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 pay out range. Performance below the specified threshold level for a metric will result in 0% payout for
that metric. 100% of target bonus will payout for on-target performance. For employees, 200% of target bonus will payout for the maximum level
of performance. Maximum bonus payouts for the CEO and CFO for 2019 were capped at 180% and 150% of salary respectively (equivalent to
180% and 167% of target bonus respectively). The pay out 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. The table below
shows the scorecard formulaic outcomes for the CEO and CFO as a percentage of target bonus, taking into account their respective target and
maximum profiles.
(cid:54)cience (cid:80)easures
(cid:41)or(cid:80)u(cid:79)aic outco(cid:80)es
(cid:11)(cid:8) of target bonus(cid:12)
(cid:21)(cid:19)(cid:20)(cid:28) (cid:42)rou(cid:83) scorecard (cid:83)erfor(cid:80)ance (cid:80)easures and (cid:80)etrics
Weighting
Threshold
for (cid:83)ayout
Target
(cid:48)a(cid:91)i(cid:80)u(cid:80)
(cid:50)utco(cid:80)e(cid:20)
(cid:38)(cid:40)(cid:50)
(cid:38)(cid:41)(cid:50)
(cid:36)cce(cid:79)erate (cid:44)nnovative (cid:54)cience
Pipeline progression events
(cid:53)egu(cid:79)atory events
(cid:54)ubtota(cid:79) – (cid:54)cience (cid:80)easures
(cid:41)inancia(cid:79) (cid:80)easures
(cid:39)e(cid:79)iver (cid:42)ro(cid:90)th and (cid:55)hera(cid:83)y (cid:36)rea (cid:47)eadershi(cid:83)
(cid:20)(cid:19)(cid:8)
(cid:20)(cid:19)(cid:8)
(cid:21)(cid:19)(cid:8)
8
(cid:21)(cid:19)
(cid:20)(cid:26)
(cid:21)(cid:27)
(cid:21)(cid:25)
(cid:22)(cid:26)
(cid:20)(cid:26)
(cid:22)(cid:26)
(cid:20)(cid:19)(cid:8)
(cid:20)(cid:19)(cid:8)
(cid:20)(cid:27)(cid:8)
(cid:21)(cid:27)(cid:8)
(cid:20)(cid:26)(cid:8)
(cid:21)(cid:26)(cid:8)
(cid:51)roduct (cid:54)a(cid:79)es fro(cid:80) gro(cid:90)th (cid:83)(cid:79)atfor(cid:80)s (cid:11)(cid:7)(cid:80)(cid:12)
(cid:22)(cid:19)(cid:8)
(cid:20)(cid:28)(cid:15)(cid:21)(cid:21)(cid:20)
(cid:21)(cid:19)(cid:15)(cid:21)(cid:22)(cid:21)
(cid:21)(cid:20)(cid:15)(cid:21)(cid:23)(cid:23)
(cid:21)(cid:20)(cid:15)(cid:19)(cid:19)(cid:23)
(cid:23)(cid:27)(cid:8)
(cid:23)(cid:24)(cid:8)
(cid:36)chieve (cid:42)rou(cid:83) (cid:41)inancia(cid:79) (cid:55)argets
(cid:38)ash (cid:432)o(cid:90) (cid:11)(cid:7)bn(cid:12)
(cid:38)ore (cid:40)(cid:51)(cid:54) (cid:11)(cid:7)(cid:12)
(cid:55)ota(cid:79) (cid:51)roduct (cid:54)a(cid:79)es (cid:11)(cid:7)bn(cid:12)
(cid:54)ubtota(cid:79) – (cid:41)inancia(cid:79) (cid:80)easures
Total(cid:21)
(cid:21)(cid:19)(cid:8)
(cid:22).(cid:24)
(cid:22).(cid:28)
(cid:23).(cid:21)
(cid:23).(cid:21)
(cid:22)(cid:24)(cid:8)
(cid:22)(cid:22)(cid:8)
(cid:21)(cid:19)(cid:8)
(cid:20)(cid:19)(cid:8)
(cid:27)(cid:19)(cid:8)
(cid:20)(cid:19)(cid:19)(cid:8)
(cid:22).(cid:23)(cid:19)
(cid:22).(cid:24)(cid:19)
(cid:22).(cid:25)(cid:19)
(cid:22).(cid:23)(cid:25)
(cid:20)(cid:21)(cid:8)
(cid:20)(cid:21)(cid:8)
(cid:21)(cid:21).(cid:20)
(cid:21)(cid:21).(cid:27)
(cid:21)(cid:22).(cid:24)
(cid:21)(cid:22).(cid:27)
(cid:20)(cid:27)(cid:8)
(cid:20)(cid:26)(cid:8)
(cid:20)(cid:20)(cid:23)(cid:8)
(cid:20)(cid:23)(cid:21)(cid:8)
(cid:20)(cid:19)(cid:26)(cid:8)
(cid:20)(cid:22)(cid:22)(cid:8)
Bar charts are indicative of 2019 performance; scales do not start from zero.
(cid:46)ey(cid:29)
(cid:20) Reconciliation with KPI outcomes disclosed from page 20 of this Annual Report and a description of performance measures is shown on the following page.
(cid:21) Due to rounding, the total formulaic outcome differs from the arithmetic total of the individual metric outcomes disclosed above.
Pipeline progression events include Phase II starts and progressions and NME and life-cycle management positive Phase III investment
decisions. Regulatory events include NME and major life-cycle management regional submissions and approvals. Further detail on our Accelerate
Innovative Science performance and these events is included from page 25 of this Annual Report.
A number of further scientific achievements during 2019 have not been taken into account in the formulaic Group scorecard outcome, as they
were additional to the cohort set at the start of the year. These have instead been considered and reflected in the Committee’s final bonus
determination.
(cid:20)(cid:22)(cid:23)
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:38)or(cid:83)orate (cid:42)overnance
Annual bonus continued
In 2019, Deliver Growth and Therapy Area Leadership measured Product Sales from the Oncology, New CVRM, Respiratory, Japan and Emerging
Markets sales platforms, previously referred to as growth platforms. This target was 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 Deliver Growth and Therapy Area Leadership scorecard measure excludes
certain medicines that are included in Product Sales reported elsewhere in this Annual Report, due to differences in definitions. The difference for
2019 primarily arose as the scorecard measure included only New Medicines within the Oncology sales platform. The Cash flow measure is set
and evaluated at the actual exchange rate and is evaluated by reference to net cash flow from operating activities less capital expenditure adding
back proceeds from disposal of intangible assets, to be fully transparent with all elements easily derived from the Group IFRS cash flow
statement. 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
from page 20
Exchange
rate impact
Product Sales
excluded
Capital
expenditure
Movement in
profit-
participation
liability
Proceeds from
disposal of
intangible assets
Deliver Growth and Therapy Area Leadership
$21,004m
$21,894m
$134m
$(1,024m)
Cash flow
Core EPS
Total Product Sales
$4.2bn
$3.46
$3.0bn
$3.50
$23.8bn
$23.6bn
$(0.04)
$0.2bn
$(1.0bn)
$0.2bn
$2.0bn
(cid:38)
o
r
(cid:83)
o
r
a
t
e
(cid:42)
o
v
e
r
n
a
n
c
e
Overall assessment
During 2019, the Executive Directors’ individual performance was assessed in the following key areas which align with the Company’s objectives.
Pascal Soriot
2019 was a transformative and remarkable year for AstraZeneca under Mr Soriot’s leadership. We are proud of Mr Soriot’s inclusion on the Harvard Business
Review 2019 CEO 100 List, reflecting a measure of external recognition for his work. In addition to delivery of the financial and scientific performance described
from page 20, including scientific achievements beyond the Group scorecard, the Committee considered Mr Soriot’s strong performance against his personal
objectives.
(cid:47)eading in
(cid:40)nviron(cid:80)enta(cid:79)(cid:15) (cid:54)ocia(cid:79)
and (cid:42)overnance (cid:11)(cid:40)(cid:54)(cid:42)(cid:12)
(cid:83)erfor(cid:80)ance
Under Mr Soriot’s leadership, throughout 2019, AstraZeneca received external recognition as one of the leading companies
demonstrating ESG practice. Highlights include: maintaining our score in the Dow Jones Sustainability Indices; receiving 56th ranking
in the Corporate Knights Global 100 (an overview of the global 100 most sustainable corporations in the world); and being one of three
companies worldwide to achieve double “A” listing for Climate Change and Water Security for four consecutive years in the Carbon
Disclosure Project (CDP) rankings as well as being ranked in the top 3% on the CDP Leader Board for Supplier Engagement.
Further evidence of Mr Soriot’s commitment to building a sustainable future was reflected through signing up to the United Nations
(UN) Global Compact ‘Our Only Future’ campaign; continued investment in Healthy Heart Africa, with the extension into a fourth
country (Ghana) where we will continue to conduct blood pressure screenings; and a new five-year funding plan to drive the Young
Health Programme further which, in 2019, saw continued expansion, including a launch in Mexico.
(cid:39)e(cid:80)onstrating
leadership to support
deve(cid:79)o(cid:83)(cid:80)ents in the
g(cid:79)oba(cid:79) (cid:79)ife sciences
industry
Throughout 2019, Mr Soriot continued to extend his influence with senior external stakeholders on the key issues in healthcare. He
attended more than 60 meetings with senior-level Government officials around the world including in China, Russia, Australia, Brazil,
France, Germany, Japan and the US. These interactions continue to shape the external environment and materially contribute to
AstraZeneca’s continued success around the world.
(cid:54)uccessfu(cid:79) de(cid:79)ivery of
the organisational
transfor(cid:80)ation
In 2019, the enterprise transitioned to a strategy of growth through innovation and our new, therapy area aligned, organisational
structure. The new organisation was announced on 7 January 2019 and the reorganisation completed within four months, without
impacting continued scientific delivery and commercial growth.
(cid:47)aunch and e(cid:80)bed our
refreshed gro(cid:90)th
through innovation
strategy
While some core components of our growth through innovation strategy translated directly into AstraZeneca’s performance in 2019,
several aspects of progress in 2019 laid the foundations for success in future years. These encompass, among other things, the
development of our patient-centricity plans, investment in future science, value-based reimbursement, and our work in the digital, data
science and artificial intelligence space.
Making AstraZeneca
a (cid:42)reat (cid:51)(cid:79)ace to (cid:58)or(cid:78)
– achieve de(cid:80)onstrab(cid:79)e
advances in inc(cid:79)usion(cid:15)
diversity and e(cid:80)(cid:83)(cid:79)oyee
engage(cid:80)ent
In 2019 our Global Inclusion and Diversity (I&D) Council was established. As Chair of the Council, Mr Soriot has continued to oversee
and drive accountability for our I&D strategy throughout the organisation. In 2019, Mr Soriot personally sponsored AstraZeneca
becoming a signatory to the UN Empowerment Principles for Women and the UN Free & Equal Standards of Conduct for Business
(supporting LGBT+ individuals). By the end of 2019, our internal KPIs were exceeded with 45.4% of senior roles held by women. We
were also pleased that AstraZeneca was included in the 2019 Hampton-Alexander Review (sixth 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 the 61,000 respondents stated they believe strongly in AstraZeneca’s future
direction and strategic priorities and 86% would recommend AstraZeneca as a great place to work (compared with the global
pharmaceutical norms of 87% and 80% respectively).
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort on (cid:53)e(cid:80)uneration
(cid:20)(cid:22)(cid:24)
Annual Report
on (cid:53)e(cid:80)uneration
continued
Annual bonus continued
Marc Dunoyer
(cid:47)eading in
(cid:40)nviron(cid:80)enta(cid:79)(cid:15) (cid:54)ocia(cid:79)
and (cid:42)overnance (cid:11)(cid:40)(cid:54)(cid:42)(cid:12)
(cid:83)erfor(cid:80)ance
In 2019, Mr Dunoyer continued to act as Champion and Executive Sponsor of our award-winning, global philanthropy initiative the
Young Health Programme (YHP). Mr Dunoyer continued to act as a visible champion internally and externally for this programme,
visiting the community-based team and spending time with the young peer educators. YHP reached almost one million young people
with health information in 2019, with 18 countries across six continents delivering this programme.
(cid:47)aunch and e(cid:80)bed our
refreshed gro(cid:90)th
through innovation
strategy
Throughout 2019, Mr Dunoyer has driven the enterprise focus on operating leverage, enabled by his focus on balancing capital
allocation priorities with investment in innovative science. Mr Dunoyer also delivered the successful completion of the acquisition of
Enhertu (a medicine with great potential for the treatment of HER2-positive cancers) through a capital increase, the first in 20 years.
This transaction was handled exceptionally smoothly in the context of the anticipated Brexit timetable and the accompanying challenge
of increased volatility in currency exchange rates.
(cid:39)e(cid:79)iver si(cid:80)(cid:83)(cid:79)ification
Under Mr Dunoyer’s leadership in 2019, significant simplification has been introduced to the Group’s finance systems and processes. In
the context of the 2019 organisational transformation, the creation of one source of trusted financial data and a streamlined master data
structure to deliver improved financial insights enabled immediate re-alignment of all underlying finance and reporting systems to the
new organisation within two months.
Japan
Mr Dunoyer’s additional responsibilities include leading AstraZeneca in Japan, which delivered a strong performance in 2019,
exceeding its performance target overall. Mr Dunoyer continues to play a critical leadership role in Japan, playing an active part in a
range of engagements, from Government officials through to national wholesalers, in support of delivering our strategy. Significant
approvals were obtained in the year for Lynparza in BRCA-mutated ovarian cancer, Bevespi Aerosphere to relieve symptoms of chronic
obstructive pulmonary disease (COPD) and, notably, the first ever global approval for Breztri Aerosphere, a triple-combination therapy,
also for COPD patients.
(cid:38)reating an enter(cid:83)rise-
(cid:90)ide i(cid:80)(cid:83)act through
(cid:42)(cid:79)oba(cid:79) (cid:37)usiness
(cid:54)ervices (cid:11)(cid:42)(cid:37)(cid:54)(cid:12)
In addition to his responsibilities as CFO, Mr Dunoyer continues to lead the 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, in 2019, GBS’s content centre and
production has delivered efficiencies of $26 million with services expanding across 50 markets. Adoption of robotic process
automation resulted in the annualised value of over 100 bots increasing by 500%. A focus on artificial intelligence is delivering
significant value opportunities across predictive modelling, automated reporting using natural language generation and process mining.
Final determination of Executive Directors’ bonuses
Having taken into account the Executive Directors’ personal leadership and achievements during the year and considered the formulaic Group
scorecard outcome in the context of overall business performance and shareholder experience, the Committee considered, in its judgement, that
the bonus outturn for each of the Executive Directors should be 83.3% of maximum. This payout is slightly above the Group scorecard outcome
as a percentage of maximum but below the scorecard as a percentage of target, due to the cap on maximum payment for each Executive
Director.
(cid:20)(cid:22)(cid:25)
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:38)or(cid:83)orate (cid:42)overnance
Annual bonus continued
Deferred Bonus Plan
A proportion of each Executive Director’s pre-tax annual bonus is compulsorily deferred under the Deferred Bonus Plan (DBP). In respect of the
bonus deferred, the Executive Director is granted a conditional award over shares. 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. One third of the bonus earned in respect of
performance during 2018 was deferred and details of the consequent DBP awards granted in 2019 are shown below. One third of the bonus
earned in respect of performance during 2019 has been deferred and the consequent DBP awards are expected to be granted in March 2020.
Under the Directors’ Remuneration Policy proposed for approval at the 2020 AGM, one half of any bonus awarded in respect of performance
during 2020 will be deferred.
Pascal Soriot
Marc Dunoyer
Ordinary Shares
granted
9,849
4,874
Grant date
8 March 2019
8 March 2019
Grant price
(pence per share)1
6287
6287
1 The grant price is the average closing share price over the three dealing days preceding grant.
Audited
2019 Grant
Face value
£’000
619
306
2020 Grant
2019 Bonus deferred
£’000
644
319
(cid:38)
o
r
(cid:83)
o
r
a
t
e
(cid:42)
o
v
e
r
n
a
n
c
e
2020 Annual bonus performance measures and operation
The Group scorecard measures and weightings for 2020 differ from the 2019 Group scorecard as follows:
> To reflect the importance of continuing to build and maintain a long-term sustainable pipeline the weighting of the Accelerate Innovative
Science indices has been increased from 20% to 30%.
> Given the proportion of Product Sales now represented by the Oncology, New CVRM, Respiratory, Japan and Emerging Markets sales
platforms (previously known as growth platforms), the ‘Deliver Growth and Therapy Area Leadership’ metric will instead measure Total
Revenue, as reported in our accounts. This also ensures that this metric reflects the economics of deals entered into with collaboration
partners.
> Under Achieve Group Financial Targets, with the consolidation of all sales under Total Revenue within Deliver Growth and Therapy Area
Leadership, the Total Product Sales measure has been removed. The Cash flow and Core EPS measures and weightings remain unchanged.
Measure weighting
Underlying metrics (if applicable)
Metric weighting
2020 target
2020 Group scorecard performance measures and metrics
Accelerate Innovative Science
30% Pipeline progression events
Regulatory events
Deliver Growth and Therapy Area Leadership (Total Revenue)
30%
Achieve Group Financial Targets
40% Cash flow
Core EPS
15%
15%
20%
20%
N
C
C
C
C
C
(cid:46)ey
(cid:55)arget increased vs (cid:21)(cid:19)(cid:20)(cid:28) target
(cid:55)arget decreased vs (cid:21)(cid:19)(cid:20)(cid:28) target
Target constant
N (cid:49)e(cid:90) (cid:80)easure
C (cid:38)o(cid:80)(cid:80)ercia(cid:79)(cid:79)y sensitive
We intend to disclose the 2020 Group scorecard outcome, and details of the performance hurdles and targets, in the 2020 Directors’
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.
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort on (cid:53)e(cid:80)uneration
(cid:20)(cid:22)(cid:26)
Annual Report
on (cid:53)e(cid:80)uneration
continued
Long-term incentives
Long-term incentives included in single total figure: 2017 PSP and 2016 AZIP
The Executive Directors’ 2019 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 2019. 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
2019 (7287.88 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
2017 PSP
2016 AZIP
2017 PSP
2016 AZIP
125,009
21,618
59,439
9,016
97%
50%
97%
50%
Long-term incentive awards with performance periods ended 31 December 2019
Value of shares due to vest
Face value
at time
of grant1
£’000
5,917
424
2,814
177
Value due to
share price
appreciation2
£’000
Dividend equivalent
accrued over
performance period
£’000
2,920
364
1,388
152
771
91
367
38
Long-term
incentives total
£’000
10,487
4,935
Total
£’000
9,608
878
4,569
366
(cid:20) Calculated using the grant price of 4880 pence for 2017 PSP awards and the grant price of 3923 pence for 2016 AZIP awards.
(cid:21) Calculated using the difference between the grant price and the average closing share price over the three(cid:16)month period ended 31 December 2019.
The 2017 PSP awards granted on 24 March 2017 are due to vest and be released on 24 March 2022 on completion of a further two-year holding
period. Performance over the period from 1 January 2017 to 31 December 2019 will result in 97% of the award vesting, based on the following
assessment of performance.
The Return to Growth target (measuring
aggregate revenue of the Oncology, New
CVRM, Respiratory, Japan and Emerging
Markets sales platforms, previously referred to
as growth platforms) and EBITDA target are
set at budget exchange rates at the beginning
of the performance period and evaluated at
those rates at the end of the performance
period, so that any 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 assessed using
cumulative net cash flow from operating
activities less capital expenditure adding back
proceeds from disposal of intangible assets.
(cid:21)(cid:19)(cid:20)(cid:26) (cid:51)(cid:54)(cid:51) (cid:83)erfor(cid:80)ance (cid:80)easures and (cid:80)etrics
Weighting
Threshold
(cid:11)(cid:21)(cid:19)(cid:8)
vesting(cid:12)
(cid:48)a(cid:91)i(cid:80)u(cid:80)
(cid:11)(cid:20)(cid:19)(cid:19)(cid:8)
vesting(cid:12)
(cid:50)utco(cid:80)e
(cid:51)ayout
(cid:36)chieve (cid:54)cientific (cid:47)eadershi(cid:83)
NME approvals
(cid:48)a(cid:77)or (cid:79)ife-cyc(cid:79)e (cid:80)anage(cid:80)ent a(cid:83)(cid:83)rova(cid:79)s
(cid:49)(cid:48)(cid:40) (cid:51)hase (cid:44)(cid:44)(cid:44)(cid:18)registrationa(cid:79) vo(cid:79)u(cid:80)e
(cid:54)ubtota(cid:79) – (cid:36)chieve (cid:54)cientific (cid:47)eadershi(cid:83)(cid:20)
(cid:53)eturn to (cid:42)ro(cid:90)th (cid:11)aggregate revenue of
gro(cid:90)th (cid:83)(cid:79)atfor(cid:80)s(cid:12) (cid:11)(cid:7)bn(cid:12)
(cid:25).(cid:26)(cid:8)
(cid:25).(cid:26)(cid:8)
(cid:25).(cid:26)(cid:8)
(cid:21)(cid:19)(cid:8)
(cid:21)(cid:19)(cid:8)
(cid:21)
(cid:25)
(cid:23)
(cid:25)
(cid:20)(cid:21)
8
8
(cid:20)(cid:19)(cid:19)(cid:8)
(cid:21)(cid:21)
(cid:20)(cid:19)(cid:19)(cid:8)
(cid:20)(cid:20)
(cid:20)(cid:19)(cid:19)(cid:8)
(cid:20)(cid:19)(cid:19)(cid:8)
(cid:20)(cid:25).(cid:24)
(cid:20)(cid:28).(cid:24)
(cid:21)(cid:20).(cid:24)
(cid:20)(cid:19)(cid:19)(cid:8)
(cid:38)ash (cid:432)o(cid:90) (cid:11)(cid:7)bn(cid:12)
(cid:21)(cid:19)(cid:8)
(cid:27).(cid:24)
(cid:20)(cid:21).(cid:19)
(cid:20)(cid:21).(cid:19)
(cid:20)(cid:19)(cid:19)(cid:8)
(cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) (cid:11)(cid:7)bn(cid:12)
(cid:21)(cid:19)(cid:8)
(cid:20)(cid:21).(cid:19)
(cid:20)(cid:27).(cid:19)
(cid:20)(cid:25).(cid:24)
(cid:27)(cid:24)(cid:8)
Total shareholder return
(cid:21)(cid:19)(cid:8)
Median
UQ(cid:21)
(cid:21)nd
(cid:20)(cid:19)(cid:19)(cid:8)
AstraZeneca ranked second within the TSR
peer group, in the upper quartile.
Total(cid:20)
(cid:20)(cid:19)(cid:19)(cid:8)
(cid:28)(cid:26)(cid:8)
(cid:41)or (cid:80)ore infor(cid:80)ation about the (cid:55)(cid:54)(cid:53) (cid:83)erfor(cid:80)ance of the
(cid:38)o(cid:80)(cid:83)any and the (cid:55)(cid:54)(cid:53) co(cid:80)(cid:83)arator grou(cid:83)(cid:15) see (cid:83)age (cid:20)(cid:23)(cid:26).
Bar charts are indicative of 2017 PSP performance; scales do not start from zero.
(cid:46)ey(cid:29)
1 (cid:55)he subtotal and total re(cid:432)ect the weightings of the individual metrics.
2 UQ = Upper Quartile.
(cid:20)(cid:22)(cid:27)
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:38)or(cid:83)orate (cid:42)overnance
Long-term incentives continued
The AZIP is a legacy plan. The last award under this plan was granted in 2016.
Audited
The 2016 AZIP awards granted on 24 March 2016 are due to vest and be released on 1 January 2024 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 2016 to 31 December 2019 will result in 50% of the 2016 AZIP vesting, as the dividend cover target
was not met in 2018 and 2019.
2016 AZIP performance measures
Annual dividend per share at or above $2.80
Dividend cover of 1.5 calculated on the basis of Core EPS
2016
$2.80
1.54
2017
$2.80
1.53
2018
$2.80
1.24
2019
$2.80
1.25
PSP and AZIP award values included in the 2018 single total figure of remuneration have been recalculated using the average closing share price
over the three-month period ended 31 December 2019 (7287.88 pence). In the 2018 Directors’ Remuneration Report these figures were calculated
using the average closing share price over the three-month period ended 31 December 2018 (5980.11 pence).
PSP awards granted during 2019
During 2019 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 2019 to 31 December 2021 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.
(cid:38)
o
r
(cid:83)
o
r
a
t
e
(cid:42)
o
v
e
r
n
a
n
c
e
Pascal Soriot
Marc Dunoyer
Ordinary
Shares
granted
102,475
48,690
Grant
date
Grant price
(pence per
share)
Face value
£’000
End of
performance period
8 March 2019
8 March 2019
6287
6287
6,443
31 December 2021
3,061
31 December 2021
End of
holding period
8 March 2024
8 March 2024
The 2019 PSP performance measures focus on scientific, commercial and financial performance over the three-year performance period. The five
performance measures attached to the 2019 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) (20% of award)
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. The peer group set at grant was the same as
that attached to PSP awards granted in 2017, as set out on page 147.
TSR ranking of the Company
Median
Between median and upper quartile
Upper quartile
% of award that vests
20% (threshold for payout)
Pro rata
100%
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort on (cid:53)e(cid:80)uneration
(cid:20)(cid:22)(cid:28)
Annual Report
on (cid:53)e(cid:80)uneration
continued
Long-term incentives continued
EBITDA (20% of award)
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.
Audited
EBITDA
$17.5bn
Between $17.5bn and $20.5bn
$20.5bn
Between $20.5bn and $22.5bn
$22.5bn
% of award that vests
20% (threshold for payout)
Pro rata
75%
Pro rata
100%
Cash flow (20% of award)
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.
Cash flow
$10bn
Between $10bn and $12bn
$12bn
Between $12bn and $14bn
$14bn and above
% of award that vests
20% (threshold for payout)
Pro rata
75%
Pro rata
100%
Deliver Growth and Therapy Area Leadership (20% of award)
For PSP awards granted in 2019 Deliver Growth and Therapy Area Leadership measured Total Product Sales from the Oncology, New CVRM,
Respiratory, Japan and Emerging Markets sales platforms (previously referred to as growth platforms). Given the proportion of AstraZeneca’s
revenue that is now represented by these sales platforms, disclosing the threshold and maximum hurdles for this 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. This measure is evaluated by reference to budget
exchange rates.
Accelerate Innovative Science (20% of award)
Performance is assessed using dual indices which measure regulatory and pipeline progression events, allowing disclosure of targets at the
beginning of the performance period.
Regulatory events index score (12% of award) % of award that vests
Pipeline progression
events index score (8% of award)
10
Between 10 and 15
15
Between 15 and 19
19
20% (threshold for payout)
5
Pro rata
75%
Pro rata
100%
Between 5 and 8
8
Between 8 and 10
10
% of award that vests
20% (threshold for payout)
Pro rata
75%
Pro rata
100%
(cid:20)(cid:23)(cid:19)
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:38)or(cid:83)orate (cid:42)overnance
Long-term incentives continued
PSP performance measures for 2020 grant
The 2020 PSP measures differ from the 2019 PSP measures as follows:
> The weighting of the Accelerate Innovative Science indices has been increased from 20% to 30%, to reflect the importance of continuing to
build and maintain a long-term sustainable pipeline.
> Given the proportion of Product Sales now represented by the Oncology, New CVRM, Respiratory, Japan and Emerging Markets sales
platforms (previously known as growth platforms), the Deliver Growth and Therapy Area Leadership metric will instead measure Total
Revenue, as reported in our accounts. This also ensures that this metric reflects the economics of deals entered into with collaboration
partners. The weighting for this measure has been increased from 20% to 25%.
> To further reduce the number of measures, the EBITDA measure has been removed and the weighting for the Cash flow measure has been
increased to 25%.
> The Relative TSR measure and weighting remains unchanged.
PSP performance measure
Accelerate Innovative Science
Deliver Growth and Therapy Area
Leadership (Total Revenue)
Cash flow
Relative TSR
Measure weighting Underlying metrics (if applicable)
Metric weighting
Threshold
(20%
vesting)
Maximum
(100%
vesting)
30% NME Phase III/registrational volume
Regulatory events
12%
18%
8
11
15
22
25%
25%
20%
Commercially sensitive
until end of
performance period
$12.5bn
Median
$17.5bn
Upper
quartile
(cid:38)
o
r
(cid:83)
o
r
a
t
e
(cid:42)
o
v
e
r
n
a
n
c
e
Regulatory events measure NME and major life-cycle management approvals (taking into account the first approval over the performance
period). NME Phase III/registrational volume measures the total NME pipeline volume at the end of the performance period. These two items
ensure that management are assessed on both R&D late-stage delivery (approvals) and also future pipeline sustainability (volume).
Disclosing the threshold and maximum hurdles for the Deliver Growth and Therapy Area Leadership (Total Revenue) measure could be
construed to constitute financial guidance, which is not the Company’s intention. The Total Revenue measure is thus considered to be
commercially sensitive and will be disclosed following the end of the performance period.
The Total Revenue measure is 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 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 147.
As described on page 131, the Committee 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. The Committee will take consensus into account when
determining the appropriate level of stretch.
PSP awards are expected to be granted to the Executive Directors in March 2020. The PSP award to be granted to Mr Soriot will be equivalent
to 500% of base salary. Subject to the approval of the Directors’ Remuneration Policy and amended rules of the PSP at the Company’s AGM on
29 April 2020, a further PSP award will be granted to Mr Soriot equivalent to 50% of base salary, bringing Mr Soriot’s total PSP award for 2020
in line with the maximum opportunity under the Policy.
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort on (cid:53)e(cid:80)uneration
(cid:20)(cid:23)(cid:20)
Annual Report
on (cid:53)e(cid:80)uneration
continued
(cid:49)on-(cid:40)(cid:91)ecutive (cid:39)irectors(cid:350) re(cid:80)uneration
(cid:49)on-(cid:40)(cid:91)ecutive (cid:39)irectors(cid:350) sing(cid:79)e tota(cid:79) figure of re(cid:80)uneration for (cid:21)(cid:19)(cid:20)(cid:28)
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 2019, alongside comparative figures for the prior year.
Audited
Leif Johansson
Geneviève Berger
Philip Broadley
Graham Chipchase
Michel Demaré – appointed 1 September 2019
Deborah DiSanzo
Sheri McCoy
Tony Mok – appointed 1 January 2019
Nazneen Rahman
Marcus Wallenberg
Former Non-Executive Directors
Rudy Markham – retired 26 April 2019
Shriti Vadera – retired 31 December 2018
Total
2019
Fees
£’000
2018
Fees
£’000
625
110
144
158
36
108
123
103
118
103
44
–
625
110
108
128
–
73
96
–
110
103
178
113
2019
Other
£’000
72
2018
Other
£’000
65
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2019
Total
£’000
2018
Total
£’000
697
110
144
158
36
108
123
103
118
103
44
–
690
110
108
128
–
73
96
–
110
103
178
113
1,672
1,644
72
65
1,744
1,709
The Chairman’s single total figure includes office costs (invoiced in Swedish krona) of £72,000 for 2019 and £65,000 for 2018.
Payments to former Directors
During 2019, no payments were made to former Directors.
Payments for loss of office
During 2019, no payments were made to Directors for loss of office.
(cid:49)on-(cid:40)(cid:91)ecutive (cid:39)irectors(cid:350) fee structure
The Non-Executive Directors’ fee structure that applied during 2019 is set out below, alongside the structure that will be in place during 2020. No
changes have been made to fees for 2020. Further information on the Non-Executive Directors’ fee structure can be found within the
Remuneration Policy on page 159.
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
(cid:20) The Chairman does not receive any additional fees for chairing, or being a member of, a committee.
(cid:21) This fee is in addition to the fee for membership of the relevant committee.
2020
£’000
625
2019
£’000
625
88
30
20
15
25
15
15
7.5
88
30
20
15
25
15
15
7.5
(cid:41)ees in res(cid:83)ect of (cid:40)(cid:91)ecutive (cid:39)irectors(cid:350) e(cid:91)terna(cid:79) a(cid:83)(cid:83)oint(cid:80)ents
Marc Dunoyer is a non-executive director of Orchard Therapeutics. During 2019, Mr Dunoyer received a gross fee of £36,000 from Orchard
Therapeutics, which he retained in full.
(cid:20)(cid:23)(cid:21)
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:38)or(cid:83)orate (cid:42)overnance
Directors’ shareholdings
(cid:48)ini(cid:80)u(cid:80) shareho(cid:79)ding re(cid:84)uire(cid:80)ents
The CEO and CFO are each required to build a shareholding to satisfy their respective minimum shareholding requirements, each within five years of
their dates of appointment. During 2019, the minimum shareholding requirements for the CEO and CFO were set at 300% and 200% of base salary
respectively. 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. On this basis, as at 31 December 2019, Mr Soriot and Mr Dunoyer held shares worth
1,265% and 2,028% of base salary respectively and had fulfilled their minimum shareholding requirements.
Audited
A further post-employment shareholding requirement applies to 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
45,353
145,581
Shares subject
to deferral and
holding periods
Shares subject
to performance
conditions
337,847
116,858
377,991
178,385
Value of shares
counted towards
MSR as a % of
base salary1
1,265%
2,028%
300%
CEO
CFO
200%
(cid:20) (cid:57)alue of shares held beneficiall(cid:92) and shares sub(cid:77)ect to deferral and holding periods, calculated net of a theoretical (cid:24)0(cid:8) tax rate,
Key:
(cid:21)(cid:19)(cid:20)(cid:28) (cid:48)(cid:54)(cid:53)
(cid:54)hares counted to(cid:90)ards (cid:48)(cid:54)(cid:53)
as at 31 December 2019.
(cid:38)
o
r
(cid:83)
o
r
a
t
e
(cid:42)
o
v
e
r
n
a
n
c
e
1,265%
2,028%
It is proposed that the minimum shareholding requirements for the CEO and CFO be increased to 550% and 400% of base salary respectively on
approval of the proposed Directors’ Remuneration Policy at the 2020 AGM.
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 2019) or, in the case of the Chairman, approximately equivalent to
his basic annual fee (£625,000 during 2019). All Non-Executive Directors who had served for a period of three years or more as at 31 December
2019 held sufficient shares to fulfil this expectation.
(cid:39)irectors(cid:350) interests as at (cid:22)(cid:20) (cid:39)ece(cid:80)ber (cid:21)(cid:19)(cid:20)(cid:28)
The following table shows the beneficial interests of the Directors (including the interests of their connected persons) in Ordinary Shares as at
31 December 2019.
Executive Directors
Pascal Soriot
Marc Dunoyer
Non-Executive Directors
Leif Johansson
Geneviève Berger
Philip Broadley
Graham Chipchase
Michel Demaré1
Deborah DiSanzo
Sheri McCoy
Tony Mok2
Nazneen Rahman
Marcus Wallenberg3
Beneficial interest in
Ordinary Shares at
31 December 2019
Beneficial interest in
Ordinary Shares at
31 December 2018
45,353
145,581
39,009
2,090
5,735
3,000
–
1,000
1,736
–
500
60,028
12,498
132,243
39,009
2,090
5,215
3,000
n/a
500
500
n/a
500
63,646
(cid:20) Michel Demar(cid:168) was appointed on 1 September 2019.
(cid:21) (cid:55)on(cid:92) Mok was appointed on 1 Januar(cid:92) 2019
3 Marcus (cid:58)allenberg(cid:350)s shareholding at 31 December 2019 is lower than the holding at 31 December 2018 due to the disaggregation of a connected person(cid:350)s holding during the (cid:92)ear.
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort on (cid:53)e(cid:80)uneration
(cid:20)(cid:23)(cid:22)
Annual Report
on (cid:53)e(cid:80)uneration
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
24/03/2016
24/03/2017
23/03/2018
08/03/2019
27/03/2015
24/03/2016
24/03/2017
23/03/2018
08/03/2019
11/06/2013
28/03/2014
27/03/2015
24/03/2016
Grant date
24/03/2016
24/03/2017
23/03/2018
08/03/2019
27/03/2015
24/03/2016
24/03/2017
23/03/2018
08/03/2019
01/08/2013
28/03/2014
27/03/2015
24/03/2016
Shares
outstanding at
1 January 2019
Grant
price
(pence)
Shares
granted
in year
17,352
7,968
13,157
–
80,668
129,713
125,009
128,889
–
89,960
20,677
17,460
21,618
652,471
3923
4880
4853
6287
4762
3923
4880
4853
6287
3297
3904
4762
3923
–
–
–
9,849
–
–
–
–
102,475
–
–
–
–
Shares outstanding at
31 December 2019
Shares
lapsed
in year
Shares
subject to
performance
Shares
in holding
period
Performance
period end
Vesting and
release date
–
–
–
–
–
27,240
–
–
–
–
–
4,365
n/a
n/a
n/a
n/a
–
–
–
n/a 24/03/20191
7,968
13,157
9,849
n/a 24/03/2020
n/a 23/03/2021
n/a
08/03/20222
80,668 31/12/2017
27/03/2020
102,473
31/12/2018
24/03/20213
125,009
128,889
102,475
– 31/12/2019
24/03/2022
– 31/12/2020
23/03/2023
–
31/12/2021
08/03/20244
–
–
–
89,960 31/12/2016
01/01/2021
20,677 31/12/2017
01/01/2022
13,095
31/12/2018
01/01/20235
–
21,618
– 31/12/2019
01/01/2024
Shares
released
in year
17,352
–
–
–
–
–
–
–
–
–
–
–
–
112,324
17,352
31,605
377,991
337,847
Shares
outstanding at
1 January 2019
Grant
price
(pence)
Shares
granted
in year
8,798
4,262
7,037
–
35,327
54,101
59,439
61,240
–
8,176
8,709
7,646
9,016
3923
4880
4853
6287
4762
3923
4880
4853
6287
3302
3904
4762
3923
–
–
–
4,874
–
–
–
–
48,690
–
–
–
–
Shares
released
in year
8,798
–
–
–
–
–
–
–
–
–
–
–
–
Shares outstanding at
31 December 2019
Shares
lapsed
in year
Shares
subject to
performance
Shares
in holding
period
Performance
period end
Vesting and
release date
–
–
–
–
–
11,362
–
–
–
–
–
1,912
n/a
n/a
n/a
n/a
–
–
59,439
61,240
48,690
–
4,262
7,037
4,874
n/a 24/03/20191
n/a 24/03/2020
n/a 23/03/2021
n/a
08/03/20222
35,327 31/12/2017
27/03/2020
42,739
31/12/2018
24/03/20213
– 31/12/2019
24/03/2022
– 31/12/2020
23/03/2023
–
31/12/2021
08/03/20244
–
–
–
8,176 31/12/2016
01/01/2021
8,709 31/12/2017
01/01/2022
5,734
31/12/2018
01/01/20235
–
9,016
– 31/12/2019
01/01/2024
263,751
53,564
8,798
13,274
178,385
116,858
(cid:20) Market price on 29 March 2019, the actual date of release was 613(cid:24) pence.
(cid:21) Award granted following deferral of one third of the annual bonus earned in respect of performance during 2018, further detail on page 137.
3 79(cid:8) of the shares entered the holding period, following assessment of performance over the period to 31 December 2018. (cid:55)he remaining shares lapsed.
(cid:23) Details of PSP awards granted during 2019 are shown from page 139.
5 7(cid:24)(cid:8) of the shares entered the holding period, following assessment of performance over the period to 31 December 2018.
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 2019 and 14 February 2020, there was no change in the interests in Ordinary Shares shown in the tables on pages 143 and 144.
(cid:20)(cid:23)(cid:23)
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:38)or(cid:83)orate (cid:42)overnance
(cid:53)e(cid:80)uneration in the (cid:90)ider conte(cid:91)t
In our Corporate Governance Report on page 107, we explain in detail how the Board has chosen to engage with AstraZeneca’s workforce, and
how important engagement with our employees is if we are to be a great place to work and continue to deliver outstanding performance. The
Directors believe that the Board as a whole should continue to take responsibility for gathering the views of the workforce. Consequently, instead
of implementing one of the three methods for workforce engagement prescribed in the 2018 UK Corporate Governance Code, the Board has
chosen to further enhance and develop the long-standing channels of engagement which already exist in the organisation to ensure that the
Board continues to understand the global workforce’s views on a wide variety of topics, including matters relating to remuneration.
For example, Directors (including members of the Remuneration Committee) have participated in hosting ’town hall’ style meetings for employees
and visiting AstraZeneca sites across the world during 2019, enabling direct engagement with employees. Remuneration Committee members
review wide ranging data focusing on employee reward, as well as broader information on workforce trends and culture which is provided to the
full Board. Decisions of the Remuneration Committee affecting employees, such as annual Group scorecard outcomes, are communicated to
employees through internal communications as well as through the Remuneration Report. In the event that more significant changes to
remuneration are proposed, active engagement with employee representative groups provides feedback to help the Committee understand the
impact upon the broader workforce.
When considering executive remuneration and setting the Directors’ Remuneration Policy, the Committee takes into consideration our global
workforce, looking to ensure the global total reward offering is competitive, compelling and aligned to our business performance; while
supporting a culture where everyone feels valued and included, as outlined in the table below. Being a great place to work is one of our three
strategic priorities. We explain in our Business Review from page 44 the role that reward plays in developing a diverse culture that encourages
and rewards innovation, entrepreneurship and high performance.
(cid:38)
o
r
(cid:83)
o
r
a
t
e
(cid:42)
o
v
e
r
n
a
n
c
e
(cid:54)u(cid:80)(cid:80)ary of re(cid:80)uneration structure for e(cid:80)(cid:83)(cid:79)oyees be(cid:79)o(cid:90) the (cid:37)oard
Element
Policy features for the wider workforce
Salary
Our salary is the basis for a competitive total reward package for
all employees, and we review base pay annually. This review
takes account of relevant market comparators, the skills,
capabilities, knowledge and experience of each individual,
relative to peers within the Company and individual performance.
In setting the budget each year, we consider affordability as well
as assessing how employee pay is currently positioned relative to
market rates, forecasts of any further market increases and
turnover.
Pensions and benefits
We offer market-aligned benefit packages reflecting market
practice in each country in which we operate.
Annual bonus
Where appropriate, we offer elements of personal benefit choice
to our employees.
With the exception of our sales representatives receiving sales
related incentives, our global workforce participates in the same
annual cash bonus plan as the Executive Directors and SET, with
the same Group scorecard performance measures outlined on
pages 130 and 134. Achievement against the scorecard creates a
bonus pool from which all awards are made.
For employees within our commercial organisation, the
country-level share of the global bonus pool also takes into
account country performance against KPIs.
Individual outcomes are based on manager assessment of
performance against individual objectives and peers. Awards are
based on a 0-200% target range.
Comparison with Executive Director
and Senior Executive Team (SET) remuneration
The salaries of our Executive Directors and SET form the basis of
their total remuneration, and we review their base pay annually.
The primary purpose of the review is to ensure salary remains
competitive and reflects the value of the individual to the
organisation.
The benefit packages of our Executive Directors and SET are
broadly aligned with the wider workforce of the country in which
they are employed. Pension contributions for our Executive
Directors will be reduced under our new Directors’ Remuneration
Policy.
The bonus ranges for our Executive Directors are described on
page 149. The ranges for the SET align with the wider workforce
at 0-200% of target. One third of any award to an Executive
Director under the plan is subject to a three-year holding period
(changing to 50% deferral for the 2020 performance year
onwards). One sixth of any award to SET under the plan is subject
to a three-year holding period.
Long-term
incentives
The PSP is operated with a three-year performance period for
employees at Vice-President and Senior Vice-President level,
with the same performance measures that apply to Executive
Director and SET PSP awards (outlined on pages 130 and 138).
PSP awards to Executive Directors and SET are granted under
the same plan as PSP awards granted to employees. PSP awards
to Executive Directors and SET are subject to a two-year holding
period following the three-year performance period.
A proportion of our workforce below Vice-President level are
eligible to be considered for other long-term incentive awards,
such as restricted stock awards.
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort on (cid:53)e(cid:80)uneration
(cid:20)(cid:23)(cid:24)
Annual Report
on (cid:53)e(cid:80)uneration
continued
(cid:53)e(cid:80)uneration in the (cid:90)ider conte(cid:91)t continued
(cid:38)hange in (cid:38)(cid:40)(cid:50) re(cid:80)uneration co(cid:80)(cid:83)ared to other e(cid:80)(cid:83)(cid:79)oyees
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
(2018 to 2019). The comparator group includes employees in the UK, US and Sweden who represent approximately 29% 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 2018 and 2019 figures, allowing a meaningful comparison of salary increases.
Salary
Taxable benefits
Annual bonus
Percentage change for
CEO against 2018
Average percentage change
for employees against 2018
3.0%
2.6%
4.0%
5.5%
5.5%
4.3%
(cid:38)(cid:40)(cid:50) and e(cid:80)(cid:83)(cid:79)oyee (cid:83)ay 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).
Year
2019
20181
Pay data (£’000)
Base salary
2019
20181
1,289
1,251
CEO
Total pay
14,330
11,356
Method
25th percentile pay ratio
50th percentile pay ratio
75th percentile pay ratio
Option A
Option A
280:1
230:1
190:1
160:1
25th percentile
50th percentile
123:1
103:1
UK employees
75th percentile
Base salary
Total pay
Base salary
Total pay
Base salary
Total pay
38
36
51
49
53
50
75
71
71
70
117
110
(cid:20) 2018 figures are those disclosed in our 2018 Annual Report and have not been restated for subse(cid:84)uent share price changes (as shown in the CEO single total figure of remuneration table on page 132).
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
(LTI). The CEO pay is as shown in the single total figure of remuneration table, on page 132. For UK employees, quartile data has been determined
as at 31 December 2019, with calculations based on actual pay data for January to November 2019. Estimates have been used for December
2019 pay, annual bonus outcomes and LTI dividend equivalent payments, based on forecast December 2019 pay, the 2019 bonus budget and
anticipated dividend equivalent payments on LTI awards, respectively.
The 2019 CEO pay ratio is higher than the 2018 CEO pay ratio, increasing from 160:1 to 190:1 at the 50th percentile. The Committee reviewed
extensive analysis to explore the reasons behind the change, which was driven by a significant increase in AstraZeneca’s share price during 2019,
alongside a higher level of LTI vesting for Mr Soriot in the 2019 single total figure of remuneration. Given varied annual bonus and PSP outcomes
and share price movements, the ratios may vary significantly year-on-year. When removing LTI, the ratio of CEO pay versus the median UK
employee pay is 51:1, which remains unchanged from 2018. Assuming the implementation of the proposed change to the Directors’ Remuneration
Policy, the Committee expects the ratio excluding LTI to fall in 2020.
The Committee is mindful of debate on executive pay and seeks to ensure that when determining the remuneration of the CEO it finds the right
balance between rewarding performance in a highly competitive global executive talent market, and pay across the Group. The stability of the
ratio at the 50th percentile in 2018 and 2019, when calculated to exclude the variability of LTIs, is consistent with the pay and progression policies
for UK employees.
(cid:53)e(cid:79)ative i(cid:80)(cid:83)ortance of s(cid:83)end on (cid:83)ay
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 168, or its Consolidated Statement of Cash Flows on page 171. Further
information on the Group’s Accounting Policies can be found from page 172.
Total employee remuneration
Distributions to shareholders: dividends paid
2019
$m
7,568
3,592
2018
$m
6,970
3,484
Difference
in spend
between
years
$m
Difference
in spend
between
years
%
598
108
8.6
3.1
(cid:20)(cid:23)(cid:25)
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:38)or(cid:83)orate (cid:42)overnance
(cid:55)ota(cid:79) shareho(cid:79)der return (cid:11)(cid:55)(cid:54)(cid:53)(cid:12)
The graph below compares the TSR performance of the Company over the past ten years with the TSR of the FTSE 100 Index. This graph is
re-based to 100 at the start of the relevant period. As a constituent of the FTSE 100, this index represents an appropriate reference point for the
Company. To provide shareholders with additional context we have also included a ‘Pharmaceutical peers average’, reflecting the TSR of the
comparator group adopted in 2017 which is used to assess relative TSR performance for PSP awards granted in 2017. It consists of AbbVie, Amgen,
Astellas, BMS, Celgene, Daiichi Sankyo, Gilead, GSK, Johnson & Johnson, Lilly, MSD, Novartis, Novo Nordisk, Pfizer, Roche, Sanofi, Shire and
Takeda. Where a comparator company delisted during the 2017 PSP performance period, as the result of an acquisition, TSR performance has been
assessed up unto the point of de-listing. The TSR comparator group for PSP awards to be granted in 2020 consists of AbbVie, Amgen, Astellas,
BMS, Daiichi Sankyo, Gilead, GSK, Johnson & Johnson, Lilly, MSD, Novartis, Novo Nordisk, Pfizer, Roche, Sanofi and Takeda. CEO remuneration
over the same ten-year period is shown after the TSR graph.
TSR over a ten-year period
450
400
350
300
250
200
150
100
Jan
10
Jan
11
Jan
12
Jan
13
Jan
14
Jan
15
Jan
16
Jan
17
Jan
18
Jan
19
Dec
19
(cid:38)(cid:40)(cid:50) tota(cid:79) re(cid:80)uneration tab(cid:79)e
Year
2019
2018
2017
2016
2015
2014
2013
2012
2012
2012
2011
2010
CEO
Pascal Soriot
Pascal Soriot
Pascal Soriot
Pascal Soriot
Pascal Soriot
Pascal Soriot
Pascal Soriot
Pascal Soriot – (cid:68)(cid:83)(cid:83)(cid:82)in(cid:87)(cid:72)(cid:71)(cid:3)(cid:90)i(cid:87)(cid:75)(cid:3)(cid:72)(cid:428)(cid:72)(cid:70)(cid:87)(cid:3)(cid:73)(cid:85)(cid:82)m(cid:3)(cid:20)(cid:3)(cid:50)(cid:70)(cid:87)(cid:82)(cid:69)(cid:72)(cid:85)(cid:3)(cid:21)(cid:19)(cid:20)(cid:21)
Simon Lowth – (cid:68)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)in(cid:87)(cid:72)(cid:85)im(cid:3)(cid:38)(cid:40)(cid:50)(cid:3)(cid:73)(cid:85)(cid:82)m(cid:3)(cid:45)(cid:88)n(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:54)(cid:72)(cid:83)(cid:87)(cid:72)m(cid:69)(cid:72)(cid:85)(cid:3)(cid:21)(cid:19)(cid:20)(cid:21)(cid:3)in(cid:70)(cid:79)(cid:88)(cid:86)i(cid:89)(cid:72)
David Brennan – ceased to be a Director on 1 June 2012
David Brennan
David Brennan
AstraZeneca
Pharmaceutical peers average
FTSE 100
(cid:38)
o
r
(cid:83)
o
r
a
t
e
(cid:42)
o
v
e
r
n
a
n
c
e
CEO single
total figure of
remuneration
£’000
Annual bonus
payout against
maximum
opportunity
%
LTI vesting
rates against
maximum
opportunity
%
14,3301
12,8682
10,429
14,3423
7,963
3,507
3,344
3,6934
3,289
4,1476
7,863
9,690
83
83
87
54
97
94
94
68
86
74
90
7
90
79
81
95
78
–
–
–
385
38
62
100
(cid:20) (cid:55)he 2019 single total figure of remuneration table is shown on page 132.
(cid:21) (cid:55)his figure has been revised using the average closing share price over the three(cid:16)month period to 31 December 2019, as explained on page 139.
3 (cid:55)his figure includes shares awarded to Mr Soriot in 2013 under the AZIP to compensate him for (cid:47)(cid:55)Is from previous emplo(cid:92)ment forfeited on his recruitment as the Compan(cid:92)(cid:350)s CEO.
(cid:23) (cid:55)his figure includes (cid:101)991,000 paid to compensate Mr Soriot in respect of his forfeited bonus opportunit(cid:92) for 2012 and an award of (cid:101)2,000,000 to compensate him for his loss of (cid:47)(cid:55)I awards, both
in respect of his previous employment.
5 Mr (cid:47)owth(cid:350)s (cid:47)(cid:55)I awards which vested during 2012 were not awarded or received in respect of his performance as Interim CEO.
(cid:25) (cid:55)his figure includes Mr (cid:37)rennan(cid:350)s pa(cid:92) in lieu of notice of (cid:101)91(cid:23),000.
7 Mr (cid:37)rennan 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. (cid:55)he Committee determined that no such bonus would
be awarded and also that there should be no bonus award relating to his contractual notice period.
(cid:42)overnance
(cid:38)o(cid:80)(cid:80)ittee (cid:80)e(cid:80)bershi(cid:83)
During 2019, the Committee members were Graham Chipchase (Chairman of the Committee), Leif Johansson, Sheri McCoy, Philip Broadley and
Rudy Markham. Rudy Markham retired as a Director of AstraZeneca on 26 April 2019. The Deputy Company Secretary acts as secretary to the
Committee. The Committee met five times in 2019 and members’ attendance records are set out on page 97. 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 Inclusion; the Senior Director Executive Reward; 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.
(cid:55)er(cid:80)s of reference
A copy of the Committee’s terms of reference is available on our website, www.astrazeneca.com. The Committee reviewed its terms of reference
during 2019 and did not recommend any changes, having recommended certain changes in 2018 to reflect the 2018 UK Corporate Governance
Code. Those changes were approved by the Board.
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort on (cid:53)e(cid:80)uneration
(cid:20)(cid:23)(cid:26)
Annual Report
on (cid:53)e(cid:80)uneration
continued
(cid:44)nde(cid:83)endent adviser to the (cid:38)o(cid:80)(cid:80)ittee
In 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 during 2019 was
provided on a time-spend basis at a cost to the Company of £184,325, excluding VAT. During 2019, 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. WTW have no other
connection with the Company or individual Directors. The Committee reviewed the potential for conflicts of interest and judged that there were no conflicts.
WTW is a member of the Remuneration Consultants’ Group, which is responsible for the stewardship and development of the voluntary code of conduct in
relation to executive remuneration consulting in the UK. The principles on which the code is based are transparency, integrity, objectivity, competence, due
care and confidentiality. WTW adheres to the code.
(cid:51)rinci(cid:83)a(cid:79) activities focused on by the (cid:38)o(cid:80)(cid:80)ittee during (cid:21)(cid:19)(cid:20)(cid:28)
Shareholder
consultation and Policy
renewal
Review of Directors’ Remuneration Policy approved at 2017 AGM
Consultation meetings with investors and proxy voting advisory bodies on proposed changes to Policy
Drafting and approval of updated Policy to be presented for shareholder approval at 2020 AGM
Annual bonus
Share plans
Other matters
Approval of the 2018 Group scorecard outcome and determination of Executive Directors’ annual bonus awards for 2018
Review of bonuses granted to executives below SET level
Approval of Group scorecard targets used to assess 2019 annual bonus performance
Approval of 2016 PSP and 2015 AZIP performance outcomes
Approval of LTI grants
Approval of performance measures to be attached to PSP awards granted in 2019
Review of projected outcomes for outstanding PSP and AZIP awards
Updates to rules of the PSP to align with Policy, to be presented for shareholder approval at 2020 AGM
Review of an in-depth report setting out pay policies and practices for employees across the wider Group
Approval of compensation arrangements for Executive Directors and SET members for 2019
Review of AstraZeneca’s compensation strategy
Consideration of AstraZeneca’s UK gender pay gap data
Review of CEO pay ratios vs lower, median and upper quartile UK employees
Discussion of remuneration trends and shareholder views
Review of the Committee’s performance, including comments arising from the annual Board evaluation
Review of the Committee’s terms of reference
Review of remuneration adviser’s independence
Consideration of methods of engagement by the Committee with employees
(cid:54)hareho(cid:79)der voting at the (cid:36)(cid:42)(cid:48)
At the Company’s AGM on 26 April 2019, shareholders voted in favour of a resolution to approve the Annual Report on Remuneration for the year
ended 31 December 2018. The Directors’ Remuneration Policy was approved by shareholders at the Company’s AGM on 27 April 2017.
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 2018 (2019 AGM)
877,620,302
96.08
35,804,933
3.92 913,425,235
72.17
15,539,511
947,606,599
95.86
40,895,170
4.14 988,501,769
75.36
16,392,056
(cid:39)irectors(cid:350) service contracts and (cid:79)etters of a(cid:83)(cid:83)oint(cid:80)ent
The notice periods and unexpired terms of Executive Directors’ service contracts at 31 December 2019 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 2019
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 2018 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.
(cid:37)asis of (cid:83)re(cid:83)aration of this (cid:39)irectors(cid:350) (cid:53)e(cid:80)uneration (cid:53)e(cid:83)ort
This Directors’ Remuneration Report has been prepared in accordance with the Large and Medium-sized Companies and Groups (Accounts and
Reports) (Amendment) Regulations 2013 (as amended) (the Regulations). As required by the Regulations, a resolution to approve the Annual
Report on Remuneration will be proposed at the AGM on 29 April 2020.
On behalf of the Board
(cid:36) (cid:38) (cid:49) (cid:46)e(cid:80)(cid:83)
(cid:38)o(cid:80)(cid:83)any (cid:54)ecretary
(cid:20)(cid:23) (cid:41)ebruary (cid:21)(cid:19)(cid:21)(cid:19)
(cid:20)(cid:23)(cid:27)
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:38)or(cid:83)orate (cid:42)overnance
(cid:53)e(cid:80)uneration (cid:51)o(cid:79)icy
(cid:38)hanges to (cid:53)e(cid:80)uneration (cid:51)o(cid:79)icy and its i(cid:80)(cid:83)(cid:79)e(cid:80)entation
The table below summarises the main proposed changes to the Directors’ Remuneration Policy (the Policy), the intended changes to
implementation of the Policy in 2020 and the rationale for each change.
The full Policy that shareholders will be asked to approve is set out from page 150.
(cid:21)(cid:19)(cid:21)(cid:19) (cid:53)e(cid:80)uneration (cid:51)o(cid:79)icy (cid:54)u(cid:80)(cid:80)ary
Element
Proposed change to Policy
Implementation in 2020
Rationale for change
Base salary
No change
No increase for CEO or CFO
Pension
Pension for new Executive Directors will be
in line with applicable wider workforce
levels
Current CEO and CFO pensions capped
and reduced to bring levels in line with the
applicable wider workforce over time:
Reduce current CEO pension from 30%
of base salary to 20% of 2019 base
salary
> CEO capped at 20% of 2019 salary
(£257,706)
> CFO capped at 24% of 2019 salary
(£183,670)
Thereafter, current CEO and CFO pensions
to be capped at specified monetary values
Annual bonus
Increase mandatory deferral into shares
from 33% to 50% of total bonus earned
Bonus will be below Policy maximum for
2020, as follows:
No change to Policy maximum of 250%
of base salary
CEO bonus:
> Target: 100% of base salary
> Max: 200% of base salary (2019: 180%)
CFO bonus:
> Target: 90% of base salary
> Max: 180% of base salary (2019: 150%)
Simplify from five performance measures
to four
Performance Share
Plan (PSP)
Increase maximum opportunity from
500% to 550% of base salary
Increase CEO PSP award from 500% to
550% of base salary
Shareholding
requirements
CFO PSP award of 400% of base salary
Simplify from five performance measures
to four
Increase shareholding requirements to
mirror annual PSP opportunity:
> Shareholding requirement for CEO
increases from 300% to 550% of base
salary
> Shareholding requirement for CFO
increases from 200% to 400% of base
salary
Executive Directors required to hold up to
100% of their shareholding requirement for
two years after leaving office
Significant reduction to pension for
incumbent CEO in response to investor
feedback and 2018 UK Corporate
Governance Code
Aligns Executive Director pension
contributions with those of applicable
wider workforce over time
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0 – 200% range brings the calculation of
bonus for CEO in line with the scorecard
for our wider workforce
Deferral reduces annual cash
compensation and strengthens alignment
with long-term interests of shareholders
Reduced number of performance
measures simplifies performance
assessment. Performance measures
continue to be rigorously tested to ensure
stretching performance targets are set for
each measure
Closing the gap to market pay levels within
the competitive global pharmaceutical
talent pool
Increase weighting on long-term
performance
Reduced number of performance
measures simplifies performance
assessment. Performance measures
continue to be rigorously tested to ensure
stretching performance targets are set for
each measure
Ensures further alignment with
shareholders during and post-employment
and complies with the 2018 UK Corporate
Governance Code
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:53)e(cid:80)uneration (cid:51)o(cid:79)icy
(cid:20)(cid:23)(cid:28)
(cid:53)e(cid:80)uneration (cid:51)o(cid:79)icy
continued
(cid:53)e(cid:80)uneration (cid:51)o(cid:79)icy
This section sets out the Directors’ Remuneration Policy (the Policy) proposed for approval by shareholders at the Company’s AGM on 29 April
2020. Subject to shareholder approval, the Policy is intended to remain in effect for three years from the 2020 AGM. The previous page
summarises how the Policy differs from the policy which was approved by shareholders at the 2017 AGM.
Setting the Policy
The Remuneration Committee (the Committee) is responsible for setting overall remuneration policy and makes decisions about specific
remuneration arrangements in the broader context of employee remuneration throughout the Group. The Committee reviews Group remuneration
data annually, including ratios of average pay to senior executive pay; bonus data; and gender and geographical data in relation to base salaries
and variable compensation. This includes a workforce remuneration review to understand the ways in which reward is differentiated by
performance across the population.
Remuneration for all roles within the organisation is benchmarked against that for comparable roles in similar organisations and in the employee’s
local market. Executive Directors’ remuneration is benchmarked against a global pharmaceutical peer group and the FTSE30. In reviewing the
base salaries of Executive Directors, the Committee considers the overall level of any salary increases being awarded to employees in the
Executive Director’s local market in the relevant year. In setting, reviewing and implementing the Policy, the Committee seeks independent advice
and ensures that no Director makes decisions relating to their own remuneration. The Committee connects with the Audit Committee to ensure
that the Group’s remuneration policies and practices achieve the right balance between appropriate incentives to reward good performance,
management of risk, and the pursuit of the Company’s business objectives.
The Board as a whole takes responsibility for gathering the views of AstraZeneca’s workforce, and does so through multiple channels of
engagement. While the Committee does not consult employees specifically when setting the Executive Directors’ remuneration policy, the
Company engages with employees, either on a Group-wide basis or in the context of smaller focus groups, to solicit feedback generally on a wide
range of matters, including pay. Many employees are also shareholders in the Company and therefore have the opportunity to vote on the Policy
at the 2020 AGM.
In all aspects of its work, the Committee considers both the external environment in which the Company operates and the guidance issued by
organisations representing institutional shareholders. It consults the Company’s major investors on general and specific remuneration matters
and provides opportunities for representatives of those investors to meet the Chairman of the Committee and other Committee and Board
members. It is the Company’s policy to seek input from major shareholders on an ad hoc basis when significant changes to remuneration
arrangements are proposed. A thorough consultation process was undertaken as this Policy was developed, with investors’ feedback on the
Committee’s proposals influencing the final Policy. The Company’s shareholders are encouraged to attend the AGM and any views expressed will
be considered by Committee members.
Legacy arrangements
The Committee may approve remuneration payments and payments for loss of office on terms that differ to the terms in the Policy where the
terms of the payment were agreed before the Policy came into effect or were agreed at a time when the relevant individual was not a Director of
the Company (provided that, in the opinion of the Committee, the agreement was not entered into in consideration for the individual becoming a
Director of the Company). This includes the exercise of any discretion available to the Committee in connection with such payments. For these
purposes, payments include the Committee satisfying awards of variable remuneration, including share awards, in line with the terms agreed at
the time the award was granted.
Minor amendments
The Committee may make minor amendments to the arrangements for Directors described in the Policy without shareholder approval for
regulatory, exchange control, tax or administrative purposes or to take account of a change in legislation.
(cid:20)(cid:24)(cid:19)
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:38)or(cid:83)orate (cid:42)overnance
(cid:53)e(cid:80)uneration (cid:51)o(cid:79)icy for (cid:40)(cid:91)ecutive (cid:39)irectors
(cid:41)i(cid:91)ed e(cid:79)e(cid:80)ents of re(cid:80)uneration(cid:29) base sa(cid:79)ary(cid:15) benefits and (cid:83)ension
Base salary
Purpose and link to strategy
Operation
Maximum opportunity
Intended to be sufficient to
attract, retain and develop
high-calibre individuals.
When setting base salary, the Committee gives consideration
to a number of factors, including (but not limited to):
> recognition of the value of an individual’s personal
performance and contribution to the business
> the individual’s skills and experience
> internal relativities
> conditions in the relevant external market
While there is no formal maximum, any increases in base
salary will normally be in line with the percentage
increases awarded to the employee population within the
individual’s country location.
Higher increases may be made if the Committee
considers it appropriate, for example to reflect:
> an increase in the scope and/or responsibility of the
Base salaries are normally reviewed annually with any change
usually taking effect from 1 January.
individual’s role; or
> development of the individual within the role.
Benefits
Purpose and link to strategy
Operation
Maximum opportunity
(cid:38)
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Intended to provide a market
competitive benefits package
sufficient to attract, retain and
develop high-calibre individuals.
The maximum value of the benefits available will be
equivalent to the cost to the Company of the suite of
benefits available in the local market at the time.
The value of the support towards the costs of relocation,
professional fees and other costs will be the reasonable
costs associated with the Executive Director’s particular
circumstances.
The maximum value of the directors’ and officers’ liability
insurance and third-party indemnity insurance is the cost
at the relevant time.
While the Committee has not set an overall level of benefit
provision, the Committee keeps the benefit policy and
benefit levels under review.
UK Executive Directors are provided with a fund, the value of
which is based on a range of benefits, including private
medical provision for partner and children; life assurance;
permanent health provision; company car; additional holidays
and other additional benefits made available by the Company
from time to time that the Committee considers appropriate
based on the Executive Director’s circumstances.
A Director may choose to take a proportion of, or the entire,
fund as cash.
Non-UK-based Executive Directors will receive a range of
benefits (or a fund of equivalent value) comparable to those
typically offered in their local market. Depending on local
market practices, they may be able to elect to take the fund as
cash or elect to take one or more of these benefits and take the
balance as cash.
At its discretion, the Committee may consider support towards
reasonable costs associated with relocation and/or provide an
allowance towards reasonable fees for professional services
such as legal, tax, property and financial advice. The Company
may also fund the cost of a driver and car for Executive
Directors and any expenses deemed to be taxable which are
reasonably incurred in the course of the Company’s business,
together with any taxes thereon.
The Company provides directors’ and officers’ liability
insurance and an indemnity to the fullest extent permitted by
law and the Company’s Articles.
Pension
Purpose and link to strategy
Operation
Maximum opportunity
Provision of retirement benefits
to attract, retain and develop
high-calibre individuals.
UK-based Executive Directors receive a pension allowance
based on a percentage of base salary, which the Director may
elect to pay into a pension scheme (or an equivalent
arrangement) or take as cash.
The maximum pension allowance that may be provided to
UK-based Executive Directors appointed after 1 January
2019 shall be capped at a level in line with the pension
arrangements of other UK employees.
Non-UK-based Executive Directors will receive an allowance
for the purpose of providing retirement benefits in line with
local market practice. A non-UK-based Executive Director may
be offered the opportunity to elect to take some or all of the
allowance as cash.
The maximum value that may be provided to non-UK-
based Executive Directors will be aligned with employees
in the relevant local market.
Pension arrangements for Pascal Soriot and Marc
Dunoyer have been frozen at fixed monetary values.
These are equivalent to 20% of 2019 base salary for
Pascal Soriot (£257,706) and equivalent to 24% of 2019
base salary for Marc Dunoyer (£183,670).
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:53)e(cid:80)uneration (cid:51)o(cid:79)icy
(cid:20)(cid:24)(cid:20)
(cid:53)e(cid:80)uneration (cid:51)o(cid:79)icy
continued
(cid:53)e(cid:80)uneration (cid:51)o(cid:79)icy for (cid:40)(cid:91)ecutive (cid:39)irectors continued
(cid:57)ariab(cid:79)e e(cid:79)e(cid:80)ents of re(cid:80)uneration(cid:29) annua(cid:79) bonus and (cid:79)ong-ter(cid:80) incentive
Annual bonus and Deferred Bonus Plan (DBP)
Purpose and link to strategy
Operation
Maximum opportunity
The maximum annual bonus amount that can be awarded
is equivalent to 250% of base salary.
If the Committee believed it to be in the interests of
shareholders to award an annual bonus exceeding the
equivalent of 200% of base salary, it would consult major
shareholders in advance.
The annual bonus incentivises
and rewards short-term
performance against Group
targets and individual objectives
that are closely aligned to the
Company’s strategy.
The deferred share element of
the annual bonus is designed to
align Executive Directors’
interests with those of
shareholders.
Annual bonus awards are conditional on performance.
Performance is measured over one year and the bonus, if
awarded, is paid after the year end. Normally half of the bonus
is delivered in cash and half is delivered in shares, which are
deferred for three years under the DBP. DBP awards may
consist of Ordinary Shares or American Depositary Shares
(ADSs) depending on the country in which the Director is
based. In line with the approach for other employees, a
Director may be offered the opportunity to elect to defer part
of their cash bonus into pension.
Stretching Group targets are set annually by the Committee
based on the key strategic priorities for the year. The
performance targets form a Group scorecard, which is closely
aligned to the Company’s strategy, and are designed to reward
scientific, commercial and financial success. Performance is
assessed in relation to each performance target on a
standalone basis. A threshold level of performance is
specified; if performance falls below this level, there will be
no payout for that proportion of the award.
Payout levels are determined by the Committee after the year
end, based on performance against the Group scorecard
targets as well as each Executive Director’s individual
performance. The Committee may use its discretion to ensure
that a fair and balanced outcome is achieved, taking into
account the overall performance of the Company and the
experience of shareholders.
On vesting of the deferred shares, shares equivalent in value
to the dividends that would have been paid during the deferral
period will be awarded to the Director.
The Committee has discretion to claw-back from individuals
some or all of the cash bonus award in certain circumstances
including (i) serious misconduct by the individual (for up to six
years from the payment date); (ii) material misstatement or
restatement of the results of the Group (for up to two years
from the payment date); or (iii) significant reputational damage
to the Group (for up to two years from the payment date).
For shares under the DBP, the Committee has discretion to
reduce or cancel any portion of an unvested deferred bonus
share award in certain circumstances (malus) including (i)
serious misconduct by the individual; (ii) material misstatement
or restatement of the results of the Group; or (iii) significant
reputational damage to the Group. The Committee also has
discretion to claw-back from individuals some or all of the
deferred bonus share award in certain circumstances,
including (i) serious misconduct by the individual (for up to
six years from the vesting date); (ii) material misstatement or
restatement of the results of the Group (for up to two years
from the vesting date); or (iii) significant reputational damage
to the Group (for up to two years from the vesting date).
(cid:20)(cid:24)(cid:21)
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:38)or(cid:83)orate (cid:42)overnance
Long-term incentive (LTI): Performance Share Plan (PSP)
Purpose and link to strategy
Operation
Maximum opportunity
The maximum market value of shares that may be
awarded under the PSP in any year is equivalent to 550%
of the participant’s annual base salary at the date of grant.
(cid:38)
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The PSP is designed to align the
variable pay of Executive
Directors with the successful
execution of the Company’s
strategy.
PSP awards are conditional awards and may be granted over
Ordinary Shares or American Depositary Shares (ADSs)
depending on the country in which the Director is based.
Vesting is dependent on the achievement of stretching
performance targets and continued employment, as further
described in the Treatment of LTI and Deferred Bonus Plan
awards on cessation of employment section on page 158.
Stretching performance targets are set by the Committee at
the beginning of the relevant performance period. Performance
measures are closely aligned to the Company’s strategy and
are designed to reward scientific, commercial and financial
success. The Committee will consult with major shareholders
in advance if it proposes any material changes to the PSP
performance measures.
When selecting the performance measures for each award, the
Committee weights the performance measures as it considers
appropriate, taking into account strategic priorities. The
Committee’s intention is to exercise appropriate judgement
both when setting performance targets and assessing
outcomes, in particular so that the experience of shareholders
over time is taken into account.
Performance is normally assessed over a three-year period
commencing on 1 January in the year of grant. Shares are
subject to a two-year holding period following the performance
period, so vesting takes place on the fifth anniversary of grant.
During the holding period, no further performance measures
apply.
Typically, 20% of the proportion of a PSP award linked to
a performance measure will vest on achievement of the
threshold level of performance and 100% will vest if the
maximum level of performance is achieved in full. For relative
measures (such as relative total shareholder return (TSR)) the
threshold performance will be performance at or above
median, and maximum performance will usually be set as
achievement of performance at the upper quartile level of the
peer group. Where a performance measure permits, there will
be further vesting points between threshold and maximum
vesting levels.
The Committee may (acting fairly and reasonably) adjust or
waive a performance target if an event occurs that causes it to
believe that the performance target is no longer appropriate.
On vesting, shares equivalent in value to the dividends that
would have been paid on the vesting shares during the
performance and holding periods will be awarded to the
Director.
The Committee has discretion to reduce or cancel any portion
of an unvested award in certain circumstances (malus),
including (i) serious misconduct by the individual; (ii) material
misstatement or restatement of the results of the Group; or (iii)
significant reputational damage to the Group. The Committee
also has discretion to claw-back from individuals some or all
of the award in certain circumstances, including (i) serious
misconduct by the individual (for up to six years from the third
anniversary of the date of grant); (ii) material misstatement or
restatement of the results of the Group (for up to two years
from the third anniversary of the date of grant); and (iii)
significant reputational damage to the Group (for up to two
years from the third anniversary of the date of grant).
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:53)e(cid:80)uneration (cid:51)o(cid:79)icy
(cid:20)(cid:24)(cid:22)
(cid:53)e(cid:80)uneration (cid:51)o(cid:79)icy
continued
(cid:53)e(cid:80)uneration (cid:51)o(cid:79)icy for (cid:40)(cid:91)ecutive (cid:39)irectors continued
(cid:56)(cid:46) (cid:40)(cid:80)(cid:83)(cid:79)oyee (cid:54)hare (cid:51)(cid:79)ans
Share Incentive Plan (SIP)
Purpose and link to strategy
Operation
Maximum opportunity
Encouraging employee share
ownership
The Company operates an HM Revenue & Customs (HMRC)-
approved SIP whereby UK employees, including Executive
Directors, may elect to save a regular amount to be used to
purchase shares. The Company currently grants one matching
share in respect of every four shares purchased by the
participant.
Participants may contribute up to £150 per month from
pre-tax pay or such other maximum amount as
determined by the Company within the parameters
of applicable legislation.
Save As You Earn Share Option Scheme (SAYE)
Purpose and link to strategy
Operation
Maximum opportunity
Encouraging employee share
ownership
The Company operates an HMRC-approved SAYE whereby UK
employees, including Executive Directors, may save a regular
amount over three or five years and are granted options to
purchase shares at the end of the saving period. A maximum
discount of 20% to the market price prevailing at the date of the
commencement of the scheme applies to the option price.
Participants may save up to £500 per month from post-tax
pay or such other maximum amount as determined by the
Company within the parameters of applicable legislation.
The maximum opportunity available to participants in
a non-UK-based all-employee share scheme will be
determined by the Company within the parameters
of applicable legislation.
Historical LTI: AstraZeneca Investment Plan (AZIP)
The final grant under the AZIP took place in 2016. All extant AZIP awards have completed the relevant performance period and are now subject to
a holding period before vesting. The AZIP holding period lasts for four years following the performance period, so that vesting takes place on the
eighth anniversary of the start of the performance period. The holding period attached to the 2016 AZIP award will end on 31 December 2023.
During the holding period, no further performance measures apply. Payout of an award is subject to continued employment as further described
in the Treatment of LTI and Deferred Bonus Plan awards on cessation of employment section on page 158. On vesting, the shares equivalent in
value to the dividends that would have been paid on the vesting shares during the performance and holding periods will be awarded to the Director.
The Committee has discretion to reduce or cancel any portion of an unvested award in certain circumstances (malus), including (i) material
misstatement or restatement of the results of the Group; (ii) significant reputational damage to the Group; or (iii) serious misconduct by the
individual. The Committee has discretion to claw-back from individuals some or all of the award in certain circumstances, including (i) serious
misconduct by the individual (for up to six years from the end of the performance period); (ii) material misstatement or restatement of the results
of the Group (for up to two years from the end of the performance period); or (iii) significant reputational damage to the Group (for up to two years
from the end of the performance period).
Differences in remuneration policy for other employees
The Company’s approach to determining and reviewing the salaries of the Executive Directors and the employee population as a whole is the
same. On an annual basis the salaries for individual roles are reviewed in the context of the external market. AstraZeneca participates in annual
global compensation surveys, which provide benchmarking data for all roles within the organisation, ensuring a robust salary review process for
all roles. Employee salaries are reviewed through our annual review process. The Company seeks to provide an appropriate range of competitive
benefits, including healthcare and pension, to all employees (including Executive Directors) in the context of their local market.
Employees globally may be eligible for LTI awards in the form of the PSP and/or restricted stock units depending on their level and market. The
occupants of senior roles in the Company are currently eligible for PSP awards – these are the leaders who have the ability to directly influence
the execution of the Company’s strategic goals. A proportion of each Senior Executive Team (SET) member’s annual bonus is deferred into shares
under the DBP. An LTI award may be used for the same purpose as described above on the recruitment of employees, or, for employees other
than Directors, for retention.
(cid:20)(cid:24)(cid:23)
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:38)or(cid:83)orate (cid:42)overnance
Remuneration scenarios for Executive Directors
The charts below illustrate how much the current Executive Directors could receive under different performance scenarios in 2020. To compile the
charts, the following assumptions have been made. Dividend equivalents payable in respect of PSP awards are not included in the scenarios.
Minimum remuneration
> base salary is that applicable in 2020
> taxable benefits are those included in the Executive Directors’ single total figure of remuneration for 2019, as set out in the
table on page 132
> pension values are fixed at monetary values equivalent to 20% of 2019 base salary for Pascal Soriot and equivalent to 24%
of 2019 base salary for Marc Dunoyer
Pascal Soriot (CEO)
Marc Dunoyer (CFO)
Base salary
£’000
Taxable benefits
£’000
1,289
765
124
63
Pension
£’000
258
184
Total
£’000
1,671
1,012
Remuneration for performance
in line with the Company’s
expectations
> annual bonus payout is equivalent to 100% of 2020 base salary for Pascal Soriot and 90% of 2020 base salary for Marc
Dunoyer
> PSP share award vesting at 275% of 2020 base salary for Pascal Soriot and 200% of 2020 base salary for Marc Dunoyer
(representing 50% of the face value of the PSP award)
Maximum remuneration
> annual bonus payout equivalent to 200% of 2020 base salary for Pascal Soriot and 180% of 2020 base salary for Marc
Dunoyer
> PSP share award vesting at 550% of 2020 base salary for Pascal Soriot and 400% of 2020 base salary for Marc Dunoyer
(representing 100% of the face value of the PSP award)
Share price appreciation
> the potential impact of share price appreciation on PSP award values in the maximum remuneration scenario is illustrated,
assuming a 50% increase on the share price at grant
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Pascal Soriot
Minimum
In line
Maximum
Share price appreciation
100%
26% 20%
54%
15%
11%
23%
17%
62%
48%
24%
Marc Dunoyer
Minimum
In line
Maximum
Share price appreciation
£1.7m
£6.5m
£11.3m
£14.9m
100%
31%
21%
48%
19%
14%
25%
20%
56%
44%
22%
£1.0m
£3.2m
£5.5m
£7.0m
Fixed remuneration
Annual bonus
Long-term incentive
Share price appreciation
Approach to recruitment remuneration for Executive Directors
On the recruitment of a new Executive Director, the Committee seeks to pay no more than is necessary to attract and retain the best candidate
available, within the limits of our approved Remuneration Policy. The Committee will offer a remuneration package that it considers appropriate in
the particular circumstances of the recruitment, giving due regard to the interests of the Company’s shareholders and taking into account factors
such as typical market practice, existing arrangements for the other Executive Directors, internal relativities and market positioning.
The pharmaceutical industry is global and future Executive Directors might be recruited from organisations with pay structures and practices that
differ from AstraZeneca’s usual remuneration policy. The Committee believes that it is in the interests of shareholders for it to retain an element of
flexibility in its approach to recruitment to enable it to attract the best candidates; however, this flexibility is limited.
The Committee may find it necessary to compensate a new recruit for forfeiture of entitlements as a consequence of the recruit leaving his or her
previous employment to join AstraZeneca. There is no limit to the value of such buy-out award, however the Committee will rigorously consider
the appropriate value so as not to pay more than the compensation being forfeited. The Committee will seek to offer a package weighted towards
equity in the Company, and will usually seek to use the PSP as the primary vehicle for buy-out awards where possible; however, the precise
nature of the compensation arrangement will depend on the type of entitlement being forfeited. The arrangement might therefore comprise a
combination of cash, share awards granted under the PSP (subject to the Policy maximum), and other restricted shares. The Committee may
introduce a one-off arrangement as permitted under Listing Rule 9.4.2 in order to deliver a restricted share award. Malus and claw-back provisions
would normally apply to buy-out awards, for the same reasons as detailed under the DBP and PSP.
Restricted share awards will only be granted as part of recruitment arrangements to compensate for loss of remuneration opportunities suffered
on leaving previous employment.
The Committee considers whether the lost incentives were subject to performance targets and their probability of vesting. The normal approach
is to seek broadly to mirror the timing of vesting and application of performance targets of the compensation being forfeited. For example, a
buy-out award may be granted without performance conditions where the foregone compensation was not subject to performance testing,
however the Committee may apply appropriate performance measures if it considers it appropriate.
The Committee may allow a restricted share award to vest in tranches at different points. If no performance targets are attached to a
compensatory award, it will vest in full if the individual remains in employment on the vesting date. On vesting, shares equivalent in value to the
dividends that would have been paid during the vesting period will be awarded to the Director.
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:53)e(cid:80)uneration (cid:51)o(cid:79)icy
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(cid:53)e(cid:80)uneration (cid:51)o(cid:79)icy
continued
(cid:53)e(cid:80)uneration (cid:51)o(cid:79)icy for (cid:40)(cid:91)ecutive (cid:39)irectors continued
All other aspects of a new recruit’s compensation opportunity will be subject to the maxima stated in the Policy. In the case of Group employees
who are promoted internally to the position of Executive Director, the Committee intends to honour all remuneration arrangements entered into
before the promotion.
The Company may reimburse the costs of financial planning, legal and tax advice and reasonable costs incurred on recruitment, including
relocation support.
Service contracts for Executive Directors
Save as noted below, it is not intended that service contracts for new Executive Directors will contain terms that are materially different from those
summarised below or contained in the Policy as set out in this Remuneration Policy Report. The contractual obligations below are applicable to
each of the current Executive Directors unless stated otherwise. Copies of the Executive Directors’ service contracts can be inspected at the
Company’s Registered Office.
Notice period
Payments in
lieu of notice
The service contracts of Executive Directors do not have a fixed term but the Company may terminate employment by giving
not less than 12 months’ written notice. The Company may agree on appointment that any notice given by the Company will
not expire prior to the second anniversary of the commencement date of the Executive Director’s appointment. Executive
Directors may terminate their employment on 12 months’ written notice.
The Company may terminate an Executive Director’s contract at any time with immediate effect and pay a sum in lieu of
notice. This sum will consist of (i) the base salary that they would have been entitled to receive during the notice period and
(ii) the cost to the Company of funding the benefit arrangements for this period, including the Company’s contribution in
respect of pension.
Garden leave
The Company has the right to place the Executive Director on ‘garden leave’.
Summary termination
The Company may terminate employment summarily in particular defined circumstances such as gross misconduct, with no
further payment.
Payments in
lieu of holiday
If, on termination, the Executive Director has exceeded their accrued holiday entitlement, the value of this excess may be
deducted by the Company from any sums payable. If the Executive Director has unused holiday entitlement, the Committee
has discretion to require the Executive Director to take such unused holiday during any notice period or make a payment in
lieu of it calculated in the same way as the value of any excess holiday.
Directors’ and officers’ liability
insurance
Directors’ and officers’ liability insurance and an indemnity to the fullest extent permitted by law and the Company’s Articles
is provided for the duration of an Executive Director’s employment and for a minimum of five years following termination.
Deemed
treatment
under AZIP
In respect of awards made to compensate Mr Soriot for loss of remuneration opportunity at his previous employer, if Mr
Soriot gives notice of termination of his employment after the end of the performance period under the AZIP but before the
end of the holding period, the award under the AZIP will vest on the earlier of the end of the holding period and the end of
the period of 24 months from the date of cessation of employment, unless the Committee determines otherwise.
Principles of payment for loss of office for Executive Directors
The Company does not make additional payments for loss of office, other than, as appropriate, payments in lieu of notice as described above or
payments in respect of damages if the Company terminates an Executive Director’s service contract in breach of contract (taking into account, as
appropriate, the Director’s responsibility to mitigate any losses). The Committee has discretion to award payments in certain circumstances, as
set out on the following page, depending on the nature of the termination and the Executive Director’s performance. The LTI plans are governed
by plan rules, which define how individual awards under those plans should be treated upon termination of employment and corporate activity,
including sale of a business outside the Group. The treatment of awards in these circumstances will be determined according to the rules and
subject to Committee discretion. Aside from the reasons relating to corporate activity, generally, awards under LTI plans will only be allowed to
vest for those Executive Directors who leave the Company in circumstances such as ill-health, injury, disability, redundancy or retirement, or any
other reason the Committee considers appropriate, or where employment terminates by reason of the Executive Director’s death (see the table on
page 158 for further information). Awards that are allowed to vest will typically be pro-rated for time, subject to the Committee’s discretion. In
addition to any payment in lieu of notice, the individual components of remuneration and other payments which may be payable on loss of office
are set out on the following pages, subject to the terms of any applicable bonus rules or share plan rules. No awards will vest where an individual
has been dismissed for cause.
(cid:20)(cid:24)(cid:25)
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Annual bonus
At the discretion of the Committee, an Executive Director may receive a bonus for the performance year in which they leave the Company.
Typically, this sum will reflect a bonus pro-rated for the part of the year in which they worked. This will depend on the circumstances, including an
assessment of performance against the scorecard and the Executive Director’s performance in the relevant period and the circumstances of their
departure, and may be in such proportion of cash and/or shares as the Committee will determine. The deferred share element of previous
bonuses granted, and any deferred share element of the bonus awarded in respect of the departing year, may still vest for the benefit of the
departing Executive Director at the end of the period of deferral. The Committee has the discretion to accelerate and/or retain the deferral period
and allow shares to vest for the benefit of the Executive Director on their departure and/or in accordance with the vesting schedule as the case
may be.
LTI plans
The LTI plan rules envisage circumstances under which some, all or none of the shares held under LTI plans will vest in connection with departure.
The exact timing and number of shares vesting will depend on the circumstances, including the reason for leaving (as set out in the table on page
158) and may be subject to Committee discretion, depending on what it considers to be fair and reasonable in the circumstances.
Restricted share awards
The treatment on termination will depend upon the terms of the individual Executive Director’s awards on recruitment. The Committee has
discretion to determine the treatment at the time of departure based on what it considers to be fair and reasonable in the circumstances.
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Non-statutory redundancy payment
Executive Directors are not entitled to non-statutory redundancy payments.
Pension contributions and other benefits
Pension contributions and other benefits for Executive Directors will be payable up to the termination date or as part of a payment in lieu of notice
as described on page 156.
Payments in relation to statutory rights
The amount considered reasonable to pay by the Committee in respect of statutory rights may be included in the overall termination payment.
Payments required by law
The Committee reserves the right to make any other payments in connection with an Executive Director’s cessation of office or employment
where the payments are made in good faith in discharge of an existing legal obligation (or by way of damages for breach of such an obligation) or
by way of settlement of any claim arising in connection with the cessation of an Executive Director’s office or employment.
Mitigation
The departing Executive Director will be required to mitigate their loss by using reasonable efforts to secure new employment.
Professional fees
The Company may pay an amount considered reasonable by the Committee in respect of fees for legal and tax advice, and outplacement
support for the departing Executive Director.
(cid:36)stra(cid:61)eneca (cid:36)nnua(cid:79) (cid:53)e(cid:83)ort (cid:9) (cid:41)or(cid:80) (cid:21)(cid:19)-(cid:41) (cid:44)nfor(cid:80)ation (cid:21)(cid:19)(cid:20)(cid:28) (cid:18) (cid:53)e(cid:80)uneration (cid:51)o(cid:79)icy
(cid:20)(cid:24)(cid:26)
(cid:53)e(cid:80)uneration (cid:51)o(cid:79)icy
continued
(cid:53)e(cid:80)uneration (cid:51)o(cid:79)icy for (cid:40)(cid:91)ecutive (cid:39)irectors continued
(cid:55)reat(cid:80)ent of (cid:47)(cid:55)(cid:44) and (cid:39)eferred (cid:37)onus (cid:51)(cid:79)an a(cid:90)ards on cessation of e(cid:80)(cid:83)(cid:79)oy(cid:80)ent
Plan
Termination by mutual agreement (broadly in
circumstances of ill-health, injury, disability,
redundancy or retirement and in the case of death and
certain corporate events e.g. sale of a business outside
the Group)
Other leaver scenarios
Deferred Bonus Plan (Annual
bonus)
Awards will vest at the end of the relevant deferral period,
unless the Committee decides otherwise.
Ordinarily awards will lapse unless the Committee exercises
its discretion to apply the treatment for leavers by mutual
agreement.
PSP
AZIP
Restricted shares
Where cessation of employment occurs within three years of
the date of grant, awards will vest, pro rata, to the time elapsed
between the date of grant of the award and the date of
cessation of employment, after the end of the performance
period, to the extent that the performance target(s) measured
over the performance period has been met.
Other than during a holding period, ordinarily awards will
lapse unless the Committee exercises its discretion to
preserve all or part of an award and apply the default
treatment for leavers by mutual agreement as described in
this table.
This discretion will not be exercised in the case of dismissal
for gross misconduct.
However, the Committee has discretion to permit the award
to vest immediately on cessation of employment to the
extent that the performance target(s) has, in the opinion of
the Committee, been satisfied from the date of grant to the
date of cessation of employment.
However, if the Committee believes that exceptional
circumstances warrant this, it may exercise its discretion to
vest the award on another basis.
Where cessation of employment occurs during any holding
period, the award will vest in respect of all the shares that
continue to be subject to the award as soon as practicable
following the cessation of employment. However, the
Committee has discretion to require the award to vest only
at the end of the holding period.
The final grant under the AZIP took place in 2016. All extant
AZIP awards have completed the relevant performance
period and are now subject to a holding period before
vesting.
Ordinarily awards will lapse unless the Committee exercises
its discretion to apply the default treatment for leavers by
reason of redundancy or retirement described in this table.
Death, ill-health, injury or disability:
> in the holding period: the award will vest in respect of all the
shares that continue to be subject to the award as soon as
practicable following the cessation of employment.
Redundancy, retirement or certain corporate events (e.g.
sale of a business outside the Group):
> in the holding period: the award will vest in respect of all
shares that continue to be subject to the award at the
earlier of the end of the holding period and the end of the
period of 24 months from the date of cessation of
employment. Where the Committee terminates an
Executive Director’s employment (other than for gross
misconduct) during the holding period, the awards will vest
on the same basis.
In each case described above, the Committee has discretion
to vest the award or part of the award on a different basis.
In relation to awards granted at the time of the Executive
Director’s recruitment to the Company in compensation for
any awards or bonuses forfeited at his or her previous
employer, the award will vest on the date his or her
employment ceases. The Committee will, in its discretion,
determine the proportion of shares which vests, and (unless
exceptional circumstances apply) take into account the
period elapsed between the date of grant and the date of
cessation of employment.
Ordinarily awards will lapse unless the Committee exercises
its discretion to preserve all or part of an award.
(cid:20)(cid:24)(cid:27)
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(cid:53)e(cid:80)uneration (cid:51)o(cid:79)icy for (cid:49)on-(cid:40)(cid:91)ecutive (cid:39)irectors
Non-Executive Directors, including the Chairman, receive annual Board fees. With the exception of the Chairman, Non-Executive Directors
receive additional fees for membership and chairmanship of Board Committees and for holding the position of senior independent Non-Executive
Director. Non-Executive Directors are not eligible for performance-related bonuses or to participate in any of the Company’s share-based
incentive plans. No pension contributions are made on their behalf. The annual Board fees applicable to Non-Executive Directors are set out in
the Annual Report on Remuneration. Changes to these fees in future years will be set out in the corresponding year’s Annual Report on
Remuneration. The remuneration of Non-Executive Directors (excluding the Chairman) is determined by the Chairman and the Executive
Directors. The remuneration of the Chairman is determined by the other members of the Committee and the senior independent Non-Executive
Director.
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Purpose and link to strategy
Operation
Maximum opportunity
The annual fees are intended to
be sufficient to attract, retain
and develop high-calibre
individuals.
Board fees for Non-Executive Directors are subject to periodic
review and may be increased in the future to ensure that they
remain sufficient to attract high-calibre individuals while
remaining fair and proportionate. Although Non-Executive
Directors currently receive their fees in cash, the Company may
pay part or all of their fees in the form of shares.
Non-Executive Directors are eligible to receive a base fee and
additional fees where appropriate to reflect any additional time
commitment or duties (e.g. being the chairman of a committee).
The fee structure is set out in the Annual Report on Remuneration.
The aggregate ordinary remuneration of the Non-Executive
Directors shall not exceed the maximum specified in Articles
88 and 89 of the Company’s Articles, as approved by the
Company’s shareholders.
As at the date of this Policy, the maximum aggregate
remuneration is £2,250,000 per annum and any Non-
Executive Director who serves on any Board committee may
be paid such extra remuneration as the Board may
determine.
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(cid:37)enefits
Purpose and link to strategy
Operation
Maximum opportunity
Intended to attract and retain
high-calibre individuals.
The Company also provides directors’ and officers’ liability
insurance and an indemnity to the fullest extent permitted by
law and the Company’s Articles and may also reimburse the
costs of financial planning and tax advice.
The maximum amount payable in respect of these costs and
cost of insurance will be the reimbursement of the Directors’
benefits grossed up for any tax payable by the individual.
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Purpose and link to strategy
Operation
Maximum opportunity
The maximum amounts payable in respect of these costs
and expenses will be the reimbursement of the Directors’
costs and expenses grossed up for any tax payable by
the individual.
Intended to reimburse
individuals for legitimately
incurred costs and expenses.
In addition to the Chairman’s fee, the office costs of the
Chairman may be reimbursed. In 2019, this amounted to
£72,000. The amount of office costs to be reimbursed each year
will be determined at the discretion of the Committee, based on
an assessment of the reasonable requirements of the Chairman.
The Committee has the discretion to approve contributions by
the Company to office costs of other Non-Executive Directors in
circumstances where such payments are deemed proportionate
and reasonable.
The Company will pay for all travel (including travel to the
Company’s offices), hotel and other expenses reasonably
incurred by Non-Executive Directors (and any associated tax
thereon) in the course of the Company’s business, for example,
professional fees such as secretarial support, and
reimbursement for domestic security arrangements such as
lights and alarms following a security assessment.
There are no contractual provisions for claw-back or malus
of other costs and expenses.
Letters of appointment
None of the Non-Executive Directors has a service contract but each has a letter of appointment. The terms and conditions of appointment of Non-
Executive Directors may be viewed on the Governance page of the AstraZeneca website, at www.astrazeneca.com. 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 2018 UK Corporate Governance Code and, in this regard, a Non-Executive Director’s overall tenure will not
normally exceed nine years. The Chairman 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 letter of appointment giving them a right to compensation upon early termination of appointment.
On behalf of the Board
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Financial
Statements
Auditors’ Report 162
Consolidated Statements 168
Group Accounting Policies 172
Notes to the Group
Financial Statements 179
Group Subsidiaries and Holdings 227
Company Statements 231
Company Accounting Policies 233
Notes to the Company
Financial Statements 234
Group Financial Record 236
Key
KJ Key Judgement
SE (cid:54)ignificant (cid:40)sti(cid:80)ates
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Preparation of the Financial Statements
and(cid:98)(cid:39)irectors(cid:350) (cid:53)es(cid:83)onsibi(cid:79)ities
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 2020
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.
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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 2019 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
2019, 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 2019
and has issued an unqualified report thereon.
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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 2019 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 2019 (the “Annual Report”),
which comprise: the Consolidated Statement
of Financial Position as at 31 December 2019,
the Consolidated Statement of Comprehensive
Income for the year ended 31 December 2019,
the Consolidated Statement of Cash Flows
for the year ended 31 December 2019, the
Consolidated Statement of Changes in Equity
for the year ended 31 December 2019, the
Group Accounting Policies and the Notes to
the Group Financial Statements, the Company
Balance Sheet as at 31 December 2019, the
Company Statement of Changes in Equity for
the year ended 31 December 2019, the
Company Accounting Policies and the 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.
Basis for opinion
We conducted our audit in accordance with
International Standards on Auditing (UK)
(“ISAs (UK)”) and applicable law. Our
responsibilities under ISAs (UK) are further
described in the Auditors’ responsibilities for
the audit of the financial statements section of
our report. We believe that the audit evidence
we have obtained is sufficient and appropriate
to provide a basis for our opinion.
Independence
We remained independent of the Group in
accordance with the ethical requirements that
are relevant to our audit of the financial
statements in the UK, which includes the
FRC’s Ethical Standard, as applicable to listed
public interest entities, and we have fulfilled
our other ethical responsibilities in
accordance with these requirements.
To the best of our knowledge and belief, we
declare that non-audit services prohibited by
the FRC’s Ethical Standard were not provided
to the Group or the Parent Company.
Other than those disclosed in note 30 to
the Group Financial Statements, we have
provided no non-audit services to the Group
or the Parent Company in the period from
1 January 2019 to 31 December 2019.
> 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
(excluding software), other investments,
and litigation matters, as well as the
consolidation.
> Taken together, the above procedures
accounted for 88% of the Group’s revenue
and over 77% of the Group’s absolute profit
before tax.
Key audit matters
> Recognition and measurement of accruals
for certain rebates and returns in the US
> Assessment of the recoverability of the
carrying value of intangible assets (product,
marketing and distribution rights and other
intangible assets)
> Recognition and measurement of litigation
provisions and contingent liabilities
> Recognition and measurement of uncertain
tax positions
> Valuation of the Group’s defined benefit
obligations
In 2019, accounting for externalisation and
collaboration arrangements was not considered
to be a key audit matter due to the nature of the
arrangements entered into in 2019.
Our audit approach
Overview
Materiality
> Overall Group materiality: $140m (2018:
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.
$130m), based on approximately 5% of profit
before tax after adding back intangible asset
impairment charges (note 10), fair value
movements and discount unwind on
contingent consideration and the Acerta
Pharma put option liability (note 20), and
material legal settlements (note 21).
> Overall Parent Company materiality: $50m
(2018: $100m), representing 0.2% of net
assets as constrained by the allocation of
overall Group materiality.
Audit scope
> We identified ten 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 and Brazil as well as the
Parent Company and AstraZeneca Treasury
Limited.
> We also identified a further nine 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 revenue,
accounts receivable, inventory, research
and development expense or property,
plant and equipment, as appropriate.
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 preparation of 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 potential management bias in accounting
estimates. The Group engagement team
shared this risk assessment with the
component auditors 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:
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> Discussions with management, internal
> Challenging assumptions made by
audit, the Deputy Chief Compliance Officer
and the Group’s General Counsel and
Deputy General Counsels, 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 the
results of management’s investigation of
such matters;
management in their significant accounting
estimates, in particular in relation to the
recognition and measurement of certain
rebate and return accruals, the impairment
of intangible assets (excluding goodwill and
software assets), the recognition and
measurement of litigation provisions and
contingent liabilities, the recognition and
measurement of uncertain tax positions,
and the valuation of the defined benefit
obligations (see related key audit matters
below); and
> Identifying and testing journal entries, in
particular any journal entries posted with
unusual account combinations, journals
posted by senior management 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 certain rebates and returns in
the US
Refer to page 121 (Audit Committee Report), page 173 (Accounting Policies) and
page 180 and 199 (note 1 and 20) in the Group Financial Statements.
In the US the Group sells to customers under various commercial and
government mandated contracts and reimbursement arrangements that include
rebates for certain products, of which the most significant are Medicare Part D,
Managed Care and Medicaid (and similar state programmes). In addition, sales
arrangements provide a right of return.
Rebates and returns provided to customers under these arrangements are
accounted for as variable consideration, estimated at the time of sale using the
expected value method, and recognised as a reduction in revenue, for which
unsettled amounts are accrued. Management has determined an accrual of
$3,383m to be necessary at 31 December 2019.
Estimating future rebates and return arrangements is complex and establishing an
appropriate accrual requires significant management estimation with respect to
the application of the contractual and mandated terms with customers, historical
experience and projected market conditions in the US. Changes in these
estimates (individually or in combination) can have a significant financial impact.
We evaluated the design and tested the operating effectiveness of controls relating
to the rebates and returns accrual and over the assumptions used to estimate the
accruals for the Medicare Part D, Managed Care and Medicaid (and similar state
programmes) rebate arrangements and the returns accruals. We determined that
we could rely on these controls for the purposes of our audit.
We obtained management’s calculations for accruals under applicable schemes
and assessed management’s calculations 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.
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We:
> developed an independent expectation of these accruals using third party
information on price and market conditions in the US, the terms of the specific
rebate programs and returns policies, and the historical trend of actual rebate
claims paid and returns made;
> compared the independent estimate to management’s estimates recorded by
the Group;
> considered the historical accuracy of the Group’s estimates in previous years
and the effect of any adjustments to prior years’ accruals in the current year’s
results; and
> tested a sample of rebate claims and returns processed by the Group,
including evaluating those claims for consistency with the contractual and
mandated terms of the Group’s arrangements.
Based on the procedures performed, we did not identify any material
misstatements in the accruals.
We also evaluated the appropriateness of the disclosures in Note 1 and Note 20
which we considered appropriate.
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Key audit matter
How our audit addressed the key audit matter
Assessment of the recoverability of the carrying value of intangible assets
(product, marketing and distribution rights and other intangible assets)
Refer to page 122 (Audit Committee Report), page 175 (Accounting Policies) and
page 190 (note 10) in the Group Financial Statements.
The Group has product, marketing and distribution rights and other intangible
assets (hereafter the intangible assets) totalling $20,601m at 31 December 2019.
Those 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.
The recoverability of the carrying values of intangible assets is contingent on future
cash flows and/or the outcome of research and development (R&D) activities.
There is a risk that the assets will be impaired if those cash flows or R&D outcomes
are not in line with expectations. The projections in management’s impairment
models contain a number of significant estimates including the outcome of R&D
activities, the probability of technical and regulatory success, and the amount and
timing of projected future cash flows (in particular peak year sales and sales
erosion curves). Changes in these assumptions could have an impact on the
recoverable amount of intangible assets.
We evaluated the design and tested the operating effectiveness of controls over
management’s assessment of the impairment of intangible assets. We
determined that we could rely on these controls for the purposes of our audit.
For those assets or cash generating units which we selected based on our risk
assessment to be in scope for our audit, we:
> tested management’s process for determining the recoverable amount;
> evaluated the appropriateness of the methodology used in the impairment
models;
> tested the completeness and accuracy of the models as well as the underlying
data used in the models, including ensuring that the cash flows reconcile to
the Board approved Long Range Plan; and
> evaluated the significant assumptions used by management in determining
future cash flows, including the probability of technical and regulatory
success, peak year sales and sales erosion curves.
In evaluating the reasonableness of management’s assumptions we:
> compared significant assumptions (including management’s probability
of technical and regulatory success, peak year sales assumptions and sales
erosion curves) to external data and benchmarks;
> performed a retrospective comparison of forecasted revenue to actual past
performance; and
> performed sensitivity analyses.
We utilised our in-house valuation experts to assess the valuation techniques
used and to assist with the evaluation of other key assumptions for higher risk
assets (primarily probability of technical and regulatory success).
As a result of our work, we determined that the impairment charge of $1,031m
recorded for intangible assets was reasonable.
We considered the disclosures in note 10 of the Group Financial Statements,
including sensitivity analysis based on reasonably possible downsides. We are
satisfied that these disclosures are appropriate.
Recognition and measurement of litigation provisions and contingent
liabilities
Refer to page 122 (Audit Committee Report), page 178 (Accounting Policies) and
page 200 and 220 (note 21 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 and related
disclosures. We determined that we could rely on these controls for the
purposes of our audit.
The Group is engaged in a number of legal actions, including patent litigation,
product liability, anti-trust and related litigation. At 31 December 2019 the Group
held provisions of $642m in respect of legal claims and disclosed the more
significant legal matters in note 29. Determining the likelihood and magnitude of
an unfavourable outcome in these matters involves significant management
judgement. Accordingly, unexpected adverse outcomes could significantly
impact the Group’s reported profit and balance sheet position.
We obtained and evaluated letters of audit inquiry with internal and external legal
counsel. We evaluated the reasonableness of management’s assessment
regarding whether (a) it is probable that a liability exists and (b) a reliable
estimate can be made of the likely outcome.
We considered management’s judgements on the level of provisioning to be
reasonable. We also evaluated the disclosures in Note 21 and Note 29, which we
considered appropriate.
Recognition and measurement of uncertain tax positions
Refer to page 122 (Audit Committee Report), page 175 (Accounting Policies) and
page 224 (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 positions. 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, leading to uncertain tax positions which arise in the normal
course of business, including transaction related tax matters, transfer pricing
arrangements and a number of audits and discussions with tax authorities.
At 31 December 2019 the Group recorded provisions of $1,027m in respect of
these uncertain tax positions. As disclosed in Note 29, 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 management’s
assessments of the outcomes of these exposures there could, in future periods,
be adjustments to these provisions that have a material positive or negative
effect on the results in any particular period.
With the assistance of our local and international tax specialists, we tested the
information used in the determination of whether uncertain tax positions arise
and the calculation of the liability for those uncertain tax positions by jurisdiction,
including management’s assessment of the technical merits of tax positions
(including where relevant evaluating any advice received from the Group’s
external advisors) and estimates of the amount of tax benefit expected to be
sustained.
We assessed the completeness of management’s assessment of both the
identification of uncertain tax positions and possible outcomes of each uncertain
tax position. We also evaluated the status and results of tax audits and enquiries
from the relevant tax authorities.
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 considered the disclosures in note 29 of the Group Financial Statements.
We are satisfied that these disclosures are appropriate.
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Key audit matter
How our audit addressed the key audit matter
Valuation of the Group’s defined benefit obligations
Refer to page 123 (Audit Committee Report), page 175 (Accounting Policies) and
page 201 (note 22) in the Group Financial Statements The Group has defined
benefit obligations of $12,412m at 31 December 2019, which is significant in the
context of the overall balance sheet. The Group’s most significant plans are in
the UK, the US and Sweden.
The valuation of pension plan liabilities requires estimation in determining
appropriate assumptions such as salary increases, mortality rates, discount
rates and inflation levels. Movements in these assumptions can have a material
impact on the determination of the liability. Management uses external actuaries
to assist in determining these assumptions.
We evaluated the design and tested the operating effectiveness of controls in
respect of the determination of the main schemes’ defined benefit obligations.
We determined that we could rely on these controls for the purposes of our audit.
We used our actuarial experts to assess whether the assumptions used in
calculating the defined benefit liabilities for the UK, the US and Sweden were
reasonable.
We assessed whether salary increases and mortality rate assumptions were
consistent with the specifics of each plan and, where applicable, with relevant
national benchmarks. We verified that the discount and inflation rates used were
consistent with our internally developed ranges and in line with other companies’
recent external reporting. We assessed the reasonableness of the calculations
prepared by the external actuaries including testing the standing data provided
to the external actuary for a sample of active members.
Based on our procedures, we noted no exceptions and considered
management’s key assumptions to be within reasonable ranges.
We assessed the appropriateness of the related disclosures in note 22 of the
Group Financial Statements and considered them to be reasonable.
We determined that there were no key audit matters applicable to the Parent Company to communicate in our report.
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:
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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 ten reporting components
which, in our view, required a full scope audit
of their complete financial information, due to
their size or risk characteristics. These are the
principal operating units in the US, UK,
Sweden, China, Japan, France, Germany and
Brazil as well as the Parent Company and
AstraZeneca Treasury Limited.
We also identified a further nine 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
revenue (Canada, Australia, Italy, Spain, Russia
and a further China and UK entity), research
and development expense (a further UK and a
further US entity), inventory (Australia and a
further China entity), accounts receivables
(Russia) or property, plant and equipment (a
further US entity), 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 (excluding software),
other investments, and litigation matters, as
well as the consolidation. Taken together, the
above procedures accounted for 88% of the
Group’s revenue and over 77% of the Group’s
absolute profit before tax.
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Group Financial Statements
Parent Company Financial Statements
Overall materiality
$140m (2018: $130m).
$50m (2018: $100m).
How we determined it
Approximately 5% of profit before tax after adding back intangible asset
impairment charges (note 10), fair value movements and discount unwind on
contingent consideration and the Acerta Pharma put option liability (note 20), and
material legal settlements (note 21).
0.2% of net assets as constrained by allocation of
overall Group materiality.
Rationale for
benchmark applied
The reported profit of the Group can fluctuate due to intangible asset impairment
charges, fair value and discount unwind movements on contingent consideration
and the Acerta Pharma put option liability, and material legal settlements. 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 of
AstraZeneca PLC (being holding company
investment activities) 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 (2018: $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 Parent Company’s ability to continue as a going
concern. For example, the terms of the United Kingdom’s withdrawal from the
European Union 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.
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 on the following page (required by
ISAs (UK) unless otherwise stated).
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.
166
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Statements
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 2019
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 74
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 75 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 161, 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 116 to 124 describing the work of
the Audit Committee does not appropriately
address matters communicated by us to
the Audit Committee.
> The directors’ statement relating to the
Parent Company’s compliance with the
Code does not properly disclose a
departure from a relevant provision of the
Code specified, under the Listing Rules,
for review by the auditors.
Directors’ Remuneration
In our opinion, the part of the Directors’
Remuneration Report to be audited has been
properly prepared in accordance with the
Companies Act 2006. (CA06)
Responsibilities for the financial statements
and the audit
Responsibilities of the directors for the
financial statements
As explained more fully in the Preparation
of the Financial Statements and Directors’
Responsibilities set out on page 161, 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.
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We have no exceptions to report arising from
this responsibility.
Appointment
Following the recommendation of the
Audit Committee, we were appointed by
the members 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 3 years, covering the years
ended 31 December 2017 to 31 December 2019.
Richard Hughes (Senior Statutory Auditor)
for and on behalf of
(cid:51)rice(cid:90)aterhouse(cid:38)oo(cid:83)ers (cid:47)(cid:47)(cid:51)
Chartered Accountants and Statutory
Auditors
(cid:47)ondon
14 February 2020
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Statements
167
Consolidated Statement of Comprehensive Income
for the year ended 31 December
Product Sales
Collaboration 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) 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
11
4
22
4
23
23
23
4
26
26
5
5
5
5
2019
$m
23,565
819
24,384
(4,921)
19,463
(339)
(6,059)
(11,682)
1,541
2,924
172
(1,432)
(116)
1,548
(321)
1,227
(364)
(28)
(5)
21
(376)
40
(252)
(101)
52
35
(47)
–
–
38
(235)
(611)
616
1,335
(108)
723
(107)
$1.03
$1.03
1,301
1,301
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
Dividends declared and paid in the period
25
3,579
3,539
3,543
All activities were in respect of continuing operations.
$m means millions of US dollars.
168
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Statements
Consolidated Statement of Financial Position
at 31 December
Assets
Non-current assets
Property, plant and equipment
Right-of-use assets
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
Lease liabilities
Trade and other payables
Derivative financial instruments
Provisions
Income tax payable
Non-current liabilities
Interest-bearing loans and borrowings
Lease liabilities
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
2019
$m
2018
$m
2017
$m
7
8
9
10
11
12
13
14
4
15
16
12
13
17
18
19
8
20
13
21
19
8
13
4
22
21
20
24
23
23
26
7,688
647
11,668
20,833
58
1,401
61
740
2,718
45,814
3,193
5,761
849
36
285
5,369
70
15,563
61,377
(1,822)
(188)
(13,987)
(36)
(723)
(1,361)
(18,117)
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)
(15,730)
(17,359)
(15,560)
(487)
(18)
(2,490)
(2,807)
(841)
(6,291)
(28,664)
(46,781)
14,596
328
7,941
153
448
1,445
2,812
13,127
1,469
14,596
–
(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
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The Financial Statements from pages 168 to 230 were approved by the Board and were signed on its behalf by
Pascal Soriot
Director
14 February 2020
Marc Dunoyer
Director
AstraZeneca Annual Report & Form 20-F Information 2019 / Consolidated Statements
169
Consolidated Statement of Changes in Equity
for the year ended 31 December
At 1 January 2017
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 loss
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
Adoption of new accounting standards3
Profit for the period
Other comprehensive loss4
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 2019
Share
capital
$m
316
Share
premium
account
$m
4,351
Capital
redemption
reserve
$m
153
Merger
reserve
$m
448
–
–
–
–
1
–
–
1
–
–
–
–
42
–
–
42
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
317
4,393
153
448
–
–
–
–
–
–
–
–
–
–
–
–
–
–
34
–
–
34
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
317
4,427
153
448
–
–
–
–
–
11
–
–
11
328
–
–
–
–
–
3,514
–
–
3,514
7,941
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Other
reserves
$m
1,446
–
–
(18)
–
–
–
–
(18)
1,428
–
–
–
12
–
–
–
–
12
1,440
–
–
–
5
–
–
–
–
5
Retained
earnings
$m
8,140
3,001
639
18
Total
attributable
to owners
$m
14,854
3,001
639
–
(3,543)
(3,543)
–
43
220
(254)
81
220
(254)
106
8,221
14,960
(91)
2,155
(1,058)
(12)
(91)
2,155
(1,058)
–
(3,539)
(3,539)
–
34
219
(212)
(2,538)
5,683
54
1,335
(612)
(5)
(3,579)
–
259
(323)
(2,871)
2,812
219
(212)
(2,492)
12,468
54
1,335
(612)
–
(3,579)
3,525
259
(323)
659
13,127
Non-
controlling
interests
$m
1,815
(133)
–
–
–
–
–
–
(133)
1,682
–
(105)
(1)
–
–
–
–
–
(106)
1,576
–
(108)
1
–
–
–
–
–
(107)
1,469
Total
equity
$m
16,669
2,868
639
–
(3,543)
43
220
(254)
(27)
16,642
(91)
2,050
(1,059)
–
(3,539)
34
219
(212)
(2,598)
14,044
54
1,227
(611)
–
(3,579)
3,525
259
(323)
552
14,596
153
448
1,445
1 Amounts charged or credited to other reserves relate to exchange adjustments arising on goodwill.
2 The Group adopted IFRS 15 ‘Revenue from Customers’ from 1 January 2018.
3 The Group adopted IFRIC 23 ‘Uncertainty over Income Tax Treatments’ from 1 January 2019. See page 172.
4 Included within Other comprehensive loss of $611m is a charge of $47m relating to Costs of hedging.
170
AstraZeneca Annual Report & Form 20-F Information 2019 / 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
Increase/(decrease) in trade and other payables and provisions
Gains on disposal of intangible assets
Fair value movements on contingent consideration arising from business combinations
Non-cash and other movements
Cash generated from operations
Interest paid
Tax paid
Net cash inflow from operating activities
Cash flows from investing activities
Non-contingent payments on business combinations
Payment of contingent consideration from business combinations
Purchase of property, plant and equipment
Disposal of property, plant and equipment
Purchase of intangible assets
Disposal of intangible assets
Movement in profit-participation liability
Purchase of non-current asset investments
Disposal of non-current asset investments
Movement in short-term investments, fixed deposits and other investing instruments
Payments to joint ventures
Interest received
Net cash (outflow)/inflow 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 leases
Movement in short-term borrowings
Net cash outflow from financing activities
Notes
3
11
2
20
17
20
11
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
17
2019
$m
1,548
1,260
116
3,762
(898)
(316)
868
(1,243)
(614)
378
4,861
(774)
(1,118)
2,969
–
(709)
(979)
37
(1,481)
2,076
150
(13)
18
194
(74)
124
(657)
2,312
3,525
500
(1,500)
(3,592)
4
(186)
(516)
(1,765)
547
4,671
5
5,223
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
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AstraZeneca Annual Report & Form 20-F Information 2019 / Consolidated Statements
171
Group Accounting Policies
Basis of accounting and preparation
of(cid:98)financia(cid:79) infor(cid:80)ation
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).
IFRS 3
AstraZeneca had proposed to adopt the
October 2018 update to IFRS 3, which
changed the definition of a business, from
1 January 2019, and has previously published
interim financial statements on this basis.
This was done on the basis that it was
considered highly probable that the amendment
would be endorsed by the European
Commission during 2019 before its effective
date of 1 January 2020 with early adoption
permitted, following a recommendation from
the European Financial Reporting Advisory
Group (EFRAG), the association set up to
provide advice to the European Commission
on whether newly issued or revised IFRSs
meet the criteria for endorsement for use in
the EU.
The change in definition of a business within
IFRS 3 introduces an optional concentration
test to perform a simplified assessment of
whether an acquired set of activities and
assets is or is not a business on a transaction
by transaction basis. This change was
expected to provide more reliable and
comparable information about certain
transactions as it provides more consistency
in accounting in the pharmaceutical industry
for substantially similar transactions that
under the previous definition may have been
accounted for in different ways despite limited
differences in substance.
During the year, the EFRAG amended its
guidance on the expected date of endorsement,
and the European Commission is expected
to endorse the change during 2020, with
application required for accounting periods
beginning on or after 1 January 2020.
Accordingly this amendment has not been
applied in the Consolidated Financial
Statements, however this has not resulted
in a different accounting treatment for any
transactions undertaken during the year
when compared with the amended version of
IFRS 3, pending endorsement.
IFRS 16
IFRS 16 ‘Leases’ is effective for accounting
periods beginning on or after 1 January 2019
and replaces IAS 17 ‘Leases’. It eliminates
the classification of leases as either operating
leases or finance leases and, instead,
introduces a single lessee accounting model.
The adoption of IFRS 16 resulted in the Group
recognising lease liabilities, and corresponding
‘right-of-use’ assets for arrangements that
were previously 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 has adopted IFRS 16 using a
modified retrospective approach with the
cumulative effect of initially applying the
standard as an adjustment to the opening
balance of retained earnings at 1 January
2019. The standard permits a choice on initial
adoption, 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
elected to measure the right-of-use asset
equal to the lease liability, with the result of no
net impact on opening retained earnings and
no restatement of prior period comparatives.
Initial adoption resulted in the recognition
of right-of-use assets of $722m and lease
liabilities of $720m. The weighted average
incremental borrowing rate applied to the
lease liabilities on 1 January 2019 was 3%.
The Group is using one or more practical
expedients on transition 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, electing to apply a single
discount rate to portfolios of leases with
similar characteristics, reliance on previous
assessments on whether arrangements contain
a lease and whether leases are onerous,
excluding initial direct costs from the initial
measurement of the right-of-use asset, and
using hindsight in determining the lease term
where the contract contains options to extend
or terminate the lease.
Judgements made in calculating the initial
impact of adoption include determining the
lease term where extension or termination
options exist. In such instances, all facts and
circumstances that may create an economic
incentive to exercise an extension option, or
not exercise a termination option, have been
considered to determine the lease term.
Extension periods (or periods after termination
options) are only included in the lease term if the
lease is reasonably certain to be extended (or
not terminated). Estimates include calculating
the discount rate which is based on the
incremental borrowing rate.
The Group is applying IFRS 16’s low-value
and short-term exemptions. While the IFRS 16
opening lease liability is calculated differently
from the previous operating lease commitment
calculated under the previous standard, there
are no material differences between the
positions. The adoption of IFRS 16 has had
no impact on the Group’s net cash flows,
although a presentation change has been
reflected whereby cash outflows of $186m
are now presented as financing, instead of
operating. There is 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, taxation and EPS have not been
materially impacted.
IFRIC 23
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 has principally resulted in an
adjustment in the value of tax liabilities
because IFRIC 23 requires the Group to
measure the effect of uncertainty on income
tax positions using either the most likely
amount or the expected value amount
depending on which method is expected to
better reflect the resolution of the uncertainty.
The Group has retrospectively applied
IFRIC 23 from 1 January 2019 recognising
the cumulative effect of initially applying the
interpretation as decreases to income tax
payable of $51m and to trade and other
payables of $3m, and a corresponding
adjustment to the opening balance of retained
earnings of $54m. There is no restatement of
the comparative information as permitted in
the interpretation.
IFRS 9, IAS 39, IFRS 7
The Group has early adopted the amendments
to IFRS 9 ‘Financial Instruments’, IAS 39
‘Financial Instruments: Recognition and
Measurement’ and IFRS 7 ‘Financial
Instruments: Disclosures’. These relate to
interbank offered rates (IBORs) reform and
were endorsed by the EU on 6 January 2020.
The replacement of benchmark interest rates
such as LIBOR and other IBORs is a priority for
global regulators. The amendments provide
relief from applying specific hedge accounting
requirements to hedge relationships directly
affected by IBOR reform and have the effect
that IBOR reform should generally not cause
hedge accounting to terminate. There is no
financial impact from the early adoption of
these amendments.
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The Group has one IFRS 9 designated hedge
relationship that is potentially impacted by
IBOR reform: our euro 300m cross currency
interest rate swap in a fair value hedge
relationship with euro 300m of our euro 750m
0.875% 2021 non-callable bond. This swap
references three month USD LIBOR and
uncertainty arising from the Group’s exposure
to IBOR reform will cease when the swap
matures in 2021. The implications on the wider
business of IBOR reform will be assessed
during 2020.
Collaboration Revenue
Effective from 1 January 2019, the Group
updated the presentation of an element
of Total Revenue within the Statement of
Comprehensive Income and changed the
classification of some income to reflect the
increasing importance of collaborations to
AstraZeneca. Historically, Externalisation
Revenue formed part of Total Revenue and
only included income arising from collaborative
transactions involving AstraZeneca’s medicines,
whether internally developed or previously
acquired. Such income included upfront
consideration, milestone receipts, profit share
income and royalties, as well as other income
from collaborations. The updated category of
Collaboration Revenue includes all income
previously included within Externalisation
Revenue, as well as income of a similar nature
arising from transactions where AstraZeneca
has acquired an interest in a medicine and as
part of the acquisition entered into an active
collaboration with the seller. This change is a
result of the growing importance of
collaborations to AstraZeneca. Income arising
from all collaborations, other than product sales,
will be recognised within the Collaboration
Revenue element of Total Revenue.
Historically there has been no collaboration
income arising from such acquisitions, and
therefore no prior year restatement of financial
results is required as a result of this change.
Income from disposals of assets and
businesses including royalties and milestones,
where the Group does not retain a significant
continued interest, continue to be recorded in
Other Operating Income and Expense.
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 2019, the Group
has $10.4bn in financial resources (cash and
cash equivalent balances of $5.4bn, $0.9bn
of liquid fixed income securities and undrawn
committed bank facilities of $4.1bn, of which
$3.4bn is available until April 2022, $0.5bn is
available until November 2020 (extendable
to November 2021) and $0.2bn is available
until December 2020, with only $2.0bn of
borrowings 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
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.
The accounting policy descriptions set out the
areas where judgements and estimates need
exercising, the most significant of which
include the following Key Judgements KJ
and Significant Estimates SE :
> revenue recognition – see Revenue
Accounting Policy on page 174 KJ
and Note 1 on page 180 SE
> expensing of internal development expenses
– see Research and Development Policy
on page 174 KJ
impairment reviews of Intangible assets
– see Note 10 on page 191 SE
>
> useful economic life of Intangibles assets –
see Research and Development Policy on
page 175 KJ and Note 10 on page 192 SE
> business combinations and Goodwill (and
Contingent consideration arising from
business combinations) – see Business
Combinations and Goodwill Policy on page
177 KJ and Note 20 on page 200 SE
>
litigation liabilities – see Litigation and
Environmental Liabilities within Note 29
on page 221 KJ
> operating segments – see Note 6 on
page 186 KJ
> employee benefits – see Note 22 on
page 207 SE
> taxation – see Taxation Policy on page 175,
Note 29 on page 225 KJ and Note 29 on
page 224 SE
Financial risk management policies are detailed
in Note 27 to the Financial Statements from
page 210.
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
Collaboration Revenue.
Product Sales are revenues arising from
contracts with customers. Collaboration
Revenue arises from other contracts, however,
the recognition and measurement principles
of IFRS 15 ‘Revenue from Contracts with
Customers’ are applied as set out below.
Prior to 1 January 2018, the Group applied
IAS 18 ‘Revenue’. On adoption of IFRS 15 on
1 January 2018, there was no material impact
on the revenue streams from the supply of
goods and associated rebates and returns
provisions or Collaboration Revenue. The
timing of the recognition of Product Sales and
the basis for the estimates of sales deductions
under IFRS 15 are consistent with those
adopted under IAS 18.
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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 variable
consideration and include significant 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. Revenue
is not recognised in full until it is highly probable
that a significant reversal in the amount of
cumulative revenue recognised will occur.
Rebates are amounts payable or credited to
a customer, usually based on the quantity or
value of Product Sales to the customer for
specific products in a certain period. Product
sales rebates, which relate to Product Sales
that occur over a period of time, are normally
issued retrospectively.
AstraZeneca Annual Report & Form 20-F Information 2019 / Group Accounting Policies
173
Group Accounting Policies
continued
At the time Product Sales are invoiced,
rebates and deductions that the Group
expects to pay, are estimated. These rebates
typically arise from sales contracts with
government payers, third party managed
care organisations, hospitals, long-term care
facilities, group purchasing organisations and
various state programmes.
For the markets where returns are significant,
we estimate the quantity and value of goods
which may ultimately be returned at the point
of sale. Our returns accruals are based on
actual experience over the preceding 12
months for established products together with
market-related information such as estimated
stock levels at wholesalers and competitor
activity which we receive via third-party
information services. For newly launched
products, we use rates based on our
experience with similar products or a
predetermined percentage.
When a product faces generic competition,
particular attention is given to the possible
levels of returns and, in cases where the
circumstances are such that the level of
Product Sales 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.
The methodology and assumptions used to
estimate rebates and returns are monitored
and adjusted regularly in the light of
contractual and legal obligations, historical
trends, past experience and projected market
conditions. Once the uncertainty associated
with returns is resolved, revenue is adjusted
accordingly.
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.
Collaboration Revenue
Collaboration Revenue includes income from
collaborative arrangements where either the
Group has sold certain rights associated
with those products, but retains a significant
ongoing economic interest or has acquired
a significant interest from a third party.
Significant interest can include ongoing
supply of finished goods, participation in
profit share arrangements or direct interest
from sales of medicines.
These arrangements may include development
arrangements, commercialisation
arrangements and collaborations. Income
may take the form of upfront fees, milestones,
profit sharing and royalties and includes profit
share income arising from sales made as
principal by a collaboration partner.
KJ Timing of recognition of clinical and
regulatory milestones is considered to be
a key judgement. There can be significant
uncertainty over whether it is highly probable
that there would not be a significant reversal
of revenue in respect of specific milestones
if these are recognised before they are
triggered due to them being subject to the
actions of third parties. In general, where
the triggering of a milestone is subject to the
decisions of third parties (e.g. the acceptance
or approval of a filing by a regulatory
authority), the Group does not consider that
the threshold for recognition is met until that
decision is made.
Where Collaboration Revenue arises from
the licensing of the Group’s own intellectual
property, the licences we grant are typically
rights to use intellectual property which do not
change during the period of the licence and
therefore related non-conditional revenue is
recognised at the point the license is granted
and variable consideration as soon as
recognition criteria are met. Those licences
are generally unique and therefore when there
are other performance obligations in the
contract, 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 license 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 an 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 it is highly probable there
will not be a significant reversal of income.
The determination requires estimates to be
made in relation to future Product Sales.
Where Collaboration 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.
KJ 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 charged to profit and loss 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 2019, no
amounts have met the recognition criteria.
174
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Statements
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 consideration for 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.
KJ The determination of useful economic
life is considered to be a key judgement.
On product launch, the Group makes a
judgement as to the expected useful
economic life using our detailed long-term
risk-adjusted sales projections compiled
annually across the Group and approved
by the Board, and for assets where the
useful economic life extends beyond this
period, appropriately reviewed, risk-adjusted
sales projections.
The useful economic life can extend beyond
patent expiry as dependent upon the nature
of the product and the complexity of the
development and manufacturing process.
Significant sales can often be achieved post
patent expiration.
Intangible assets
Intangible assets are stated at cost less
provision for amortisation and impairments.
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 10
to the Financial Statements from page 190.
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 other
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 significant
estimates which are highly sensitive and
depend upon key assumptions as detailed
in Note 10 to the Financial Statements from
page 190. Sales forecasts and specific
allocated costs (which have both been subject
to appropriate senior management review and
approval) are risk-adjusted and discounted
using appropriate rates based on our post-tax
weighted average cost of capital or for fair
value less costs to sell, an impairment rate for a
market participant. Our weighted average cost
of capital reflects factors such as our capital
structure and our costs of debt and equity.
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.
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.
(cid:40)(cid:80)(cid:83)(cid:79)oyee benefits
The Group accounts for pensions and other
employee benefits (principally healthcare) under
IAS 19 ‘Employee Benefits’ and recognises 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 these
values, these are considered to be significant
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 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.
KJ 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 future taxable profit will be
available against which the asset can be
utilised. This requires judgements to be
made in respect of the availability of future
taxable income.
No deferred tax asset or liability is recognised
in respect of temporary differences associated
with investments in subsidiaries and branches
where the Group is able to control the timing
of reversal of the temporary differences and it
is probable that the temporary differences will
not reverse in the foreseeable future.
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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 accepted by
the tax authorities. This is based upon
management’s interpretation of applicable
laws and regulations and the expectation of
how the tax authority will resolve the matter.
Once considered probable of not being
accepted, management reviews each
material tax benefit and reflects the effect of
the uncertainty in determining the related
taxable result.
Accruals for tax contingencies are measured
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.
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175
Group Accounting Policies
continued
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 on page 225.
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 and loss on a straight-line basis.
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
Accounting policy applied until
1 January 2019 (IAS 17)
Leases are classified as finance leases if they
transfer substantively 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
Accounting policy applied from
1 January 2019 (IFRS 16)
The Group’s lease arrangements are principally
for property, most notably a portfolio of office
premises and employee accommodation, and
for a global car fleet, utilised primarily by our
sales and marketing teams.
The lease liability and corresponding right-of-
use asset arising from a lease are initially
measured on a present value basis. Lease
liabilities include the net present value of the
following lease payments:
> fixed payments, less any lease
incentives receivable
> variable lease payments that depend
on an index or a rate, initially measured
using the index or rate as at the
commencement date
> the exercise price of a purchase option
if the Group is reasonably certain to
exercise that option
> payments of penalties for terminating
the lease, if the lease term reflects the
Group exercising that option, and
> amounts expected to be payable by the
Group under residual value guarantees.
Right-of-use assets are measured at cost
comprising the following:
> the amount of the initial measurement
of lease liability
> any lease payments made at or before
the commencement date less any lease
incentives received
> any initial direct costs, and
> restoration costs.
Judgements made in calculating the lease
liability include assessing whether arrangements
contain a lease and determining the lease
term. Lease terms are negotiated on an
individual basis and contain a wide range
of different terms and conditions. Property
leases will often include an early termination
or extension option to the lease term. Fleet
management policies vary by jurisdiction
and may include renewal of a lease until a
measurement threshold, such as mileage, is
reached. Extension and termination options
have been considered when determining
the lease term, along with all facts and
circumstances that may create an economic
incentive to exercise an extension option, or
not exercise a termination option. Extension
periods (or periods after termination options)
are only included in the lease term if the
lease is reasonably certain to be extended
(or not terminated).
The lease payments are discounted using
incremental borrowing rates, as in the majority
of leases held by the Group the interest rate
implicit in the lease is not readily identifiable.
Calculating the discount rate is an estimate
made in calculating the lease liability. This rate
is the rate that the Group would have to pay to
borrow the funds necessary to obtain an asset
of similar value to the right-of-use asset in a
similar economic environment with similar
terms, security and conditions. To determine
the incremental borrowing rate, the Group uses
a risk-free interest rate adjusted for credit risk,
adjusting for terms specific to the lease
including term, country and currency.
The Group is exposed to potential future
increases in variable lease payments that are
based on an index or rate, which are initially
measured as at the commencement date,
with any future changes in the index or rate
excluded from the lease liability until they take
effect. When adjustments to lease payments
based on an index or rate take effect, the
lease liability is reassessed and adjusted
against the right-of-use asset.
Lease payments are allocated between
principal and finance cost. The finance cost
is charged to the Consolidated Statement of
Comprehensive Income over the lease period
so as to produce a constant periodic rate of
interest on the remaining balance of the liability
for each period.
Payments associated with short-term leases
of Property, plant and equipment and all
leases of low-value assets are recognised
on a straight-line basis as an expense in the
Consolidated Statement of Comprehensive
Income. Short-term leases are leases with
a lease term of 12 months or less. Low-value
leases are those where the underlying asset
value, when new, is $5,000 or less and includes
IT equipment and small items of office furniture.
Contracts may contain both lease and
non-lease components. The Group allocates
the consideration in the contract to the lease
and non-lease components based on their
relative stand-alone prices.
Right-of-use assets are generally depreciated
over the shorter of the asset’s useful life and
the lease term on a straight-line basis. If the
Group is reasonably certain to exercise a
purchase option, the right-of-use asset is
depreciated over the underlying asset’s useful
life. 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 motor
vehicles and other assets.
There are no material lease agreements under
which the Group is a lessor.
176
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Business combinations and goodwill
KJ The determination of whether an
acquired set of assets and activities is a
business or an asset can be judgemental.
Management uses a number of factors to
make this determination, which are primarily
focused on whether the acquired set of
assets and activities are capable of being
managed for the purpose of providing a
return. Key determining factors include the
stage of development of any assets
acquired, the readiness and ability of the
acquired set to produce outputs and the
presence of key experienced employees
capable of conducting activities required
to develop or manufacture the assets.
Typically, the specialised nature of many
pharmaceutical assets and processes is
such that until assets are substantively ready
for production and promotion, there are not
the required processes for a set of assets
and activities to meet the definition of a
business in IFRS 3.
On the acquisition of a business, fair values
are attributed to the identifiable assets and
liabilities. Attributing fair values is a 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.
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.
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.
Subsidiaries
A subsidiary is an entity controlled, directly
or indirectly, by AstraZeneca PLC. Control is
regarded as the exposure or rights to the
variable returns of the entity when combined
with the power to affect those returns.
The financial results of subsidiaries are
consolidated from the date control is
obtained until the date that control ceases.
Inventories
Inventories are stated at the lower of cost
and net realisable value. The first in, first out
or an average method of valuation is used.
For finished goods and work in progress, cost
includes directly attributable costs and certain
overhead expenses (including depreciation).
Selling expenses and certain other overhead
expenses (principally central administration
costs) are excluded. Net realisable value is
determined as estimated selling price less all
estimated costs of completion and costs to be
incurred in selling and distribution.
Write-downs of inventory occur in the general
course of business and are recognised in cost
of sales for launched or approved 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 12.
Financial instruments
The Group’s financial instruments include
lease liabilities, Trade and other receivables
and payables, liabilities for contingent
consideration and put options under business
combinations, and rights and obligations
under employee benefit plans which are dealt
with in specific accounting policies.
The Group’s other financial instruments include:
> Cash and cash equivalents
> Fixed deposits
> Other investments
> Bank and other borrowings
> Derivatives
Cash and cash equivalents
Cash and cash equivalents comprise cash in
hand, current balances with banks and similar
institutions, and highly liquid investments
with maturities of three months or less when
acquired. They are readily convertible into
known amounts of cash and are held at
amortised cost 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.
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177
Group Accounting Policies
continued
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 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.
The following reclassifications were made on
1 January 2018:
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.
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 and loss. The investments primarily
relate to short-term assets invested as part of
our cash management strategy to maximise
gains on our liquid resources.
Bank and other borrowings
The Group uses derivatives, principally
interest rate swaps, to hedge the interest rate
exposure inherent in a portion of its fixed
interest rate debt. In such cases the Group will
either designate the debt as fair value through
profit or loss when certain criteria are met or
as the hedged item under a fair value hedge.
If the debt instrument is designated as fair
value through profit or loss, the debt is initially
measured at fair value (with direct transaction
costs being included in profit as an expense)
and is remeasured to fair value at each
reporting date with changes in carrying value
being recognised in profit (along with changes
in the fair value of the related derivative), with
the exception of changes in the fair value of
the debt instrument relating to own credit risk
which are recorded in Other comprehensive
income in accordance with IFRS 9. Such
a designation has been made where this
significantly reduces an accounting mismatch
which would result from recognising gains
and losses on different bases.
If the debt is designated as the hedged item
under a fair value hedge, the debt is initially
measured at fair value (with direct transaction
costs being amortised over the life of the debt)
and is remeasured for fair value changes in
respect of the hedged risk at each reporting
date with changes in carrying value being
recognised in profit (along with changes in
the fair value of the related derivative).
If the debt is designated in a cash flow hedge,
the debt is measured at amortised cost (with
gains or losses taken to profit and direct
transaction costs being amortised over the
life of the debt). The related derivative is
remeasured for fair value changes at each
reporting date with the portion of the gain or
loss on the derivative that is determined to
be an effective hedge recognised in Other
comprehensive income. The amounts that
have been recognised in Other comprehensive
income are reclassified to profit in the same
period that the hedged forecast cash flows
affect profit. 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.
178
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Statements
Foreign currencies
Foreign currency transactions, being
transactions denominated in a currency
other than an individual Group entity’s
functional currency, are translated into the
relevant functional currencies of individual
Group entities at average rates for the
relevant monthly accounting periods, which
approximate to actual rates.
Monetary assets and liabilities arising from
foreign currency transactions are retranslated
at exchange rates prevailing at the reporting
date. Exchange gains and losses on loans and
on short-term foreign currency borrowings
and deposits are included within Finance
expense. Exchange differences on all other
foreign currency transactions are recognised
in Operating profit in the individual Group
entity’s accounting records.
Non-monetary items arising from foreign
currency transactions are not retranslated in the
individual Group entity’s accounting records.
In the Consolidated Financial Statements,
income and expense items for Group entities
with a functional currency other than US dollars
are translated into US dollars at average
exchange rates, which approximate to actual
rates, for the relevant accounting periods.
Assets and liabilities are translated at the
US dollar exchange rates prevailing at the
reporting date. Exchange differences arising
on consolidation are recognised in Other
comprehensive income.
If certain criteria are met, non-US dollar
denominated loans or derivatives are
designated as net investment hedges of
foreign operations. Exchange differences
arising on retranslation of net investments,
and of foreign currency loans which are
designated in an effective net investment
hedge relationship, are recognised in Other
comprehensive income in the Consolidated
Financial Statements. Foreign exchange
derivatives hedging net investments in foreign
operations are carried at fair value. Effective
fair value movements are recognised in
Other comprehensive income, with any
ineffectiveness taken to profit. Gains and
losses accumulated in the translation reserve
will be recycled to profit when the foreign
operation is sold.
Litigation and environmental liabilities
AstraZeneca is involved in legal disputes,
the settlement of which may involve cost
to the Group. Provision is made where an
adverse outcome is probable and associated
costs, including related legal costs, can be
estimated reliably. In other cases, appropriate
disclosures are included. Determining the
timing of recognition of when an adverse
outcome is probable is considered a key
judgement, refer to Note 29 to the Financial
Statements on page 221.
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(cid:98)inter(cid:83)retations issued but not
yet(cid:98)ado(cid:83)ted
At the date of authorisation of these financial
statements, the following amendments were
in issue but not yet adopted by the Group:
> amendments to IAS 1 ‘Presentation of
Financial Statements’ and IAS 8 ‘Accounting
Policies, Changes in Accounting Estimates
and Errors’ – endorsed by the EU on
29 November 2019
> amendments to IFRS 3 ‘Business
Combinations’, effective for periods
beginning on or after 1 January 2020 –
not amended by the EU.
The above amendments and interpretations
are not expected to have a significant impact
on the Group’s net results.
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AstraZeneca Annual Report & Form 20-F Information 2019 / Group Accounting Policies
179
Notes to the Group Financial Statements
1 Revenue
Product Sales
Oncology:
Tagrisso
Imfinzi
Lynparza
Calquence
Faslodex
Zoladex
Iressa
Arimidex
Casodex
Others
Emerging
Markets
$m
US Europe
$m
$m
Rest of
World
$m
2019
Total
$m
Emerging
Markets
$m
US
$m
Europe
$m
Rest of
World
$m
2018
Total
$m
Emerging
Markets
$m
US
$m
Europe
$m
Rest of
World
$m
762
1,268
30
1,041
133
2
198
492
286
152
127
29
626
162
328
7
17
–
–
–
474
179
287
–
229
135
70
28
16
5
685
3,189
219
152
–
137
179
50
45
57
60
1,469
1,198
164
892
813
423
225
200
94
347
6
51
–
154
409
286
132
113
30
869
564
345
62
537
8
26
–
1
–
314
27
190
–
221
133
109
31
20
8
330
1,860
135
36
61
–
116
202
97
49
67
77
633
647
62
1,028
752
518
212
201
115
–
18
–
115
353
251
118
108
28
405
19
141
3
492
15
39
7
(1)
–
187
–
130
–
256
141
112
34
22
3
228
–
8
–
78
226
126
58
86
83
2017
Total
$m
955
19
297
3
941
735
528
217
215
114
Cardiovascular, Renal and Metabolism:
2,211
3,449
1,423
1,584
8,667
1,528
2,412
1,053
1,035
6,028
1,126
1,120
885
893
4,024
Farxiga
Brilinta
Bydureon
Onglyza
Byetta
Other Diabetes
Lokelma
Crestor
Seloken/Toprol-XL
Atacand
Others
Respiratory:
Symbicort
Pulmicort
Fasenra
Daliresp/Daxas
Duaklir
Bevespi
Breztri
Others
Other:
Nexium
Synagis
Losec/Prilosec
Seroquel XR/IR
Others
471
462
11
176
12
1
–
806
686
160
193
537
710
459
230
68
40
13
373
351
66
70
19
9
1
162
1,543
58
13
51
11
2
–
1,581
549
527
110
52
14
104
148
220
1,278
37
12
(1)
25
30
59
12
19
20
760
221
271
336
326
8
172
8
(1)
–
841
641
157
207
591
588
475
223
74
34
–
315
348
81
89
29
5
–
149
1,391
59
20
59
15
1
–
1,321
584
543
126
39
–
170
203
219
1,433
39
13
(1)
19
70
71
13
20
24
712
260
301
232
224
9
130
12
1
–
784
593
178
204
489
509
458
320
114
52
–
242
295
88
104
34
–
–
111
1,074
51
19
57
16
–
–
1,079
574
611
176
53
–
373
666
542
2,365
37
19
–
52
86
92
13
17
43
695
300
339
2,978 2,209
1,151
568
6,906
2,695
2,206
1,230
579
6,710
2,367
2,371
1,659
869
7,266
547
1,190
5
4
1
–
–
240
829
110
482
184
3
42
–
3
678
81
118
26
71
–
–
441
2,495
85
99
1
2
–
2
1,466
704
215
77
42
2
495
995
1
5
1
–
–
133
14
390
147
862
116
218
155
–
33
–
32
773
431
2,561
90
32
28
91
–
–
85
46
1
3
–
–
1,286
297
189
95
33
–
439
840
–
4
–
–
–
215
56
450
105
1,099
819
446
2,803
156
1
167
–
16
–
70
92
–
26
77
–
–
88
1,176
–
1
2
–
–
1
198
79
16
–
202
56
433
1,987
1,653
1,107
644
5,391
1,644
1,416
1,229
622
4,911
1,388
1,509
1,216
593
4,706
748
218
–
179
50
12
989
46
10
34
128
436
63
312
49
88
157
669
454
1,483
–
25
19
9
358
263
191
306
690
1
161
118
54
507
2,601
1,024
306
287
7
108
134
842
235
377
70
107
158
947
471
1,702
–
34
28
54
665
272
361
400
684
–
140
151
293
499
317
11
193
149
587
3,400
1,268
1,169
248
370
77
127
171
993
521
1,952
–
43
37
125
726
687
271
508
738
4,156
Product Sales
8,165
7,747
4,350
3,303 23,565
6,891
6,876
4,459
2,823 21,049
6,149
6,169
4,753
3,081 20,152
SE Rebates, chargebacks and returns in the US
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 revenue in 2019 was 3.6% (2018: 3.2%; 2017: 8.9%).
The most significant of these relate to the Medicaid and state programmes with an adjustment in respect of prior year net US Product Sales
revenue in 2019 was 1.3% (2018: 2.6%; 2017: 1.7%) and Managed Care and Medicare was 1.9% (2018: 1.2%; 2017: 3.5%).
This demonstrates the level of sensitivity, further meaningful sensitivity is not able to be provided due to the large volume of variables that contribute
to the overall rebates, chargebacks, returns and other revenue accruals.
180
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Statements
Collaboration Revenue
Royalty income
Global co-development and commercialisation of Lynparza and selumetinib with MSD
Licence agreement for Crestor in Spain with Almirall
Co-development and commercialisation of MEDI8897 with Sanofi
Grant of authorised generic rights to various medicines in Japan
Transfer of rights to Zoladex in the US and Canada to TerSera
Licence of rights to brodalumab to Valeant and LEO Pharma
Transfer of rights to anaesthetics medicines to Aspen
Other collaboration milestones
Other collaboration upfronts
Other collaboration revenue
2019
$m
62
610
39
34
19
–
–
–
5
–
50
819
2018
$m
49
790
61
–
41
35
–
–
4
10
51
2017
$m
108
1,247
–
127
45
250
150
150
87
114
35
1,041
2,313
Substantially all Collaboration Revenue relates to performance obligations satisfied in prior periods.
(cid:21) (cid:50)(cid:83)erating (cid:83)rofit
Operating profit includes the following significant items:
Selling, general and administrative costs
In 2019, Selling, general and administrative costs includes a credit of $516m (2018: credit of $482m; 2017: charge of $208m) 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 2019, Selling, general and administrative costs also includes a charge of $172m (2018: credit of $113m; 2017: credit of $209m) resulting from changes
in estimates of the cash flows arising from the put option over the non-controlling interest in Acerta Pharma.
In 2019, Selling, general and administrative costs also includes a charge of $610m (2018: credit of $219m; 2017: charge of $241m) of legal provisions
relating to a number of legal proceedings including settlements in various jurisdictions in relation to several marketed products.
Further details of impairment charges for 2019, 2018 and 2017 are included in Notes 7 and 10.
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 settlements1
Other income
Other expense
Other operating income and expense
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
2017
$m
132
(45)
1,518
161
24
(78)
–
286
(168)
2018
$m
96
(4)
1,885
–
(8)
–
374
277
(93)
2,527
1,830
2019
$m
146
(4)
1,243
–
(21)
–
–
285
(108)
1,541
1 Primarily driven by a $352m settlement of legal action in Canada in relation to a patent infringement of Losec/Prilosec.
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 2019 includes $515m on disposal of US rights to Synagis to Sobi, $243m on disposal of rights to Losec
globally excluding China, Japan, the US and Mexico to Cheplapharm, $181m on disposal of rights to Arimidex and Casodex in Europe and certain
additional countries to Juvisé Pharmaceuticals and $213m on disposal of commercialisation rights to Seroquel and Seroquel XR in Europe, Russia,
US and Canada to Cheplapharm.
As part of the total consideration received in respect of the agreement to sell US rights to Synagis, $150m related to the rights to participate in the
future cash flows from the US profits or losses for nirsevimab. This was recognised as a financial liability as the Group has not fully transferred the
risks and rewards of the underlying cash flows arising from nirsevimab to Sobi. This liability is presented in Other Payables within Non-current
Liabilities. The associated cash flow is presented within Investing Activities as the Group has received the cash in exchange for agreeing to transfer
future cash flows relating to an intangible asset.
AstraZeneca Annual Report & Form 20-F Information 2019 / Notes to the Group Financial Statements
181
Notes to the Group Financial Statements
continued
(cid:21) (cid:50)(cid:83)erating (cid:83)rofit continued
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 the 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 the Europe rights to Seloken and $193m on disposal of the global rights to Zomig.
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 21.
Cost of sales
Research and development expense
Selling, general and administrative costs
Other operating income and expense
Total charge
Severance costs
Accelerated depreciation and impairment1
Other
Total charge
1 See Note 7 on page 188.
2019
$m
73
101
173
–
347
2019
$m
137
(67)
277
347
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
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.
Included within accelerated depreciation and impairment is a credit relating to the impairment reversal of two manufacturing sites in Colorado,
US. Refer to Note 7 for further details.
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
Discount unwind on other long-term assets
Interest on tax receivables
Total
Finance expense
Interest on debt and commercial paper
Interest on overdrafts, lease liabilities and other financing costs1
Net interest on post-employment defined benefit plan net liabilities (Note 22)
Net exchange losses
Discount unwind on contingent consideration arising from business combinations (Note 20)
Discount unwind on other long-term liabilities
Fair value losses on debt and interest rate swaps
Interest on tax payables
Total
Net finance expense
1 Comparative figures related to finance leases recognised under IAS 17.
182
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Statements
2019
$m
(112)
66
–
–
(46)
2019
$m
1
122
7
20
22
172
(698)
(74)
(53)
(30)
(356)
(213)
–
(8)
(1,432)
(1,260)
2018
$m
(100)
43
–
–
(57)
2018
$m
10
86
–
6
36
138
(673)
(68)
(52)
(51)
(416)
(154)
(2)
(3)
(1,419)
(1,281)
2017
$m
(6)
(30)
161
34
159
2017
$m
8
62
4
10
29
113
(612)
(52)
(49)
(148)
(402)
(245)
–
–
(1,508)
(1,395)
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, lease liabilities and commercial paper held at amortised cost
2019
$m
(12)
(10)
110
(662)
2018
$m
(11)
(28)
96
(619)
2017
$m
8
(35)
52
(559)
Fair value losses of $5m (2018: $13m; 2017: $9m) on interest rate fair value hedging instruments and $8m fair value gains (2018: $10m; 2017: $9m) 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 gain of $4m (2018: loss of $13m; 2017: loss of $10m) on derivatives related to debt instruments designated at fair value through profit or
loss and $4m fair value loss (2018: gain of $13m; 2017: gain of $3m) 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.
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 (gains)/losses on equity investments measured at fair value through other comprehensive income
Deferred tax (credit)/charge relating to change of 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
Deferred tax (credit)/charge relating to change of tax rates
Total
Taxation relating to components of other comprehensive income
The reported tax rate in the year was 21%.
The income tax paid for the year was $1,118m which was 72% of Profit before Tax.
2019
$m
1,243
66
1,309
(875)
(113)
(988)
321
2019
$m
81
–
(60)
–
21
34
4
–
–
38
59
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)
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Taxation has been provided at current rates on the profits earned for the periods covered by the Group Financial Statements. The 2019 prior period
current tax adjustment relates mainly to net increases in provisions for tax contingencies and tax accrual to tax return adjustments. The 2018 and 2017
prior period current tax adjustments relate mainly to net reductions in provisions for tax contingencies and tax accrual to tax return adjustments.
The 2019, 2018 and 2017 prior period deferred tax adjustments relate mainly to tax accrual to return adjustments.
To the extent that dividends remitted from overseas subsidiaries, joint ventures and associates are expected to result in additional taxes, appropriate
amounts have been provided for. No deferred tax has been provided for unremitted earnings of Group companies overseas as these are considered
permanently employed in the business of these companies. Unremitted earnings may be liable to overseas taxes and/or UK taxation (after allowing
for double tax relief) if distributed as dividends. The aggregate amount of temporary differences associated with investments in subsidiaries and
branches for which Deferred tax liabilities have not been recognised totalled approximately $4,902m at 31 December 2019 (2018: $8,144m;
2017: $8,359m).
AstraZeneca Annual Report & Form 20-F Information 2019 / Notes to the Group Financial Statements
183
Notes to the Group Financial Statements
continued
4 Taxation continued
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.
Tax reconciliation to UK statutory rate
The table below reconciles the UK statutory tax charge to the Group’s total tax charge/(credit):
Profit before tax
Notional taxation charge at UK corporation tax rate of 19% (2018: 19%; 2017: 19.25%)
Differences in effective overseas tax rates
Deferred tax charge/(credit)relating to change in 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 charge/(credit) for the year
2019
$m
1,548
294
(49)
39
(16)
92
(13)
21
(47)
321
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)
1 The 2019 item relates to the increase in the 2019 substantively enacted Dutch Corporate Income Tax rate (debit of $66m) and other (credit of $27m). In 2019, it was substantively enacted that
the Dutch Corporate Income Tax rate for the year ended 31 December 2020 increases from 22.55% to 25% and effective 1 January 2021 increases from 20.5% to 21.7%. The 2018 item relates
to the 2018 reduction in the Dutch and Swedish Corporate Income Tax rates (credit of $297m) and other (credit of $37m). 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).
2 The 2019 item includes a $27m credit arising on recognition of previously unrecognised deferred tax assets and the 2017 item relates to recognition of previously unrecognised net deferred
tax assets.
3 Other items in 2019 relate to a charge of $309m relating to collaboration and divestment activity, a credit of $70m relating to internal transfers of intellectual property and a net credit of $218m
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. 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 contingencies (charge $45m).
4 Further details explaining the adjustments in respect of prior periods is set out on page 183.
AstraZeneca is domiciled in the UK but operates in other countries where the tax rates and laws are different from 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 total movement in the net deferred tax balance in the year was $1,135m. The movements are as follows:
Intangibles,
property, plant
& equipment1
$m
Pension and
post-retirement
benefits
$m
Elimination of
unrealised profit
on inventory
$m
Untaxed
reserves2
$m
Losses and
tax credits
carried forward
$m
Accrued
expenses
and other
$m
Net deferred tax balance at 1 January 2017
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
Equity
Exchange
Net deferred tax balance at 31 December 2018
Income statement
Other comprehensive income
Equity3
Exchange
(5,149)
1,393
(84)
(12)
(3,852)
–
401
56
–
27
(3,368)
1,055
34
–
14
465
(8)
9
43
509
–
(15)
26
–
(25)
495
(9)
79
–
(4)
1,014
(231)
–
48
831
–
179
–
–
(30)
980
312
–
–
1
(697)
159
–
(62)
(600)
–
(4)
–
–
47
(557)
(63)
–
–
22
Net deferred tax balance at 31 December 20194
(2,265)
561
1,293
(598)
1,004
(128)
–
30
906
–
129
–
–
(27)
1,008
(480)
–
–
18
546
509
(166)
35
22
400
12
116
31
12
(36)
535
173
(30)
12
1
691
Total
$m
(2,854)
1,019
(40)
69
(1,806)
12
806
113
12
(44)
(907)
988
83
12
52
228
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 Deferred tax movement on share-based payments recorded through equity.
4 The UK had a net deferred tax asset of $629m as at 31 December 2019, which has been recognised on the basis of sufficient forecast future taxable profits against which the deductible temporary
differences can be utilised. The US includes a net deferred tax asset of $136m as at 31 December 2019, which has been recognised on the basis of sufficient forecast future taxable profits
against which the deductible temporary differences can be utilised.
184
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Statements
The net deferred tax balance, before the offset of balances within countries, consists of:
Intangibles,
Elimination of
Pension and
property, plant post-retirement unrealised profit
on inventory
$m
& equipment
$m
benefits
$m
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
Deferred tax assets at 31 December 2019
Deferred tax liabilities at 31 December 2019
Net deferred tax balance at 31 December 2019
1,226
(5,078)
(3,852)
1,071
(4,439)
(3,368)
1,091
(3,356)
(2,265)
559
(50)
509
521
(26)
495
591
(30)
561
1,011
(180)
831
1,287
(307)
980
1,543
(250)
1,293
Losses and
Untaxed
tax credits
reserves carried forward
$m
$m
Accrued
expenses
and other
$m
–
(600)
(600)
–
(557)
(557)
–
(598)
(598)
957
(51)
906
1,103
(95)
1,008
608
(62)
546
885
(485)
400
913
(378)
535
959
(268)
691
Analysed in the Consolidated Statement of Financial Position, after offset of balances within countries, as:
Deferred tax assets
Deferred tax liabilities
Net deferred tax balance
2019
$m
2,718
(2,490)
228
2018
$m
2,379
(3,286)
(907)
Total
$m
4,638
(6,444)
(1,806)
4,895
(5,802)
(907)
4,792
(4,564)
228
2017
$m
2,189
(3,995)
(1,806)
Unrecognised deferred tax assets
Deferred tax assets (DTA) of $441m (2018: $444m; 2017: $420m) have not been recognised in respect of deductible temporary differences because
it is not probable that future taxable profit will be available against which the Group can utilise the benefits therefrom.
2019
Temporary
differences
$m
2019
Unrecognised
DTA
$m
2018
Temporary
differences
$m
2018
Unrecognised
DTA
$m
2017
Temporary
differences
$m
2017
Unrecognised
DTA
$m
Trading and capital losses expiring:
Within 10 years
More than 10 years
Indefinite
Tax credits and State tax losses expiring:
Within 10 years
More than 10 years
Indefinite
Total
4
4
175
183
33
1
218
252
9
–
62
71
44
259
67
370
441
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.
1
1
51
53
40
281
70
391
444
2019
1,335
$1.03
$1.03
1,301
–
1,301
105
4
88
197
2018
2,155
$1.70
$1.70
1,267
–
1,267
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
25
1
24
50
32
273
65
370
420
2017
3,001
$2.37
$2.37
1,266
1
1,267
6 Segment information
During 2019 a reorganisation of the Group’s R&D units responsible for discovery through to late-stage development was completed, resulting in
an R&D unit for BioPharmaceuticals (CVRM and Respiratory) and one for Oncology.
Additionally, there was a change in the structure of the Group’s commercial units, creating a new BioPharmaceutical unit to add to the existing
Oncology Unit. These units align product strategy and commercial delivery across the US, Europe and Canada (EUCAN) and sharpened focus on
these main therapy areas. The structure of our international commercial organisation remained unchanged, with separate units for Japan and
International including China, covering all Therapy Areas.
As a result of the reorganisation completed during 2019, the Group has reviewed its assessment of reportable segments under IFRS 8 ‘Operating
Segments’ and concluded that the Group continues to have one reportable segment.
AstraZeneca Annual Report & Form 20-F Information 2019 / Notes to the Group Financial Statements
185
Notes to the Group Financial Statements
continued
KJ This determination is considered to be a Key Judgement, and this judgement has been taken with reference to the following factors:
1 The level of integration across the different functions of the Group’s pharmaceutical business:
AstraZeneca is engaged in a single business activity of pharmaceuticals and the Group does not have multiple discrete operating components.
AstraZeneca’s pharmaceuticals 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.
2 The identification of the Chief Operating Decision Maker (CODM) and the nature and extent of the financial information reviewed by the CODM:
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 in IFRS 8). The operation of the SET is principally driven by the management of the Commercial operations, R&D, 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. The focus of additional financial information reviewed is at brand sales level within specific geographies. Expenditure
analysis is completed for the science units, operations and enabling functions, there is no allocation of these centrally managed group costs to
the individual product brands. SET members’ variable remuneration continues to be derived from the Group scorecard outcome.
3 How resources are allocated:
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
Portfolio Committee and Late Stage Portfolio Committee.
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
2019
$m
1,822
578
704
396
359
834
1,291
4,162
466
8,047
814
9,327
266
4,867
2,522
1,418
9,073
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
24,384
22,090
22,465
Total Revenue outside of the UK totalled $22,562m for the year ended 31 December 2019 (2018: $19,700m; 2017: $19,225m).
186
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Statements
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
Operating profit/(loss)
Profit/(loss) before tax
2019
$m
466
1,502
(8)
964
2,924
2019
$m
6,778
15,220
19,513
1,235
42,746
2019
$m
2,255
386
236
120
2018
$m
(66)
3,671
(757)
539
3,387
2017
$m
(694)
2,482
1,242
647
3,677
Non-current assets1
2018
$m
4,828
14,529
22,191
976
42,524
2018
$m
556
530
356
105
2017
$m
5,371
16,305
24,811
1,024
47,511
Assets acquired2
2017
$m
400
629
585
138
2,997
1,547
1,752
2019
$m
93
1,006
(474)
923
1,548
2019
$m
15,302
18,182
23,380
4,513
61,377
2019
$m
4,206
9,201
15,929
1,432
30,768
2018
$m
(514)
3,179
(1,171)
499
1,993
2018
$m
13,573
17,119
26,381
3,578
60,651
2017
$m
(1,146)
1,918
822
633
2,227
Total assets
2017
$m
12,842
18,962
28,180
3,370
63,354
Net operating assets3
2018
$m
3,471
8,913
18,598
1,037
32,019
2017
$m
3,351
10,228
20,339
1,198
35,116
1 Non-current assets exclude Deferred tax assets and Derivative financial instruments.
2 Included in Assets acquired are those assets that are expected to be used during more than one period (Property, plant and equipment, Goodwill and Intangible assets).
3 Net operating assets exclude short-term investments, cash, short-term borrowings, loans, Derivative financial instruments, retirement benefit obligations and non-operating receivables and payables.
UK
Sweden
US
Rest of the world
Continuing operations
Geographic markets
The table below shows Product Sales in each geographic market in which customers are located.
UK
Continental Europe
The Americas
Asia, Africa & Australasia
Continuing operations
2019
$m
1,920
1,488
2,758
1,522
7,688
2019
$m
458
3,891
9,032
10,184
23,565
Property, plant and equipment
2018
$m
1,605
1,456
2,844
1,516
7,421
2018
$m
469
4,388
8,177
8,015
21,049
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
2017
$m
1,455
1,508
3,055
1,597
7,615
2017
$m
489
4,712
7,467
7,484
20,152
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 (2018: one; 2017: zero) individually represented greater than 10% of Product Sales. The value of these transactions
recorded as Product Sales were $3,078m (2018: $2,704m; 2017: n/a).
AstraZeneca Annual Report & Form 20-F Information 2019 / Notes to the Group Financial Statements
187
Notes to the Group Financial Statements
continued
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 2017
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
Capital expenditure
Transfer of assets into use
Disposals and other movements
Exchange adjustments
At 31 December 2019
Depreciation
At 1 January 2017
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
Charge for year
Impairment
Disposals and other movements
Exchange adjustments
At 31 December 2019
Net book value
At 31 December 2017
At 31 December 2018
At 31 December 2019
4,616
39
525
(367)
210
5,023
25
429
50
(161)
5,366
8
403
(236)
(9)
5,532
2,092
182
78
(249)
128
2,231
202
150
10
(89)
2,504
209
(67)
(120)
(21)
6,543
198
567
(577)
452
7,183
99
594
(427)
(353)
7,096
48
620
(324)
(57)
7,383
4,511
442
–
(501)
341
4,793
412
98
(336)
(253)
4,714
438
14
(313)
(45)
2,505
4,808
2,292
1,074
(1,092)
–
159
2,433
910
(1,023)
(14)
(129)
2,177
940
(1,023)
(11)
3
13,451
1,311
–
(944)
821
14,639
1,034
–
(391)
(643)
14,639
996
–
(571)
(63)
2,086
15,001
–
–
–
–
–
–
–
43
(43)
–
–
–
–
–
–
–
6,603
624
78
(750)
469
7,024
614
291
(369)
(342)
7,218
647
(53)
(433)
(66)
7,313
7,615
7,421
7,688
2,792
2,862
3,027
2,390
2,382
2,575
2,433
2,177
2,086
Impairment charges in 2019 were recognised for Land and buildings and Plant and equipment as a result of the announcement of the closure of the
Wedel manufacturing site and the cessation of specific operations in Algeria. These charges have been recognised in Cost of sales. An impairment
reversal recognised of $23m in relation to the Longmont, Colorado manufacturing site (sold in March 2019) and the Boulder, Colorado manufacturing
site of $70m (offer accepted in November 2019, subject to completion of due diligence and other closing conditions), which more than offset the
impairment charges of $26m.
Included within other movements in 2019 is a transfer of $70m from Land and buildings to Assets held for sale in relation to the Boulder
manufacturing site.
The net book value of land and buildings comprised:
Freeholds
Leaseholds
2019
$m
2,657
370
2018
$m
2,567
295
2017
$m
2,514
278
188
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Statements
8 Leases
Right-of-use assets
Cost
At 1 January 2019
Opening balance
Additions
Disposals and other movements
Exchange adjustments
At 31 December 2019
Depreciation
At 1 January 2019
Charge for year
Impairment
Disposals and other movements
Exchange adjustments
At 31 December 2019
Net book value
At 31 December 2019
Lease Liability
The present value of lease liabilities is as follows:
Within one year
Later than one year and not later than five years
Later than five years
Total lease liabilities
Land and
buildings
$m
Motor
vehicles
$m
Total right-
of-use
assets
$m
Other
$m
–
580
85
(44)
6
627
–
130
4
(3)
1
132
495
–
124
85
(7)
–
202
–
70
–
(6)
–
64
–
18
3
1
–
22
–
7
–
1
–
8
138
14
2019
$m
188
368
119
675
2018
$m
–
–
–
–
–
722
173
(50)
6
851
–
207
4
(8)
1
204
647
2017
$m
–
–
–
–
In prior periods, the Group only recognised lease assets and lease liabilities in relation to leases that were classified as ‘finance leases’ under IAS 17
‘Leases’. The assets were presented within property, plant and equipment and the liabilities within interest bearing loans and borrowings. For
adjustments recognised on adoption of IFRS 16 on 1 January 2019, please refer to the Group Accounting Policies section.
The interest expense on lease liabilities included within finance costs was $22m. The expense relating to short-term leases was $1m. The expense
relating to leases of low-value assets that are not shown above as short-term leases was $1m. The expense relating to variable lease payments not
included in lease liabilities was $nil. Income recognised from subleasing was $4m.
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
The total cash outflow for leases in 2019 was $208m.
Prior to adoption of IFRS 16 on 1 January 2019, total rentals under operating leases charged to profit were as follows:
Operating leases
2018
$m
188
2017
$m
175
In 2018, the Group revised the presentation of operating leases from 2017 to include operating leases 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.
Prior to adoption of IFRS 16 on 1 January 2019, the future minimum lease payments under operating leases that had an initial or remaining term in
excess of one year at 31 December 2019 were as follows:
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
In 2018, the Group revised the presentation of operating leases from 2017 to include operating leases identified during the transitions to IFRS 16
as having previously been omitted from this disclosure. This resulted in an increase in 2017 from $523m to $614m.
AstraZeneca Annual Report & Form 20-F Information 2019 / Notes to the Group Financial Statements
189
Notes to the Group Financial Statements
continued
9 Goodwill
Cost
At 1 January
Additions through business combinations
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
2019
$m
2018
$m
2017
$m
12,022
12,143
11,969
–
(40)
–
(121)
–
174
11,982
12,022
12,143
315
(1)
314
318
(3)
315
311
7
318
11,668
11,707
11,825
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 pharmaceuticals.
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 2019
(and 31 December 2018 and 31 December 2017). No goodwill impairment was identified.
10 Intangible assets
Cost
At 1 January 2017
Additions – separately acquired
Disposals
Exchange and other adjustments
At 31 December 2017
Additions – separately acquired
Transferred to assets held for sale (Note 18)
Disposals
Exchange and other adjustments
At 31 December 2018
Additions – separately acquired
Disposals
Exchange and other adjustments
At 31 December 2019
Amortisation and impairment losses
At 1 January 2017
Amortisation for year
Impairment
Disposals
Exchange and other adjustments
At 31 December 2017
Amortisation for year
Impairment
Transferred to assets held for sale (Note 18)
Disposals
Exchange and other adjustments
At 31 December 2018
Amortisation for year
Impairment
Disposals
Exchange and other adjustments
At 31 December 2019
Net book value
At 31 December 2017
At 31 December 2018
At 31 December 2019
Other intangibles consist mainly of research and device technologies.
190
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Statements
Product,
marketing and
distribution rights
$m
Other
intangibles
$m
Software
development
costs
$m
Total
$m
41,603
397
(249)
1,162
42,913
476
(2,486)
(630)
(1,137)
39,136
1,835
(35)
(282)
2,580
1,828
46,011
7
(67)
116
2,636
–
–
–
(110)
2,526
99
–
24
37
(62)
108
1,911
37
–
(16)
(93)
1,839
67
(151)
26
441
(378)
1,386
47,460
513
(2,486)
(646)
(1,340)
43,501
2,001
(186)
(232)
40,654
2,649
1,781
45,084
15,095
1,627
488
(19)
467
17,658
2,016
683
(1,504)
(294)
(652)
17,907
1,808
1,031
(29)
(112)
1,836
118
–
–
50
2,004
69
–
–
–
(38)
2,035
52
–
–
10
20,605
2,097
25,255
21,229
20,049
632
491
552
1,494
84
3
(52)
81
1,610
80
–
–
(13)
(77)
1,600
68
2
(147)
26
1,549
301
239
232
18,425
1,829
491
(71)
598
21,272
2,165
683
(1,504)
(307)
(767)
21,542
1,928
1,033
(176)
(76)
24,251
26,188
21,959
20,833
Amortisation charges are recognised in profit as follows:
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
Year ended 31 December 2019
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 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
Year ended 31 December 2019
Research and development expense
Selling, general and administrative costs
Other operating income and expense
Total
Product,
marketing and
distribution rights
$m
Other
intangibles
$m
Software
development
costs
$m
149
–
1,478
–
1,627
187
–
1,829
–
2,016
87
–
1,721
–
1,808
–
43
30
45
118
–
33
32
4
69
–
29
19
4
52
–
–
84
–
84
–
–
80
–
80
–
–
68
–
68
Product,
marketing and
distribution rights
$m
Other
intangibles
$m
Software
development
costs
$m
101
387
488
539
144
683
609
425
(3)
1,031
–
–
–
–
–
–
–
–
–
–
–
3
3
–
–
–
–
2
–
2
Total
$m
149
43
1,592
45
1,829
187
33
1,941
4
2,165
87
29
1,808
4
1,928
Total
$m
101
390
491
539
144
683
609
427
(3)
1,033
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
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. If such indication exists, the recoverable amount of the assets is estimated in order to determine the extent of the
impairment loss. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount
of the CGU to which it belongs. The Group considers that as the intangible assets are linked to individual products and that product cash flows
are considered to be largely independent of other product cash flows, that this results in the CGU for intangibles being at the product level.
An asset’s recoverable amount is determined as the higher of an asset’s or CGU’s fair value less costs to sell or value in use, in both cases 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 2019, 2018 and 2017). This has been assessed to be an appropriate rate for a market participant under
the fair value less cost to sell model. There is no material difference in the approach taken to using pre-tax cashflows and a pre-tax rate compared
to post-tax cashflows and a post-tax rate, as required by IAS 36. We also use 7% as the discount rate in determining the fair value less costs to sell.
SE The estimates used in calculating the recoverable amount are considered significant estimates, 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 (to derive peak year sales)
> amount and timing of projected future cash flows
> sales erosion curves following patent expiry.
For assets held at fair value less costs to sell, we make appropriate adjustments to reflect market participant assessments.
AstraZeneca Annual Report & Form 20-F Information 2019 / Notes to the Group Financial Statements
191
Notes to the Group Financial Statements
continued
10 Intangible assets continued
In 2019, the Group recorded impairment charges of $425m in respect of launched products Bydureon ($154m, revised carrying amount of $747m)
under value in use model, Qtern ($89m, revised carrying amount of $233m) under value in use model, Eklira/Tudorza ($84m, revised carrying amount of
$192m) under value in use model, FluMist ($52m, revised carrying amount of $172m) under fair value less costs to sell (Level 3 in fair value hierarchy,
the recoverable value of the assets is sensitive to patient demand and access, ultimately translating to sales from key markets such as the US
and Europe) and $46m relating to other launched products. As these assets have been impaired in the current year, there is no headroom in the
recoverable amount calculation and they are inherently sensitive to any variations in assumptions, which could give rise to future impairments.
If revenue projections for Bydureon were to fall by 10% over the forecast period, this would result in a further impairment charge of $102m.
Impairment charges recorded against products in development related to Epanova ($533m) and other intangible assets ($76m)
In 2018, the Group recorded impairment charges of $144m in respect of launched products Eklira/Tudorza ($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).
The impairments recorded on launched products were a consequence of revised market volume, share and price assumptions. 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 Ardea (carrying 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 five 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 no material reversals were identified.
SE Were the useful economic lives to be adjusted to reduce them all by one year the net book value would be reduced by $303m, if useful economic
lives to be extended by one year the net book value would increase by $201m.
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 acquired from Daiichi Sankyo1
Roxadustat intangible assets acquired from FibroGen1
1 Assets in development are not amortised but are tested annually for impairment.
Carrying value
$m
Remaining amortisation
period
6,263
2,794
980
1,172
928
917
747
748
507
566
706
1,709
340
13 years
13 years
7 years
Not amortised
2 to 11 years
6 years
11 years
9 to 11 years
3 to 6 years
4 years
7 to 19 years
Not amortised
Not amortised
In assessing whether the intangible assets and associated processes acquired from Daiichi Sankyo were a business, we determined that they were
not at a stage of readiness to be able to obtain regulatory approval and manufacture and commercialise at scale, the transaction was treated as an
asset acquisition.
192
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Statements
11 Investments in associates and joint ventures
At 1 January
Additions
Share of after tax losses
Unrecognised profit on transactions with joint ventures
Exchange and other adjustments
At 31 December
2019
$m
89
74
(116)
–
11
58
2018
$m
103
187
(113)
(64)
(24)
89
2017
$m
99
76
(55)
(27)
10
103
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 and pre-clinical assets. AstraZeneca contributed $142m in initial
funds and held an initial 45% interest in the joint venture. Consideration was $142m and a restricted disposal gain of $63m was recognised in Other
operating income in 2018. Viela Bio completed an IPO on 7 October 2019 with AstraZeneca investing $8m. After the IPO, AstraZeneca’s holding was
reduced to 29% with two members on a board size of eight. Given the shareholding and board representation, the investment continues to be treated
as an associate. During the year the Group provided transitional research and development services to Viela Bio, comprising $13m (2018: $9m) of
services provided directly by the Group and $24m (2018: $20m) of passed through third party costs incurred by the Group on behalf of Viela Bio.
At the end of the year the Group had an outstanding unsecured receivable of $6m (2018: $6m) settleable in cases on customary terms against
which no credit loss provision has been made.
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 medical 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. An additional
contribution of $25m was made in 2019.
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. Additional contributions were
made of $10m in 2016, $20m in 2017, $27m in 2018 and a further $20m in 2019.
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, $15m in 2018 and a further $16m in 2019. At the end of the year Archigen had net assets of $5m, of which
AstraZeneca’s share is $2m, and the investment is held at $nil value.
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
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
2019
$m
298
447
(89)
656
64
(6)
58
2018
$m
260
233
(71)
422
104
(15)
89
2017
$m
207
158
(41)
324
117
(14)
103
AstraZeneca Annual Report & Form 20-F Information 2019 / Notes to the Group Financial Statements
193
Notes to the Group Financial Statements
continued
12 Other investments
Non-current investments
Equity securities at fair value through Other comprehensive income
Equity securities available for sale
Fixed income securities at fair value through profit and loss
Total
Current investments
Fixed income securities at fair value through profit and loss
Fixed income securities available for sale
Fixed deposits
Total
2019
$m
1,339
–
62
1,401
811
–
38
849
2018
$m
833
–
–
833
809
–
40
849
2017
$m
–
933
–
933
–
1,150
80
1,230
Investments classified as available for sale in 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.
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 that the Group holds to sell.
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. Equity
and fixed income securities available for sale were held at fair value until reclassification.
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 (i.e. as prices) or
indirectly (i.e. 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
2019
FVPL
$m
873
–
–
873
2019
FVOCI
$m
1,112
–
227
1,339
2018
FVPL
$m
809
–
–
809
2018
FVOCI
$m
667
–
166
833
2017
AFS
$m
1,408
–
675
2,083
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
2019
FVOCI
$m
166
5
56
2
(5)
3
227
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.
194
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Statements
(cid:20)(cid:22) (cid:39)erivative financia(cid:79) instru(cid:80)ents
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 cash flow hedge
Cross currency swaps designated in a fair value hedge1
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 hedge
Cross currency swaps designated in a cash flow hedge
Cross currency swaps designated in a fair value hedge1
Other derivatives
31 December 2018
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 cash flow hedge
Cross currency swaps designated in a fair value hedge1
Other derivatives
31 December 2019
Non-current
assets
$m
Current
assets
$m
Current
liabilities
$m
Non-current
liabilities
$m
–
53
223
197
31
–
504
–
–
12
–
–
16
28
(3)
–
–
–
–
(21)
(24)
–
–
(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)
Non-current
assets
$m
Current
assets
$m
Current Non-current
liabilities
$m
liabilities
$m
43
4
4
10
–
61
–
–
–
–
36
36
–
–
–
–
(36)
(36)
–
(1)
(17)
–
–
(18)
Total
$m
(3)
53
231
197
31
(5)
504
Total
$m
40
209
101
16
18
384
Total
$m
43
3
(13)
10
–
43
1 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.
All derivatives are held at fair value and fall within Level 2 of the fair value hierarchy as defined in Note 12. 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 the current year end.
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
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:
Derivatives
14 Non-current other receivables
Prepayments
Accrued income
Other receivables
Non-current other receivables
2019
2018
2017
(0.5)% to 2.7% (0.4)% to 3.2% 1.7% to 2.2%
2019
$m
392
10
338
740
2018
$m
461
–
54
515
2017
$m
702
–
145
847
Non-current other receivables include $125m (2018: $146m; 2017: $178m) of prepayments in relation to our research collaboration with Moderna,
$118m (2018: $nil; 2017: $nil) of outstanding receivables relating to the out-licence of Duaklir and Tudorza to Circassia in 2017 and $53m (2018: $nil;
2017: $nil) owed by FibroGen for promotion activity in China pursuant to the roxadustat collaboration.
The previous year balance included a prepayment of $114m (2017: $181m) which represented 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 included fixed minimum and maximum payments in years until 2020, resulted in the Group recognising liabilities, and corresponding
prepayments, for the discounted value of total minimum payments. At 31 December 2019 the prepayment is reported in amounts due within one
year (see Note 16).
AstraZeneca Annual Report & Form 20-F Information 2019 / Notes to the Group Financial Statements
195
Notes to the Group Financial Statements
continued
15 Inventories
Raw materials and consumables
Inventories in process
Finished goods and goods for resale
Inventories
2019
$m
830
1,272
1,091
3,193
2018
$m
794
1,450
646
2,890
The Group recognised $2,708m (2018: $2,659m; 2017: $2,493m) of inventories as an expense within cost of sales during the year.
Inventory write-offs in the year amounted to $231m (2018: $208m; 2017: $109m).
16 Current trade and other receivables
Amounts due within one year
Trade receivables
Less: Amounts provided for doubtful debts (Note 27)
Other receivables
Prepayments
Accrued income
Amounts due after more than one year
Other receivables
Prepayments
2019
$m
3,606
(21)
3,585
1,083
865
228
5,761
–
–
–
2018
$m
3,033
(38)
2,995
1,143
871
492
5,501
–
73
73
2017
$m
1,024
1,208
803
3,035
2017
$m
2,818
(16)
2,802
793
971
177
4,743
156
110
266
Trade and other receivables
5,761
5,574
5,009
Trade receivables includes $892m (2018: $724m; 2017: $327m) measured at FVOCI classified ‘hold to collect and sell’ as they are due from customers
that the Group has the option to factor.
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.
17 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
2019
$m
755
4,614
5,369
(146)
5,223
2018
$m
893
3,938
4,831
(160)
4,671
2017
$m
784
2,540
3,324
(152)
3,172
The Group holds $1m (2018: $86m; 2017: $93m) 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 balances included in Cash and cash equivalents were reclassified from amortised
cost to fair value through profit and 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 and loss, although the fair value will be materially the same as amortised cost. The balances reclassified on
1 January 2018 was $1,150m, at 31 December 2019 $4,186m (2018: $3,498m) was measured at fair value through profit and loss.
Non-cash and other movements, within operating activities in the Consolidated Statement of Cash Flows, includes:
2019
$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
Long-term provision charges recorded in operating profit
Foreign exchange and other
Total operating activities non-cash and other movements
196
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Statements
–
21
172
259
(323)
(175)
59
506
(141)
378
2018
$m
–
8
(113)
219
(212)
(174)
128
63
(209)
(290)
2017
$m
(161)
(24)
(209)
220
(254)
(157)
74
36
(49)
(524)
18 Assets held for sale
Assets held for sale of $70m (2018: $982m; 2017: $nil) comprising tangible assets relating to the Boulder Manufacturing Centre. AstraZeneca signed
a letter of intent on 27 November 2019 to sell the facility to AGC Bio, with both parties agreeing to close the transaction before the end of the first
quarter 2020, subject to the completion of due diligence.
In 2018, Assets held for sale of $982m comprised 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 was 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.
19 Interest-bearing loans and borrowings
Current liabilities
Bank overdrafts
Other short-term borrowings excluding overdrafts
Bank collateral1
Lease liabilities2
Floating rate notes
1.75% Callable bond
1.95% Callable bond
2.375% Callable bond
Repayment
dates
On demand
US dollars
US dollars
US dollars
US dollars
2018
2018
2019
2020
Other loans (Commercial paper)
Within one year
Total
Non-current liabilities
Lease liabilities2
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
Total interest-bearing loans and borrowings3, 4
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
2019
2020
2021
2021
2022
2022
2023
2023
2023
2024
2025
2027
2028
2029
2031
2037
2042
2045
2048
2019
$m
146
8
71
188
–
–
–
1,597
–
2,010
487
–
–
837
559
250
996
335
400
846
1,003
1,983
743
885
992
457
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
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
2,721
2,721
2,720
987
980
737
19
16,217
18,227
987
979
736
21
17,359
19,113
987
979
–
16
15,560
17,807
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.
2 Comparative figures related to finance leases recognised under IAS 17.
3 All loans and borrowings above are unsecured.
4 The floating rate bonds which will be repaid beyond 2021 will be impacted by the change in Libor reference rates.
AstraZeneca Annual Report & Form 20-F Information 2019 / Notes to the Group Financial Statements
197
Notes to the Group Financial Statements
continued
19 Interest-bearing loans and borrowings continued
At 1 January
Adoption of new accounting standards – Lease liabilities
Changes from financing cash flows
Issue of loans
Repayment of loans
Movement in short-term borrowings
Repayment of lease liabilities
Total changes in cashflows arising on financing activities
Movement in overdrafts
New lease liabilities
Exchange
Other movements
At 31 December
Total
loans and
borrowings
2019
$m
19,113
720
Total
loans and
borrowings
2018
$m
17,807
–
500
(1,500)
(516)
(186)
(1,702)
(13)
173
(62)
(2)
18,227
2,971
(1,400)
(98)
–
1,473
8
–
(177)
2
19,113
Set out below is a comparison by category of carrying values and fair values of all the Group’s interest-bearing loans and borrowings:
2017
Overdrafts
Finance leases due within one year3
Loans due within one year
Loans due after more than one year
Total at 31 December 2017
2018
Overdrafts
Finance leases due within one year3
Loans due within one year
Loans due after more than one year
Total at 31 December 2018
2019
Overdrafts
Lease liabilities due within one year
Lease liabilities due after more than one year
Loans due within one year
Loans due after more than one year
Total at 31 December 2019
Instruments in a
fair value hedge
relationship1
$m
Instruments
designated
at fair value2
$m
Instruments
designated in
cash flow hedge
$m
Amortised
cost
$m
–
–
596
304
900
–
–
–
346
346
–
–
–
–
339
339
–
–
–
347
347
–
–
–
325
325
–
–
–
–
335
335
–
–
–
2,602
2,602
–
–
–
2,495
2,495
–
–
–
–
2,447
2,447
152
5
1,494
12,307
13,958
160
–
1,594
14,193
15,947
146
188
487
1,676
12,609
15,106
Total
carrying
value
$m
152
5
2,090
15,560
17,807
160
–
1,594
17,359
19,113
146
188
487
1,676
15,730
18,227
Fair
value
$m
152
5
2,092
17,031
19,280
160
–
1,587
17,841
19,588
146
188
487
1,684
18,044
20,549
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 $11m.
2 Instruments designated at fair value through profit or loss include the US dollar 7% guaranteed debentures repayable in 2023.
3 Comparative figures relate to finance leases recognised under IAS 17.
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 12. 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 12, with
the exception of overdrafts and lease liabilities, where fair value approximates to carrying values.
A loss of $5m was made during the year on the fair value of bonds designated at fair value through profit or loss, due to decreased credit risk. A gain
of $30m 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
2019
2018
2017
(0.5)% to 1.6% (0.4)% to 2.4% (0.4)% to 2.0%
198
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Statements
20 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
Collaboration revenue contract liabilities
Contingent consideration
Other payables
Total
Non-current liabilities
Accruals
Collaboration revenue contract liabilities
Contingent consideration
Acerta Pharma put option liability (Note 26)
Other payables
Total
2019
$m
1,774
323
4,410
736
4,026
28
897
1,793
13,987
34
50
3,242
2,146
819
6,291
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
The Group 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 172). 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 $97m (2018: $126m; 1 January 2018: $138m).
The revenue recognised in the year for contract liabilities is $123m, comprising $95m relating to other revenue accruals and $28m Collaboration
Revenue contract liabilities. The most significant of these markets where these are seen relates to the US where the provision at 31 December 2019
amounted to $3,383m (2018: $3,266m; 2017: $2,826m).
Trade payables includes $492m (2018: $166m; 2017: $64m) due to suppliers that have signed up to a supply chain financing programme, under which
the suppliers can elect on an 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 2019 the payables met the criteria of Trade payables.
Included within Other payables due in under one year are liabilities to Daiichi Sankyo totalling $795m (2018: $nil; 2017: $nil) resulting from the
collaboration agreement in relation to Enhertu entered into in March 2019. Additionally, included within Other payable due in greater than one year
are liabilities totalling $241m (2018: $nil; 2017: $nil) as a result of this collaboration agreement.
The terms of the Acerta Pharma put option were modified during 2019 and the carrying value of the associated liability has been remeasured based
on the latest assessment of the expected timing and amount of redemption, with the remeasurement taken to Selling, general and administrative
costs (see Note 2). Interest arising from amortising the liability is included within Finance Expense (see Note 3). Under the modified terms, the
redemption amount is fixed, however, there is uncertainty as to timing of exercise, which may vary dependent on the regulatory outcomes of
Calquence. The remeasurement of this liability has resulted in an increase (2018: decrease; 2017: 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 with the Consolidated
Statement of Cash Flows.
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
The Group adopted IFRS 15 ‘Revenue from Contracts with Customers’ from 1 January 2018 under the modified retrospective method.
Consequently, the Group has presented Collaboration revenue contract liabilities prospectively from that date.
With the exception of Contingent consideration payables of $4,139m (2018: $5,106m; 2017: $5,534m) which are held at fair value within Level 3 of the
fair value hierarchy as defined in Note 12, 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
2019
$m
5,106
(709)
(614)
356
4,139
2018
$m
5,534
(349)
(495)
416
5,106
2017
$m
5,457
(434)
109
402
5,534
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.
AstraZeneca Annual Report & Form 20-F Information 2019 / Notes to the Group Financial Statements
199
Notes to the Group Financial Statements
continued
20 Trade and other payables continued
Revaluations of Contingent consideration are recognised in Selling, general and administrative costs and include a decrease of $516m in 2019
(2018: a decrease of $482m; 2017: an increase of $208m) 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).
The discount rate used for the Contingent consideration balances range from 7% to 9%. The most significant Contingent consideration balance is
the Global Diabetes Alliance and this is discounted at 8%.
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 therapy area and expected pricing for launched products, may cause the
calculated fair value of the above contingent consideration to vary materially in future years.
SE The contingent consideration balance relating to BMS’s share of Global Diabetes Alliance of $3,300m (2018: $3,983m; 2017: $4,477m) would
increase/decrease by $330m with an increase/decrease in sales of 10% as compared with the current estimates.
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
198
200
120
290
600
450
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.
21 Provisions
At 1 January 2017
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
Charge for year
Cash paid
Reversals
Exchange and other movements
At 31 December 2019
Due within one year
Due after more than one year
Total
Severance
$m
Environmental
$m
Employee
benefits
$m
487
225
(324)
(75)
45
358
94
(152)
(58)
(16)
226
158
(115)
(30)
2
241
59
11
(20)
–
9
59
65
(24)
–
(3)
97
31
(39)
(1)
8
96
143
30
(43)
(10)
6
126
1
(9)
–
1
119
18
(13)
–
6
130
Legal
$m
438
281
(48)
(40)
23
654
11
(232)
(230)
(5)
198
618
(147)
(28)
1
642
2019
$m
723
841
1,564
Other
provisions
$m
291
55
(37)
(44)
6
271
30
(28)
(28)
6
251
236
(24)
(17)
9
455
2018
$m
506
385
891
Total
$m
1,418
602
(472)
(169)
89
1,468
201
(445)
(316)
(17)
891
1,061
(338)
(76)
26
1,564
2017
$m
1,121
347
1,468
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. AstraZeneca endeavours to support
employees affected by restructuring initiatives to seek alternative roles within the organisation. Where the employee is successful any severance
provisions will be released.
200
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Statements
Details of the environmental and legal provisions are provided in Note 29. The legal issues are often subject to substantial uncertainties with regard
to the timing and final amounts of any payments, as such, once established these provisions remain in provisions until settlement is reached and
uncertainty resolved, with no transfer to Trade and other payables prior to payment. A significant proportion of the total legal provision relates to
matters settled in either the current or previous periods. These uncertainties can also cause reversal in previously established provisions once
final settlement is reached.
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, the majority of other provisions relates
to amounts associated with long-standing product liability settlements that arose prior to the merger of Astra and Zeneca, given the nature of the
provision the amounts are expected to be settled over many years.
No provision has been released or applied for any purpose other than that for which it was established.
(cid:21)(cid:21) (cid:51)ost-retire(cid:80)ent benefits
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 643 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.
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 total defined benefit obligations (or eighty per cent of net obligations) at 31 December 2019 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 were no
fundamental changes to these principles during 2019. 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 in 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 and 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. 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 61% of the Group’s defined benefit obligations at 31 December 2019. 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
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).
AstraZeneca Annual Report & Form 20-F Information 2019 / Notes to the Group Financial Statements
201
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t
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Notes to the Group Financial Statements
continued
(cid:21)(cid:21) (cid:51)ost-retire(cid:80)ent benefits continued
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 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 actuarial valuation as
at 31 March 2019 is currently in progress with a likely timescale for completion in early to mid-2020.
Certain aspects of the actuarial valuation discussions are governed by a long-term funding agreement, signed in October 2016 with the Trustee and
which sets out a path to full funding on a low-risk measure. Furthermore, under this agreement, if a deficit exists, the Group will grant a charge in
favour of the Trustee over certain land and buildings on the Cambridge Biomedical Campus, effective upon practical completion of the site, or from
2021 (whichever is earlier). This charge would crystallise only in the event of the Group’s insolvency. This charge will provide long term security in
respect of future UK Pension Fund contributions and will be worth up to £350m.
In relation to deficit recovery contributions, a lump sum contribution of £51m ($65m) was made in March 2019, with a further £51m contribution due
before 31 March 2020. In addition, a contribution of £27m ($35m) was made in March 2019, with a further contribution of £28m due before 31 March
2020, 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 of approximately
£126m which was due in 2017. This contribution will be paid in five instalments (with interest added each year) from March 2018 to March 2022 and
to date, two instalments have been paid. The letter of credit underwriting these payments will reduce in value as each annual payment is made.
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 ($6,915m) compared to a market value of assets at 31 March 2016 of £4,492m ($5,899m).
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’.
Changes to GMP
A UK High Court judgment was issued on 26 October 2018 relating to an element of pension benefits known as Guaranteed Minimum Pensions
(GMP). 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 made a provision in 2018 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 judgment). The estimated impact is based on the broad profile of the
Fund (i.e. age profile, service profile and GMP proportion) and a past service cost of £17m ($23m) was recognised in the year ended 31 December
2018. Discussions between the Trustee and the Company are ongoing to determine the exact impact. Any subsequent adjustments to the original
impact provision will be taken to Other comprehensive income.
Separate to this, following a review of the UK Pension Fund’s administrative practice and Fund Rules, a decision was made in July 2019 to change the
way in which GMP is calculated. This change applies to all future pension payments from November 2019. A past service net credit of £38m ($49m)
has been recognised in respect of these changes for the year ended 31 December 2019.
United States and Sweden
The IAS 19 positions for the US and Sweden as at 31 December 2019 are shown below. Note that for the post-retirement benefit disclosure for 2019
and for the 2018 comparatives, we have split out the table disclosure for the United States and Sweden from Rest of Group, to provide further
information on the larger Group schemes. The US plan and the Sweden plan account for 13% and 17% respectively 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 2019, when plan obligations were $1,592m and plan assets were
$1,506m. This includes obligations in respect of the non-qualified plan which is unfunded. The qualified US pension plan remains close to full
funding on an IAS 19 basis and has a positive funding balance on the local statutory measure. As such, no contributions are required, and the
investment strategy is largely de-risked.
The Swedish defined benefit pension plans were actuarially valued at 31 December 2019, when plan obligations were estimated to amount to $2,160m
and plan assets were $1,123m. 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 2020 for the three main countries will be approximately $31m.
202
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Statements
Post-retirement benefits other than pensions
In the US, and to a lesser extent in certain other countries, the Group’s employment practices include the provision of healthcare and life assurance
benefits for retired employees. As at 31 December 2019, some 3,087 retired employees and covered dependants currently benefit from these
provisions and some 2,007 current employees will be eligible on their retirement. The Group 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 2019 was $3m (2018: $5m; 2017: $14m). Plan assets were $252m and plan
obligations were $252m at 31 December 2019. 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 for the major defined benefit schemes operated by the Group
to 31 December 2019. 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 reflect the changes which have the most material impact on the
results of the Group and 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 cost
Discount rate – service cost
Inflation assumption
Rate of increase in salaries
Rate of increase in pensions in payment
Discount rate – defined benefit obligation
Discount rate – interest cost
Discount rate – service cost
UK
3.2%
–1
3.0%
2.8%
2.4%
2.5%
UK
3.0%
–1
2.8%
2.0%2
2.7%3
2.8%3
US
–
–
–
4.3%
3.3%
3.3%
US
–
–
–
3.2%
3.9%
4.0%
2018
Sweden
Rest of Group4
1.9%
3.4%
1.9%
2.4%
2.2%
2.8%
1.7%
2.5%
1.7%
1.8%
1.5%
1.9%
2019
Sweden
Rest of Group4
1.8%
3.3%
1.8%
1.5%
2.0%
2.5%
1.5%
2.3%
1.5%
1.3%
1.6%
1.9%
F
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c
i
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S
t
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m
e
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t
s
1 Pensionable pay frozen at 30 June 2010 levels following UK fund changes.
2 Group defined benefit obligation as at 31 December 2019 calculated using discount rates based on market conditions as at 31 December 2019.
3 2019 interest costs and service costs calculated using discount rates based on market conditions as at 31 December 2018.
4 Rest of Group reflects the assumptions in Germany as these have the most material impact on the Group.
The weighted average duration of the post-retirement scheme obligations is 16 years in the UK, 9 years in the US, 20 years in Sweden and 20 years
for the rest of the Group.
Demographic assumptions
The mortality assumptions are based on country-specific mortality tables. These are compared to actual experience and adjusted where sufficient
data are 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.
The table below illustrates life expectancy assumptions at age 65 for male and female members retiring in 2019 and male and female members
expected to retire in 2039 (2018: 2018 and 2038 respectively).
Country
UK
US
Sweden
Life expectancy assumption for a male member retiring at age 65
Life expectancy assumption for a female member retiring at age 65
2019
22.4
22.0
21.9
2039
23.7
24.9
23.6
2018
23.2
22.2
21.9
2038
24.7
22.8
23.6
2019
23.7
23.4
24.5
2039
25.0
26.6
25.6
2018
24.0
23.7
24.5
2038
25.5
26.8
25.6
In the UK, the Group adopted the CMI 2018 Mortality Projections Model with a 1% long-term improvement rate in 2019 and also updated the early
retirement assumption to reflect experience observed as part of the 31 March 2019 triennial valuation. The Group has continued to assume that
30% of members (2018: 30%) will transfer out of the defined benefit section of the AstraZeneca Pension Fund at the point of retirement.
The assumption used for the US plans was updated in 2019 to use the mortality tables (Pri-2012 and MP-2019) that were published during the year.
AstraZeneca Annual Report & Form 20-F Information 2019 / Notes to the Group Financial Statements
203
Notes to the Group Financial Statements
continued
(cid:21)(cid:21) (cid:51)ost-retire(cid:80)ent benefits continued
Risks associated with the Group’s defined benefit pensions
The UK defined benefit plan accounts for 61% 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 approximately 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
The majority of the DBO is indexed in line with price inflation
(mainly inflation as measured by the UK Retail Price Index
(RPI) 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%). Should changes
be made to align RPI with CPI in the future, then other things
being equal, this will lead to lower liability valuations.
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 85% hedged at the end of 2018). 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 RPI index-linked gilts and
derivative instruments such as swaps. The inflation hedge of
the UK Pension Fund is set at approximately 85% of total
assets and protects to some degree against higher-than-
expected inflation increases on the DBO (approximately 88%
hedged at the end of 2018). 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 $3.1bn of the UK Pension Fund’s liabilities. A one-year
increase in life expectancy will result in a $210m 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 2019, as calculated in accordance with IAS 19,
are shown below. 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.
204
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Statements
Scheme assets
UK
US
Sweden
Rest of Group
Total
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 Unquoted
$m
$m
Quoted Unquoted
$m
$m
1,725
–
–
–
–
–
–
39
–
–
–
(189)
1,197
733
1,712
596
176
–
157
767
–
137
–
–
–
81
–
–
–
(2)
52
72
69
38
–
8
Total fair value of scheme assets5
1,764
4,225
1,142
237
Quoted Unquoted Quoted
$m
$m
$m
Unquoted Quoted Unquoted
$m
$m
$m
–
–
(44)
1,387
1,013
–
–
–
–
–
–
–
–
–
–
–
–
147
124
208
380
153
5
–
42
103
3
64
–
–
–
–
1
1,017
213
–
–
–
14
–
–
–
–
242
256
1,924
870
3
201
–
–
–
120
1
2,161
2,161
787
181
250
787
301
251
3,119
5,735
8,854
UK
US
Sweden
Rest of Group
Total
Quoted Unquoted Quoted
$m
$m
$m
Unquoted Quoted Unquoted
$m
$m
$m
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 Unquoted
$m
$m
Quoted Unquoted
$m
$m
1,749
–
–
–
–
–
–
55
–
–
–
(354)
1,474
827
1,861
683
169
–
274
727
3
164
–
–
–
40
–
–
–
–
64
73
72
39
44
6
Total fair value of scheme assets5
1,804
4,660
1,208
298
–
–
–
–
–
–
–
–
–
–
–
–
244
122
211
381
162
3
–
1,123
74
55
(1)
61
–
10
–
–
(1)
198
–
–
–
–
–
–
–
5
309
314
2,097
782
2
225
–
–
–
(110)
1,660
1,111
10
–
95
(1)
2,314
2,324
884
221
315
884
316
314
3,210
6,395
9,605
1 Predominantly developed markets in nature.
2 Predominantl(cid:92) developed markets in nature and investment grade (AAA(cid:417)(cid:37)(cid:37)(cid:37)).
3 Includes interest rate swaps, inflation swaps, longevity swap, equity total return swaps and other contracts. More detail is given in the section Risks associated with the Group’s defined
benefit pensions on page 204. Valuations are determined by independent third parties.
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), Multi-asset credit (a range of investment grade and non-investment grade credit), 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).
The price of the funds is set by independent administrators/custodians employed by the investment managers and based on the value of the underlying assets held in the fund. Details of
pricing methodology is set out within internal control reports provided for each fund. Prices are updated daily, weekly or monthly depending upon the frequency of the fund’s dealing.
5 Included in scheme assets is $nil (2018: $nil) of the Group’s own assets.
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Scheme obligations
Present value of scheme obligations in respect of:
Active membership
Deferred membership
Pensioners
Total value of scheme obligations
Present value of scheme obligations in respect of:
Active membership
Deferred membership
Pensioners
Total value of scheme obligations
UK
$m
US
$m
Sweden
$m
Rest of Group
$m
(751)
(1,665)
(4,636)
(7,052)
(460)
(273)
(730)
(638)
(603)
(631)
(1,463)
(1,872)
(370)
(339)
(269)
(978)
UK
$m
US
$m
Sweden
$m
Rest of Group
$m
(502)
(1,760)
(5,318)
(7,580)
(114)
(715)
(763)
(770)
(704)
(686)
(406)
(381)
(293)
(1,592)
(2,160)
(1,080)
(12,412)
2018
Total
$m
1,924
870
(41)
1,588
1,013
2019
Total
$m
2,097
782
(108)
1,885
1,111
2018
Total
$m
(2,219)
(2,880)
(6,266)
(11,365)
2019
Total
$m
(1,792)
(3,560)
(7,060)
AstraZeneca Annual Report & Form 20-F Information 2019 / Notes to the Group Financial Statements
205
2018
Total
$m
8,854
(11,365)
(2,511)
2019
Total
$m
9,605
(12,412)
(2,807)
2018
Total
$m
Notes to the Group Financial Statements
continued
(cid:21)(cid:21) (cid:51)ost-retire(cid:80)ent benefits continued
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
Total fair value of scheme assets
Total value of scheme obligations
Deficit in the scheme as recognised in the Consolidated Statement of Financial Position
UK
$m
5,989
(7,052)
(1,063)
UK
$m
6,464
(7,580)
(1,116)
US
$m
1,379
(1,463)
(84)
Sweden
$m
1,017
(1,872)
(855)
Rest of Group
$m
469
(978)
(509)
US
$m
Sweden
$m
Rest of Group
$m
1,506
(1,592)
(86)
1,123
(2,160)
(1,037)
512
(1,080)
(568)
Fair value of scheme assets
At beginning of year
Interest income on scheme assets
Expenses
Actuarial gains/(losses)
Exchange and other adjustments
Employer contributions
Participant contributions
Benefits paid
UK
$m
US
$m
Sweden Rest of Group
$m
$m
2019
Total
$m
UK
$m
US
$m
Sweden Rest of Group
$m
$m
5,989
1,379
1,017
469
8,854
6,749
1,603
1,147
423
9,922
159
(5)
294
207
133
2
51
–
183
–
14
–
19
–
172
(43)
5
–
(315)
(121)
(47)
7
(1)
47
(4)
23
–
(29)
512
236
(6)
696
160
175
2
156
(5)
(351)
(349)
143
2
50
(1)
(106)
(2)
14
–
(512)
(356)
(179)
24
(10)
(18)
(85)
10
–
(51)
9,605
5,989
1,379
1,017
5
2
1
64
7
1
235
(14)
(474)
(372)
174
3
(34)
469
(620)
8,854
Scheme assets’ fair value at end of year
6,464
1,506
1,123
The actual return on the plan assets was a gain of $932m (2018: loss of $239m).
Movement in post-retirement scheme obligations
Present value of obligations
in scheme at beginning of year
Current service cost
Past service credit/(cost)
Participant contributions
Benefits paid
Interest expense on post-retirement
scheme obligations
Actuarial (losses)/gains
Exchange and other adjustments
Present value of obligations
in scheme at end of year
UK
$m
US
$m
Sweden Rest of Group
$m
$m
2019
Total
$m
UK
$m
US
$m
Sweden Rest of Group
$m
$m
2018
Total
$m
(7,052)
(1,463)
(1,872)
(978)
(11,365)
(8,032)
(1,707)
(1,811)
(955)
(12,505)
(18)
34
(2)
315
(186)
(435)
(236)
(4)
–
–
121
(55)
(191)
–
(44)
(3)
–
47
(33)
(328)
73
(21)
3
–
29
(87)
34
(2)
512
(15)
(289)
(106)
(1,060)
8
(155)
(23)
(34)
(2)
356
(185)
472
396
(4)
–
–
179
(53)
121
1
(32)
(6)
–
51
(36)
(177)
139
(15)
–
(1)
34
(13)
12
(40)
(74)
(40)
(3)
620
(287)
428
496
(7,580)
(1,592)
(2,160)
(1,080)
(12,412)
(7,052)
(1,463)
(1,872)
(978)
(11,365)
The obligations arise from the following plans:
UK
$m
US
$m
Sweden Rest of Group
$m
$m
2019
Total
$m
UK
$m
US
$m
Sweden Rest of Group
$m
$m
2018
Total
$m
Funded – pension schemes
(7,561)
(1,280)
(2,160)
(531)
(11,532)
(7,034)
(1,139)
(1,872)
(479)
(10,524)
Funded – post-retirement healthcare
Unfunded – pension schemes
Unfunded – post-retirement healthcare
–
–
(19)
(216)
(96)
–
–
–
–
–
(532)
(17)
(216)
(628)
(36)
–
–
(18)
(230)
(94)
–
–
–
–
–
(483)
(16)
(230)
(577)
(34)
Total
(7,580)
(1,592)
(2,160)
(1,080)
(12,412)
(7,052)
(1,463)
(1,872)
(978)
(11,365)
206
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Statements
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 2019, are set out below.
UK
$m
US Sweden Rest of Group
$m
$m
$m
2019
Total
$m
UK
$m
US Sweden Rest of Group
$m
$m
$m
Operating profit
Current service cost
Past service credit/(cost)
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
(18)
34
(5)
11
159
(186)
(27)
(16)
(4)
(44)
(21)
(87)
–
–
(3)
–
3
(1)
34
(6)
(4)
(47)
(19)
(59)
51
(55)
(4)
(8)
19
(33)
(14)
(61)
7
236
(15)
(289)
(8)
(53)
(27)
(112)
(23)
(34)
(5)
(62)
156
(185)
(29)
(91)
(4)
–
(1)
(5)
50
(53)
(3)
(8)
(32)
(6)
(10)
(48)
24
(36)
(12)
(60)
294
183
172
47
696
(351)
(106)
(18)
39
(30)
(10)
(5)
(6)
(26)
(35)
(17)
(771)
(182)
(318)
(104)
(1,375)
297
(141)
21
(8)
–
(156)
3
321
(59)
(364)
389
109
121
151
(160)
5
15
–
(195)
2018
Total
$m
(74)
(40)
(14)
(15)
–
2
(13)
(128)
5
(13)
(8)
(21)
1
6
13
(7)
13
235
(287)
(52)
(180)
(474)
(72)
393
107
(46)
Past service cost in 2019 includes a credit to Operating profit of $49m arising from changes to the payment of GMP benefits from the UK Pension
Fund as referred to on page 202. The past service cost in 2019 also includes costs predominantly related to enhanced pensions in early retirement
in the UK and Sweden.
Total Group pension costs in respect of defined contribution and defined benefit schemes during the year are set out below (see Note 28).
Defined contribution schemes
Defined benefit schemes − current service costs and expenses
Defined benefit schemes − past service costs
Pension costs
2019
$m
432
93
(34)
491
2018
$m
341
88
40
469
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
SE Rate sensitivities
The following table shows the US dollar effect of a change in the significant actuarial assumptions used to determine the retirement benefits obligations
in our three main defined benefit pension obligation countries.
Discount rate
UK ($m)
US ($m)
Sweden ($m)
Total ($m)
Inflation rate1
UK ($m)
US ($m)
Sweden ($m)
Total ($m)
Rate of increase in salaries
UK ($m)
US ($m)
Sweden ($m)
Total ($m)
2019
+0.5%
−0.5%
+0.5%
559
91
183
833
(628)
(97)
(211)
(936)
2019
520
78
152
750
+0.5%
−0.5%
+0.5%
(374)
–
(203)
(577)
349
–
176
525
2019
(444)
–
(171)
(615)
+0.5%
−0.5%
+0.5%
–
–
(68)
(68)
–
–
63
63
–
–
(52)
(52)
2018
−0.5%
(586)
(83)
(174)
(843)
2018
−0.5%
421
–
151
572
2018
−0.5%
–
–
48
48
AstraZeneca Annual Report & Form 20-F Information 2019 / Notes to the Group Financial Statements
207
Notes to the Group Financial Statements
continued
(cid:21)(cid:21) (cid:51)ost-retire(cid:80)ent benefits continued
Mortality rate
UK ($m)
US ($m)
Sweden ($m)
Total ($m)
1 Rate of increase in pensions in payment follows inflation.
2 Of the $328m increase, $210m is covered by the longevity swap.
3 Of the $326m decrease, $210m is covered by the longevity swap.
+1 year
−1 year
+1 year
2019
(328)2
(30)
(85)
(443)
3263
30
84
440
(301)
(24)
(68)
(393)
2018
−1 year
302
24
68
394
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.
23 Reserves
Retained earnings
The cumulative amount of goodwill written off directly to reserves resulting from acquisitions, net of disposals, amounted to $614m (2018: $619m;
2017: $631m) using year-end rates of exchange.
At 31 December 2019, 907,239 shares, at a cost of $37m, have been deducted from retained earnings (2018: 456,792 shares, at a cost of $22m;
2017: 476,504 shares, at a cost of $22m) 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 hedges
Net exchange movement in retained earnings
At 31 December
2019
$m
2018
$m
2017
$m
(2,007)
(1,017)
(2,028)
40
(5)
(252)
35
(182)
(450)
(12)
(520)
(8)
(990)
(2,189)
(2,007)
536
18
505
(48)
1,011
(1,017)
1 Foreign exchange arising on designated borrowings in net investment hedges includes $(5)m in respect of designated bonds and $(247)m in respect of designated contingent consideration
liabilities. (cid:55)he change in value of designated contingent consideration liabilities relates to (cid:7)(17(cid:23))m in respect of (cid:37)MS(cid:350) share of Global Diabetes Alliance, (cid:7)11m in respect of Almirall, (cid:7)(1)m in
respect of Definiens and $(83)m in relation to the put option liability in Acerta Pharma.
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 $nil and the loss during the year was $47m.
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 $565m.
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.
208
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Statements
24 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
2019
$m
328
–
328
2018
$m
317
–
317
2017
$m
317
–
317
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
Issue of shares (share placing)
Issue of shares (share schemes)
At 31 December
No. of shares
2019
2018
2017
1,267,039,436 1,266,221,605 1,265,229,424
44,386,214
–
–
712,326
817,831
992,181
1,312,137,976 1,267,039,436 1,266,221,605
Share issue
On 2 April 2019, the Company issued 44,386,214 Ordinary Shares resulting in an increase in share capital of $11m and share premium of $3,479m.
Share forfeiture
The Group has a share forfeiture programme following the completion of a tracing and notification exercise to any shareholders who have not had
contact with the Company over the past 12 years, in accordance with the provisions set out in the Company’s Articles of Association. Under the share
forfeiture programme, the shares and dividends associated with shares of untraced members are forfeited, with the resulting proceeds transferred
to the Group to use for good causes in line with the Group’s corporate responsibility strategy. During the financial year, the Group received $10m
(2018: nil; 2017: nil) proceeds from sale of untraced shares and $4m (2018: $2m; 2017: nil) write-back of unclaimed dividends on those shares, which
are reflected in share premium and retained earnings respectively.
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Share repurchases
No Ordinary Shares were repurchased by the Company in 2019 (2018: nil; 2017: nil).
Shares held by subsidiaries
No shares in the Company were held by subsidiaries in any year.
25 Dividends to shareholders
Second interim (March 2019)
First interim (September 2019)
Total
2019
Per share
$1.90
$0.90
$2.80
2018
Per share
$1.90
$0.90
$2.80
2017
Per share
$1.90
$0.90
$2.80
2019
$m
2,403
1,180
3,583
2018
$m
2,402
1,139
3,541
2017
$m
2,404
1,139
3,543
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. $4m (2018: $2m; 2017: nil) of unclaimed dividends have been adjusted for in retained earnings
in 2019.
The 2018 second interim dividend of $1.90 per share was paid on 27 March 2019.
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)
2019
$m
3,583
5
4
2018
$m
3,541
10
(67)
3,592
3,484
2017
$m
3,543
(4)
(20)
3,519
AstraZeneca Annual Report & Form 20-F Information 2019 / Notes to the Group Financial Statements
209
Notes to the Group Financial Statements
continued
26 Non-controlling interests
Following the acquisition of a majority stake in Acerta Pharma on 2 February 2016, the Group Financial Statements at 31 December 2019 reflect equity
of $1,456m (2018: $1,567m; 2017: $1,676m) and total comprehensive losses of $111m (2018: losses of $109m; 2017: losses of $132m) attributable
to the non-controlling interest, held by other parties, in Acerta Pharma. The following summarised financial information, for Acerta Pharma 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
Non-current liabilities
Total liabilities
Net assets/(liabilities)
Net cash (outflow)/inflow from operating activities
Net cash inflow/(outflow) from investing activities
Net cash inflow from financing activities
Increase/(decrease) in cash and cash equivalents in the year
2019
$m
–
(422)
–
(422)
2019
$m
157
475
632
(310)
(267)
(577)
55
2019
$m
(13)
7
7
1
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
The total reported total comprehensive losses of $107m (2018: losses of $106m; 2017: losses of $133m) and equity of $1,469m (2018: $1,576m;
2017: $1,682m) attributable to non-controlling interests held by other parties, comprises the Acerta Pharma results and immaterial amounts in
AstraZeneca Pharma India Limited and P.T. AstraZeneca Indonesia.
The non-controlling interest in Acerta Pharma is subject to a put option, exercisable by the minority shareholders at certain points in the future,
dependent on regulatory outcomes of Calquence (acalabrutinib) in Europe. This put option gives rise to a liability (see Note 20).
27 Financial risk management objectives and policies
The Group’s principal financial instruments, other than derivatives, comprise bank overdrafts, lease liabilities, 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.
Hedge accounting
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. 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 172.
210
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Statements
The following table represents the Group’s continuing designated hedge relationships under IFRS 9.
2017
Other comprehensive income
Nominal
amounts
in local
currency
Opening
Fair value
balance (gain)/loss
deferred
to OCI
$m
Carrying 1 January
2017
$m
value
$m
Fair value
loss
recycled
to the
Closing
balance
income 31 December Average Average
2017 maturity USD FX
rate
year
statement
$m
$m
Average
pay
interest
rate
Fair value hedge – foreign currency and interest rate risk
Cross currency interest rate swap – Euro bond
EUR 300m
31
–
–
–
–
2021
1.09 USD LIBOR + 1.27%
Cash flow hedges – foreign currency and interest rate risk
Cross currency interest rate swaps – Euro bonds
EUR 2,200m 197
(80)
(311)
315
(76)
2025
1.14
USD 2.69%
Net investment hedge – foreign exchange risk
Transactions matured pre 2017
–
Cross currency interest rate swap – JPY investment
JPY 58.5bn
223
Cross currency interest rate swap – CNY investment
Cross currency interest rate swap – CNY investment
Foreign currency borrowing – GBP investment
Foreign currency borrowing – EUR investment
CNY 458m
CNY 919m
GBP 350m
EUR 450m
(4)
12
(468)
(586)
(338)
(242)
(7)
(29)
(281)
–
–
19
11
17
41
65
Contingent consideration liabilities –
AZUK and AZAB USD investments
USD 6,379m (6,379)
1,850
(611)
–
–
–
–
–
–
–
(338)
(223)
4
(12)
(240)
65
–
2019
2026
2018
2031
2021
1,239
–
–
78.01
6.68
6.09
n/a
n/a
–
–
JPY 0.35%
CNY 4.80%
CNY 3.12%
GBP 5.75%
EUR 0.88%
–
2018
Other comprehensive income
Nominal
amounts
in local
currency
Opening
balance
Carrying 1 January
2018
$m
value
$m
Fair value
loss/(gain)
deferred
to OCI
$m
Fair value
(gain)
recycled
to the
Closing
balance
income 31 December Average Average
2018 maturity USD FX
rate
year
statement
$m
$m
Average
pay
interest
rate
Fair value hedge – foreign currency and interest rate risk1
Cross currency interest rate swap – Euro bond
EUR 300m
16
–
–
–
–
2021
1.09 USD LIBOR + 1.27%
Cash flow hedges – foreign currency and interest rate risk2, 4
Cross currency interest rate swaps – Euro bonds
EUR 2,200m 101
(76)
95
(111)
(92)
2025
1.14
USD 2.69%
Net investment hedge – foreign exchange risk3, 4
Transactions matured pre 2018
–
Cross currency interest rate swap – JPY investment
JPY 58.5bn
213
Cross currency interest rate swap – CNY investment
Cross currency interest rate swap – CNY investment
Foreign currency borrowing – GBP investment
Foreign currency borrowing – EUR investment
CNY 458m
CNY 919m
GBP 350m
EUR 450m
(4)
–
(443)
(508)
(338)
(223)
4
(12)
(240)
65
–
10
–
(6)
(25)
(21)
Contingent consideration liabilities –
AZUK and AZAB USD investments
USD 6,015m (6,015)
1,239
566
–
–
–
–
–
–
–
(338)
(213)
4
(18)
(265)
44
–
–
2019
78.01
2026
2018
2031
2021
6.68
6.09
n/a
n/a
–
JPY 0.35%
CNY 4.80%
CNY 3.12%
GBP 5.75%
EUR 0.88%
1,805
–
–
–
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
AstraZeneca Annual Report & Form 20-F Information 2019 / Notes to the Group Financial Statements
211
Notes to the Group Financial Statements
continued
27 Financial risk management objectives and policies continued
2019
Other comprehensive income
Opening Fair value
balance loss/(gain)
deferred
Fair value
(gain)
recycled
to the
Closing
balance
Carrying 1 January
2019
$m
value
$m
to OCI statement
$m
income 31 December Average Average
2019 maturity USD FX
rate
year
$m
$m
Nominal
amounts
in local
currency
Average
pay
interest
rate
Fair value hedge – foreign currency and interest rate risk1
Cross currency interest rate swap – Euro bond
EUR 300m
10
–
–
–
–
2021
1.09 USD LIBOR + 1.27%
Cash flow hedges – foreign currency and interest rate risk2, 4
Cross currency interest rate swaps – Euro bonds
EUR 2,200m
(13)
(92)
114
(52)
(30)
2025
1.14
USD 2.69%
Net investment hedge – foreign exchange risk3, 4
Transactions matured pre 2019
Cross currency interest rate swap – JPY investment5
Cross currency interest rate swap – JPY investment
JPY 58.5bn
JPY 58.3bn
–
–
4
Cross currency interest rate swap – CNY investment
CNY 458m
(1)
(356)
(213)
–
4
Foreign currency borrowing – GBP investment
GBP 350m (457)
(265)
Foreign currency borrowing – EUR investment
EUR 450m (498)
44
–
4
(4)
(3)
14
(10)
Contingent consideration liabilities –
AZUK and AZAB USD investments
USD 5,583m (5,583)
1,805
248
–
–
–
–
–
–
–
(356)
(209)
(4)
1
(251)
34
–
–
2019
78.01
2029 108.03
2026
2031
2021
6.68
n/a
n/a
–
JPY 0.35%
JPY 1.53%
CNY 4.80%
GBP 5.75%
EUR 0.88%
2,053
–
–
–
1 Hedge ineffectiveness recognised on swaps designated in a fair value hedge during the period was a gain of $3m (2018: loss of $3m).
2 Hedge ineffectiveness recognised on swaps designated in a cash flow hedge during the period was $nil (2018: $nil).
3 Hedge ineffectiveness recognised on swaps designated in a net investment hedge during the period was $nil (2018: $nil).
4 Fair value movements on cross currency interest rate swaps in cash flow hedge and net investment hedge relationships are shown inclusive of the impact of costs of hedging.
5 In September 2019, the maturity of our JPY 58.5bn cross currency interest rate swap resulted in a net cash inflow of $209m. The cash flow associated with the settlement has been reflected
in cash flows from investing activities within the Consolidated Statement of Cash Flows on page 171, as its primary purpose was to hedge the translation foreign exchange risk arising on the
consolidation of the Group’s net investment in Japan.
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 24), debt (Note 19), other current investments (Note 12) and cash (Note 17).
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 16.
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 decreased from a net debt position of $13,003m at the beginning of the year to a net debt position of $11,904m at 31 December 2019.
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 stable outlook by Moody’s and BBB+ stable outlook by Standard and Poor’s.
In addition to Cash and cash equivalents of $5,369m, short-term fixed income investments of $811m, fixed deposits of $38m, less overdrafts of
$146m at 31 December 2019, the Group has committed bank facilities of $4,125m available to manage liquidity. Of the total $4,125m of committed
facilities, $3,375m mature in April 2022, $250m mature in December 2020 and $500m mature in November 2020 but have a one-year extension
option, exercisable by the Group. All were undrawn at 31 December 2019. 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 these 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. 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 was fully repaid in April, following the Group’s $3,490m equity issuance.
212
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Statements
At 31 December 2019, the Group has issued $3,741m under a Euro Medium Term Note programme and $13,568m under a SEC-registered programme.
The funds made available under these facility agreements may be used for the general corporate purposes of the Group.
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
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)
Effect of discounting, fair values and issue costs
–
(94)
31 December 2017
861
16,941
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
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 2019
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)
(17)
(8,669)
(122)
776
18,337
Bank
overdrafts
and other
loans
$m
234
14
–
–
–
–
Bonds
$m
2,207
1,970
1,810
2,068
1,479
15,906
248
25,440
(1)
(3)
(8,038)
(94)
244
17,308
Total
Trade non-derivative
financial
instruments
$m
and other
payables
$m
Derivative
financial
instruments
receivable2
$m
Derivative
financial
instruments
payable2
$m
Total
derivative
financial
instruments2
$m
Finance
leases1
$m
5
–
–
–
–
–
5
–
–
5
11,840
14,689
(6,996)
7,020
1,976
1,586
3,240
1,112
2,808
22,562
–
(3,081)
19,481
3,540
3,730
5,256
2,848
18,383
48,446
(7,983)
(3,175)
(803)
(39)
(994)
(34)
(2,198)
(11,064)
286
9
601
80
971
59
2,217
10,948
(720)
37
37,288
(10,769)
10,265
24
(202)
41
(23)
25
19
(116)
(434)
46
(504)
Total
Trade non-derivative
financial
instruments
$m
and other
payables
$m
Derivative
financial
instruments
receivable2
$m
Derivative
financial
instruments
payable2
$m
Total
derivative
financial
instruments2
$m
Finance
leases1
$m
Total
$m
14,713
3,338
3,771
5,233
2,873
18,402
48,330
(8,417)
(3,129)
36,784
Total
$m
13,029
15,432
(10,368)
10,171
(197)
15,235
–
–
–
–
–
–
–
–
–
–
1,688
833
3,340
776
2,084
21,750
–
(2,139)
19,611
3,905
2,849
5,153
2,845
19,489
49,673
(8,671)
(2,278)
(35)
(950)
(30)
(30)
(2,084)
(13,497)
251
(9)
82
974
58
58
2,154
13,497
(509)
(117)
38,724
(13,255)
12,871
47
24
28
28
70
–
(258)
(126)
(384)
Total
Trade non-derivative
financial
instruments
$m
and other
payables
$m
Derivative
financial
instruments
receivable
$m
Derivative
financial
instruments
payable2
$m
Total
derivative
financial
instruments
$m
Lease
liability1
$m
205
158
117
79
50
128
737
–
(62)
675
14,054
16,700
(11,956)
11,985
1,769
1,811
1,592
1,652
1,052
21,930
–
(1,619)
20,311
3,911
3,738
3,739
3,181
17,086
48,355
(8,039)
(1,778)
(955)
(54)
(54)
(1,051)
(1,648)
976
67
67
1,079
1,654
(15,718)
15,828
409
(20)
(488)
(54)
38,538
(15,329)
15,286
29
21
13
13
28
6
110
(79)
(74)
(43)
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
3,952
2,873
5,181
2,873
19,559
49,673
(8,929)
(2,404)
38,340
Total
$m
16,729
3,932
3,751
3,752
3,209
17,092
48,465
(8,118)
(1,852)
38,495
1 Comparative figures relate to Finance leases recognised under IAS 17.
2 The maturity profile table has been amended in 2019 to show gross derivative flows and to include all derivatives shown in Note 13 on page 195. In previous periods the table separately
disclosed the net cash flows on interest rate swaps and cross-currency swaps. Other derivative instruments amounting to $18m in 2018 and $5m in 2017 were not included in the table.
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 $4,139m of contingent consideration held within Trade and other payables (see Note 20).
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.
AstraZeneca Annual Report & Form 20-F Information 2019 / Notes to the Group Financial Statements
213
Notes to the Group Financial Statements
continued
27 Financial risk management objectives and policies continued
At 31 December 2019, the Group held interest rate swaps with a notional value of $288m, converting the 7% guaranteed debentures payable in 2023
to floating rates. No new interest rate swaps were entered into during 2019. At 31 December 2019, swaps with a notional value of $288m related to
debt designated as fair value through profit or loss.
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 are 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.
2018
2019
2017
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
Total
$m
Fixed rate
$m
Floating rate
$m
Total
$m
Fixed rate
$m
Floating rate
$m
Total
$m
1,785
14,893
16,678
38
–
38
225
1,324
1,549
–
5,369
5,369
2,010
16,217
18,227
38
5,369
5,407
999
16,038
17,037
40
–
40
755
1,321
2,076
–
4,831
4,831
1,754
17,359
19,113
40
4,831
4,871
404
14,608
15,012
–
–
–
1,843
952
2,795
80
3,324
3,404
2,247
15,560
17,807
80
3,324
3,404
In addition to the financial assets above, there are $6,765m (2018: $6,195m; 2017: $6,366m) of other current and non-current asset investments
and other financial assets. Of these, $111m receive floating rate interest (2018: $nil; 2017: $nil). No interest is charged on the remaining $6,654m.
The Group is also exposed to market risk on equity securities, which represent non-controlling interests in third-party biotech companies.
Equity securities at fair value through Other comprehensive income (Note 12)
Equity securities available for sale (Note 12)
Total
2019
$m
1,339
–
1,339
2018
$m
833
–
833
2017
$m
–
933
933
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 2019 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 2019, before impact of derivatives, 3% of interest-bearing loans and borrowings were denominated in pounds sterling and 18%
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 hyperinflationary. As at 31 December 2019, the Group operates in two countries designated as hyperinflationary, being
Argentina and Venezuela.
The foreign exchange risk to the Group from Argentina and Venezuela has been assessed and deemed to be 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. Where practicable, these are hedged using forward foreign exchange. 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.
214
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Statements
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.
The sensitivity analysis assumes an instantaneous 100 basis point change in interest rates in all currencies from their levels at 31 December 2019,
with all other variables held constant. Based on the composition of our long-term debt portfolio as at 31 December 2019, a 1% increase in interest
rates would result in an additional $15m in interest expense being incurred per year. The exchange rate sensitivity analysis assumes an instantaneous
10% change in foreign currency exchange rates from their levels at 31 December 2019, with all other variables held constant. The +10% case assumes
a 10% strengthening of the US dollar against all other currencies and the -10% case assumes a 10% weakening of the US dollar.
Each incremental 10% movement in foreign currency exchange rates would have approximately the same effect as the initial 10% detailed in the
table below and each incremental 1% change in interest rates would have approximately the same effect as the 1% detailed in the table below.
31 December 2017
Increase/(decrease) in fair value of financial instruments ($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) ($m)
31 December 2019
Increase/(decrease) in fair value of financial instruments ($m)
Impact on profit: (loss)/gain ($m)
Impact on equity: gain/(loss) ($m)
+1%
1,329
–
–
+1%
1,130
–
–
+1%
1,417
–
–
Interest rates
Exchange rates
−1%
(1,293)
–
–
Interest rates
−1%
(1,267)
–
–
+10%
198
(123)
321
+10%
(146)
(299)
153
−10%
(198)
123
(321)
Exchange rates
−10%
161
348
(187)
Interest rates
Exchange rates
−1%
(1,521)
–
–
+10%
(4)
(174)
170
−10%
(36)
172
(208)
In 2018 the Group changed the method for assessing a 10% change in foreign currency exchange rates. In 2017 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.
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
The Group’s principal financial counterparty credit risks at 31 December 2019 were as follows:
Current assets
Cash at bank and in hand
Money market liquidity fund
Collateralised repurchase agreement
Other short-term cash equivalents
Total Cash and cash equivalents (Note 17)
Fixed income securities at fair value through profit and loss (Note 12)
Fixed income securities available for sale (Note 12)
Fixed deposits (Note 12)
Total derivative financial instruments (Note 13)
Current assets subject to credit risk
2019
$m
755
4,110
400
104
5,369
811
–
38
36
6,254
2018
$m
893
3,435
400
103
4,831
809
–
40
258
5,938
2017
$m
784
1,150
1,150
240
3,324
–
1,150
80
28
4,582
AstraZeneca Annual Report & Form 20-F Information 2019 / Notes to the Group Financial Statements
215
Notes to the Group Financial Statements
continued
27 Financial risk management objectives and policies continued
Non-current assets
Fixed income securities at fair value through profit and loss (Note 12)
Derivative financial instruments (Note 13)
Non-current assets subject to credit risk
2019
$m
62
61
123
2018
$m
–
157
157
2017
$m
–
504
504
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 106% 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
cash deposited in repurchase agreements at 31 December 2019 was $401m (2018: $403m; 2017: $1,151m).
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 2019 was $71m (2018: $384m;
2017: $513m) and the carrying value of such cash collateral posted by the Group at 31 December 2019 was $10m (2018: $14m; 2017: $nil).
The impairment provision for other financial assets at 31 December 2019 was immaterial.
Trade receivables
Trade receivable exposures are managed locally in the operating units where they arise and credit limits are set as deemed appropriate for the
customer. The Group is exposed to customers ranging from government-backed agencies and large private wholesalers to privately owned
pharmacies, and the underlying local economic and sovereign risks vary throughout the world. Where appropriate, the Group endeavours to
minimise risks by the use of trade finance instruments such as letters of credit and insurance. Following the adoption of IFRS 9 on 1 January 2018
the Group introduced the expected credit loss approach to establish an allowance for impairment that represents its estimate of expected losses
in respect of Trade receivables. Given the general quality and short-term nature of our trade receivables, there was no material impact assessed
arising from the introduction of this method.
The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade
receivables. To measure expected credit losses, trade receivables have been grouped based on shared credit characteristics and the days past
due.
The expected loss rates are based on payment profiles over a period of 36 months before 31 December 2019, 31 December 2018 or 1 January
2018 respectively and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect
current and forward-looking information on macroeconomic factors affecting the ability of the customer to settle the receivables.
On that basis, the loss allowance was determined as follows:
1 January 2018
Expected loss rate
Gross carrying amount ($m)
Loss allowance ($m)
31 December 2018
Expected loss rate
Gross carrying amount ($m)
Loss allowance ($m)
31 December 2019
Expected loss rate
Gross carrying amount ($m)
Loss allowance ($m)
Current
0.05%
2,490
1
Current
0.05%
2,854
1
Current
0.05%
3,178
2
0-90 days
past due
0.75%
262
2
0-90 days
past due
0.75%
82
1
0-90 days
past due
0.75%
312
2
90-180 days
past due
Over 180 days
past due
5%
31
1
33%
35
12
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
2%
82
2
44%
34
15
Total
2,818
16
Total
3,033
38
Total
3,606
21
216
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Statements
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 94% of US sales (2018: three wholesalers accounted for approximately 88%;
2017: three wholesalers accounted for approximately 60%).
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
2019
$m
3,176
310
80
19
3,585
2019
$m
38
(13)
(4)
21
2018
$m
2,853
81
24
37
2017
$m
2,488
260
31
23
2,995
2,802
2018
$m
16
22
–
38
2017
$m
42
(26)
–
16
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
2019
2018
2017
7,400
15,500
16,600
27,800
67,300
7,200
14,800
16,700
24,500
63,200
6,900
14,500
16,300
22,300
60,000
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Geographical distribution described in the table above is by location of legal entity employing staff. Certain staff will undertake some or all of their
activity in a different location.
The number of people employed by the Group at the end of 2019 was 70,600 (2018: 64,600; 2017: 61,100).
The costs incurred during the year in respect of these employees were:
Salaries
Social security costs
Pension costs
Other employment costs
Total
2019
$m
5,648
658
491
771
7,568
2018
$m
5,370
626
469
505
2017
$m
5,004
570
378
534
6,970
6,486
Severance costs of $158m are not included above (2018: $94m; 2017: $225m).
The Directors believe that, together with the basic salary system, the Group’s employee incentive schemes provide competitive and market-related
packages to motivate employees. They should also align the interests of employees with those of shareholders, as a whole, through long-term share
ownership in the Company. The Group’s current UK, Swedish and US schemes are described below; other arrangements apply elsewhere.
AstraZeneca Annual Report & Form 20-F Information 2019 / Notes to the Group Financial Statements
217
Notes to the Group Financial Statements
continued
28 Employee costs and share plans for employees continued
Bonus plans
The AstraZeneca UK Performance Bonus Plan
Employees of participating AstraZeneca UK companies are invited to participate in this bonus plan, which rewards strong individual performance.
Bonuses are paid in cash.
The AstraZeneca Executive Annual Bonus Scheme
This scheme is a performance bonus scheme for Directors and senior employees who do not participate in the AstraZeneca UK Performance Bonus
Plan. Annual bonuses are paid in cash and reflect both corporate and individual performance measures. The Remuneration Committee has
discretion to reduce or withhold bonuses if business performance falls sufficiently short of expectations in any year such as to make the payment
of bonuses inappropriate.
The AstraZeneca Deferred Bonus Plan
This plan was introduced in 2006 and is used to defer a portion of the bonus earned under the AstraZeneca Executive Annual Bonus Scheme into
Ordinary Shares in the Company for a period of three years. The plan currently operates only in respect of Executive Directors and members of the
SET. Awards of shares under this plan are typically made in March each year, the first award having been made in February 2006.
Sweden
In Sweden, an all-employee performance bonus plan is in operation, which rewards strong individual performance. Bonuses are paid 50% into a
fund investing in AstraZeneca equities and 50% in cash. The AstraZeneca Executive Annual Bonus Scheme, the AstraZeneca Performance Share
Plan and the AstraZeneca Global Restricted Stock Plan all operate in respect of relevant AstraZeneca employees in Sweden.
US
In the US, there are two all-employee short-term or annual performance bonus plans in operation to differentiate and reward strong individual
performance. Annual bonuses are paid in cash. There is also one senior staff long-term incentive scheme, under which 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 $259m (2018: $219m; 2017: $220m). 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 £150 a month to purchase
Partnership Shares in the Company at the current market value. 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 2019, 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 2019 under the plan took place in March with further grants in May,
August and November.
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
Shares awarded in March 2019
Shares awarded in May 2019
Shares awarded in August 2019
Shares awarded in November 2019
1 Weighted average fair value.
Shares
’000
2,359
10
44
3,400
18
92
2,899
5
79
13
WAFV1
pence
2440
2607
2234
2427
2651
2982
3144
2918
3640
3663
WAFV1
$
30.88
34.20
29.11
34.62
36.42
38.46
42.00
37.77
44.28
47.42
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 four years.
218
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Statements
The AstraZeneca Global Restricted Stock Plan
This plan was introduced in 2010. The main grant of awards in 2019 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 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 awarded in March 2019
Shares awarded in May 2019
Shares awarded in August 2019
Shares awarded in November 2019
Shares
’000
2,502
78
31
77
4,474
40
3
4,527
1
114
2
WAFV
pence
4880
5214
4468
4942
4853
5964
6300
6287
5835
7280
7326
WAFV
$
61.76
68.40
58.22
66.24
69.24
76.92
82.86
84.00
75.54
88.56
94.84
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 2019 to make awards to 87 employees. The Remuneration
Committee has responsibility for agreeing any awards under the plan and for setting the policy for the way in which the plan should be operated.
Shares awarded in 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
Shares awarded in March 2019
Shares awarded in May 2019
Shares awarded in August 2019
Shares awarded in November 2019
Shares
’000
205
134
8
26
31
23
148
45
37
38
95
25
56
105
WAFV
pence
4293
4880
5214
4468
4765
4942
4853
5301
5964
6300
6287
5835
7280
7326
WAFV
$
55.50
61.76
68.40
58.22
65.60
66.24
69.24
72.84
76.92
82.86
84.00
75.54
88.56
94.84
F
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S
t
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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 August 2019
Shares awarded in November 2019
Shares
’000
24
20
WAFV
pence
7280
7326
WAFV
$
88.56
94.84
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.
AstraZeneca Annual Report & Form 20-F Information 2019 / Notes to the Group Financial Statements
219
Notes to the Group Financial Statements
continued
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
2019
$m
396
2018
$m
586
2017
$m
570
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
9,956
6,654
Under 1 year
$m
Years 1 and 2
$m
Years 3 and 4
$m
438
59
1,479
138
1,581
818
Years 5
and greater
$m
6,458
5,639
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 (e.g. 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 2019.
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 246, the development of any pharmaceutical product candidate is a complex and risky process that may fail at any stage
in the development process due to a number of factors (including items such as failure to obtain regulatory approval, unfavourable data from key
studies, adverse reactions to the product candidate or indications of other safety concerns). The timing of the payments is based on the Group’s
current best estimate of achievement of the relevant milestone.
Environmental costs and liabilities
The Group’s expenditure on environmental protection, including both capital and revenue items, relates to costs that are necessary for implementing
internal systems and programmes, and meeting legal and regulatory requirements for processes and products. This includes investment to conserve
natural resources and otherwise minimise the impact of our activities on the environment.
They are an integral part of normal ongoing expenditure for carrying out the Group’s research, manufacturing and commercial operations and are
not separated from overall operating and development costs. There are no known changes in legal, regulatory or other requirements resulting in
material changes to the levels of expenditure for 2017, 2018 or 2019.
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 in progress.
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 2019 in the aggregate of $96m (2018: $97m; 2017: $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: (i) the nature and extent of claims that may be asserted in
the future; (ii) whether AstraZeneca has or will have any legal obligation with respect to asserted or unasserted claims; (iii) the type of remedial action,
if any, that may be selected at sites where the remedy is presently not known; (iv) the potential for recoveries from or allocation of liability to third
parties; and (v) the length of time that the environmental investigation, remediation and liability allocation process can take. As per our accounting
policy on page 178, 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 $86m and $143m (2018: $71m and $118m; 2017: $87m and $144m), which relates mainly to the US.
220
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Statements
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
(i) the stage of the proceedings (in many cases
trial dates have not been set) and the overall
length and extent of pre-trial discovery;
(ii) the entitlement of the parties to an action
to appeal a decision; (iii) clarity as to theories
of liability, damages and governing law;
(iv) uncertainties in timing of litigation; and
(v) 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.
KJ Assessments as to whether or not to
recognise provisions or assets, and of the
amounts concerned, usually involve a
series of complex judgements about future
events and can rely heavily on estimates
and assumptions. AstraZeneca believes that
the provisions recorded are adequate based
on currently available information and that
the insurance recoveries recorded will be
received. However, given the inherent
uncertainties involved in assessing the
outcomes of these cases, and in estimating
the amount of the potential losses and the
associated insurance recoveries, we could
in the future incur judgments or insurance
settlements that could have a material adverse
effect on our results in any particular period.
IP claims include challenges to the Group’s
patents on various products or processes
and assertions of non-infringement of patents.
A loss in any of these cases could result in
loss of patent protection on the related
product. The consequences of any such loss
could be a significant decrease in Product
Sales, which could have a material adverse
effect on our results. The lawsuits filed by
AstraZeneca for patent infringement against
companies that have filed ANDAs in the US,
seeking to market generic forms of products
sold by the Group prior to the expiry of the
applicable patents covering these products,
typically also involve allegations of non-
infringement, invalidity and unenforceability
of these patents by the ANDA filers. In the
event that the Group is unsuccessful in these
actions or the statutory 30-month stay expires
before a ruling is obtained, the ANDA filers
involved will also have the ability, subject to
FDA approval, to introduce generic versions
of the product concerned.
AstraZeneca has full confidence in, and will
vigorously defend and enforce, its IP.
Over the course of the past several years,
including in 2019, 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 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 2019, 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 September 2017, Apotex Inc.
(Apotex) challenged the patents listed on
the Canadian Patent Register with reference
to Brilinta. AstraZeneca discontinued the
proceeding against Apotex in February 2019
after Apotex withdrew its challenge.
In Canada, in October 2018, Taro
Pharmaceuticals Inc. (Taro) challenged
the patents listed on the Canadian Patent
Register with reference to Brilinta.
AstraZeneca commenced an infringement
action against Taro. The action was
discontinued in September 2019 after Taro
withdrew its challenge.
Calquence (acalabrutinib)
US patent proceedings
In November 2017, Pharmacyclics LLC
(Pharmacyclics, a company in the AbbVie
group) filed a patent infringement lawsuit in the
US District Court for the District of Delaware
(the District Court) against Acerta Pharma and
AstraZeneca relating to Calquence.
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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. (Janssen) intervened as
a defendant.
In October 2019, AstraZeneca entered into
settlement agreements with Pharmacyclics
and Janssen resolving all patent litigation
between the parties relating to Calquence and
Imbruvica. A provision has been taken.
In October 2019, an amendment to the share
purchase and option agreement (SPOA)
with the sellers of Acerta Pharma (originally
entered into in December 2015) came into
effect, changing certain terms of the SPOA
on both the timing and also reducing the
maximum consideration that would be
required to be made to acquire the remaining
outstanding shares of Acerta Pharma if the
options are exercised. The payments would be
made in similar annual instalments commencing
at the earliest from 2022 through to 2024,
subject to the options being exercised.
The changes to the terms have been reflected
AstraZeneca Annual Report & Form 20-F Information 2019 / Notes to the Group Financial Statements
221
Notes to the Group Financial Statements
continued
29 Commitments and contingent liabilities continued
in the assumptions used to calculate the
amortised cost of the option liability as at
31 December 2019 of $2,146m (2018: $1,838m;
2017: $1,823m).
Daliresp (roflumilast)
US patent proceedings
In 2015 and subsequently, in response to
Paragraph IV notices from ANDA filers,
AstraZeneca filed patent infringement lawsuits
in the US District Court for the District of New
Jersey (the District Court) relating to patents
listed in the FDA Orange Book with reference
to Daliresp. In 2019, 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 2018, in response to Paragraph IV notices,
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 Patent Nos. 6,414,126
and 6,515,117. Zydus has counterclaimed
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. Proceedings are ongoing and 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 2019, AstraZeneca resolved all of
the remaining lawsuits, and the District Court
also entered consent judgments ending those
lawsuits. In October 2019, 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 Spain, in January 2016 and July 2017,
the Barcelona Commercial Court ordered
preliminary injunctions based on the Spanish
part of European Patent Nos. EP 1,250,138
and EP 2,266,573, respectively preventing
Sandoz Farmacéutica, S.A. (Sandoz) and
Teva Pharm S.L.U. (Teva) from launching
generic Faslodex in Spain. Sandoz appealed
and, in December 2017, the Barcelona Court
of Appeals revoked and lifted the preliminary
injunction against Sandoz. Patent infringement
and patent invalidity proceedings are ongoing
against various parties.
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. Patent infringement and patent
invalidity proceedings are ongoing with Sandoz.
In Germany, in January 2017, the German
Federal Patent Court declared the German
part of European Patent No. EP 1,250,138 (the
‘138 patent) invalid. In April 2019, the German
Federal Court of Justice upheld the January
2017 decision and determined the ‘138 patent
to be invalid. In November 2019, the German
Federal Patent Court declared the German part
of European Patent No. EP 1,272,195 invalid.
In Italy, Actavis Group Ptc ehf and Actavis
Italy S.p.A. filed actions alleging that the
Italian part of the ‘138 patent and European
Patent No. EP 2,266,573 (the ‘573 patent)
are invalid. In July 2018, the Court of Turin
determined that the ‘138 patent is invalid. In
July 2019, the Court of Milan determined that
the ‘573 patent is invalid. Patent infringement
and patent invalidity proceedings are ongoing
against various parties.
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 for the District
of Delaware relating to AstraZeneca’s
commercialisation of Imfinzi. The case was
dismissed without prejudice on 14 June 2019.
Movantik (naloxegol)
US patent proceedings
In December 2018, AstraZeneca initiated
ANDA litigation against Apotex, Inc. and
Apotex Corp. (together Apotex) and against
MSN Laboratories (MSN) in the US District
Court for the District of Delaware. In its
complaint, AstraZeneca alleges that the
generic companies’ versions of Movantik,
if approved and marketed, would infringe
US Patent No. 9,012,469 (the ‘469 patent).
A trial has been scheduled for March 2021.
In November 2019, AstraZeneca initiated
ANDA litigation against Aurobindo Pharma
U.S.A. in the US District Court for the District
of Delaware. In its complaint, AstraZeneca
alleges that the generic company’s versions
of Movantik, if approved and marketed, would
infringe the ‘469 patent.
Onglyza (saxagliptin)
Patent proceedings outside the US
In Canada, in November 2019, Sandoz
Canada Inc. sent a Notice of Allegation to
AstraZeneca challenging the validity of
Canadian substance Patent No. 2402894
(expiry March 2021) and formulation Patent
No. 2568391 (expiry May 2025) related to
Onglyza. AstraZeneca commenced an action
in response in January 2020.
Roxadustat
Patent proceedings outside the US
In Canada, in May 2018, Akebia Therapeutics,
Inc. filed an impeachment action in the
Federal Court of Canada 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
Beginning in October 2018, AstraZeneca
initiated ANDA litigation against Mylan
Pharmaceuticals Inc. (Mylan), Mylan
Laboratories Limited, Mylan Inc., and Mylan
N.V. (collectively, the Mylan Entities) and
3M Company (3M) and, separately, ANDA
litigation against Teva Pharmaceuticals USA,
Inc. (Teva) and Catalent Pharma Solutions,
LLC (Catalent) in the US District Court for the
District of Delaware (Delaware District Court).
AstraZeneca also filed a similar action against
the Mylan Entities in the US District Court for
the Northern District of West Virginia (West
Virginia District Court). In its complaints,
AstraZeneca alleges that the defendants’
generic versions of Symbicort, if approved and
marketed, would infringe AstraZeneca’s US
Patent Nos. 7,759,328; 8,143,239; 8,575,137;
and 7,967,011. In March 2019, following
stipulations filed by the parties, the Delaware
and West Virginia District Courts dismissed
without prejudice Mylan Laboratories Limited,
Mylan Inc., and Mylan N.V. from those actions.
In May 2019, AstraZeneca filed a Second
Amended Complaint in each of the Delaware
District Court actions adding allegations that
the defendants’ proposed generic versions of
Symbicort, if approved and marketed, would
infringe AstraZeneca’s US Patent No. 10,166,247
(the ‘247 patent). In June 2019, Teva and
Catalent responded to the Second Amended
Complaint and alleged that their proposed
generic product does not infringe the ‘247
patent and/or that the ‘247 patent is invalid
222
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Statements
and/or unenforceable. AstraZeneca decided
to no longer assert patent infringement of US
Patent No. 7,967,011 against Teva and Catalent.
In October 2019, the Delaware District Court
transferred the Delaware action with Mylan
and 3M to the West Virginia District Court.
In November 2019, AstraZeneca filed an
Amended Complaint in the West Virginia
District Court against Mylan and 3M adding
allegations that their proposed generic version
of Symbicort, if approved and marketed,
would infringe the ‘247 patent and removing
allegations of infringement of US Patent No.
7,967,011. In November 2019, Mylan and 3M
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. In December 2019, AstraZeneca
settled its ANDA action with Teva and Catalent
and that matter is now closed. The trial of
the Mylan and 3M matter is scheduled for
July 2020.
Tagrisso (osimertinib)
US patent proceedings
In February 2020, 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.
In its complaint, AstraZeneca alleged that
a generic vision of Tagrisso, if approved and
marketed would infringe AstraZeneca’s US
Patent No. 10,183,020. No trial has been set.
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 coordinated 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 coordinated proceeding and
remanded for further discovery.
Farxiga (dapagliflozin) and Xigduo
(dapagliflozin/metformin HCl)
In several jurisdictions in the US, AstraZeneca
has been named as a defendant in lawsuits
involving plaintiffs claiming physical injury,
including diabetic ketoacidosis and kidney
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 of any similar,
subsequently filed cases to a coordinated and
consolidated pre-trial multidistrict litigation
(MDL) proceeding in the US District Court for
the Southern District of New York. A majority of
these claims have been resolved or dismissed,
and the MDL has been administratively closed.
In two jurisdictions in the US, AstraZeneca
has been named as a defendant in lawsuits
involving plaintiffs claiming physical injury,
including Fournier’s Gangrene and necrotizing
fasciitis, from treatment with Farxiga and/or
Xigduo XR.
Nexium (esomeprazole magnesium)
and Losec/Prilosec (omeprazole)
US proceedings
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,
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 coordinated 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. A trial in the MDL is scheduled for
November 2021.
In July 2019, counsel for a similarly defined
group of plaintiffs with claims pending in New
Jersey state courts petitioned the New Jersey
State Administrative Director of the Courts to
centralise judicial management of all plaintiffs’
claims alleging kidney injuries pending in that
State in a coordinated multicounty litigation
(MCL) proceeding. The MCL has been
centralised in Atlantic County.
Canada proceedings
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. In August 2019,
the third lawsuit, filed in Quebec, was dismissed.
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 US District Court for the Eastern District
of Kentucky (District Court) for consolidated
pre-trial proceedings with the federal actions
pending in the District Court. The previously
disclosed California State Court coordinated
proceeding remains pending in California.
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. Trial is
scheduled for February 2020.
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.
Ocimum lawsuit
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.
In December 2019, the court granted
AstraZeneca’s motion for summary judgment
and dismissed the case.
Seroquel XR Antitrust Litigation
In the US in 2019, AstraZeneca was named
in several related complaints brought in the
US District Court for the Southern District
of New York, including several putative class
action lawsuits that were purportedly brought
on behalf of classes of direct purchasers
or end payors of Seroquel XR, that allege
AstraZeneca and generic drug manufacturers
violated antitrust laws when settling patent
litigation related to Seroquel XR.
Toprol-XL (metoprolol succinate)
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 August 2018, Aralez commenced
voluntary insolvency proceedings and
AstraZeneca Annual Report & Form 20-F Information 2019 / Notes to the Group Financial Statements
223
F
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Notes to the Group Financial Statements
continued
29 Commitments and contingent liabilities continued
AstraZeneca filed a proof of claim in those
proceedings asserting its unsecured claims.
In October 2018, Aralez filed a motion in the
Bankruptcy Court seeking to sell the US rights
to Toprol-XL and its authorised generic and
AstraZeneca filed an objection to the proposed
sale. In March 2019, AstraZeneca entered into
an agreement with the senior secured creditor
and the settlement has now been approved by
the Bankruptcy Court, bringing this matter to
a close.
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 the US District Court for the Southern
District of New York (District Court) 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 District
Court 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 the District Court 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 the relator set forth
additional false claims allegations relating to
Synagis. In September 2018, the District Court
dismissed the relator’s lawsuit. In January
2019, the relator appealed the District Court’s
decision to the US Court of Appeals for the
Second Circuit. Oral arguments relating to the
appeal are scheduled for February 2020.
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 coordinated
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 (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 April 2019, a Louisiana state court (State
Court) granted AstraZeneca’s motion for
summary judgment dismissing the State’s
lawsuit and entered judgment in AstraZeneca’s
favour. The State is appealing the State
Court’s ruling.
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
(District Court). The complaint alleged 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. In November 2019, the
District Court granted the government’s
motion to dismiss.
Other government investigations/proceedings
US Congressional Inquiry
In January 2019, AstraZeneca received a letter
from the US House of Representatives
Committee on Oversight and Reform seeking
information related to pricing practices for
Crestor. Similar letters were sent to 11 other
pharmaceutical manufacturers. We continue
to cooperate with the inquiry and have
produced certain responsive information.
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
SE AstraZeneca considers whether it is
probable that a taxation authority will accept an
uncertain tax treatment. If it is concluded that
it is not probable that the taxation authority
will accept an uncertain tax treatment, where
tax exposures can be quantified, an accrual is
made based on either the most likely amount
method or the expected value method
depending on which method management
expects to better predict the resolution of
the uncertainty. 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. Details of
the movements in relation to material tax
exposures are discussed below.
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 the US District Court
for 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.
Government investigations/proceedings
Crestor (rosuvastatin calcium)
Qui tam litigation
In the US, in January and February 2014,
AstraZeneca was served with lawsuits filed
in the US District Court for the District of
Delaware under the qui tam (whistleblower)
provisions of the federal False Claims Act
and related state statutes, alleging that
AstraZeneca directed certain employees
to promote Crestor off-label and provided
unlawful remuneration to physicians in
connection with the promotion of Crestor.
The DOJ and all US states have declined
to intervene in the lawsuits. In March 2019,
AstraZeneca filed a motion to dismiss the
complaint. Oral argument on the motion to
dismiss is scheduled for February 2020.
Iraqi 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.
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
224
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Statements
KJ 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 key judgements
with respect to the ultimate outcome of
current and potential future tax audits, 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 $140m,
a decrease of $72m compared with 2018
mainly as a result of the conclusion of tax
authority review.
In addition to these tax exposures, the
European Commission (EC) issued its decision
on the state aid review of UK Controlled Foreign
Company Group Financing Exemption. The
EC concluded that part of the UK measures
was unlawful and have instructed recovery of
the state aid. The UK Government and the
Group have appealed the decision. Despite
the nature of the complexities of the ruling in
relation to the Group’s position, the complex
tax legislation and taking into account the
ongoing appeal, the Group does not expect
any additional liability would be material.
30 Statutory and other information
Management continues to believe that
AstraZeneca’s positions on all its transfer
pricing and other international tax audits and
disputes are robust, and that AstraZeneca is
appropriately provided, including consideration
of whether corresponding relief will be available
under Mutal Agreement procedures or
unilaterally. For transfer pricing audits where
AstraZeneca and the tax authorities are in
dispute, and the state aid matter, AstraZeneca
estimates the potential for reasonably possible
additional liabilities above and beyond the
amount provided to be up to $76m (2018:
$357m; 2017: $30m) including associated
interest. However, management believes
that it is unlikely that these additional liabilities
will arise. It is possible that some of these
contingencies may reduce in the future to
the extent that any tax authority challenge is
concluded, 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 $887m relating
to a number of other tax contingencies, an
increase of $157m mainly due to the impact
of an additional year of transactions relating to
contingencies for which accruals had already
been established, new tax contingencies in
the period partially offset by the transitional
adjustments on adoption of IFRIC 23
‘Uncertainty over Income Tax Treatments’
and exchange rate effects.
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
For these tax exposures, AstraZeneca
estimates the potential for reasonably
possible additional losses above and
beyond the amount provided to be up to
$327m (2018: $253m; 2017: $nil) including
associated interest. It is, however, possible
that some of these contingencies may reduce
in the future if any tax authority challenge is
concluded or matters lapse following expiry of
the relevant statutes of limitation resulting in a
reduction in the tax charge in future periods.
Timing of cash flows and interest
It is not possible to estimate the timing of
tax cash flows in relation to each outcome.
However, it is anticipated that a number of
significant disputes may be resolved over the
next one to two years.
Included within other receivables and payables
is a net amount of interest arising on tax
contingencies of $90m.
2019
$m
3.9
8.3
2.0
0.3
–
0.1
0.3
14.9
2018
$m
3.8
9.4
2.0
0.8
0.1
0.9
0.4
17.4
F
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a
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c
i
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l
S
t
a
t
e
m
e
n
t
s
2017
$m
3.0
5.7
2.0
0.4
–
–
–
11.1
$0.7m of fees payable in 2019 are in respect of the 2018 Group audit and audit of subsidiaries (2018: $3.2m in respect of the 2017 audit).
Related party transactions
The Group had no material related party transactions which might reasonably be expected to influence decisions made by the users of these
Financial Statements.
Key management personnel compensation
Key management personnel are defined for the purpose of disclosure under IAS 24 ‘Related Party Disclosures’ as the members of the Board and
the members of the SET.
Short-term employee benefits
Post-employment benefits
Share-based payments
Total remuneration is included within employee costs (see Note 28).
2019
$’000
31,329
1,766
19,210
52,305
2018
$’000
32,523
2,387
23,605
58,515
2017
$’000
28,274
2,469
16,452
47,195
AstraZeneca Annual Report & Form 20-F Information 2019 / Notes to the Group Financial Statements
225
Notes to the Group Financial Statements
continued
31 Subsequent events
Following the recommendation from an independent Data Monitoring Committee, AstraZeneca decided in January 2020 to terminate the Phase III
STRENGTH trial for Epanova, due to its low likelihood of demonstrating a benefit to patients with MDS who are at increased risk of CV disease.
This was considered to be an adjusting event after the reporting period, resulting in a full impairment of the Epanova intangible asset of $533m
recorded in Research and development expense in FY 2019, and a provision for inventory and supply-related costs of $115m recorded in Cost of
sales, also in FY 2019.
In January 2020, the Company announced that it had agreed to divest the global commercial rights to a number of established hypertension medicines,
including Inderal, Tenormin and Zestril to Atnahs Pharma. Atnahs Pharma will make an upfront payment of $350m to AstraZeneca. AstraZeneca
may also receive future sales-contingent payments of up to $40m between 2020 and 2022. Income arising from the upfront and future payments
will be reported in AstraZeneca’s financial statements within Other operating income and expense. The divestment is expected to complete in the
first quarter of 2020.
In January 2020, the Company announced that it will recover the global rights to brazikumab (formerly MEDI2070), a monoclonal antibody targeting
IL23, from Allergan. Brazikumab is currently in a Phase IIb/III programme in Crohn’s disease and a Phase IIb trial in ulcerative colitis. AstraZeneca
and Allergan will terminate their existing license agreement and all rights to brazikumab will revert to AstraZeneca. The transaction is expected to
complete in the first quarter of 2020, subject to regulatory approvals associated with AbbVie’s proposed acquisition of Allergan and its timely
completion. Under the termination agreement, Allergan will fund up to an agreed amount, estimated to be the total costs expected to be incurred
by AstraZeneca until completion of development for brazikumab in Crohn’s disease and ulcerative colitis, including the development of a
companion diagnostic.
Pursuant to the 2012 collaboration between Amgen and AstraZeneca to jointly develop and commercialise a clinical-stage inflammation portfolio,
Amgen is entitled to receive a high single-digit to low double-digit royalty on sales of brazikumab if approved and launched. This includes the original
inventor royalty. Other than this, AstraZeneca will own all rights and benefits arising from the medicine with no other payments due to Amgen.
In January 2020, AstraZeneca sold a proportion of its equity portfolio receiving consideration of $184m.
226
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Statements
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 2019 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 2019.
At 31 December 2019
Group Interest
At 31 December 2019
Group Interest
At 31 December 2019
Group Interest
Wholly owned subsidiaries
China
Estonia
AstraZeneca Pharmaceuticals Co., Limited 100%
AstraZeneca Eesti OÜ
100%
Algeria
AAPM Sarl
20 Zone Macro-Economique, Hydra,
Dar El Medina, Algiers, Algeria
Argentina
AstraZeneca S.A.
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
66 Talavera Road, Macquarie Park,
NSW 2113, Australia
100%
No. 2, Huangshan Road, Wuxi New District,
China
Valukoja 8, Ülemiste City, Tallinn 11415,
Estonia
AstraZeneca (Wuxi) Trading Co. Ltd
100%
Building E (Building No. 5), Huirong
Commercial Plaza, East Jinghui Road,
Xinwu District, Wuxi, China
100%
Finland
AstraZeneca OY.
Itsehallintokuja 4, Espoo, 02600, Finland
AstraZeneca Investment (China) Co., Ltd
100%
France
No. 199 Liangjing Road, China (Shanghai)
Pilot Free Trade Zone, Shanghai, China
AstraZeneca S.A.S.
AstraZeneca Finance S.A.S.
100%
100%
100%
100%
AstraZeneca Pharmaceutical
(China) Co. Ltd
No. 88 Yaocheng Avenue, Taizhou,
Jiangsu Province, China
AstraZeneca Pharmaceuticals
Technologies (Beijing) Co., Ltd
Unit 2203, 22F, No 8, Jianguomenwai
Avenue, Chaoyang District, Beijing, China
100%
AstraZeneca Holding France S.A.S.
Tour Carpe Diem-31, Place des Corolles,
92400 Courbevoie, France
AstraZeneca Dunkerque Production SCS
100%
100%
224 Avenue de la Dordogne,
59640 Dunkerque, France
100%
100%
100%
100%
Austria
Colombia
AstraZeneca Österreich GmbH
100%
AstraZeneca Colombia S.A.S.
100%
A-1030 Wien, Landstraßer Hauptstraße 1A,
Austria
Carrera 7 No. 71-21, Torre A, Piso 19,
Bogota, D.C., Colombia
Belgium
Costa Rica
AstraZeneca S.A. / N.V.
100%
AstraZeneca CAMCAR Costa Rica, S.A.
100%
Escazu, Guachipelin, Centro Corporativo
Plaza Roble, Edificio Los Balcones,
Segundo Nivel, San Jose, Costa Rica
Germany
AstraZeneca Holding GmbH
AstraZeneca GmbH
Tinsdaler Weg 183, Wedel, D-22880,
Germany
Sofotec GmbH
Benzstrasse 1-3, 61352, Bad Homburg v.d.
Hohe, Germany
Definiens GmbH2
Bernhard-Wicki-Straße 5, 80636, Munich,
Germany
100%
100%
100%
100%
F
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n
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n
c
i
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l
S
t
a
t
e
m
e
n
t
s
Alfons Gossetlaan 40 bus 201 at 1702
Groot-Bijgaarden, Belgium
Brazil
AstraZeneca do Brasil Limitada
100%
Rod. Raposo Tavares, KM 26, 9, Cotia,
Brazil
Bulgaria
36 Dragan Tzankov Blvd., District Izgrev,
Sofia, 1057, Bulgaria
Canada
AstraZeneca Canada Inc.1
Suite 5000, 1004 Middlegate Road, Ontario,
L4Y 1M4, Canada
Cayman Islands
AZ Reinsurance Limited
18 Forum Lane, 2nd Floor, Camana Bay,
Grand Cayman, P.O. BOX 69, Cayman
Islands
Croatia
AstraZeneca d.o.o.
100%
Greece
Radnicka cesta 80, 10000 Zagreb, Croatia
Czech Republic
AstraZeneca S.A.
100%
Agisilaou 6-8 str., Marousi-Athens, 15123,
Greece
U Trezorky 921/2, 158 00 Prague 5,
Czech Republic
Denmark
100%
AstraZeneca A/S
AstraZeneca Hong Kong Limited
100%
Unit 1 – 3, 11/F., 18 King Wah Road,
North Point, Hong Kong
100%
Hungary
World Trade Center Ballerup, Borupvang 3,
DK- 2750 Ballerup, Denmark
Egypt
AstraZeneca Kft
100%
1st floor, 4 building B, Alíz str.,
Budapest, 1117, Hungary
100%
AstraZeneca Egypt for Pharmaceutical
Industries JSC
100%
India
Villa 133, Road 90 North, New Cairo, Egypt
AstraZeneca Egypt for Trading LLC
100%
Chile
AstraZeneca S.A.
14C Ahmed Kamel Street, New Maadi,
Cairo, Egypt
100%
AstraZeneca Farmaceutica Chile Limitada
100%
Av. Isidora Goyenechea 3477, 2nd Floor,
Las Condes, Santiago, Chile
Drimex LLC
100%
Villa 47, Road 270, New Maadi, Cairo 11435,
Egypt
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
AstraZeneca Bulgaria EOOD
100%
AstraZeneca Czech Republic, s.r.o.
100%
Hong Kong
AstraZeneca Annual Report & Form 20-F Information 2019 / Group Subsidiaries and Holdings
227
Group Subsidiaries and Holdings
continued
At 31 December 2019
Group Interest
At 31 December 2019
Group Interest
At 31 December 2019
Group Interest
Ireland
The Netherlands
Portugal
AstraZeneca (Israel) Ltd
100%
AstraZeneca Rho B.V.
Latvia
AstraZeneca Latvija SIA
100%
Skanstes iela 50, Riga, LV-1013, Latvia
11A, Alfred Olaiya Street, Awuse Estate,
Off Salvation Street, Opebi, Ikeja, Lagos,
Nigeria
Lithuania
AstraZeneca Lietuva UAB
Spaudos g., Vilnius, LT-05132, Lithuania
Norway
100%
AstraZeneca AS
AstraZeneca Pharmaceuticals (Ireland)
Designated Activity Company
4th Floor, South Bank House, Barrow Street,
Dublin, 4, Republic of Ireland
Israel
6 Hacharash St., Hod Hasharon, 4524075,
Israel
Italy
Simesa SpA
AstraZeneca SpA
Palazzo Ferraris, via Ludovico il Moro 6/c
20080, Basiglio (Milan), Italy
Japan
AstraZeneca K.K.
3-1, Ofuka-cho, Kita-ku, Osaka, 530-0011,
Japan
Kenya
AstraZeneca Pharmaceuticals Limited
100%
L.R. No.1/1327, Avenue 5, 1st Floor,
Rose Avenue, Nairobi, Kenya
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%
Lot 6.05, Level 6, KPMG Tower, 8 First
Avenue, Bandar Utama, 47800 Petaling
Jaya, Selangor Darul Ehsan, Malaysia
Nucleus Tower, Level 11 & 12, No. 10 Jalan
PJU 7/6, Mutiara Damansara, 47800 Petaling
Jaya, Selangor Darul Ehsan, Malaysia
Mexico
AstraZeneca Health Care Division,
S.A. de C.V.
AstraZeneca, S.A. de C.V.
100%
100%
Av. Periferico Sur 4305 interior 5, Colonia
Jardines en la Montaña, Mexico City,
Tlalpan Distrito Federal, CP 14210, Mexico
Morocco
AstraZeneca Maroc SARLAU
100%
92 Boulevard Anfa ETG 2, Casablanca
20000, Morocco
100%
AstraZeneca B.V.
100%
Astra Alpha Produtos Farmaceuticos Lda
100%
AstraZeneca Continent B.V.
100%
AstraZeneca Produtos Farmaceuticos Lda
100%
AstraZeneca Gamma B.V.
AstraZeneca Holdings B.V.
AstraZeneca Jota B.V.
AstraZeneca Sigma B.V.
AstraZeneca Treasury B.V.
AstraZeneca Zeta B.V.
100%
100%
100%
100%
100%
100%
100%
Novastra Promoção e Comércio
Farmacêutico Lda
100%
Novastuart Produtos Farmaceuticos Lda
100%
Stuart-Produtos Farmacêuticos Lda
Zeneca Epsilon – Produtos Farmacêuticos
Lda
Zenecapharma Produtos Farmaceuticos,
Unipessoal Lda
100%
100%
100%
100%
100%
Prinses Beatrixlaan 582, 2595BM,
The Hague, The Netherlands
Rua Humberto Madeira, No 7, Queluz de
Baixo, 2730-097, Barcarena, Portugal
MedImmune Pharma B.V.
100%
Lagelandseweg 78, 6545 CG Nijmegen,
The Netherlands
100%
New Zealand
AstraZeneca Limited
Pharmacy Retailing (NZ) Limited
t/a Healthcare Logistics,
58 Richard Pearse Drive, Mangere,
Auckland, 1142, New Zealand
Nigeria
AstraZeneca Nigeria Limited
100%
Russia
Puerto Rico
IPR Pharmaceuticals, Inc.
100%
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
AstraZeneca Industries, LLC
100%
249006, 1st Vostochny passage, 8, Dobrino
village, Borovskiy, Russian Federation
AstraZeneca Pharmaceuticals, LLC
100%
100%
Building 1, 21 First Krasnogvardeyskiy lane,
Floor 30, Rooms 13 and 14, 123100,
Moscow, Russian Federation
Fredrik Selmers vei 6 NO-0663 Oslo,
Norway
Pakistan
AstraZeneca Pharmaceuticals Pakistan
(Private) Limited4
100%
Office No 1, 2nd Floor, Sasi Arcade, Block 7,
Main Clifton Road, Karachi, Pakistan
Panama
AstraZeneca CAMCAR, S.A.
100%
Bodega #1, Parque Logistico MIT, Carretera
Hacia Coco Solo, Colon, Panama
Peru
Singapore
AstraZeneca Singapore Pte Limited
100%
10 Kallang Avenue #12-10, Aperia Tower 2,
339510, Singapore
South Africa
AstraZeneca Pharmaceuticals (Pty)
Limited
100%
17 Georgian Crescent West, Northdowns
Office Park, Bryanston, 2191, South Africa
South Korea
AstraZeneca Korea Co. Ltd
100%
Calle Las Orquídeas N° 675, Int. 802,
Edificio Pacific Tower, San Isidro, Lima, Peru
Philippines
AstraZeneca Pharmaceuticals (Phils.) Inc.
100%
16th Floor, Inoza Tower, 40th Street,
Bonifacio Global City, Taguig 1634,
Philippines
Poland
21st Floor, Asem Tower, 517, Yeongdong-
daero, Gangnam-gu, Seoul, 06164,
Republic of Korea
Spain
AstraZeneca Farmaceutica Holding
Spain, S.A.
AstraZeneca Farmaceutica Spain S.A.
Laboratorio Beta, S.A.
Laboratorio Lailan, S.A.
AstraZeneca Pharma Poland Sp.z.o.o.
100%
Laboratorio Odin, S.A.
Postepu 14, 02-676, Warszawa, Poland
Laboratorio Tau S.A.
Parque Norte, Edificio Álamo, C/Serrano
Galvache no 56., 28033 Madrid, Spain
100%
100%
100%
100%
100%
100%
AstraZeneca Sdn Bhd
100%
AstraZeneca Peru S.A.
100%
228
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Statements
At 31 December 2019
Group Interest
At 31 December 2019
Group Interest
At 31 December 2019
Group Interest
Sweden
Ukraine
United States
Astra Export & Trading Aktiebolag
100%
AstraZeneca Ukraina LLC
100%
Amylin Ohio LLC7
54 Simi Prakhovykh street, Kiev, 01033,
Ukraine
United Arab Emirates
AstraZeneca FZ-LLC
P.O. Box 505070, Block D,
Dubai Healthcare City, Oud Mehta Road,
Dubai, United Arab Emirates
United Kingdom
Ardea Biosciences Limited
Arrow Therapeutics Limited
Astra Pharmaceuticals Limited
AstraPharm6
AstraZeneca China UK Limited
AstraZeneca Death In Service
Trustee Limited
Astra Lakemedel Aktiebolag
AstraZeneca AB
AstraZeneca Biotech AB
AstraZeneca BioVentureHub AB
AstraZeneca Holding Aktiebolag5
AstraZeneca International Holdings
Aktiebolag6
AstraZeneca Nordic AB
100%
100%
100%
100%
100%
100%
100%
AstraZeneca Pharmaceuticals Aktiebolag
100%
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%
Astra Tech International Aktiebolag
100%
Box 14, 431 21 MoIndal, Sweden
Switzerland
AstraZeneca AG
AstraZeneca Employee Share Trust Limited 100%
ZS Pharma Inc.
AstraZeneca Finance Limited
AstraZeneca Intermediate
Holdings Limited5
AstraZeneca Investments Limited
100%
AstraZeneca Japan Limited
Amylin Pharmaceuticals, LLC7
AstraZeneca Collaboration Ventures, LLC7
100%
AstraZeneca Pharmaceuticals LP8
100%
Atkemix Nine Inc.
Atkemix Ten Inc.
BMS Holdco, Inc.
Corpus Christi Holdings Inc.
Omthera Pharmaceuticals, Inc.
Optein, Inc.
Stauffer Management Company LLC7
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%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
1100 Park Place, Suite 300, San Mateo,
CA 94403, United States
AlphaCore Pharma, LLC7
100%
333 Parkland Plaza, Suite 5, Ann Arbor,
MI 48103, United States
AZ-Mont Insurance Company
100%
76 St Paul Street, Suite 500, Burlington,
VT 05401, United States
Neuhofstrasse 34, 6340 Baar, Switzerland
AstraZeneca Nominees Limited
Spirogen Sarl6
100%
AstraZeneca Quest Limited
Rue du Grand-Chêne 5, CH-1003 Lausanne,
Switzerland
AstraZeneca Share Trust Limited
Taiwan
AstraZeneca Taiwan Limited
100%
AstraZeneca Treasury Limited6
AstraZeneca UK Limited
100%
100%
1808 Aston Avenue, Suite 190, Carlsbad,
CA 92008, United States
AstraZeneca US Investments Limited5
100%
MedImmune, LLC7
AstraZeneca Sweden Investments Limited
100%
Definiens Inc.
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
Tunisia
AstraZeneca Tunisie SaRL
100%
Lot n°1.5.5 les jardins du lac,
bloc B les berges du lac Tunis, Tunisia
Turkey
AstraZeneca Ilac Sanayi ve Ticaret Limited
Sirketi
100%
YKB Plaza, B Blok, Kat:3-4, Levent/
Bes˛ iktas˛ , Istanbul, Turkey
Zeneca Ilac Sanayi Ve Ticaret
Anonim Sirketi
100%
Büyükdere Cad., Y.K.B. Plaza, B Blok, Kat:4,
Levent/Bes˛ iktas˛ , Istanbul, Turkey
AZENCO2 Limited
AZENCO4 Limited
Cambridge Antibody Technology
Group Limited
KuDOS Horsham Limited
KuDOS Pharmaceuticals Limited
Zenco (No. 8) Limited
Zeneca Finance (Netherlands) Company
1 Francis Crick Avenue, Cambridge
Biomedical Campus, Cambridge, CB2 0AA,
United Kingdom
100%
100%
100%
100%
100%
100%
100%
MedImmune Ventures, Inc.
One MedImmune Way, Gaithersburg,
MD 20878, United States
Pearl Therapeutics, Inc.
100%
200 Cardinal Way, Redwood City, CA 94063,
United States
Uruguay
AstraZeneca S.A.
Yaguarón 1407 of 1205, 11.100,
Montevideo, Uruguay
MedImmune Limited
100%
Venezuela
Milstein Building, Granta Park,
Cambridge, CB21 6GH, United Kingdom
AstraZeneca Venezuela S.A.
Gotland Pharma S.A.
MedImmune U.K. Limited
100%
Plot 6, Renaissance Way, Boulevard Industry
Park, Liverpool, L24 9JW, United Kingdom
Av. La Castellana, Torre La Castellana,
Piso 5, Oficina 5-G, 5-H, 5-I, Urbanización
La Castellana, Municipio Chacao, Estado
Bolivariano de Miranda, Venezuela
100%
100%
100%
F
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S
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n
t
s
100%
100%
100%
Vietnam
AstraZeneca Vietnam Company Limited
100%
18th Floor, A&B Tower, 76 Le Lai, Ben Thanh
Ward, District 1, Ho Chi Minh City, Vietnam
AstraZeneca Annual Report & Form 20-F Information 2019 / Group Subsidiaries and Holdings
229
Group Subsidiaries and Holdings
continued
At 31 December 2019
Group Interest
At 31 December 2019
Group Interest
At 31 December 2019
Group Interest
Subsidiaries where the effective
interest is less than 100%
Algeria
SPA AstraZeneca Al Djazair9
65.77%
No 20 Zone Macro Economique,
dar El Medina-Hydra, Alger, Algeria
India
AstraZeneca Pharma India Limited3
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
Significant Holdings
Australia
Armaron Bio Ltd10
MPR Group, HWT Tower, Level 19,
40 City Rd, Southbank, VIC 3006, Australia
China
Associated Holdings
Sweden
22.07%
Sweden Orphan Biovitrum AB
8.06%
Tomtebodavägen 23A, Stockholm, Sweden
Switzerland
ADC Therapeutics Sàrl12
6.66%
Dizal (Jiangsu) Pharmaceutical Co., Ltd.11
43.6%
Suite 4105, Building E (Building No.5) of
Huirong Plaza, East Jinghui Road, Xinwu
District, Wuxi, Jiangsu Province, China
Biopôle, Route de la Corniche 3B,
1066 Epalinges, Switzerland
United Kingdom
United Kingdom
Apollo Therapeutics LLP7
25%
Stevenage Biosciences Catalyst,
Gunnels Wood Road, Stevenage,
Hertfordshire, SG1 2FX, United Kingdom
United States
C.C. Global Chemicals Company8
37.5%
55%
55%
PO Box 7, MS2901, Texas, TX76101-0007,
United States
Circassia Pharmaceuticals PLC
18.9%
The Magdalen Centre, Robert Robinson
Avenue, Oxford Science Park, Oxford,
Oxfordshire, OX4 4GA, United Kingdom
United States
AbMed Corporation13
68 Cummings Park Drive, Woburn,
MA 01801, United States
18%
Aevi Genomic Medicine, Inc.
16.7%
Viela Bio, Inc.
28.75%
435 Devon Park Drive, Suite 715, Wayne,
PA 19087, United States
One MedImmune Way, First Floor, Area Two,
Gaithersburg, MD 20878, United States
55%
The Netherlands
Acerta Pharma B.V.
Aspire Therapeutics B.V.
Kloosterstraat 9, 5349 AB, Oss,
The Netherlands
United States
Acerta Pharma LLC7
121 Oyster Point Boulevard,
South San Francisco, CA 94080,
United States
Joint Ventures
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 Limited9
Centus Biotherapeutics Limited9
50%
50%
1 Francis Crick Avenue, Cambridge
Biomedical Campus, Cambridge, CB2 0AA,
United Kingdom
United States
Montrose Chemical Corporation
of California
50%
Suite 380, 600 Ericksen Ave N/E, Bainbridge
Island, United States
Affinita Biotech, Inc.14
16.23%
329 Oyster Point Blvd., 3rd Floor, South San
Francisco, CA 94080, United States
Aristea Therapeutics, Inc.15
15%
122770 High Bluff Drive, #380, San Diego,
CA 92130, United States
Baergic Bio, Inc.
19.95%
2 Gansevoort Street, 9th Floor, New York,
NY 10014, United States
Corvidia Corporation16
12%
35 Gatehouse Drive, Waltham, MA 02451,
United States
Entasis Therapeutics Holdings Inc.
16.29%
35 Gatehouse Drive, Waltham, MA 02451,
United States
Moderna Therapeutics, Inc.
7.65%
200 Technology Square, Cambridge,
MA 02139, United States
PhaseBio Pharmaceuticals, Inc.
10.44%
One Great Valley, Parkway, Suite 30,
Malvern, PA 19355, United States
Employee Benefit Trust
The AstraZeneca Employee Benefit Trust
1 Ownership held in ordinar(cid:92) and class (cid:37) special shares.
2 Ownership held in common shares, preferred shares 2003, preferred shares 2003 ex (A), preferred shares 2003 ex ((cid:37)),
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 Ordinar(cid:92) A shares and Ordinar(cid:92) (cid:37) shares.
7 Ownership held as membership interest.
8 Ownership held as partnership interest.
9 Ownership held in class A shares.
10 Ownership held in class (cid:37) preference shares.
11 Voting rights and percentages vary depending on the subject matter and business to be voted on.
12 Ownership held in class (cid:37) preference shares, class C preference shares, class D preference shares and class E preference shares.
13 Ownership held in common shares and series A preferred shares.
14 Ownership held in Class A voting and Class A non-voting shares.
15 Ownership held in series A-1 preferred stock.
16 Ownership held in series A preferred stock and series (cid:37) preferred stock.
230
AstraZeneca Annual Report & Form 20-F Information 2019 / 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
2019
$m
2018
$m
1
31,525
33,244
2
3
3
3
4
1
8,755
8,756
(164)
(1,597)
(1,761)
6,995
38,520
(283)
(15,376)
(15,659)
22,861
328
7,941
153
2,441
11,998
22,861
–
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
$m means millions of US dollars.
The Company’s profit for the year was $3,975m (2018: $266m).
The Company Financial Statements from page 231 to 235 were approved by the Board and were signed on its behalf by
Pascal Soriot
Director
14 February 2020
Marc Dunoyer
Director
Company’s registered number 02723534
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AstraZeneca Annual Report & Form 20-F Information 2019 / Company Statements
231
Company Statement of Changes in Equity
for the year ended 31 December
At 1 January 2018
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
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 2019
Share
capital
$m
317
Share
premium
account
$m
4,393
Capital
redemption
reserve
$m
153
Other
reserves
$m
2,549
Profit and
loss account
$m
Total
equity
$m
14,874
22,286
–
–
–
–
–
–
–
–
–
–
–
–
34
34
–
–
–
–
–
–
–
–
–
–
–
(16)
–
(16)
317
4,427
153
2,533
–
–
–
–
–
11
11
328
–
–
–
–
–
3,514
3,514
7,941
–
–
–
–
–
–
–
–
–
–
–
(92)
–
(92)
153
2,441
266
1
267
266
1
267
(3,539)
(3,539)
–
–
(3,539)
11,602
3,975
–
3,975
(3,579)
–
–
(3,579)
11,998
(16)
34
(3,521)
19,032
3,975
–
3,975
(3,579)
(92)
3,525
(146)
22,861
At 31 December 2019, the overwhelming majority of the Profit and loss account reserve of $11,998m was available for distribution, subject to filing
these Financial Statements with Companies House. The Other reserves arose from the cancellation of £1,255m share premium by the Company
in 1993 and the redenomination of share capital of $157m in 1999.
Also included within Other reserves at 31 December 2019 is $600m (31 December 2018: $692m) in respect of cumulative share-based payment awards.
These amounts are not available for distribution.
232
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Statements
Company Accounting Policies
Basis of presentation of
financia(cid:79)(cid:98)infor(cid:80)ation
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 168 to 230) 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 Finance expense.
Exchange differences on all other foreign
currency transactions are recognised in
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 accepted by the
authorities. This is based upon management
interpretation of applicable laws and
regulations and the expectation of how the
tax authority will resolve the matter. 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 either the most likely amount or the
expected value amount depending on which
method the Company expect to better predict
the resolution of the uncertainty.
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.
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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 2019 / Company Accounting Policies
233
Notes to the Company Financial Statements
1 Fixed asset investments
At 1 January 2019
Transfer to current assets
Capital reimbursement
Exchange
Amortisation
At 31 December 2019
A list of subsidiaries is included on pages 227 to 230.
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)
1.95% Callable bond
2.375% Callable bond
Amounts due after more than one year
Amounts owed to Group undertakings (unsecured)
7.2% Loan
Interest-bearing loans and borrowings (unsecured)
2.375% Callable bond
0.875% Non-callable bond
0.25% Callable bond
Floating rate note
2.375% Callable bond
Floating rate note
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
Total amounts due after more than one year
Total loans
Shares
$m
15,942
–
(81)
–
–
Investments in subsidiaries
Loans
$m
17,302
(1,595)
–
(55)
12
Total
$m
33,244
(1,595)
(81)
(55)
12
15,861
15,664
31,525
2019
$m
–
157
7
164
2019
$m
–
1,597
1,597
283
–
837
559
250
996
400
846
1,003
1,983
743
885
992
457
2,721
987
980
737
15,659
17,256
2018
$m
211
165
7
383
2018
$m
999
–
999
283
1,594
854
570
250
994
400
845
1,022
1,980
743
903
992
443
2,721
987
979
736
17,296
18,295
Repayment
dates
US dollars
US dollars
2019
2020
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
2023
2020
2021
2021
2022
2022
2023
2023
2024
2025
2027
2028
2029
2031
2037
2042
2045
2048
234
AstraZeneca Annual Report & Form 20-F Information 2019 / 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
2019
$m
10,485
3,778
1,396
1,597
17,256
2018
$m
11,506
4,196
1,594
999
18,295
All bonds are issued with fixed interest rates with an exception of two bonds, the 2022 and the 2023 floating rate notes. This might impact the fair
values of loans as they will change according to changes in the market rate. Since the loans are held at amortised cost, changes in interest rates
and the credit rating of the Company do not have an effect on the Company’s net assets. IFRS 9 has been adopted from January 2018 onwards.
The recoverability of all inter company loans has been assessed in accordance with IFRS 9 and no impairment was identified and thus, no provision
was required. The inter company balances are considered to have low credit risk due to timely payment of interest and settlement of principal
amount on agreed due dates. Hence, the loss allowance is therefore limited to 12 month expected credit losses. In 2019, there have been no
credit losses (2018: nil).
4 Share capital
Details of share capital movements in the year are included in Note 24 to the Group Financial Statements.
5 Contingent liabilities
The Company has guaranteed the external borrowing of a subsidiary in the amount of $286m (2018: $286m).
6 Statutory and other information
The Directors of the Company were paid by another Group company in 2019 and 2018.
7 Subsequent events
No subsequent events having material impact on the financial statements were identified after the balance sheet date.
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AstraZeneca Annual Report & Form 20-F Information 2019 / Notes to the Company Financial Statements
235
Group Financial Record
For the year ended 31 December
Revenue and profits
Product Sales
Collaboration Revenue
Cost of sales
Distribution costs
Research and development expense
Selling, general and administrative costs
Other operating income and expense
Operating profit
Finance income
Finance expense
Share of after tax losses in associates and joint ventures
Profit before tax
Taxation
Profit for the period
Other comprehensive income for the period, net of tax
Total comprehensive income for the period
Profit attributable to:
Owners of the Parent
Non-controlling interests
Earnings per share
Basic earnings per $0.25 Ordinary Share
Diluted earnings per $0.25 Ordinary Share
Dividends
Return on revenues
Operating profit as a percentage of Total Revenue
Ratio of earnings to fixed charges
At 31 December
Statement of Financial Position
Property, plant and equipment, right-of-use assets, goodwill and intangible assets
Other non-current assets
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
2015
$m
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
16.7%
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)
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
21.3%
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)
2017
$m
2018
$m
2019
$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
16.4%
15.3%
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
23,565
819
(4,921)
(339)
(6,059)
(11,682)
1,541
2,924
172
(1,432)
(116)
1,548
(321)
1,227
(611)
616
1,335
(108)
$1.03
$1.03
$2.80
12.0%
3.0
2019
$m
40,836
2,260
2,718
15,563
61,377
(18,133)
(2,490)
(26,174)
14,596
328
12,799
1,469
14,596
2019
$m
2,969
(657)
(1,765)
547
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.
236
AstraZeneca Annual Report & Form 20-F Information 2019 / Financial Statements
Additional
Information
Development Pipeline 238
Patent Expiries of Key Marketed
Products 243
Risk 246
Shareholder Information 258
Directors’ Report 263
Sustainability: supplementary
information 266
Trade Marks 267
Glossary 268
Cautionary statement regarding
forward-looking statements 272
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AstraZeneca Annual Report & Form 20-F Information 2019 / Additional Information
237
Development Pipeline
as at 31 December 2019
AstraZeneca-sponsored or -directed trial
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.
PP Partnered product
Phase I
Compound
Oncology
AZD0466
AZD1390
AZD4573
AZD5153
AZD5991
AZD9496
Calquence + ceralasertib
Calquence + danvatirsen
Mechanism
Area Under Investigation
BCL2/xL
ATM inhibitor
CDK9 inhibitor
BRD4 inhibitor
MCL1 inhibitor
selective oestrogen receptor degrader
BTK inhibitor + ATR inhibitor
BTK inhibitor + STAT3 inhibitor
haematological and solid tumours
glioblastoma
haematological malignancies
solid tumours, haematological malignancies
haematological malignancies
oestrogen receptor +ve breast cancer
haematological malignancies
haematological malignancies
Imfinzi + adavosertib
PD-L1 mAb + Wee1 inhibitor
PP solid tumours
Imfinzi + RT (platform)
CLOVER
PD-L1 mAb + RT
Imfinzi + selumetinib
PD-L1 + MEK inhibitor
Imfinzi + tremelimumab
PD-L1 mAb + CTLA-4 mAb
PP
locally-advanced head and neck squamous cell carcinoma, non-small
cell lung cancer (NSCLC), small cell lung cancer
PP solid tumours
PP solid tumours
Imfinzi + tremelimumab + CTx
PD-L1 mAb + CTLA-4 mAb + CTx
PP
1st-line pancreatic ductal adenocarcinoma, oesophageal and small cell
lung cancer
solid tumours
multiple myeloma
solid tumours
solid tumours
EGFRm NSCLC
MEDI1191
MEDI2228
MEDI5083
MEDI5395
oleclumab + Tagrisso
CVRM
AZD2693
AZD6615
AZD8233
AZD9977
MEDI6570
MEDI7219
Respiratory
AZD0449
AZD1402
AZD5634
AZD8154
Other
AZD0284
AZD4041
MEDI0618
MEDI1341
MEDI1814
IL-12 mRNA
BCMA antibody drug conjugate
CD40 ligand fusion protein
rNDV GMCSF
CD73 mAb + EGFR inhibitor
NASH resolution
hypercholesterolemia
hypercholesterolemia
MCR
LOX-1 mAb
anti-diabetic
inhaled JAK inhibitor
inhaled IL-4Ra
inhaled ENaC
inhaled PI3Kgd
RORg
orexin 1 receptor antagonist
PAR2 antagonist mAb
alpha synuclein mAb
amyloid beta mAb
MEDI5117 China
IL-6 mAb-YTE
NASH
CV disease
CV disease
CV disease
CV disease
type-2 diabetes
asthma
PP asthma
cystic fibrosis
asthma
psoriasis/respiratory
PP opioid use disorder
osteoarthritis pain
PP Parkinson’s disease
PP Alzheimer’s disease
PP rheumatoid arthritis
Phase II
Compound
Oncology
(oleclumab + CTx) or
(Imfinzi + oleclumab + CTx)
adavosertib
AZD2811
AZD4635
AZD9833
capivasertib
capivasertib
Enhertu
Enhertu
Imfinzi (platform)
COAST
Imfinzi (platform)
NeoCOAST
Imfinzi + AZD4635
Mechanism
Area Under Investigation
(CD73 mAb + CTx) or (PD-L1 mAb + CD73 mAb + CTx)
metastatic pancreatic cancer
Wee1 inhibitor
PP ovarian cancer, solid tumours
Aurora B inhibitor
A2aR inhibitor
selective oestrogen receptor degrader
solid tumours, haematological malignancies
prostate cancer
oestrogen receptor +ve breast cancer
AKT inhibitor
AKT inhibitor
PP breast cancer
PP prostate cancer
HER2 targeting antibody drug conjugate
PP HER2-expressing advanced colorectal cancer
HER2 targeting antibody drug conjugate
PP HER2-over-expressing or -mutated, unresectable and/or metastatic
NSCLC
PD-L1 mAb + multiple novel oncology therapies
PP NSCLC
PD-L1 mAb + multiple novel oncology therapies
PP NSCLC
PD-L1 mAb + A2aR inhibitor
prostate cancer
238
AstraZeneca Annual Report & Form 20-F Information 2019 / Additional Information
Phase II continued
Compound
Imfinzi + AZD5069 or
Imfinzi + danvatirsen
Imfinzi + FOLFOX + bevacizumab
(COLUMBIA 1)
Mechanism
PD-L1 mAb + CXCR2 antagonist or
PD-L1 mAb + STAT3 inhibitor
Area Under Investigation
PP head and neck squamous cell carcinoma, bladder and NSCLC
PD-L1 mAb + CTx + VEGF
1st-line metastatic microsatellite-stable colorectal cancer
Imfinzi + Lynparza (BAYOU)
PD-L1 mAb + PARP inhibitor
PP 1st-line unresectable stage IV bladder cancer
Imfinzi + Lynparza (ORION)
PD-L1 mAb + PARP inhibitor
PP 1st-line metastatic NSCLC
Imfinzi + MEDI0457
PD-L1 mAb + DNA HPV vaccine
PP head and neck squamous cell carcinoma
Imfinzi + monalizumab
PD-L1 mAb + NKG2a mAb
Imfinzi + oleclumab
PD-L1 mAb + CD73 mAb
PP solid tumours
PP solid tumours
Imfinzi + tremelimumab
PD-L1 mAb + CTLA-4 mAb
PP biliary tract, oesophageal
Imfinzi + tremelimumab
PD-L1 mAb + CTLA-4 mAb
Lynparza + adavosertib
PARP inhibitor + Wee1 inhibitor
Lynparza + ceralasertib (AZD6738)
(VIOLETTE)
Lynparza + Imfinzi
(MEDIOLA)
PARP inhibitor + ATR inhibitor
PP gastric cancer
PP solid tumours
PP breast cancer
PARP inhibitor + PD-L1 mAb
PP ovarian cancer, breast cancer, gastric cancer and small cell lung cancer
MEDI5752
PD-1/CTLA-4 bispecific mAb
oleclumab + AZD4635
CD73 mAb + A2aR inhibitor
solid tumours
prostate cancer
Tagrisso + selumetinib or savolitinib
(TATTON)
EGFR inhibitor + (MEK inhibitor or MET inhibitor)
PP advanced EGFRm NSCLC
Tagrisso + savolitinib (SAVANNAH) EGFR inhibitor + MET inhibitor
PP advanced EGFRm NSCLC
CVRM
AZD4831
AZD5718
AZD8601
cotadutide
MEDI3506
MEDI5884
MEDI6012
roxadustat
verinurad
Respiratory
abediterol
AZD7594
AZD7986
AZD8871
AZD9567
MEDI3506
tezepelumab
tezepelumab
Other
anifrolumab
anifrolumab
MEDI39021
MEDI7352
suvratoxumab1
myeloperoxidase
FLAP
VEGF-A
GLP-1/glucagon dual agonist
IL-33 mAb
cholesterol modulation
LCAT
hypoxia-inducible factor prolyl hydroxylase inhibitor
URAT1 inhibitor
heart failure with a preserved ejection fraction
coronary artery disease
CV disease
type-2 diabetes, obesity and NASH
diabetic kidney disease
CV disease
CV disease
chemotherapy induced anaemia
chronic kidney disease (CKD)
LABA
inhaled SGRM
DPP1
MABA
oral SGRM
IL-33 mAb
TSLP mAb
TSLP mAb
Type I IFN receptor mAb
Type I IFN receptor mAb
Psl/PcrV bispecific mAb
NGF/TNF bispecific mAb
mAb binding to S. aureus toxin
PP asthma/chronic obstructive pulmonary disease (COPD)
asthma/COPD
PP COPD
PP COPD
rheumatoid arthritis/respiratory
COPD and atopic dermatitis
PP atopic dermatitis
PP COPD
PP lupus nephritis
PP systemic lupus erythematosus (subcutaneous)
prevention of nosocomial Pseudomonas aeruginosa pneumonia
osteoarthritis pain and painful diabetic neuropathy
prevention of nosocomial Staphylococcus aureus pneumonia
Phase III/Pivotal Phase II/Registration (listed until launched in all applicable major regions)
Compound
Oncology
capivasertib + CTx
CAPItello-290
Enhertu
(trastuzumab
deruxtecan)
(DESTINY-Breast01)2
Enhertu
(trastuzumab
deruxtecan)
(DESTINY-Breast04)
Enhertu
(trastuzumab
deruxtecan)
(DESTINY-Breast02)
Mechanism
Area Under Investigation
US
EU
Japan
China
Estimated Filing Acceptance
AKT inhibitor +
CTx
HER2 targeting
antibody drug
conjugate
HER2 targeting
antibody drug
conjugate
1st-line metastatic triple negative breast cancer
HER2-Positive, unresectable and/or metastatic breast
cancer subjects previously treated with T-DM1
HER2-low, unresectable and/or metastatic breast cancer
subjects
HER2 targeting
antibody drug
conjugate
HER2-positive, unresectable and/or metastatic breast
cancer pretreated with prior standard of care HER2
therapies, including T-DM1
PP
PP
PP
PP
2021+
2021+
2021+
2021+
Approved
H2 2020
2021+
2021
AstraZeneca Annual Report & Form 20-F Information 2019 / Development Pipeline
239
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Development Pipeline
continued
Phase III/Pivotal Phase II/Registration (listed until launched in all applicable major regions) continued
Compound
Enhertu (trastuzumab
deruxtecan)
(DESTINY-Gastric01)2
Enhertu
(trastuzumab
deruxtecan)
(DESTINY-Breast03)
Imfinzi +
tremelimumab +
SoC
(NILE)
Imfinzi +
tremelimumab
(DANUBE)
Imfinzi +
tremelimumab
(HIMALAYA)
Imfinzi +
tremelimumab
(KESTREL)
Imfinzi +/-
tremelimumab +
CRT
(ADRIATIC)
Imfinzi +/-
tremelimumab +
CTx
(POSEIDON)
Imfinzi +/-
tremelimumab +
SoC
(CASPIAN)
Lumoxiti
Mechanism
HER2 targeting
antibody drug
conjugate
Area Under Investigation
HER2-overexpressing advanced gastric or gastro-
esophageal junction adenocarcinoma patients who have
progressed on two prior treatment regimens
HER2 targeting
antibody drug
conjugate
HER2-positive, unresectable and/or metastatic breast
cancer subjects previously treated with trastuzumab and
taxane
PL-L1 mAb +
CTLA-4 mAb +
SoC
1st-line urothelial cancer
PD-L1 mAb +
CTLA-4 mAb
PD-L1 mAb +
CTLA-4 mAb
PD-L1 mAb +
CTLA-4 mAb
PD-L1 mAb
+/- CTLA-4
mAb + CRT
PD-L1 mAb
+/- CTLA-4
mAb + CTx
PD-L1 mAb
+/- CTLA-4
mAb + SoC
anti-CD22
recombinant
immunotoxin
1st-line bladder cancer
1st-line hepatocellular carcinoma
1st-line head and neck squamous cell carcinoma
1st-line limited-stage small cell lung cancer
1st-line NSCLC
1st-line extensive-stage small cell lung cancer
3rd-line hairy cell leukaemia
Lynparza + Imfinzi +
bevacizumab
(DUO-O)
PARP inhibitor +
PD-L1 mAb +
VEGF inhibitor
1st-line ovarian cancer
MEK inhibitor
paediatric neurofibromatosis type-1
Estimated Filing Acceptance
Japan
EU
N/A
China
N/A
US
N/A
2021+
2021+
2021+
2021+
H1 2020
H1 2020
H1 2020
H2 2020
2021
(Orphan Drug
Designation)
2021
2021
2021+
H1 2020
H1 2020
H1 2020
2021+
2021+
2021+
2021+
2021
2021
2021
Accepted
(Orphan Drug
Designation)
Launched
(Orphan
Drug, Priority
Review)
Accepted
Accepted
H2 2020
Accepted
(Orphan
designation)
2021+
2021+
2021+
Accepted
(Orphan Drug,
Breakthrough
Designation,
Priority
Review)
H1 2020
(Orphan
designation,
Breakthrough
Designation)
2020+
H2 2020
PP
PP
PP
PP
PP
PP
PP
PP
PP
PP
PP
PP
omega-3
carboxylic acids
potassium
binder
hypoxia-
inducible factor
prolyl
hydroxylase
inhibitor
hypoxia-
inducible factor
prolyl
hydroxylase
inhibitor
severe hypertriglyceridaemia
Approved
hyperkalaemia
Launched
Launched
Accepted
anaemia in myelodysplastic syndrome
PP
2021+
Approved
(Priority
Review)
2021+
anaemia in CKD/end-stage renal disease
PP
Accepted
Approved
LABA/LAMA
COPD
Launched
Launched
Launched
Accepted
Breztri Aerosphere
(PT010)
LABA/LAMA/
ICS
COPD
Under review
Accepted
Launched
Approved
(Priority
Review)
IL-5R mAb
severe uncontrolled asthma
PP
Launched
Launched
Launched
2021+
selumetinib
(SPRINT)3
CVRM
Epanova
Lokelma
roxadustat
roxadustat
(OLYMPUS
ROCKIES)4
Respiratory
Bevespi Aerosphere
(PT003)
Fasenra
(CALIMA,
SIROCCO, ZONDA,
BISE BORA,
GREGALE,
MIRACLE)
PT027
tezepelumab
(NAVIGATOR,
SOURCE)
Other
ICS/SABA
asthma
TSLP mAb
severe uncontrolled asthma
anifrolumab
(TULIP)
Type I IFN
receptor mAb
systemic lupus erythematosus
nirsevimab
RSV mAb-YTE
passive RSV immunisation
240
AstraZeneca Annual Report & Form 20-F Information 2019 / Additional Information
PP
PP
PP
2021
2021
H2 2020
(Fast Track
Designation)
2021+
(Fast Track
Designation,
Breakthrough
Therapy
Designation)
2021
2021
H2 2020
H2 2020
2021+
(PRIME
eligibility)
2021+
Phase III/Pivotal Phase II/Registration (listed until launched in all applicable major regions) continued
Significant Life-cycle Management
Mechanism
Area Under Investigation
US
EU
Japan
China
Estimated Filing Acceptance
Compound
Oncology
Calquence
(ASCEND)
BTK inhibitor
relapsed/refractory chronic lymphocytic leukaemia
Calquence
(ELEVATE-RR)
BTK inhibitor
relapsed/refractory chronic lymphocytic leukaemia, high
risk
Calquence
(ELEVATE-TN)
Calquence +
venetoclax +
obinutuzumab
Calquence
(ECHO)
Imfinzi5
Imfinzi
(PEARL)
Imfinzi
(PACIFIC)
BTK inhibitor
1st-line chronic lymphocytic leukaemia
BTK inhibitor +
BCL-2 inhibitor
+ anti-CD20
mAb
1st-line chronic lymphocytic leukaemia
BTK inhibitor
1st-line mantle cell lymphoma
PD-L1 mAb
solid tumours
PD-L1 mAb
1st-line metastatic NSCLC
PD-L1 mAb
locally advanced (Stage III) NSCLC
Imfinzi (platform)
(BEGONIA)5
Imfinzi (platform)
(MAGELLAN)5
PD-L1 mAb with
paclitaxel and
multiple novel
oncology
therapies
PD-L1 mAb +
multiple novel
oncology
therapies
+/- CTx
Imfinzi + azacitidine6 PD-L1 mAb +
1st-line metastatic triple negative breast cancer
1st-line metastatic NSCLC
myelodysplastic syndrome
locally-advanced (Stage III) NSCLC
locally-advanced (Stage III) NSCLC
locally-advanced (Stage I-III) NSCLC
muscle invasive bladder cancer
1st-line biliary tract cancer
locoregional hepatocellular carcinoma
adjuvant hepatocellular carcinoma
Stage I/II NSCLC
azacitidine
PD-L1 mAb +
CRT
PD-L1 mAb +
CRT
PD-L1 mAb +
CTx
PD-L1 mAb +
CTx
PD-L1 mAb +
CTx
PD-L1 mAb +
VEGF + TACE
PD-L1 mAb +
VEGF
PD-L1 mAb
post-SBRT
PD-L1 mAb
locally-advanced cervical cancer
PD-L1 mAb
non-muscle invasive bladder cancer
PARP inhibitor
gBRCA adjuvant breast cancer
PARP inhibitor
gBRCA metastatic breast cancer
PARP inhibitor
pancreatic cancer
PARP inhibitor
gBRCA PSR ovarian cancer
Imfinzi + CRT
(PACIFIC-5, China)
Imfinzi + CRT
(PACIFIC-2)
Imfinzi + CTx
neoadjuvant
(AEGEAN)
Imfinzi + CTx
(NIAGARA)
Imfinzi + CTx
(TOPAZ-1)
Imfinzi + VEGF +
TACE
(EMERALD-1)
Imfinzi + VEGF
(EMERALD-2)
Imfinzi post-SBRT
(PACIFIC-4)
Imfinzi
(CALLA)
Imfinzi
(POTOMAC)
Lynparza
(OlympiA)
Lynparza
(OlympiAD)
Lynparza
(POLO)
Lynparza
(SOLO-3)
Accepted
Approved
(Orphan Drug,
Designation
Breakthrough
Therapy
Designation)
2021
(Orphan Drug
Designation)
Approved
(Orphan Drug
Designation,
Breakthrough
Therapy
Designation)
Accepted
(Orphan
designation)
2021+
(Orphan
designation)
Accepted
(Orphan
designation)
2021+
2021+
2021+
2021+
2021+
(Orphan
Drug
Designation)
2021+
2021+
2021+
2021
2021
2021
2021
Approved
(Breakthrough
Therapy
Designation,
Priority
Review)
Approved
Approved
Approved
2021
2021
2021+
2021+
2021
2021
2021+
2021+
2021
2021
2021+
2021+
2021+
2021+
2021
2021
2021
2021+
2021+
2021+
2021+
N/A
2021+
2021+
2021+
2021+
2021
Approved
(Orphan
designation,
Priority
Review)
Accepted
A
d
d
i
t
i
o
n
a
l
I
n
f
o
r
m
a
t
i
o
n
2021+
2021+
2021+
2021+
2021
Approved
Accepted
2021+
2021+
2021+
2021+
2021
Approved
(Priority
Review)
Approved
(Orphan Drug
Designation,
Priority
Review)
H2 2020
PP
PP
PP
PP
PP
PP
PP
PP
PP
PP
PP
PP
PP
PP
PP
PP
PP
PP
PP
PP
PP
PP
PP
PP
PP
AstraZeneca Annual Report & Form 20-F Information 2019 / Development Pipeline
241
Development Pipeline
continued
Significant Life-cycle Management continued
Compound
Lynparza (basket)
MK-7339-002/
LYNK0025
Lynparza +
abiraterone (PROpel)
Lynparza + cediranib
(CONCERTO)5
Lynparza
(PROfound)
Lynparza
(SOLO-1)
Lynparza
(SOLO-2)
Tagrisso
(LAURA)
Tagrisso + CTx
(FLAURA2)
Tagrisso
(ADAURA)
CVRM
Brilinta/Brilique
(HESTIA)
Brilinta/Brilique
(THALES)
Bydureon
(EXSCEL)
Bydureon BCise
(autoinjector)
Farxiga/Forxiga
Dapa-CKD
Farxiga/Forxiga
(DECLARE-TIMI 58)
Farxiga/Forxiga
(DELIVER)
Farxiga/Forxiga
(DEPICT)7
Farxiga/Forxiga
(DETERMINE-
Preserved)
Farxiga/Forxiga
(DETERMINE-
Reduced)
Qternmet XR/Qtrilmet
(saxagliptin/
dapagliflozin
metformin)
Mechanism
Area Under Investigation
US
EU
Japan
China
Estimated Filing Acceptance
PARP inhibitor
HRRm cancer
PARP inhibitor +
NHA
PARP inhibitor +
VEGF inhibitor
prostate cancer
recurrent platinum-resistant ovarian cancer
PARP inhibitor
prostate cancer
PARP inhibitor
1st-line BRCAm ovarian cancer
PARP inhibitor
2nd-line or greater BRCAm PSR ovarian cancer,
maintenance monotherapy
EGFR inhibitor
stage 3 EGFRm NSCLC
EGFR inhibitor +
CTx
1st-line advanced EGFRm NSCLC
EGFR inhibitor
adjuvant EGFRm NSCLC
PP
PP
PP
PP
PP
PP
2021
2021+
2021+
2021+
H2 2020
Accepted
(Breakthrough
Designation,
Priority
Review)
Approved
(Priority
Review)
Approved
(Priority
Review)
2021+
2021+
2021+
Accepted
H1 2020
2021+
Approved
Approved
Approved
2021+
2021+
2021+
Approved
(Orphan
designation)
2021+
2021+
Approved
(Priority
Review)
Approved
2021+
2021+
2021+
Brilinta/Brilique
(THEMIS)
P2Y12 receptor
antagonist
P2Y12 receptor
antagonist
P2Y12 receptor
antagonist
GLP-1 receptor
agonist
GLP-1 receptor
agonist
prevention of vaso-occlusive crises in paediatric patients
with sickle cell disease
CV outcomes trial in patients with coronary artery disease
and type-2 diabetes without a previous history of
myocardial infarction or stroke
2021+
2021
Accepted
Accepted
Accepted
Accepted
acute ischaemic stroke or transient ischaemic attack
H1 2020
H2 2020
H2 2020
type-2 diabetes outcomes study
Launched
Launched
N/A
Launched
type-2 diabetes
Launched
Approved
SGLT-2 inhibitor
renal outcomes and CV mortality in patients with CKD
2021
2021
2021+
2021
Farxiga/Forxiga
Dapa-HF
SGLT-2 inhibitor
worsening heart failure or CV death in patients with chronic
HF (HFrEF)
Accepted
Accepted
H1 2020
2021
(Fast Track)
Accepted
(Fast Track,
Priority
Review)
SGLT-2 inhibitor CV outcomes trial in patients with type-2 diabetes
Launched
Launched
Accepted
SGLT-2 inhibitor
SGLT-2 inhibitor
worsening HF or CV death in patients with chronic HF
(HFpEF)
2021+
(Fast Track)
2021+
2021+
2021+
type-1 diabetes
Accepted
Launched
Launched
N/A
SGLT-2 inhibitor HF with preserved ejection fraction (HFpEF)
SGLT-2 inhibitor HF with reduced ejection fraction (HFrEF)
2021
2021
N/A
N/A
DPP-4 inhibitor/
SGLT-2 inhibitor
type-2 diabetes
Approved
Approved
Xigduo XR/Xigduo
Respiratory
Breztri (PT010)5
SGLT-2 inhibitor/
metformin FDC
type-2 diabetes
LABA/LAMA/
ICS
asthma
Duaklir Genuair
LABA/LAMA
COPD
Fasenra (RESOLUTE) IL-5R mAb
COPD
Fasenra (OSTRO,
ORCHID, Japan/
China)
Fasenra (MANDARA)
Symbicort (SYGMA)
Other
Linzess
Nexium
IL-5R mAb
nasal polyposis
IL-5R mAb
ICS/LABA
eosinophilic granulomatosis with polyangiitis
as-needed use in mild asthma
GC-C receptor
peptide agonist
proton pump
inhibitor
irritable bowel syndrome with constipation (IBS-C)
PP
stress ulcer prophylaxis
Launched
Launched
2021+
PP
PP
PP
Launched
Launched
2021+
2021+
2021+
2021
2021+
N/A
2021
2021+
H1 2020
2021+
2021+
N/A
2021
2021+
Accepted
Launched
Accepted
1 US Fast Track Designation, 2 Phase II registrational study, 3 Registrational Phase IIb study, 4 US submissions based on entire Phase III programme, 5 Phase II LCM, 6 Phase I LCM, 7 FDA complete
response letter received (July 2019).
242
AstraZeneca Annual Report & Form 20-F Information 2019 / 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 246. 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 219.
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
Oncology
Calquence
(acalabrutinib)
Enhertu
(trastuzumab
deruxtecan)
Faslodex
(fulvestrant)
Imfinzi
(durvalumab)
Iressa
(gefitinib)
Description
US
China
EU1
Japan
2019
2018
2017
2019
2018
2017
US
Product Sales ($m)
Aggregate Product
Sales for China,
Japan and Europe2
($m)
A selective inhibitor of Bruton’s tyrosine kinase
indicated for the treatment of chronic
lymphocytic leukaemia (CLL) and mantle cell
lymphoma (MCL) and in development for the
treatment of multiple B-cell malignancies
A HER2-directed antibody-drug conjugate
(ADC) indicated for the treatment of adult
patients with unresectable or metastatic
HER2-positive breast cancer who have received
two or more prior anti-HER2 based regimens in
the metastatic setting
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 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 III
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
2026-2032,
2036
2032
2032
2032
162
62
–
–
–
–
2033
2033-2035
2033-2035 2033-20353
–
–
–
–
–
–
20214
expired
2021
2026
328
537
492
449
382
352
2030
2030
2030
2033 1,041
564
19
390
62
–
expired5
2023
20196,
2023
2023
17
26
39
302
376
367
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,
2031-20327
2031
2022,
20317
2031
–
–
–
–
–
–
Lynparza
(olaparib)
An oral poly ADP-ribose polymerase (PARP)
inhibitor that blocks DNA damage response
(DDR) in cells/tumours harbouring a deficiency
in homologous recombination repair, such as
mutations in BRCA1 and/or BRCA2. It is
indicated for platinum-sensitive relapsed
ovarian cancer, regardless of BRCA status;
1st-line maintenance treatment of BRCAm
advanced ovarian cancer; for gBRCAm
HER2-negative, metastatic breast cancer; and
for gBRCAm metastatic pancreatic cancer
Tagrisso
(osimertinib)
An EGFR-TKI indicated for patients with
metastatic EGFR-mutated NSCLC
Zoladex
(goserelin
acetate implant)
A luteinising hormone-releasing hormone
(LHRH) agonist used to treat prostate cancer,
breast cancer and certain benign
gynaecological disorders
CVRM
Atacand9
(candesartan
cilexitil)
Brilinta/
Brilique
(ticagrelor)
An angiotensin II receptor blocker (ARB) for the
1st-line treatment of hypertension and heart
failure
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)
2022-2024,
2028*,
2024-2031
2021-2024,
2024-2029
2021-2029,
2024-2029
2021-2029,
2024-2033
626
345
141
475
250
130
2032
2032
2032
2034 1,268
869
405
1,588
808
486
20228
2021
2021
2021
7
8
15
566
508
483
A
d
d
i
t
i
o
n
a
l
I
n
f
o
r
m
a
t
i
o
n
expired
10
expired
10
12
13
19
30
62
86
2019-202411,
2021-2036
201912,
202113
2024,
202114-202715
2023-2024,
2025-2030
710
588
509
652
532
402
AstraZeneca Annual Report & Form 20-F Information 2019 / Patent Expiries of Key Marketed Products
243
Patent Expiries of Key
Marketed Products
continued
Key marketed
products
Bydureon/
Bydureon
BCise
(exenatide XR
injectable
suspension)
Byetta
(exenatide
injection)
Crestor
(rosuvastatin
calcium)
Farxiga/
Forxiga
(dapagliflozin)
Description
US
China
EU1
Japan
2019
2018
2017
2019
2018
2017
US
Product Sales ($m)
Aggregate Product
Sales for China,
Japan and Europe2
($m)
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 statin for dyslipidaemia and
hypercholesterolaemia
A selective inhibitor of human sodium-glucose
cotransporter 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
2020-2028,
203016
2020-2028,
202916
2020-2028,
202916
2021-2028,
202916
459
475
458
69
85
93
202017
2020
2020-2021
2020
68
74
114
23
34
39
2021-202218
2020-2021
2020
2023
104
170
373
752
825 1,528
2020,
2025*,
2020-2030
2020-2023,
2028
2020-2027 2024-2025,
2028
537
591
355
531
394
245
Komboglyze/
Kombiglyze XR19
(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
2023,
2025
2021,
2025
2021-2026,
2025
3
–
–
111
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
2019-2035
2033-2034
203220
2032-2036
13
–
–
–
1
–
–
–
–
An oral dipeptidyl peptidase 4 (DPP-4) inhibitor
for type-2 diabetes
2023,
2028
2021,
2025
2024,
2025
3
3
3
127
109
209
63
95
114
–
–
–
–
–
–
2024,
2024-2034
2024,
2024-2033
Lokelma
(sodium
zirconium
cyclosilicate)
Onglyza
(saxagliptin)
Roxadustat
Seloken family/
Toprol-XL
(metoprolol
tartate/succinate)
Qtern
(dapagliflozin/
saxagliptin)
Xigduo/
Xigduo XR
(dapagliflozin/
metformin)
Respiratory
Bevespi
Aerosphere
(glycopyrrolate/
formoterol)
Breztri
Aerosphere
(PT010)
(budesonide/
glycopyrrolate/
formoterol)
Daliresp/
Daxas
(roflumilast)
First-in-class hypoxia-inducible factor prolyl
hydroxylase inhibitor (HIF-PHI) indicated for the
treatment of anaemia from chronic kidney
disease
A beta-blocker for treatment of hypertension,
heart failure (succinate), angina and after heart
attack
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
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
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
A fixed-dose triple combination of an inhaled
corticosteroid (ICS), a LAMA and a LABA, used
for the maintenance treatment of COPD
expired
expired
expired
expired
37
39
37
550
488
470
2020,
2025*,
2020-2029
2020,
2025*,
2020-2030
2020-2023
2020-2027
2024-2025
6
–
4
9
5
–
2020-2023
2020-2028 2024-2025,
2030
103
114
134
115
83
58
2030-2031
2030
2030
2030
41
33
16
–
–
–
2030-2031
2030
2030
2030
–
–
–
2
–
–
An oral phosphodiesterase-4 inhibitor for
adults with severe COPD to decrease their
number of exacerbations
2020,
2023-2024
2023
201921,
2023
expired
184
155
167
26
28
26
244
AstraZeneca Annual Report & Form 20-F Information 2019 / Additional Information
Key marketed
products
Duaklir
(aclidinium/
formoterol)
Fasenra
(benralizumab)
Pulmicort
(budesonide)
Symbicort
(budesonide/
formoterol)
Tudorza/Eklira/
Genuair
(aclidinium)
Other
Fluenz Tetra/
FluMist
Quadrivalent
(live attenuated
influenza vaccine)
Movantik/
Moventig
(naloxegol)
Description
US
China
EU1
Japan
2019
2018
2017
2019
2018
2017
US
Product Sales ($m)
Aggregate Product
Sales for China,
Japan and Europe2
($m)
A fixed-dose combination of a LAMA and a
LABA for the maintenance treatment of COPD
2020-2025,
2022-202922
2020,
2022-2027
2025,
2022-202923
2025,
2021-2029
3
–
–
–
71
91
77
204
77
–
2020,
2028-2034
2021,
2028
2020,
2028-2034
2025
482
218
201924
expired
expired
expired
110
116
156
1,149
975
847
2019-202925
expired
201926 2019-202026
829
862 1,099
1,174 1,220 1,201
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 inhaled corticosteroid for maintenance
treatment of asthma
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)
A LAMA for the maintenance treatment of
COPD
2020-2025,
2022-202922
2020,
2022-2027
2025,
2022-202923
2025,
2021-202927
2
25
66
63
75
74
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
2020-2026
2020-2025
2020-2025
2020-2025
20
15
–
93
91
76
A once-daily, peripherally acting mu-opioid
receptor antagonist approved for the treatment
of opioid-induced constipation (OIC) in adult
patients. The indication varies by jurisdiction
2022-2027,
2028*,
2032
2024,
2031
2022-2024,
2029*28,
2031
2022-2024,
2031
96
108
120
2
–
2
Nexium
(esomeprazole)
A proton pump inhibitor used to treat
acid-related diseases
Seroquel XR
(quetiapine)
Synagis
(palivizumab)
Generally approved for the treatment of
schizophrenia, bipolar disorder, major
depressive disorder and, on a more limited
basis, for generalised anxiety disorder
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
202029
2019
expired
2019
218
287
499
847
955
973
expired
expired
expired
expired
–
73
175
60
70
82
202330
expired
2023
2023
46
287
317
312
377
370
Date represents expiry of a pending SPC/PTE and/or Paediatric Exclusivity period.
*
1. Expiry in major EU markets, which includes the UK.
2.
(cid:55)he Product Sales re(cid:432)ected are for Europe Region as defined in Market definitions on page 268.
AstraZeneca does not have commercialisation rights.
Settled with various generic companies for licensed entr(cid:92) dates of 2(cid:24) March 2019 or later.
In the US, Iressa has seven (cid:92)ears(cid:350) Orphan Drug exclusivit(cid:92) to 13 Jul(cid:92) 2022.
SPCs expired 2 March 2019. (cid:55)here were eight (cid:92)ears of data exclusivit(cid:92) and two (cid:92)ears of market exclusivit(cid:92) for Iressa in the EU to 2(cid:23) June 2019.
Rights licensed to Innate Pharma.
Rights licensed to (cid:55)erSera.
Atacand HCT in US.
Takeda retained rights.
Separate settlements with ANDA challengers for a licensed entr(cid:92) date corresponding to the expir(cid:92) of US Patent No. RE(cid:23)6,276, sub(cid:77)ect to regulator(cid:92) approval.
(cid:55)he patent was invalidated during invalidation proceedings at the Chinese Patent O(cid:433)ce (CNIPA). (cid:55)he (cid:37)ei(cid:77)ing (cid:43)igh People(cid:350)s Court (the (cid:43)igh Court) vacated the invalidation decision and
remanded the case back to CNIPA for further decision in view of the (cid:43)igh Court(cid:350)s decision. CNIPA has appealed the (cid:43)igh Court decision. (cid:55)he patent expired in December 2019, prior to a
decision in the (cid:43)igh Court appeal or CNIPA invalidation proceedings.
The patent was invalidated during invalidation proceedings at the CNIPA. The patentee has appealed that decision.
(cid:55)he patent was revoked during opposition proceedings at the European Patent O(cid:433)ce (EPO). (cid:55)he patentee has appealed that decision and obtained a decision from the EPO (cid:37)oards of Appeal
upholding the patent.
(cid:55)he patent is the sub(cid:77)ect of a pending opposition proceeding at the EPO. (cid:55)he patentee successfull(cid:92) defended the patent in that proceeding, but the opponents have appealed.
Patent expiry date relates to BCise.
Separate settlements with ANDA challengers for a licensed entr(cid:92) date of 1(cid:24) October 2017, or later, sub(cid:77)ect to regulator(cid:92) approval.
A settlement agreement in the US permitted (cid:58)atson (cid:47)aboratories, Inc. and Actavis, Inc. (together, (cid:58)atson) to begin selling its generic version of Crestor and its rosuvastatin zinc product from
2 Ma(cid:92) 2016.
Komboglyze/Kombiglyze (cid:59)R revenue is included in the Onglyza revenue figure.
(cid:55)he patent is the sub(cid:77)ect of a pending opposition proceeding at the EPO.
There are eight years of data exclusivity and two years of market exclusivity for Daxas in the EU to (cid:24) Jul(cid:92) 2020.
Rights licensed to Circassia.
Partnered with (cid:37)erlin(cid:16)Chemie AG (Menarini group).
A licence agreement with (cid:55)eva permits its ongoing sale in the US of a generic version from December 2009. (cid:55)he 2019 expir(cid:92) relates to the formulation in the Flexhaler presentation and also
to Respules.
Patent expiry dates relate to the Symbicort pMDI product, including an(cid:92) granted Paediatric Exclusivit(cid:92) term.
Patent expiry dates relate to the Symbicort Turbuhaler product.
Rights licensed to (cid:46)(cid:92)orin Pharmaceutical Co., (cid:47)td.
Rights for the EU, Iceland, Norwa(cid:92), Switzerland and (cid:47)iechtenstein licensed to (cid:46)(cid:92)owa (cid:46)irin.
Licence agreements have allowed generic companies to launch generic capsule versions in the US.
Rights sold to Sobi.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
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245
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 76,
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 91, 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 2019 can be found in the Therapy Area Review from page 54.
Launch decisions and dates are primarily driven by our development programmes.
Once a development programme is completed and the dossier submitted to Health
Authorities, investments made in the manufacture of pre-launch product stocks,
marketing materials and sales force training, may result in excess expenses if the
product is not approved.
Various factors, including adverse findings in pre-clinical or clinical studies, regulatory
demands, price negotiation, competitor activity and technology transfer may
significantly delay or prevent launch. Differing 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 often experience strong competition from other pharmaceutical companies in our
pursuit of licensing transactions, strategic collaborations and acquisition targets.
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.
Failure or delay in development of new product candidates 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 or expectations on page 256.
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.
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AstraZeneca Annual Report & Form 20-F Information 2019 / Additional Information
Product pipeline and IP risks
Impact
Failure to meet regulatory or ethical requirements for drug development or approval
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.
In anticipation of the UK leaving the EU on 31 January 2020, intense
work has been undertaken to manage Brexit-related changes, identify
scenarios for the many uncertainties still to be resolved, and determine
the new UK requirements moving forward. This included transferring
licences and authorisations for EU markets historically held in the UK
to an EU member state and building capability to test medicines in the
EU where such testing has been undertaken in the UK for all EU
markets. UK licences also needed to be separated out from centrally
approved products in the EU. These actions were undertaken to ensure
appropriate regulatory requirements can be met both in the EU and UK
following Brexit. Based on our corporate planning assumptions which
applied throughout 2019 for a no deal Brexit, with no transition period,
the Company has taken 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. In light of the ratification of the Withdrawal Agreement on
24 January 2020 with a transition period running to 31 December 2020,
the Group continues to take appropriate actions to manage changes
which will be required after the end of the transition period based on
the assumption that there will be no extension to the transition period
and that no agreement on the future relationship between the UK and
EU will have been agreed and ratified at that time.
(cid:41)ai(cid:79)ure to obtain(cid:15) defend and enforce e(cid:428)ective (cid:44)(cid:51) (cid:83)rotection and (cid:44)(cid:51) cha(cid:79)(cid:79)enges by third (cid:83)arties
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.
Details of material patent proceedings and litigation matters can be found in Note 29 to
the Financial Statements from page 220.
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 (i.e. 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 from page 41, the Competitive pressures including expiry or
loss of IP rights, and generic competition risk on page 248 and Note 29
to the Financial Statements from page 220.
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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 243).
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 220.
248
AstraZeneca Annual Report & Form 20-F Information 2019 / Additional Information
Commercialisation risks
Price controls and reductions
Impact
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. In the US, policymakers at the federal and state level continue to consider a
range of legislative and regulatory proposals to address the high costs of prescription
drugs in addition to reforms to the US healthcare system. Modifications to Medicare
and other government programmes, price transparency requirements, policies to
permit importation of drugs into the US, and policies aimed at reducing drug list prices
and limiting pricing flexibility have also been included in proposed federal legislation.
For more information, please see Pricing of medicines in the Healthcare in a changing
world 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 bipartisan
priority in Congress, the current administration and state governments. 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 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. For example, in 2019, China expanded value-based procurement
(VBP), placing downward pressure on the pricing of products that lost exclusivity in the
VBP.
In Japan, the government has relied on drug budget reductions to restrict increasing
social security costs associated with the rapidly ageing society, expanding the scope
and degree of price discounts. In April 2018, many new rules were implemented as
drug pricing system reforms. Further to that a cost-effectiveness evaluation was
introduced for certain categories of drugs from April 2019. Discussions for further drug
budget restrictions are underway at the health ministry.
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 Healthcare in a changing world section from page 11 and on the next page in the
following risk factor.
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 Affordable Care
Act (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.
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249
Risk
continued
Commercialisation risks
Impact
Economic, regulatory and political pressures
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 78), 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 78.
In addition, as set out in the next section, the UK’s exit from the EU
which took place on 31 January 2020 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 if the
arrangements agreed between the UK and EU in the upcoming future
relationship negotiations do not adequately address such matters, or if
no such agreement on the future relationship is reached before the end
of the transition period.
Operating in more than 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.
In addition, escalation of the current trade disputes could lead to sanctions such as the
unilateral imposition of tariffs, duties, quotas or other non-tariff barriers. While the
introduction of such sanctions in relation to medicines is unlikely, it could occur if matters
escalate significantly and could therefore adversely impact medicine process and volumes
of sales in impacted markets.
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 AAA
credit-rated institutional money market funds, collateralised bank deposits, fixed income
securities in government, and financial and non-financial securities. 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 various
London Interbank Offered Rates, known as 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 is expected to see some
or all of them partially or fully replaced by alternative reference rates, or cause LIBOR’s
regulator to determine that their quality has degraded to the degree that it is no longer
representative of its underlying market. This may result in potential adjustments or
renegotiations being necessary to our agreements in respect of the commercial terms or
mechanisms to set the reference rate in the future. While different alternative reference
rates are developing for different currencies, there is a risk that we fail to renegotiate or
adjust 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.
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Commercialisation risks
Impact
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). Following
Royal Assent of the European Union (Withdrawal Agreement) Act in the UK and
ratification of the Withdrawal Agreement by the European Parliament, the UK left the
EU on 31 January 2020 with a transition period running to 31 December 2020.
It is still too early to judge the full impact of Brexit. While a Withdrawal Agreement has
been ratified by both the UK and EU, the future relationship that will apply at the end of
the transition period provided for in that agreement is still to be negotiated between the
UK Government and European Commission after which it would need to be ratified by
both the UK and EU parliaments. In the absence of a ratified agreement covering the
future relationship, it is unclear what trading relationships the UK will have with the EU
and other significant trading partners after 31 December 2020 given the range of
political and legal options currently available including, for example, no deal on the
future relationship at the end of the transition period, extension of the transition period
or some form of free trade agreement. 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 the pound
sterling as compared with the euro and US dollar. At the end of the transition period
provided for in the Withdrawal Agreement, 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. 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.
Until the negotiation process for the future relationship between the
UK and EU is completed and any associated agreement or
agreements have been ratified in both the UK and EU, 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 end of the transition period that the capacity at major
ports both in the UK and the EU is materially reduced for an
indeterminate period of time due, for example, to the imposition of
border checks. 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 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.
Failures or delays in the quality or execution of our commercial strategies
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).
> Unauthorised or unregulated parallel imports.
> 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 and price referencing.
> 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.
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. The rights
of existing shareholders may be diluted if we were to issue additional
shares to pay for acquired businesses.
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Risk
continued
Commercialisation risks
Impact
Failures or delays in the quality or execution of our commercial strategies continued
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.
Supply chain and business execution risks
Impact
Failure to maintain supply of compliant, quality products
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.
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 to support
future demand for our products, including new modalities of medicine.
> 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, which is subject to continued evolution. It is necessary for us to meet all
regulations, including compliance with Good Manufacturing Practices (GMP) and Good
Distribution Practices 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 biologics medicines), equipment, formulated drugs and
packaging, critical product components and services, all of which are key to our
operations. Many of these goods are difficult to substitute in a timely manner or at all. We
expect that external capacity for biologics drug substance production will continue to
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.
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Supply chain and business execution risks
Impact
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.
Failure in information technology, data protection or 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 strictly confidential 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
and other increasingly stringent privacy laws around the globe (such as the California
Consumer Privacy Act of 2018, which came into effect on 1 January 2020).
Examples of strictly confidential information that we protect include clinical trial records
(patient characteristics and treatments), personal information (employee bank details,
salary, home address), IP related to manufacturing process and compliance, and key
research science techniques.
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), artificial intelligence, and other forms of new technology to
process our data and 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. Globalisation also means that
it becomes difficult to comply with all local data protection transparency obligations for
our websites and mobile apps (e.g. enhanced cookie banner rules in the EU or higher
standards for obtaining valid consent for certain uses of personal data). The desire to
expand the use of artificial intelligence, genomic data and biometric data poses
additional risks to the rights and freedoms of individuals and consequently higher
reputational and financial risks for AstraZeneca.
The GDPR and similar privacy legislation 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.
The failure of outsource providers to deliver timely services, and to
the required level of quality, or the failure of outsource providers to
cooperate 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.
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
information, damage to our reputation, regulatory penalties or
sanctions, financial losses and/or other costs.
The inability to back-up and restore data effectively 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. Occasionally we experience intrusions, including as a result of
computer-related malware. We may be unable to defend against 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 confidential
information (such as personally identifiable information on employees,
healthcare professionals or patients), 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.
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Risk
continued
Supply chain and business execution risks
Failure of critical processes
Impact
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, which may
increase in frequency or severity as a result of climate change, and earthquakes.
> Cyber threats similar to those detailed in the Failure in information technology, data
protection or 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.
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 implement these planned cost-reduction measures
successfully, either through the successful implementation of
employee relations processes (including consultation, engagement,
talent management, recruitment and retention), or the possibility that
these efforts do not generate the level of cost savings we anticipate,
could materially adversely affect our business or results of operations.
Failure to attract, develop, engage and retain a diverse, talented and capable workforce
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.
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Legal, regulatory and compliance risks
Impact
Failure to adhere to applicable laws, rules and regulations
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 license 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 GMP 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.
There is no guarantee that our sustainability strategy will be successful
or meet the increasing expectations of our stakeholders. Failure or
perceived failure may materially impact our business and adversely
affect our reputation.
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
AstraZeneca 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 GMP.
> 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.
> Rules and regulations established to promote ethical supply chain management.
> Financial regulations including, but not limited to, external financial reporting, taxation
and anti-money laundering.
> Employment practices.
> Disclosure of payments to healthcare professionals under the Sunshine Act and EFPIA
legislation.
> Appropriate disclosure of community support, patient organisation 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 220.
In addition to compliance with laws, rules and regulations, companies are increasingly
judged by their approach to sustainability. Assessments such as the Dow Jones
Sustainability Index and Access to Medicine Index are widely publicised and of growing
importance to stakeholders including investors, patients and employees. Our
sustainability strategy is outlined on page 52 and in our Sustainability Report.
(cid:54)afety and e(cid:433)cacy of (cid:80)ar(cid:78)eted (cid:83)roducts is (cid:84)uestioned
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 220.
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 257.
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Risk
continued
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 220 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 cooperation and coordination between regulators across
countries with respect to investigation and enforcement.
We have been the subject of anti-corruption investigations and there can be no
assurance that we will not, from time to time, be subject to informal enquiries and
formal investigations from governmental agencies. In the context of our business,
governmental officials interact with us in various roles that are important to our
operations, such as in the capacity of a regulator, partner or healthcare payer,
reimburser or prescriber, among others. To the extent we are the subject of any such
pending and material matters, details are included in Note 29 to the Financial
Statements from page 220.
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.
(cid:40)cono(cid:80)ic and financia(cid:79) ris(cid:78)s
Impact
Failure to achieve strategic plans or meet targets or 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 91). 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.
(cid:41)ai(cid:79)ure in financia(cid:79) contro(cid:79) 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.
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(cid:40)cono(cid:80)ic and financia(cid:79) ris(cid:78)s
Impact
(cid:56)ne(cid:91)(cid:83)ected deterioration in the (cid:42)rou(cid:83)(cid:350)s financia(cid:79) (cid:83)osition
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% and 21% of our
global 2019 Product Sales were in the US and China respectively, which are expected
to remain our largest two markets for the foreseeable future. Product Sales in other
countries are predominantly in currencies other than the US dollar and the Chinese
renminbi, including 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 product
batches. Due to the value of the materials used, the carrying amount of biologics
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 220 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
introduced 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. During 2019, it has undertaken a public consultation setting out alternatives
for further potential actions and is now working to seek a consensus on those that
should be implemented.
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.
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 189.
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 256.
The resolution of tax disputes regarding the profits to be taxed in
individual territories can result in a reallocation of profits or losses
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 to eliminate double taxation 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 91 for tax risk management
policies and Note 29 to the Financial Statements from page 220 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 ‘Employee
Benefits’ 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 22 to the Financial Statements from
page 200 for further details of the Group’s pension obligations.
AstraZeneca Annual Report & Form 20-F Information 2019 / Risk
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Shareholder Information
The principal markets for trading in
AstraZeneca shares are the London Stock
Exchange, Nasdaq Stockholm and the New
York Stock Exchange (NYSE). 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
NYSE are in the form of American Depositary
Shares (ADSs), evidenced by American
Depositary Receipts (ADRs) issued by the
Company’s ADR depositary, Deutsche Bank
Trust Company Americas (Deutsche Bank).
Deutsche Bank replaced Citibank, N.A. as the
Company’s ADR depositary on 6 February
2020. 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
Deutsche Bank Trust Company Americas
c/o American Stock Transfer & Trust Co
6201 15th Avenue
Brooklyn NY 11219
USA
Tel (toll free in the US): +1 (888) 697 8018
Tel (outside US): +1 718 921 8137
db@astfinancial.com
Annual general meeting (AGM)
The 2020 AGM will be held on 29 April 2020.
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.
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 Corporate
Governance Report on page 112.
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 161.
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.
Dividends
Dividend dates for 2020 are shown in the financial
calendar on page 259. 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,
258
AstraZeneca Annual Report & Form 20-F Information 2019 / Additional Information
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 American Stock Transfer & Trust Co
(the ADR transfer agent). 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 5267,
102 46 Stockholm, 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.
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.
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
page 258.
Related party transactions
During the period 1 January 2020 to
31 January 2020, 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 226).
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.
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 188.
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
Financial calendar
Event
Second interim
dividend for 2019
Ex-dividend date
Record date
Payment date
Announcement of
first quarter results
for 2020
Annual general
meeting (AGM)
Provisional date
27 February 2020
28 February 2020
30 March 2020
29 April 2020
29 April 2020
Announcement of
second quarter and half-year
results for 2020
30 July 2020
First interim
dividend for 2020
Ex-dividend date
Record date
Payment date
Announcement of
third quarter results
for 2020
13 August 2020
14 August 2020
14 September 2020
5 November 2020
Financial year end
31 December 2020
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.
(cid:38)on(cid:432)icts of interest
The Articles enable the Directors to authorise
any situation in which a Director has an
interest that conflicts or has the potential to
conflict with the Company’s interests and
which would otherwise be a breach of the
Director’s duty, under Section 175 of the
Companies Act 2006. The Board has a formal
system in place for Directors to declare such
situations to be considered for authorisation
by those Directors who have no interest in the
matter being considered.
In deciding whether to authorise a situation,
the non-conflicted Directors must act in the
way they consider, in good faith, would be
most likely to promote the success of the
Company, and they may impose limits or
conditions when giving the authorisation, or
subsequently, if they think this is appropriate.
Situations considered by the Board and
authorisations given are recorded in the Board
minutes and in a register of conflicts
maintained by the Company Secretary and
are reviewed annually by the Board. The
Board believes that this system operates
effectively.
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259
Shareholder Information
continued
Issued share capital, shareholdings and share prices
At 31 December 2019, the Company had 77,752 registered holders of 1,312,137,976 Ordinary Shares. There were 111,333 holders of Ordinary
Shares held under the Euroclear Services Agreement, representing 10.5% of the issued share capital of the Company and 1,786 registered
holders of ADSs, representing 19.4% 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
2019
2018
2017
2016
2015
1,312
1,301
7808.0
5325.0
7607.0
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
2019
%
0.4
0.5
0.5
0.7
0.2
1.0
11.2
85.5
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
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)
7808.0
7560.0
7580.0
7533.0
7412.0
7180.0
7808.0
7533.0
6486.0
6525.0
6317.0
6107.0
5478.0
5204.0
7217.0
7248.0
6729.0
6793.0
7076.0
6324.0
6729.0
6324.0
5644.0
5325.0
5546.0
5182.0
4867.0
4712.5
956.2
948.3
947.3
900.7
885.0
844.9
956.2
900.7
788.6
800.9
754.8
721.8
648.4
587.3
902.3
903.7
842.5
825.0
831.2
754.3
842.5
754.3
709.3
643.3
661.8
608.2
584.3
531.7
50.46
48.77
49.03
45.47
45.42
44.39
50.46
45.47
41.68
43.02
41.49
39.72
37.05
36.63
47.62
46.80
42.46
42.51
43.56
40.12
42.46
40.12
37.28
35.49
36.86
34.76
34.55
32.97
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.
Reported high and low share prices during the year
2019
2018
– December
– November
– October
– September
– August
– July
– Quarter 4
– Quarter 3
– Quarter 2
– Quarter 1
– Quarter 4
– Quarter 3
– Quarter 2
– Quarter 1
1 (cid:41)or shares listed on the (cid:47)ondon Stock Exchange, the reported high and low middle market closing (cid:84)uotations are derived from the Dail(cid:92) O(cid:433)cial (cid:47)ist.
2 (cid:41)or shares listed on Nasda(cid:84) Stockholm, the high and low closing sales prices are as stated in the O(cid:433)cial (cid:47)ist.
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 2020, the proportion of Ordinary Shares represented by ADSs was 19.4% of the issued share capital of the Company.
At 31 January 2020, there were 77,575 registered holders of Ordinary Shares, of which 632 were based in the US and there were 1,787 record
holders of ADRs, of which 1,765 were based in the US.
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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 holding Ordinary Shares or
ADRs as part of a hedge or integrated
transaction, dealers or traders in securities that
use a mark-to-market method of tax
accounting, 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.
This summary is based in part on
representations of the 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.
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 2019. 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.
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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)
2019
2018
2017
End of year spot rates
(statement of financial position)
2019
2018
2017
9.3980
1.2678
8.6419
8.5835
1.3405
1.2835
9.3550
8.9537
8.2467
1.3133
1.2743
1.3468
Shareholder Information
continued
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.
Exchange controls and other limitations
a(cid:428)ecting security ho(cid:79)ders
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.
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Directors’ Report
The Directors’ Report includes information
required to be given in accordance with the
Companies Act 2006. Relevant information as
set out below, which is contained elsewhere in
the Annual Report, as incorporated by cross
reference herein.
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 227.
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).
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.
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
54) and the Directors’ Report. Information on
patent expiry dates for key marketed products
is included in Patent Expiries of Key Marketed
Products from page 243. 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 78. In addition, Note 27 to the
Financial Statements from page 210 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 195.
Having assessed the principal risks and other
matters considered in connection with the
viability statement on page 75, the Board
considers it appropriate to adopt the going
concern basis of accounting in preparing the
Annual Report and Financial Statements.
Shares
For more information, see Issued share capital,
shareholdings and share prices on page 260.
A shareholders’ resolution was passed at the
2019 AGM authorising the Company to
purchase its own shares. The Company did
not purchase any of its own shares in 2019.
On 31 December 2019, the Company did not
hold any shares in treasury.
Rights, preferences and restrictions
attaching to shares
As at 31 December 2019, the Company had
1,312,137,976 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 8am WM/Reuters USD/GBP
exchange rate on 31 December 2019).
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.
Changes in share capital
In 2019, the Company completed a placing of
44,386,214 new Ordinary Shares of $0.25
each in the Company (having an aggregate
nominal value of $11,096,554) with both
existing and new institutional investors at a
price of £60.50 per share. The placing raised
gross proceeds of approximately £2.69 billion.
The terms of the issue were agreed on 29
March 2019 and the placing price of £60.50
per share represented a discount of 1.5% to
the middle market price on 29 March 2019.
The shares were issued and admitted for
trading on the main market of the London
Stock Exchange on 2 April 2019. The net
proceeds of the placing were used (i) to fund
upfront and near-term payments in respect of
the Company’s global development and
commercialisation collaboration agreement
with Daiichi Sankyo for Enhertu (DS-8201); (ii)
for the repayment of the Company’s $1 billion,
1.95% notes due on 18 September 2019; and
(iii) for general corporate purposes, to improve
the Company’s overall balance sheet strength
and liquidity. At the date of allotment and
issue, the placing shares issued represented
approximately 3.5% of the issued Ordinary
Share capital of the Company. Over the three
years preceding the issue, there was a 3.7%
increase in share capital due to the non-pre-
emptive issue of shares for cash by the
Company.
Changes in the Company’s Ordinary Share
capital during 2019, including details of the
allotment of new shares under the Company’s
share plans, are given in Note 24 to the
Financial Statements on page 209.
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263
Directors’ Report
continued
Major shareholdings
At 31 December 2019, 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.
Wellington Management Group LLP2
Wellington Management Company LLP2
Number of
Ordinary Shares
Date of
disclosure to
Company1
Number of Ordinary
Shares disclosed as a
percentage of issued
share capital at
31 December 2019
100,885,181
4 December 2009
51,587,810
63,802,495
77,260,227
77,153,697
3 April 2019
17 July 2018
3 October 2019
3 October 2019
7.69
3.93
4.86
5.89
5.88
1
2
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 (cid:24).1.2 or (cid:24).1.(cid:24) of the U(cid:46) (cid:47)isting Authorit(cid:92)(cid:350)s Disclosure Guidance and (cid:55)ransparenc(cid:92) Rules.
(cid:55)he Compan(cid:92) was notified at the time of the disclosure that (cid:58)ellington Management Compan(cid:92) (cid:47)(cid:47)P was a subsidiar(cid:92) of (cid:58)ellington Management Group (cid:47)(cid:47)P and that the shareholding
percentage notified b(cid:92) (cid:58)ellington Management Compan(cid:92) (cid:47)(cid:47)P was included within the aggregate shareholding percentage notified b(cid:92) (cid:58)ellington Management Group (cid:47)(cid:47)P.
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 2019 and 31 January 2020.
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.
Wellington Management Group LLP
Wellington Management Company LLP
31 January
2020
31 January
2019
31 January
2018
31 January
2017
7.69
3.93
4.86
5.89
5.88
7.96
4.07
5.04
–
–
7.97
4.07
4.98
–
–
7.97
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.
Directors’ and officers’ shareholdings
At 31 January 2020, 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
567,149
0.04
Options to purchase securities from
registrant or subsidiaries
(a) At 31 January 2020, options outstanding to
subscribe for Ordinary Shares were:
Number of shares
1,319,968
Subscription
price (pence)
Normal
expiry date
2881-5833
2020-2025
The weighted average subscription price of
options outstanding at 31 January 2020 was
4330 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) During 2019, no options were held by
Directors.
During the period 1 January 2020 to
31 January 2020, no Director was granted or
exercised any options.
Distributions to shareholders – dividends
for 2019
Details of our distribution policy are set out in
the Financial Review from page 78 and Notes
24 and 25 to the Financial Statements from
page 209.
The Company’s dividend for 2019 of $2.80
(218.3 pence, SEK 26.81) per Ordinary Share
amounts to, in aggregate, a total dividend
payment to shareholders of $3,583 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.
For more information, see Financial calendar on page 259.
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.
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.
Objects
The Company’s objects are unrestricted.
For more information on the Directors, see Board of
Directors on pages 98 and 99.
264
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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.
Gender Diversity
Men
Women
Total
Men
Women
Total
Directors of the
Company’s subsidiaries*
191 (60%)
126 (40%)
317
Senior Executive Team*
8 (67%)
4 (33%)
12
All numbers as at 31 December 2019.
(cid:13) (cid:41)or the purposes of section (cid:23)1(cid:23)C(8)(c)(ii) of the Companies
Act 2006, (cid:349)Senior Managers(cid:350) are the Senior Executive (cid:55)eam
(SE(cid:55)), the directors of all of the subsidiaries of the Compan(cid:92)
and other individuals holding named positions within those
subsidiaries.
Stakeholder engagement
The discussion on stakeholder engagement
and the impact of these interactions is
contained in Connecting with stakeholders
from page 104 and throughout the Strategic
Report. This includes engagement with our
employees, suppliers, and other stakeholders,
as well as the impact of our operations on the
community and environment.
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 2020 AGM, similar to that
passed at the 2019 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 2019, the Group’s US legal
entities made contributions amounting in
aggregate to $1,120,525 (2018: $1,156,800) 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.
Information on how we encourage employee
involvement in the Company’s performance is
set out in A culture of high performance on
page 45. Details of some of the employee
share plans are described in the Directors’
Remuneration Report from page 125, and in
Note 28 to the Financial Statements from
page 217.
(cid:54)ignificant agree(cid:80)ents
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.
Political donations
Neither the Company nor its subsidiaries
made any EU political donations or incurred
any EU political expenditure in 2019 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
(cid:56)se of financia(cid:79) instru(cid:80)ents
The Notes to the Financial Statements,
including Note 27 from page 210, include
further information on our use of financial
instruments.
Insurance and indemnities
The Company maintained Directors’ and
Officers’ Liability Insurance cover throughout
2019. 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.
Compliance requirements under Listing
Rule 9.8.4
The only matters to report are the non-pre-
emptive issue of shares for cash on page 263
and the shareholder waiver of dividends on
page 264.
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
> Risk Overview
> Financial Review: Financial risk
management
> Corporate Governance: including the
Corporate Governance Overview,
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 2020
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265
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
> Bioethics, including Clinical trials,
Patient safety, Research use of human
biological samples and Animal research,
pages 28 and 29
> Emerging market healthcare, page 35
> Responsible sales and marketing, page 35
> Anti-bribery and anti-corruption, page 35
> Transparency reporting, page 35
> Responsible supply chain, page 37
> Environmental protection, including
Greenhouse gas emissions reduction,
Energy use, Waste management, Water
stewardship, Product environmental
stewardship and Pharmaceuticals in the
environment, pages 38 and 39
> Human rights, page 47
> Managing change, page 47
> Employee relations, page 47
> Safety, health and wellbeing, page 47
> Access to healthcare, including Healthy
Lung, Healthy Heart, Young Health
Programme and Responsible R&D, pages
49 and 50
> Community investment, including
Product donation programmes and
Health and the environment, page 50
> Sustainability, including Governance,
Benchmarking and assurance, Our
approach and Our Sustainability
strategy, pages 51 and 52
> Greenhouse gas (GHG) reporting,
page 266
BV Used throughout this Annual Report
to denote the sustainability information
listed above, which has been
independently assured by
Bureau Veritas.
Based on the evidence provided and subject
to the scope, objectives and limitations
defined in the fu(cid:79)(cid:79) assurance state(cid:80)ent(cid:15)
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 BV
We have reported on all of the emission
sources required under the Large and
Medium-sized Companies and Groups
(Accounts and Reports) Regulations 2008
(SI 2008/410). 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 2019 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 2019 to 31 December 20191
Emissions from:
Scope 1: Combustion of fuel and operation of facilities2,5
Scope 2 (Market-based): Electricity (net of market instruments),
heat, steam and cooling purchased for own use3,5
Scope 2 (Location-based): Electricity, heat, steam and cooling
purchased for own use3,5
Tonnes CO2e
2019
2018
2017
285,798
301,896
295,677
133,971
144,863
170,851
213,718
230,697
248,263
Company’s chosen intensity measurement: Scope 1 + Scope 2 (Market-
based) emissions reported above normalised to million US dollar revenue
17.2
20.2
20.8
2016-2025 Strategy ‘Operational Footprint’ KPI: Scope 1 + Scope 2
(Market-based) + our Operational Footprint Scope 3 sources.
Baseline year is 2015
1,974,949 1,852,104 1,768,071
Scope 3 Total: Emissions from all 15 Greenhouse Gas Protocol Scope 3
Categories
7,234,606 6,273,907 5,855,309
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)
Total energy consumption4, 5
297
284
261
MegaWatt hours (MWh)
1,749,404 1,863,931 1,757,895
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.
2 Included in this section are GHGs from direct fuel combustion, process and engineering emissions at our sites and from fuel
use in our vehicle (cid:432)eet.
3 GHGs from imported electricity are calculated using the GHG Protocol Scope 2 Guidance (January 2015) requiring 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.
4 The aggregate of: (i) the annual quantity of energy consumed from activities for which the Company is responsible, including
the combustion of fuel or the operation of any facility; and (ii) the annual quantity of energy consumed resulting from the
purchase of electricity, heat, steam or cooling by the Company for its own use.
5 Under the new Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report)
Regulations 2018, the Compan(cid:92) needs to disclose what proportion of this figure relates to energ(cid:92) use in the U(cid:46) and offshore
area. (cid:41)or 2019, the proportion of total global energ(cid:92) and emissions originating from AstraZeneca(cid:10)s U(cid:46) and offshore area
footprint were as follows: energy use 24%; Scope 1 emissions 23%; Scope 2 emissions using Market-based accounting 0%;
Scope 2 emissions using Location-based accounting 10%.
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AstraZeneca Annual Report & Form 20-F Information 2019 / Additional Information
Trade Marks
AstraZeneca, the AstraZeneca logotype, and the AstraZeneca symbol are all trade marks of the Group.
The following medicine names which appear in italics in this Annual Report are trade marks of the Group:
Trade mark
Acimax 1
Antra 1
Arimidex
Atacand 2
Atacand HCT
Atacand Plus 2
BCise
Bevespi Aerosphere
Breztri
Breztri Aerosphere
Brilinta
Brilique
Bydureon
Byetta
Calquence
Casodex
Citanest3
Cosudex
Crestor
Daliresp
Daxas
Duzallo
Farxiga
Fasenra
Fasenra Pen
Faslodex
Fluenz
FluMist
Forxiga
Genuair
Imfinzi
Iressa
Kombiglyze
Komboglyze
Losec1
Lokelma
Lynparza
Mepral 1
Mopral 1
Movantik
Moventig
Nexium
Omepral 1
Onglyza
Plendil
Pressair
Prilosec
Provisacor
Pulmicort
Pulmicort Flexhaler
Pulmicort Respules
Pulmicort Turbuhaler
Qtern
Qternmet
Qtrilmet
Respules
Seloken
Seroquel 4
Seroquel XR 4
Symbicort
Symbicort SMART
Symbicort Turbuhaler
Symlin
Tagrisso
Toprol-XL
Turbuhaler
Vimovo5
Xigduo
Zavicefta 6
Zoladex
Zoltum1
Zomig 7
Zurampic
1 AstraZeneca divested the global rights (excluding China, Japan, US and Mexico) for these trade marks to Cheplapharm effective 30 September 2019.
2 AstraZeneca divested these trade marks in Europe to Cheplapharm effective 28 September 2018.
3 AstraZeneca divested the global rights (excluding the US) for this trade mark to Aspen group effective 1 November 2017.
4 AstraZeneca divested these trade marks in Europe and Russia to Cheplapharm effective 13 December 2019.
5 AstraZeneca divested the global rights (excluding the US and Japan) for this trade mark to Grünenthal, effective 3 December 2018.
6 AstraZeneca assigned this trade mark to Pfizer Inc. effective 23 December 2016.
7
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 medicine 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
Enhertu
Epanova
Linzess
Lumoxiti
Tudorza
Licensor or Owner
Pieris AG
Almirall, S.A.
Almirall, S.A.
Daiichi Sankyo Company, Limited
Chrysalis Pharma AG
Ironwood
Innate Pharma
Almirall, S.A.
The following medicine names which appear in italics throughout this Annual Report are not owned by or licensed to the Group and are owned by
the entities set out below:
Trade mark
Avastin
Imbruvica
Keytruda
messenger RNA Therapeutics
Owner
Genentech, Inc.
Depending on geography, the trade mark is owned by Pharmacyclics, Inc., Johnson & Johnson or Janssen Pharmaceutica NV
MSD
Moderna
Synagis
Depending on geography, the trade mark is owned by Sobi or AbbVie
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(cid:42)(cid:79)ossary
(cid:48)ar(cid:78)et 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 2019 data are 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 2019 of less
than $1 million.
Established Markets means US, Europe and Established ROW.
North America means US.
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.
(cid:56)(cid:54) e(cid:84)uiva(cid:79)ents
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
268
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The following abbreviations and expressions have the following
meanings when used in this Annual Report:
AACR – The American Association for Cancer Research
AbbVie – AbbVie Inc.
ACA (Affordable Care Act) – the US Patient Protection and Affordable
Care Act which was signed into law on 23 March 2010 as amended by
the Health Care and Education Reconciliation Act which was signed
into law on 30 March 2010.
Acerta Pharma – Acerta Pharma B.V.
ACS – acute coronary syndromes.
Actavis – Actavis plc.
ADR – an American Depositary Receipt evidencing title to an ADS.
ADS – an American Depositary Share representing half an underlying
Ordinary Share.
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.
Annual Report – this Annual Report and Form 20-F Information 2019.
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 non-profit 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.
biologic(s) or biologic medicine(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 organisation 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.
Circassia – Circassia Pharmaceuticals plc.
CIS – Commonwealth of Independent States.
CKD – chronic kidney disease.
Code of Ethics – the Group’s Code of Ethics, see pages 35 and 112.
Company or Parent Company – AstraZeneca PLC (formerly Zeneca
Group PLC (Zeneca)).
COPD – chronic obstructive pulmonary diseases.
Covid-19 – The official WHO name for the disease caused by the 2019
novel coronavirus.
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.
CVOT – cardiovascular outcomes trial.
CVRM – Cardiovascular, Renal & Metabolism.
Daiichi Sankyo – Daiichi Sankyo, Inc. or a company within the Daiichi
Sankyo group of companies.
Definiens – Definiens AG.
Director – a director of the Company.
DJSI – Dow Jones Sustainability Index.
DOJ – the United States Department of Justice.
DTR – UK Disclosure Guidance and Transparency Rules.
earnings per share (EPS) – profit for the year after tax and non-
controlling interests, divided by the weighted average number of
Ordinary Shares in issue during the year.
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 Portfolio Committee.
ESRD – end-stage renal disease.
EVP – Executive Vice-President.
EU – the European Union.
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 – the UK Financial Reporting Council.
Fuji Kirin Biologics – Fujifilm Kyowa Kirin Biologics Co., Ltd, a
subsidiary of Kyowa Hakko Kirin Co., Ltd. and FUJIFILM Corporation.
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GAAP – Generally Accepted Accounting Principles.
GDPR – General Data Protection Regulation.
GQCE – Generics Quality Consistency Evaluation.
Gilead – Gilead Sciences, Inc.
GMD – Global Medicines Development.
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(cid:21)(cid:25)(cid:28)
(cid:42)(cid:79)ossary
continued
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.
MSD – Merck & Co., Inc., which is known as Merck in the US and
Canada and MSD in other territories.
Nasdaq Stockholm – previously the Stockholm Stock Exchange.
Group – AstraZeneca PLC and its subsidiaries.
NCD – non-communicable disease.
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.
IFPMA – International Federation of Pharmaceutical Manufacturers
and Associations.
IFRS – International Financial Reporting Standards or International
Financial Reporting Standard, as the context requires.
IMED – Innovative Medicines and Early Development.
Innate Pharma – Innate Pharma S.A.
IO – immuno-oncology.
IP – intellectual property.
NDA – a new drug application to the FDA for approval to market a new
medicine in the US.
New Medicines – Tagrisso, Imfinzi, Lynparza, Calquence, Farxiga,
Brilinta, Lokelma, Fasenra, Bevespi and Breztri.
New CVRM – New CVRM sales platfrom includes Brilinta, Onglyza
franchise (Onglyza and Kombiglyze), Farxiga franchise (Farxiga and
Xigduo), exentaide total (Byetta and Bydureon), Symlin, Qtern,
roxadustat and Lokelma.
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.
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.
OIC – opioid-induced constipation.
OMICs – refers to a field of study in biology ending in '-omics', such as
genomics, proteomics or metabolomics.
IQVIA – IQVIA Solutions HQ Limited. For more information, see page 272.
Omthera – Omthera Pharmaceuticals, Inc.
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.
operating profit – sales, less cost of sales, less operating costs, plus
operating income.
Ordinary Share – an ordinary share of $0.25 each in the share capital
of the Company.
Orphan Drug – a drug which has been approved for use in a relatively
low-incidence indication (an orphan indication) and has been rewarded
with a period of market exclusivity; the period of exclusivity and the
available orphan indications vary between markets.
Kyowa Kirin – Kyowa Kirin International plc, a subsidiary of Kyowa
Hakko Kirin Co., Ltd.
OS – overall survival.
OTC – over-the-counter.
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 Portfolio 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, Europe, Japan (JP) and China (CN).
MCL – mantle cell lymphoma.
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.
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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.
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.
ProTACs – a proteolysis targeting chimera, which is a
heterobifunctional small molecule composed of two active domains
and a linker capable of removing specific unwanted proteins.
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 41.
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.
SABA – short-acting beta2-agonist.
Samsung Biologics – Samsung Biologics Co., Ltd.
sales platforms – previously referred to as Growth Platforms,
consisting of Emerging Markets, Respiratory, New CVRM, Japan and
Oncology.
Sanofi – SANOFI S.A./Sanofi Pasteur, Inc.
Sarbanes-Oxley Act – the US Sarbanes-Oxley Act of 2002.
SDRT – UK stamp duty reserve tax.
SEC – the US Securities and Exchange Commission, the governmental
agency that regulates the US securities industry and stock markets.
Seroquel – Seroquel IR and Seroquel XR.
SET – Senior Executive Team.
SG&A costs – selling, general and administrative costs.
SGLT2 – sodium-glucose cotransporter 2.
SHE – Safety, Health and Environment.
Shionogi – Shionogi & Co. Ltd.
Shire – Shire plc.
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 Collaboration Revenue.
TSR – total shareholder return, being the total return on a share over a
period of time, including dividends reinvested.
UK – United Kingdom of Great Britain and Northern Ireland.
UK Corporate Governance Code – the UK Corporate Governance
Code published by the FRC in July 2018 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.
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(cid:44)(cid:80)(cid:83)ortant infor(cid:80)ation for
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(cid:38)autionary state(cid:80)ent regarding for(cid:90)ard-
(cid:79)oo(cid:78)ing state(cid:80)ents
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
246 of this Annual Report. Nothing in this
Annual Report should be construed as a profit
forecast.
(cid:44)nc(cid:79)usion of (cid:53)e(cid:83)orted (cid:83)erfor(cid:80)ance(cid:15)
(cid:38)ore financia(cid:79) (cid:80)easures and constant
e(cid:91)change rate gro(cid:90)th 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.
(cid:54)tate(cid:80)ents of co(cid:80)(cid:83)etitive (cid:83)osition(cid:15)
gro(cid:90)th rates and sa(cid:79)es
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 2019 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 2019; such data are 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 51 countries contained in the IQVIA
database, which amounted to approximately
94% (in value) of the countries audited by
IQVIA. Changes in data subscriptions,
exchange rates and subscription coverage, as
well as restated IQVIA data, have led to the
restatement of total market values for prior
years.
(cid:36)stra(cid:61)eneca (cid:90)ebsites
Information on or accessible through our
websites, including www.astrazeneca.com,
www.astrazenecaclinicaltrials.com and www.
medimmune.com and on any websites
referenced in this Annual Report, does not
form part of and is not incorporated into this
Annual Report.
(cid:40)(cid:91)terna(cid:79)(cid:18)third-(cid:83)arty (cid:90)ebsites
Information on or accessible through any
third-party or external website does not form
part of and is not incorporated into this Annual
Report.
(cid:41)igures
Figures in parentheses in tables and in the
Financial Statements are used to represent
negative numbers.
272
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This Annual Report is printed on Heaven
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AstraZeneca Annual Report & Form 20-F Information 2018 / [Section]
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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,
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AstraZeneca Annual Report & Form 20-F Information 2018 / Additional Information