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What science can do

AstraZeneca Annual Report and Form 20-F Information 2016

Welcome to the AstraZeneca
Annual Report and Form 20-F Information 2016.

Learn about our main therapy areas:

We are a global, science-led
biopharmaceutical business and
in this Annual Report we report on
the progress we made in 2016 in
pushing the boundaries of science Our ambition is to eliminate cancer as a
to deliver life-changing medicines. and collaborations.

See page 25

What science can do.

Cardiovascular & Metabolic Disease

We address multiple risk factors to reduce
cardiovascular morbidity, mortality and
organ damage.

See page 30
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See page 35

Important information for readers > &KLHI([HFXWLYH2FHUV5HYLHZ Front cover

of this Annual Report > Therapy Area Review Treatment for hyperkalaemia
For more information in relation to the inclusion of reported > Business Review Current treatments for hyperkalaemia, a potentially
life-threatening condition associated with chronic kidney
exchange rate (CER) growth rates as used in this Annual > Financial Review: Financial risk management
Report, please see the Financial Review on page 64. > Corporate Governance: including the Audit Committee disease and chronic heart failure, are poorly tolerated by
Report and Corporate Governance Report patients. AstraZeneca is developing a treatment which traps
7KH*ORVVDU\DQGWKH0DUNHWGHQLWLRQVWDEOHIURPSDJH > Directors Responsibility Statement potassium in the gut and removes it from the body.
239 are intended to provide a useful guide to terms and > Development Pipeline
$VWUD=HQHFDVGHQLWLRQVRIPDUNHWVDVZHOODVWR > Sustainability: supplementary information
acronyms and abbreviations, used in this Annual Report. > Shareholder Information
> Corporate Information
Use of terms
In this Annual Report, unless the context otherwise Strategic Report
requires, AstraZeneca, the Group, we, us and our refer The following sections make up the Strategic Report, which
to AstraZeneca PLC and its consolidated entities. has been prepared in accordance with the requirements of
the Companies Act 2006:
Cautionary statement regarding > AstraZeneca at a glance
forward-looking statements > &KLHI([HFXWLYH2FHUV5HYLHZ
A cautionary statement regarding forward-looking > Strategy: including Risk overview
statements and other essential information relating to this > Therapy Area Review
Annual Report can be found on page 243. > Business Review
Directors Report > Resources Review
The following sections make up the Directors Report, > Financial Review
requirements of the Companies Act 2006:
Strategic Report
Financial highlights Contents
Strategic Report
Total Revenue* 1HWFDVKRZIURPRSHUDWLQJDFWLYLWLHV AstraZeneca at a glance 2
down 7% to $23,002 million at actual rate up 25% at actual rate of exchange &KLHI([HFXWLYH2FHUV5HYLHZ 4
of exchange (down 5% at CER) to $4,145 million Strategy 8
Therapy Area Review 23
2016 $23,002m 2016 $4,145m
Oncology 25
2015 $24,708m 2015 $3,324m
Cardiovascular & Metabolic Disease 30
2014 $26,547m 2014 $7,058m
Respiratory 35
Other Disease Areas 38
$23bn $4.1bn Business Review 42
Resources Review 54
Financial Review 62


Corporate Governance
up 19% at actual rate of exchange down 3% at actual rate of exchange Chairmans Statement 82
to $4,902 million (up 9% at CER) to $6,721 million (down 7% at CER) Corporate Governance Overview 84
Board of Directors 86
2016 $4,902m 2016 $6,721m
Senior Executive Team 88
2015 $4,114m 2015 $6,902m
Corporate Governance Report 90
2014 $2,137m 2014 $6,937m
Audit Committee Report 98
Directors Remuneration Report 103
$4.9bn $6.7bn

Reported EPS Core EPS

for the full year up 24% at actual rate of for the full year up 1% at actual rate of
exchange to $2.77 (up 9% at CER) exchange to $4.31 (down 5% at CER)
Financial Statements

Financial Statements
2016 $2.77 2016 $4.31
Auditors Reports (Group) 134
2015 $2.23 2015 $4.26
Consolidated Statements 138
2014 $0.98 2014 $4.28
Group Accounting Policies 142
Notes to the Group Financial
$2.77 $4.31 Statements 147
Group Subsidiaries and Holdings 193
Auditors Report (Company) 197
Company Statements 198
Company Accounting Policies 200
Financial Review from page 62 Notes to the Company Financial
Statements 201
* As detailed on page 142, Total Revenue consists Group Financial Record 203
of Product Sales and Externalisation Revenue.

Additional Information
Additional Information

For more information within For more information see Development Pipeline 204
this Annual Report Patent Expiries of Key Marketed
Products 211
Risk 214
Geographical Review 226
supplementary information 231
Shareholder Information 232
Corporate Information 237
Trade Marks 238
Glossary 239
Index 242

This Annual Report is also available on our website,

AstraZeneca Annual Report and Form 20-F Information 2016 1

Strategic Report

AstraZeneca at a glance

A global biopharmaceutical business delivering medicines to patients through

innovative science and excellence in development and commercialisation.

of science to deliver life-changing medicines:

 $FKLHYHVFLHQWLFOHDGHUVKLS 2 Return to growth 3 Be a great place to work

A science-led, innovation strategy 12 new molecular entities (NMEs) in Phase III/pivotal

Distinctive R&D capabilities: small molecule Phase II or under regulatory review 12
and biologic medicine, including immunotherapies
and protein engineering, as well as devices, 2016 12

biomarkers and translational science 2015 15

2014 13

Strategy and key performance indicators from page 16 2013 11

Broad R&D platform in three main therapy areas

Oncology Cardiovascular Respiratory
& Metabolic Disease

> Our ambition is to eliminate cancer > We push the boundaries of science to > We aim to transform the treatment of
DVDFDXVHRIGHDWKWKURXJKVFLHQWLF create life-changing medicines for respiratory disease with our growing
discovery and collaborations. We seek to patients that reduce morbidity, mortality portfolio of inhaled and biologic
achieve this by means of our combination- and organ damage by addressing PHGLFLQHVDORQJZLWKVFLHQWLFUHVHDUFK
focused pipeline that exploits the power multiple risk factors WDUJHWLQJGLVHDVHPRGLFDWLRQ

Portfolio of specialty and primary care products

Oncology Cardiovascular & Respiratory Other Disease
Metabolic Disease Areas

Product Sales
Product Sales
Product Sales
Product Sales
2015: $2,825m 2015: $9,489m 2015: $4,987m 2015: $6,340m
2014: $3,027m 2014: $9,802m 2014: $5,063m 2014: $8,203m

> Oncology sales represented 16% > CVMD sales represented 38% > Respiratory sales represented 22% > Other sales represented 24%
of Total Product Sales of Total Product Sales of Total Product Sales of Total Product Sales
> Lynparza (sales of $218 million) > Sales of Onglyza in the US > Pulmicort sales of $1,061 million, > Nexium sales of $2,032 million,
available in 31 countries by end 2016 declined 10% to $376 million, up 5% (8% at CER) down 19% (18% at CER) and
as we prioritised Farxiga Seroquel XR sales of $735 million,
> Iressa sales of $513 million, > Bevespi Aerosphere inhalation
down 28% (27% at CER) following
down 6% (5% at CER), as we > In the US, Crestor sales declined aerosol launched in the US in
loss of exclusivity
prioritised Tagrisso WRPLOOLRQUHHFWLQJ January 2017
entry of generic Crestor


2 AstraZeneca Annual Report and Form 20-F Information 2016

Strategic Report
Global commercial presence, with strength in Emerging Markets
US Europe Established Rest of World Emerging Markets

$7,365m $5,064m $3,096m $5,794m

Product Sales Product Sales Product Sales Product Sales
2015: $9,474m 2015: $5,323m 2015: $3,022m 2015: $5,822m
2014: $10,120m 2014: $6,638m 2014: $3,510m 2014: $5,827m

Commercial Highlights: Growth Platforms grew by 4% (5% at CER) in 2016

> Emerging Markets: Stable (growth of 6% at CER), supported by China, > Brilinta/Brilique sales grew by 36% (39% at CER)
up 4% (10% at CER) to $2,636 million
> Diabetes: Growth of 9% (11% at CER), as Farxiga/Forxiga became for Symbicort
our largest-selling Diabetes medicine
> New Oncology: Strong sales with Tagrisso delivering sales of $423 million
impact and a biennial price reduction

Return to growth from page 48

Our talented employees are committed to achieving our Purpose in a sustainable way and our
Values foster a strong AstraZeneca culture
Cambridge, UK (HQ)
59,700 Gothenburg, Sweden

California, US

of employees feel able
Boston, MA, US
Gothenburg, Sweden
to bring our Values to Osaka,
life in their daily work Gaithersburg, MD, US Japan
Be a great
place to
work from Gaithersburg, Maryland US
page 52 and
from page 54

Research centres

Our capital-allocation Distributions to shareholders $m

priorities strike a balance 2016 2015 2014
Dividends 3,561 3,486 3,521
between the interests of
Proceeds from issue of shares (47) (43) (279)
WKHEXVLQHVVRXUQDQFLDO Total 3,514 3,443 3,242
creditors and shareholders,
and support our progressive Dividend per Ordinary Share $
2016 2015 2014
dividend policy
Dividend per Ordinary Share 2.80 2.80 2.80

Dividend per Ordinary Share for 2016

$ Pence SEK Payment date
First interim dividend 0.90 68.7 7.81 12 September 2016
Second interim dividend 1.90 150.2 16.57 20 March 2017
Financial Review from page 62 Total 2.80 218.9 24.38

AstraZeneca Annual Report and Form 20-F Information 2016 3

Strategic Report


2017 should be
a turning point in our
journey as we bring new
medicines to patients
across the globe.

While challeenges sttill lie ahea

ad, a new AstraZeneca is year with $423 million in Product Sales in
its rst full year. In diabetes, Farxiga/Forxiga
emergiing and d its sha
ape iss the result of the strategy we is a global leader in the SGLT2 class of
announ nced in March 2013. It is an Astra aZeneca built diabetes treatments with a 35% volume
share. Product Sales of Brilinta/Brilique
on a pip
pelline-driveen trannsformation and a focus on reached $839 million and in many countries
three main n therapy areass. it is the leading medicine for patients
discharged with acute coronary syndrome.

While AstraZeneca benets from realising

the potential of the new medicines emerging
A transitional phase from our pipeline, we never forget that the
The rst phase in our journey ended in 2015 main beneciaries of our life-changing
and was focused on rebuilding our pipeline. medicines are patients. For instance, since
2016 was a crucial year in the second stage its launch at the end of 2014, we have
of our journey, as we manage a transitional treated nearly 5,000 cancer patients with
period of patent expiries, drive our Growth Lynparza and launched it in 31 countries
Platforms and roll out our new medicines. with seven ongoing reviews.

While now largely behind us, the impact of Investing for the future
the loss of exclusivity on some of our most As we look ahead to 2017 and beyond,
important medicines has been signicant continued investment in our pipeline keeps
and will continue in 2017. Between 2011 and us on track to return to sustainable growth
2016, Product Sales in Established Markets in line with our targets. Examples of how
of brands that have lost exclusivity, including we are investing for the future for the benet
Crestor, a statin, Nexium, a proton pump of patients appear throughout this Annual
inhibitor and Seroquel, an anti-psychotic, Report. However, none is more signicant
have reduced from $20 billion to $6 billion. than our investment in Cambridge, UK, as
Unfavourable currency movements account illustrated on page 7. Cambridge, along with
for $2 billion of this $14 billion reduction. This Gaithersburg, MD, US and Gothenburg in
decline represents a signicant headwind, Sweden, is one of our three strategic R&D
but we have made signicant progress centres and it also became our global
rebuilding our Company for the future and corporate headquarters in May 2016.
preparing for a new period of growth driven Our activities there demonstrate our focus
by our pipeline delivery. on science, collaborative way of working
and commitment to sustainability.
In parallel to managing our legacy brands
decline, we have launched a signicant $FKLHYHVFLHQWLFOHDGHUVKLS
number of new medicines and increased The panel to the right provides an overview
revenues from our recently launched of how we performed against each of our
medicines. For example, Tagrisso was only three strategic priorities in 2016. At the heart
launched in November 2015 and became of our plans to achieve scientic leadership
our biggest lung cancer medicine during the is our focus on three therapy areas.

4 AstraZeneca Annual Report and Form 20-F Information 2016

Strategic Report
2016 Strategic priorities overview Some of the most exciting science being
undertaken at the moment is in Oncology as
we explore the potential for novel therapies.
$FKLHYHVFLHQWLFOHDGHUVKLS As you can see, 2016 was a signicant year
> 11 approvals of NMEs or major LCM projects in major markets for our Oncology team: we had four regional
Oncology: Tagrisso lung cancer (EU, JP) and ctDNA blood test (US, JP) approvals, seven expedited reviews and
CVMD: Brilinta/Brilique post myocardial infarction (EU) and acute coronary seven regulatory submissions for our
syndromes and post myocardial infarction (JP); Qtern Type 2 diabetes (EU) medicines. Looking ahead, we have the
Respiratory: Bevespi Aerosphere (PT003) COPD (US) potential to deliver our third Oncology
Other: Zurampic gout (EU); Zavicefta serious infections (EU); Pandemic medicine in 2017 halfway to our 2020
> 7 Phase III NME investment decisions
> 14 NME or major LCM regulatory submissions in major markets: Faslodex Of course, pushing the boundaries of
breast cancer (US, EU, JP); Tagrisso lung cancer (CN); Tagrisso lung cancer science means we sometimes encounter
(AURA3 study for full approval) (US, EU); durvalumab bladder cancer (US); setbacks. Thus, in 2016, for example,
'85$7,21 H[HQDWLGHGDSDJOLR]LQ  (8 EHQUDOL]XPDEVHYHUHDVWKPD we voluntarily withdrew the marketing
(US, EU); lesinurad+allopurinol FDC gout (US); three further submissions authorisation application submitted to the
made await regulatory acceptance EMA for cediranib in advanced ovarian
> 10 accelerated reviews included cancer. However, there remain ongoing
Breakthrough Therapy Designation: durvalumab bladder cancer (US) studies to investigate cediranib as a
Orphan Drug Designation: acalabrutinib blood cancers (EU); selumetinib combination partner with Lynparza and
WK\URLGFDQFHU 86 LQHELOL]XPDE 0(', QHXURP\HOLWLVRSWLFD 86 other compounds. In addition, three of our
Fast Track Designation: Lynparza ovarian cancer (2nd line) (US), prostate Oncology trials failed to meet their primary
FDQFHU QGOLQH  86 0(',KRVSLWDOLVHGLQXHQ]D 86 $=' endpoints. Another development showed
$O]KHLPHUVGLVHDVH 86 our Values in action. In pushing the
Priority Review Designation: Tagrisso (CN); durvalumab bladder cancer (US) boundaries of science with clinical trials of
> 22 projects discontinued durvalumab for head and neck squamous
cell carcinoma, we observed bleeding
events. Following the precautionary
Return to growth principle, we put patients rst and placed
> 7% decrease in Total Revenue to $23,002 million at actual rate of exchange; a voluntary hold on the enrolment of new
comprising Product Sales of $21,319 million (down 10%) and Externalisation patients. This was followed by a partial
Revenue of $1,683 million (up 58%) clinical hold from the FDA. However, by
At CER, Total Revenue declined by 5% following the science, we provided a
> 4% increase in Growth Platforms revenue (5% at CER) contributing 63% comprehensive analysis about the events
of Total Revenue that had been observed and the FDAs
Emerging Markets: Stable (growth of 6% at CER) to $5,794 million, hold was subsequently lifted.
supported by China, up 4% (10% at CER) to $2,636 million
Diabetes: Growth of 9% (11% at CER), as Farxiga/Forxiga became our In 2016, our Cardiovascular & Metabolic
largest-selling Diabetes medicine Disease team saw three approvals, four
-DSDQ6DOHVXS GRZQDW&(5 WRPLOOLRQUHHFWLQJH[FKDQJH regulatory submissions and two Brilinta trials
rate impact and a biennial price reduction which failed to meet their primary endpoints.
Brilinta/Brilique sales grew by 36% (39% at CER) to $839 million We received a complete response letter
5HVSLUDWRU\$GHFOLQHRI DW&(5 WRPLOOLRQUHHFWLQJ86 from the FDA for ZS-9 for the treatment of
pricing pressure for Symbicort hyperkalaemia and subsequently made a
New Oncology: Strong sales of $664 million, with Tagrisso delivering sales resubmission. In diabetes, positive results
RIPLOOLRQLQLWVUVWIXOO\HDU from our DURATION-8 trials demonstrated
> US revenue was down 22% to $7,365 million; Europe down 5% to $5,064 million; the efcacy of Farxiga and Bydureon in
and Established ROW rose by 2% to $3,096 million (all at actual rate of exchange) combination for the treatment of Type 2
diabetes and should help us maximise
the value of our Diabetes portfolio.
Be a great place to work
the business approved in the US and launched in early
> Second in Pharmaceuticals, Biotechnology and Life Sciences industry group 2017. Our Respiratory team also made
of Dow Jones Sustainability Index three regulatory submissions, including
> Biggest riser in the Access to Medicine Index since the last survey, moving two in respect of benralizumab for treating
to 7th place in 2016 from 15th in 2014 severe, uncontrolled asthma. We believe
benralizumab, which would be our rst
Respiratory biologic, will become an

AstraZeneca Annual Report and Form 20-F Information 2016 5

Strategic Report


important medicine for patients with severe support our long-term growth: we believed Employee opinion surveys help us measure
asthma and potentially COPD, as well as an we had the potential for 12 to 16 Phase II satisfaction and engagement and how
important growth driver for our Company, starts in 2015 to 2016. In fact, we achieved we are doing in our aim to be a great place
broadening and deepening our offering in 25. Looking ahead, we believe we have the to work. Our most recent survey, carried
the Respiratory market. potential for an unprecedented number of out inDecember 2016, showed a decline
submissions in the next 24 months, with compared to our very high 2015 score,
Business development and collaboration around half in our Oncology therapy area. although results are in line with the global
are at the heart of the way AstraZeneca To ensure we can deliver this potential, pharma norm. This decline might not be
operates. It is particularly evident in our work in April we announced plans to sharpen unexpected given the challenges of the
in Other Disease Areas. For example, we further the prioritisation of investments strategic journey on which we are embarked
enter into collaborations to maximise the inourmain therapy areas, particularly and the restructuring we undertook in
potential of key products that fall outside Oncology. We also want to increase 2016 as we continued losing sales to
our main therapy areas and bring them to partnering in relation to projects in our patent expiries. Nevertheless, we are
patients quicker. Examples in 2016 include inammation, infection and neuroscience focused on improving performance in
our development and commercialisation disease areas. The 10 strategic transactions those areas employees tell us are important
agreements with LEO Pharma for we undertook in 2016 bear witness to the drivers ofemployee engagement. These
brodalumab for psoriasis and tralokinumab progress we have made in that regard. include people development and line
for dermatitis, and with Allergan for Wealso took action to align costs to our manager communication.
MEDI2070 for inammatory diseases. changing business shape and streamline
InAlzheimers disease, together with our our operations. One area in which we made signicant
partner Lilly, we obtained a Fast Track progress during 2016, and which the
Designation for the BACE inhibitor and have Return to growth Chairman reports on in more detail in
entered a second collaboration with them Our Return to growth is underpinned by hisStatement on page 82, was external
toco-develop MEDI1814. We are also ourGrowth Platforms, shown in the panel. recognition for our commitment to
partnering some of our in-line products As our strategy has progressed, so our sustainability whether that be in the
that we believe still have growth potential Growth Platforms have evolved New DowJones Sustainability Index or Access
but which cannot receive promotional Oncology (new products) was added and, to Medicine Index, or in the recognition
support as we focus our resources on from January 2017, New CVMD combined of ourscience-based environmental
our main therapy areas. An example is the our Diabetes and Brilinta/Brilique Platforms. targets. During the year, the Executive
agreement we reached with China Medical As the treatment of diabetes becomes more team also reviewed and refreshed our
System Holdings for the promotion of focused on cardiovascular risk reduction sustainability strategy.
Plendil in China: our partner will manage based on recent data, we believe there are
the commercialisation and both companies clear synergies managing diabetes and Looking ahead
will share the benets. Finally, we have been Brilinta/Brilique together. Our nancial results for 2016 were in
divesting smaller non-core products that will line with expectations and reected our
be better managed by companies that can The panel shows how our Growth ongoing transition. We brought a sharper
focus on them. The value unlocked through Platforms performed in 2016. Despite strategic focus to our three main therapy
these deals is reinvested in our pipeline, increasing competition, pricing pressures areas, boosting pipeline productivity
creating more long-term value through and geopolitical instability, they grew by further. Our underlying business is growing
ourmain therapy areas. 4% at actual exchange rates (5% atCER) as the new AstraZeneca emerges,
and now represent 63% of all revenues. driven by competitive franchises and
Prioritised and accelerated pipeline Emerging Markets are particularly important Emerging Markets.
Since we announced our science-led in achieving our goals. This importance
strategy in 2013, we set ourselves some was recognised towards the end of the year 2017 should be a turning point in our journey
ambitious pipeline targets for the end of with the appointment of Leon Wang, our as we bring new medicines to patients
2016. For example, we aimed for nine to 10 Country President in China, as Executive across the globe. It is an exciting time as
new molecular entities (NMEs) in Phase III Vice-President of Asia Pacic and a we approach the inection point for our
orregistration: by the end of 2016, there member of the Senior Executive Team. anticipated return to long-term growth, built
were 12 such projects. We also set on the foundations of a science-led pipeline.
ourselves the target of eight to 10 new Be a great place to work
medicines and major line extension None of the progress we are making in
regulatory approvals in 2015 to 2016 and achieving our strategic objectives would
achieved a total of eight. This is a signicant bepossible without our people; we want to
improvement compared to our historical ensure AstraZeneca is a great place to work
pipeline performance. and I am very grateful to each and every
employee for all their efforts throughout Pascal Soriot
We also made substantial progress in theyear. Chief Executive Ofcer
reshaping our research and early
development efforts to help us to produce
a steady stream of new products that will

6 AstraZeneca Annual Report and Form 20-F Information 2016

Strategic Report
Being committed to protecting
the environment, we are:
> working towards a Building Research
Establishment excellent rating for
sustainability performance for our R&D
centre in addition to delivering a low
carbon emission facility
> building the largest ground source heat
pump system in Europe and a combined
heat and power station to meet on-site
energy needs.

To inspire the next generation

of scientists, we:
> have three schemes to support more
than 80 PhD scholarships and eight
clinical lectureships
> partner with the Cambridge Science
Investing for the future: Centre to ensure life science education
activities reach underserved communities
Led by science in Cambridge in the wider Cambridgeshire area
> have an active community support
As we navigate the transitional phase in our strategy, locating scheme, involving more than 160
our new R&D centre and corporate headquarters in Cambridge staff volunteers, focused around
demonstrates our strategy in practice a Company led by science science-based educational events
from our collaborative approach.

We announced our move to Cambridge > shaped the laboratory spaces at our
in 2013. In doing so, we join MedImmune R&D centre collaboratively, involving
who have been in the city for 25 years. We our scientists in the design and
begin the staged occupation of our new commissioning process, including an
state-of-the-art building (illustrated above on-site teaching lab for science outreach.
and right) in 2018 and already have some
2,000 staff actively engaged in Cambridges $VDVFLHQWLFSDUWQHUZHKDYH
scientic, academic, clinical and business > initiated over 130 collaborations with
life. They are realising the value of being Cambridge organisations, including
located at a world-leading academic and over 100 with the University of Cambridge
life science hub. > collaborated with Microsoft to develop
a new cancer treatment modelling system Key facts
As a global science-led business, > established the CRUK MedImmune
we have:
> provided new life science businesses
with access to more than 60 mentors
from across AstraZeneca, including
Alliance Laboratory to provide capabilities
to discover novel biologics and diagnostics
> established a world-class mass
spectroscopy capability with the
Over 130 collaborations
support for the University of Cambridge Laboratory of Molecular Biology in Cambridge
Judge Business Schools Accelerate and the University of Cambridge
programme > developed the AstraZeneca Medical
Research Council UK Centre for
Lead Discovery. 2,000
Around 2,000 employees
in Cambridge

Watch the video at

AstraZeneca Annual Report and Form 20-F Information 2016 7

Strategic Report Strategy

Business model and life-cycle of a medicine

AstraZeneca at a glance summarises our business. In this section, we review our

business model how we make money, the resources we need and how we add
value across the entire life-cycle of a medicine.

Why AstraZeneca?
We are an integrated, science-led biopharmaceutical Company with a strategic focus on three main therapy
> pipeline
> skills and capabilities
> quality of science
> commercial expertise
> intellectual property

What do we do?
Our business activities span the entire life-cycle Inves
of a medicine. ns nt i
t ur dis
of re co
t ve
en ry
m Resea ,d
st rch
How do we make money?




> Applying our resources to lop

meet unmet medical need m
Investment 1 e

Find potential

t, m
We invest in the discovery, development,


manufacturing and commercialisation of our

> Returns to shareholders

> Improved health Pre-clinical
pipeline of innovative small molecule and biologic


prescription medicines, including targeted business

5 ye

development through collaboration, in-licensing

ring and commercialisat


and acquisitions.
20+ years

9 3
exclusivity Our Phase I

Revenue generation Purpose

We generate revenue from sales of our mature

products and Growth Platform launches, as well as Post-launch 4


from our externalisation activities and divestments. research and Phase II

development studies

Our focus is on creating products that facilitate


future revenue generation. 7




Launch new


6 Phase III


e Regulatory


ph and pricing

Reinvestment nc


We reinvest in developing the next generation of m
innovative medicines and in our Growth Platforms ed
that provide the platform for future sustainable nes
revenues in the face of potential losses of revenue
from the loss of key product patents.

Our Purpose Our Values

We push the boundaries of science to deliver life-changing medicines. We follow the science.
Our Purpose underpins everything we do. It gives us a reason to come to work :HSXWSDWLHQWVUVW
to patients and create value for shareholders. We do the right thing.
We are entrepreneurial.

8 AstraZeneca Annual Report and Form 20-F Information 2016

Strategic Report
Life-cycle of a medicine

Research and development phases 1015 years

1 Find potential medicine 3 Phase I studies 5 Phase III studies

> Identify unmet medical need aligned with our > Begin clinical studies with small groups of > Engage in studies in a larger group of patients
research to identify potential new medicines or patients (biologics) to understand how the safety of the medicine and evaluate the overall
> Initiate process of seeking patent protection potential medicine is absorbed into the body, EHQHWULVNSUROH
distributed around it and excreted > Initiate branding for the new medicine in
2 Pre-clinical studies > Determine approximate dosage and identify preparation for its launch
> Conduct laboratory and animal studies to VLGHHHFWV
understand if the potential medicine is safe to 6 Regulatory submission and pricing
introduce into humans and in what quantities 4 Phase II studies > Seek regulatory approvals for
and maximum dose estimates JURXSVRISDWLHQWVWRWHVWHHFWLYHQHVVDQG the medicine
tolerability of the medicine and determine > Submit clinical data to regulatory authorities
optimal dose (and, if requested, generate further data
> Design Phase III studies to generate data needed increasingly in real-world settings) to
for regulatory approvals and pricing/ GHPRQVWUDWHWKHVDIHW\DQGHFDF\RIWKH
reimbursement globally medicine to enable them to decide on
whether to grant regulatory approvals

Launch phase 510 years Post-exclusivity 20+ years

7 Launch new medicine 8 Post-launch research and development 9 Post-exclusivity

! 5DLVHDZDUHQHVVRISDWLHQWEHQHWDQG > Conduct studies to further understand the > Patent expiry and generic entry
appropriate use, market and sell medicine EHQHWULVNSUROHRIWKHPHGLFLQHLQODUJHU > Reinvestment of returns
> Clinicians begin to prescribe medicines and and/or additional patient populations
SDWLHQWVEHJLQWREHQHW > Life-cycle management activities to broaden
> Continuously monitor, record and analyse understanding of a medicines full potential
UHSRUWHGVLGHHHFWV5HYLHZQHHGWRXSGDWH > Consider additional diseases or aspects
WKHVLGHHHFWZDUQLQJVWRHQVXUHWKDW of disease to be treated by or better ways
patients wellbeing is maintained of administering the medicine
! $VVHVVUHDOZRUOGHHFWLYHQHVVDQG > Submit data packages with requests for
opportunities to support patients and life-cycle management to regulatory authorities
from the medicine

medicine discovered and/or developed by AstraZeneca, or the probability of success or approval of any AstraZeneca medicine.

Our Values determine how we work We want to be valued and trusted by our stakeholders as a source of great
together and the behaviours that drive medicines over the long term. Our sustainability commitments, which are
our success. Our Values guide our driven by our Purpose and Values, underpin our business model and support
GHFLVLRQPDNLQJGHQHRXUEHOLHIVDQG the delivery of our business strategy.
foster a strong AstraZeneca culture.
Business Review from page 42

AstraZeneca Annual Report and Form 20-F Information 2016 9

Strategic Report Strategy

Business model and life-cycle of a medicine continued

What does our business model require to be successful?

A talented and diverse workforce

We need to acquire, retain and develop a
talented and diverse workforce united in
pursuit of our Purpose and Values and
59,700 employees
fostering a strong AstraZeneca culture. See Employees from page 54

A leadership position in science

How do we add value?
if we are to deliver life-changing medicines.
To that end, we need to focus on innovative
$5.9bn invested
in our science
science, prioritise and accelerate our
pipeline and transform our innovation 6
leadership from page 45 and Financial value
and culture model.
R&D resources on page 59 Revenue from the sale of our medicines
Commercialisation skills > fund our investment in science and Growth
We need a strong global commercial Platforms to drive long-term value
presence and skilled people to ensure that
we can successfully launch our medicines,
>100 countries > meet our debt service obligations
in which we are active > follow our progressive dividend policy.
that they are available when needed and
that patients have access to them. This involves balancing the interests
See Return to growth from
Intellectual property See Financial Review from page 62
We need to create and protect our IP rights.
Developing a new medicine requires
>100 countries where
we obtain patent protection
no guarantee of success. For our investments
to be viable, we seek to protect new medicines See Intellectual Property from
from being copied for a reasonable period of page 57
time through patent protection. Improved health
A robust supply chain to achieving sustainable healthcare which
We need a supply of high-quality medicines, creates value by:
whether from one of the 31 Operations sites
$13bn spent > improving health outcomes and
with suppliers transforming patients lives
the $13 billion we spend on the purchase of
> enabling healthcare systems to reduce
goods, services and active pharmaceutical
See Manufacturing from page FRVWVDQGLQFUHDVHHFLHQF\
ingredients (API).
58 and Working with suppliers
> improving access to healthcare and
from page 52
healthcare infrastructure

(HFWLYHSDUWQHUVKLSV > helping develop the communities in

which we operate through local
employment and partnering.
partnering, which is an important element
600 collaborations
See Partnering from page 23

Financial strength
$4.1bn net cash
life-cycle of a medicine. activities

See Financial Review from page 62

10 AstraZeneca Annual Report and Form 20-F Information 2016


Strategic Report
Despite global economic, political and soccial The global context
The October 2016 World Economic Outlook
challenges, the pharmaceutical industry is of the International Monetary Fund (IMF)
expected to enjoy long-term growth. This is highlighted the precarious nature of the
recovery eight years after the global nancial
due to favourable demographic trend ds and crisis. It raised the spectre that persistent
VLJQLFDQWXQPHWPHGLFDOQHHHG stagnation, particularly in advanced
economies, could further fuel populist calls
for restrictions on trade and immigration. The
IMF went on to observe that such restrictions
would hamper productivity, growth and
innovation. In China, a shift from investment
and industry towards consumption and
Overview services was expected to slow growth in
the short term while building the foundations
> Global pharmaceutical sales grew by 6.9% in 2016 for a more sustainable long-term expansion.
> The sector remains highly competitive Japans economy would be hampered by
> Patient populations are expanding and ageing a shrinking population.
> Non-communicable diseases (NCDs) kill 39 million people each year
> The costs of developing a new medicine continue to rise More generally, both political and economic
> Priority Reviews and Breakthrough Therapies are becoming more prevalent uncertainty followed the Brexit vote in the
quality medicines president of the US. Instability in a number
> Pricing and reimbursement continue to be challenging of other European countries has been
> Patents are expiring on some of the biggest-selling drugs ever produced exacerbated by refugees eeing civil war
> The sector faces challenges in building and maintaining trust and unrest in the Middle East and from

Against this uncertain background, however,

the demand for healthcare continues to
increase. While this is a favourable trend

2bn $154bn for long-term industry growth, challenges

remain. These include expiring patents,
competition from and growing use of
generic medicines, obtaining regulatory
By 2050, the worlds population Global investment in pharmaceutical approval, securing reimbursement for new
aged 60 years and older is expected R&D expected to reach an estimated medicines, improving R&D productivity
to total some 2 billion. $154 billion in 2016, an 11% increase and attaining pricing and sales sufcient
from $139 billion in 2012. to generate revenue and sustain the cycle
of innovation.

AstraZeneca Annual Report and Form 20-F Information 2016 11

Strategic Report Strategy

Marketplace continued

Global pharmaceutical sales Expanding patient populations Technological breakthroughs in the

The number of people accessing healthcare design and testing of novel compounds
World $bn is increasing, as is healthcare spending, present fresh opportunities for using small
particularly by the elderly. For example, molecules as the basis for new medicines.
2016 967
WHO estimates that, by 2050, the worlds The use of large molecules, or biologics,
2015 905
population aged 60 years and older is has also become an important source of
2014 826
expected to total some two billion, up innovation. Biologics are among the most
from 900 million in 2015 and that, by then, commercially successful new products.
$967bn (6.9%) 80% of all older people will live in low- By 2020, biologics, excluding vaccines, are
and middle-income countries. As the expected to account for 27% of the global
diagram on page 14 shows, we expect pharmaceutical market, having risen from
developing markets to continue to fuel 14% in 2006. As such, most pharmaceutical
US $bn pharmaceutical growth. companies now pursue R&D in both small
molecules and biologics.
2016 446
Unmet medical need
2015 416
The prevalence of NCDs, such as Priority Reviews and Breakthrough
2014 369
cancer and cardiovascular, metabolic Therapies are becoming more prevalent.
and respiratory diseases, is increasing Between the inception of the Breakthrough
$446bn (7.1%) worldwide. NCDs are often associated Therapy Designation programme in
with ageing populations and lifestyle October 2012 and the end of 2016, the
choices, including smoking, diet and lack FDA granted more than 150 such requests
of exercise. Many NCDs require long-term (out of more than 450 applications), and
Europe $bn management. WHO estimates that one-third of these have already resulted
NCDs kill 39 million people each year in product approvals.
2016 201
and disproportionately affect low- and
2015 190
middle-income countries where nearly The cost of developing new medicines
2014 179
three-quarters of these deaths occur. For continues to rise. Global R&D investment is
example, more than 60% of the worlds total expected to reach $154 billion in 2016. While
$201bn (5.6%) new annual cancer cases occur in Africa, the growth rate of R&D spend has slowed
Asia, and Central and South America. in recent years, pharmaceutical companies
These regions account for 70% of the continue to deliver new medicines. In
worlds cancer deaths. 2016, the FDA approved 22 novel drugs
Established ROW $bn compared with 45 in 2015 and 41 in 2014.
The pharmaceutical sector:
2016 120
opportunities and challenges To ensure sustainable returns on R&D
2015 115
As shown in the table on the left, global investment, the industry is working to
2014 110
pharmaceutical sales grew by 6.9% in 2016. increase its success rate in developing
Established Markets saw average revenue commercially viable new drugs while
$120bn (5.1%) growth of 6.4% and Emerging Markets achieving a lower, more exible cost base.
revenue grew at 9.1%. The US, Japan, Regulators and payers, however, are
China, Germany and France are the worlds demanding greater evidence of comparative
top ve pharmaceutical markets. In 2016, effectiveness of medicines. This increases
Emerging Markets $bn the US had 44.7% of global sales (2015: development times and costs.
46.0%; 2014: 44.7%).
2016 200
Fortunately, innovative technology is helping
2015 184
Science and technology accelerate product approvals. A greater
2014 168
Innovation is critical to addressing emphasis on Proof of Concept is also
unmet medical need. The delivery of new helping to improve productivity and reduce
$200bn (9.1%) medicines will rely on a more advanced costs by showing the potential efcacy of
understanding of disease and the use of drugs earlier in the development process.
new technology and approaches, including
Data based on world market sales using AstraZeneca market personalised healthcare (PHC) and
Source: IMS Health, IMS Midas Quantum Q3 2016 (including
predictive science.
US data). Reported values and growth are based at CER. Value
percentages are rounded to the nearest tenth.

12 AstraZeneca Annual Report and Form 20-F Information 2016

Strategic Report
Regulatory requirements the in-progress review of Chinas Drug Pricing of medicines
A highly regulated biopharmaceutical Administration Law and Drug Registration Pricing and reimbursement remain
industry reects the publics expectation of Regulation are likely to help address this challenging in many markets. We continue
safe, effective and high-quality medicines. issue over the next few years. to see examples where healthcare services
Meeting this expectation requires responsible (including pharmaceuticals) are highly
testing, manufacturing and marketing. It Greater transparency and public access regulated by governments, insurers and
also relies on maintaining effective working to regulatory submissions that support other private payers through various
relationships with health authorities approval of new medicines continue to controls on pricing and reimbursement.
worldwide, including the FDA in the US, the be an area of interest. A recent example Implementation of cost containment reforms
EMA in the EU, the PMDA in Japan, and the involves the EMA policy 0070 on publication and shifting market dynamics are further
CFDA in China. Increasingly, regulation and of clinical data for medicinal products for constraining healthcare providers, while
governmental policy are being introduced human use, which provides guidance for the difcult economic conditions burden patients
to stimulate innovation in drug development. publication of clinical reports that underpin who have out-of-pocket expenses relating to
In the US, for example, the 21st Century the EMAs decision making. Paediatric their medicines. Pharmaceutical companies
Cures Act, signed into law on 13 December development continues to present are now expending signicant resources to
2016, focuses on accelerating the discovery, challenges to the industry as differences demonstrate the economic as well as the
development and delivery of promising between study requirements and therapeutic value of their medicines.
new treatments for patients. Similarly, timeframes may vary signicantly among
the Prescription Drug User Fee Act health authorities. However, there have been In the US, the Affordable Care Act (ACA)
reauthorisation legislation that is required to efforts to provide incentives to stimulate has directly affected the healthcare system
be considered by the US Congress in 2017 paediatric research. An example is the by reshaping the market through various
is anticipated to contain proposals aimed at EMAs initiative offering free-of-charge policies and approaches designed to expand
accelerating innovation and modernising meetings focused on paediatric studies insurance coverage, reduce costs, transform
the US regulatory environment. Additionally, early in drug development. In addition, the the delivery system, and improve healthcare
the growing complexity and globalisation industry has appreciated the opportunity and patient coverage. We, along with other
of clinical studies have led to an increase afforded by the US paediatric rare disease pharmaceutical companies, have continued
in public-private consortia. Such consortia, voucher programme to encourage to work with policymakers and regulators to
which include industry, academia and paediatric drug development. International increase access, improve outcomes and to
government bodies, aim to drive innovation, harmonisation is being advanced in this support an environment that fosters medical
streamline regulatory processes, and dene area through the revision of the ICH E11 and scientic innovation and value.
and clarify approval requirements for paediatric guideline, which has facilitated
innovative drug and biologic products. discussion between regulators and the The new political leadership in the US has
industry on topics of mutual interest. proposed to repeal and replace the ACA
Regulatory health authorities continue and has taken initial steps to that end.
to implement programmes intended to Regulatory requirements for the registration While it is unclear if some or all of the ACA
address unmet medical need and to of biosimilar products continue to develop might be repealed or what the scope of
speed up patient access to transformative and become better dened, as exemplied replacement might entail if implemented,
medicines. This is demonstrated by the by the publication of a new pathway for it is possible that proposals could require
Breakthrough Therapy programme China and the approvals of more biosimilar the healthcare industry to offset the cost
employed by the FDA and the EMAs products in the US. However, signicant of replacement. This may include changes
initiative to implement adaptive pathways areas of regulatory policy are still evolving. to the pharmaceutical industry excise tax,
to improve timely patient access to new Among these are transparency of data Medicaid reform by, for example, granting
medicines. In Japan, the SAKIGAKE regarding level of evidence to support the states greater exibility in designing
Designation System has been introduced approval of claims for biosimilarity in and funding their Medicaid programmes,
to designate innovative medicines that labelling, standards for interchangeability including the choice of a block grant
hold the promise for a signicant advance and pharmaceutical substitution, and or per capita allotment of federal funds,
over currently available therapy. Once traceability of pharmacovigilance reports and/or repeal the marketplace exchanges
designated, the PMDA collaborates with through naming conventions that permit that were established under the ACA.
sponsors to accelerate the development differentiation of products. These changes, whether directly or
and approval of these promising indirectly targeted at drugs or the
unapproved medicines for serious and For more information about biosimilars, pharmaceutical industry, could impact
life-threatening diseases. The lengthy review please see Patent expiries and genericisation pharmaceutical coverage and patient
on page 15
process in China extends new medicine access to healthcare under insurance plans
approval periods to as long as ve years. and government programmes and could,
This challenges the ability of pharmaceutical accordingly, signicantly affect the
companies to deliver innovative medicines pharmaceutical industry.
and treat unmet medical need in China.
However, recent developments, including Further details on the impact of the ACA
on our business are contained in Return
to growth on page 48

AstraZeneca Annual Report and Form 20-F Information 2016 13

Strategic Report Strategy

Marketplace continued

Political leadership in the US has also Romania and Italy. In France, price
We expect developing continued to focus on drug pricing. negotiations are particularly challenging
Various drug pricing proposals have due to budgetary pressures. In Germany,
markets to continue to boost included measures relating to the repeal of Europes largest pharmaceutical market,
pharmaceutical growth. the Medicare Part D non-interference clause manufacturers must now prove the added
that currently prohibits the government benet of their drug over existing alternatives
from negotiating directly with manufacturers if they are to avoid relegation to an
on drug prices and US drug importation unfavourable price reference or face
policies. In addition, lawmakers and non-pricing barriers to market access.
policymakers at both the federal and
state level have developed drug pricing In China, pricing practices remain a priority
transparency proposals that include for regulators. New national regulations
measures relating to the submission and provincial and hospital tenders continue
of proprietary manufacturer data, to put increasing pricing pressures on
establishment of price parameters that pharmaceutical companies. In Russia and
are indexed to certain federal programmes, selected Middle East markets, governments
and reporting of changes in pricing beyond are encouraging local manufacturing by
certain thresholds. While the implementation offering more favourable pricing legislation.
timeline and details of such proposals are In Japan, mandated biennial cuts are likely
not clear, signicant changes to laws and to continue as are experimental decisions
regulations regarding drug pricing could by regulators based on cost effectiveness
have a signicant impact on the assessments. In Latin America, pricing is
pharmaceutical industry. increasingly controlled by governments as,
for example, in Colombia and Brazil with
In Europe, governments continue to price referencing regulations.
implement and expand price control

84.7% measures for medicines, including

mandatory discounts, clawbacks and
price referencing rules. These measures
are decreasing drug prices, particularly
For more information about price controls,
reductions and US healthcare reform, and price
regulation, please see the Business Review,
Return to growth from page 48 and Risk from
page 214
Generics constituted 84.7% in the challenged economies of Greece,
of prescriptions dispensed
in the US.

Estimated pharmaceutical sales and market growth 2020

North America EU Other Europe (Non-EU countries) Japan

$640bn $240bn $23bn $92bn

7.0% 3.2% 8.7% 0.6%

Oceania South East and East Asia Latin America Africa

$15bn $202bn $78bn $28bn

4.8% 6.5% 2.3% 8.1%

Estimated pharmaceutical sales 2020.

CIS Middle East Indian subcontinent Ex-manufacturer prices at CER. Source:
IMS Health.
$23bn $25bn $38bn Estimated pharmaceutical market growth
6.7% 6.6% 12.1% 2015 to 2020. Compound annual growth
rate. Source: IMS Health.

14 AstraZeneca Annual Report and Form 20-F Information 2016

Strategic Report
Patent expiries and genericisation pharmaceutical products are in complex businesses, and companies that produce
Patent protection for pharmaceutical formulations and/or require technically generic medicines. However, the
products is nite. Patents are expiring on challenging manufacturing and thus may pharmaceutical market is highly competitive.
some of the biggest-selling drugs ever not follow the pattern of generic market For example, our Diabetes franchise
produced and this means that payers, erosion seen with traditional, tableted continues to see pricing pressure. In
physicians and patients are gaining greater pharmaceuticals. For those products, the immuno-oncology, the large number of
access to generic alternatives (both introduction of generic alternatives (both clinical trials that are being carried out
substitutable and analogue) in many substitutable and analogue) can be slower. highlight the competitive nature of this
important drug classes. These generic area and renders speed to market critical.
alternatives are primarily lower priced Building trust
because generic manufacturers are largely The pharmaceutical industry faces While many of our peers face similar
spared the costs of R&D and market challenges in building and maintaining challenges, they tackle them in different
development. As a result, demand for trust, particularly with governments and ways. Some companies have pursued a
generics is high. For prescriptions dispensed regulators. This reects the past decades strategy focused on branded prescription
in the US in 2016, generics constituted 84.7% legal disputes between pharmaceutical pharmaceuticals. Others have diversied
of the market by volume (2015: 84.0%). companies and governmental and by acquiring or building branded generics
regulatory authorities. To address this businesses or consumer portfolios.
Generic competition can also result from challenge, companies are strengthening A number of companies are focused on
patent disputes or challenges before patent a culture of ethics and integrity, adopting improving R&D productivity and operational
expiry. Increasingly, generics companies higher governance standards and improving efciency. Other companies have looked
are launching products at risk, for example, relationships with employees, shareholders to geographic expansion, especially in
before resolution of the relevant patent and other stakeholders. Emerging Markets and Japan.
litigation. This trend, which is likely to
continue, creates signicant market During 2016, there were also Across the industry, business development
presence for the generic version while the pharmaceutical industry investigations deals (including licensing and collaborations),
litigation remains unresolved. Given the and Congressional hearings in the US and competition for business development
unpredictable nature of patent litigation, related to pricing while, in the UK, the opportunities, while down over 2015,
some companies have settled such Competition and Markets Authority continued in 2016. For example, one report
challenges on terms acceptable to the has been investigating allegations of estimates that the value of mergers and
innovator and generic manufacturer. While excessive charging and ning companies acquisitions announced in the healthcare
competition authorities generally accept for unfair prices. sector during the year amounted to more
such agreements as a legitimate way to than $270 million, compared with almost
settle these disputes, they have questioned Numerous companies, including those $400 million in 2015.
some settlements as being anti-competitive. in the pharmaceutical industry, have been
investigated by the China Public Security As outlined in AstraZeneca at a glance
Biologics typically retain exclusivity for Bureau following allegations of bribery, from page 2 and our Business model
longer than traditional small molecule and criminal and nancial penalties have from page 8, our strategic response to
pharmaceuticals, with less generic been imposed. Investigations by the DOJ the pharmaceutical marketplace is to
competition. With limited experience to date, and SEC under the Foreign Corrupt be a pure-play, global, science-led
the substitution of biosimilars for the original Practices Act are continuing as are biopharmaceutical company that focuses
branded product has not followed the same investigations by the UK Serious Fraud on the discovery, development and
pattern as generic substitution in small Ofce under the UK Bribery Act. Information commercialisation of prescription medicines,
molecule products and, as a result, erosion about material legal proceedings can be primarily for the treatment of diseases in
of the original biologics branded market found in Note 28 to the Financial Statements three main therapy areas. The strategic
share has not been as rapid. This is due to from page 185. priorities that follow on from this response
biologics complex manufacturing processes are outlined in the next section.
and the inherent difculties in producing a Strategic responses
biosimilar, which could require additional Our industry remains highly competitive.
clinical trials. However, with regulatory It includes large, research-based
authorities in Europe and the US continuing pharmaceutical companies (such as
to implement abbreviated approval pathways AstraZeneca) that discover, develop
for biosimilar versions, innovative biologics and sell innovative, patent-protected
are likely to face increased competition. prescription medicines and vaccines,
Similar to biologics, some small molecule smaller biotechnology and vaccine

AstraZeneca Annual Report and Form 20-F Information 2016 15

Strategic Report Strategy

Strategy and key performance indicators

We are focused on returning to growth through a science-led innovation strategy.

are based on investing in three therapy areas, building a strong and balanced
portfolio of primary care and specialty care medicines, and accelerating key R&D
global commercial presence.
Strategic priorities Key performance indicators

Focus on innovative science Phase III investment decisions NME or LCM project regulatory Clinical-stage strategic
in three therapy areas submissions in major markets transactions
Focus on Oncology, Cardiovascular
& Metabolic Disease, and Respiratory.
We are also selectively active in
Autoimmunity, Infection
and Neuroscience.
7 14 10
Work across small molecules and
biologics, including immunotherapies 2016 7 2016 141 2016 10
and protein engineering, as well 2015 6 2015 12 2015 10
as devices, biomarkers and
2014 9 2014 6 2014 3
translational science.
Prioritise and accelerate savolitinib (papillary renal cell Faslodex breast cancer (US, EU, JP); Includes alliances, collaborations and
our pipeline carcinoma); durvalumab+ Tagrisso lung cancer (CN); Tagrisso acquisitions to enhance our portfolio
Accelerate and invest in key R&D tremelimumab (hepatocellular lung cancer (AURA3 study for full and pipeline in our main therapy areas;
programmes. At the end of 2016, carcinoma); Forxiga (heart failure); approval) (US, EU); durvalumab externalisation activity to maximise the
12 NMEs were in Phase III or under Forxiga (chronic kidney disease); bladder cancer (US); DURATION-8 value of our assets; and divestments of
regulatory review compared with our $=' %$&( $O]KHLPHUVGLVHDVH H[HQDWLGHGDSDJOLR]LQ  (8  non-priority medicines.
March 2013 target of nine to 10. two further decisions made through EHQUDOL]XPDEVHYHUHDVWKPD 86
strategic partnering. EU); lesinurad+allopurinol FDC gout
Against the targets we had set
(US); three further submissions made
ourselves since 2013, by the end of
await regulatory acceptance.
2016, we had made 25 Phase II starts
(2015 to 2016 target: 12 to 16); 14
NME and major line extension
regulatory submissions (2015 to 2016 13 for determining Annual Bonus.
target: 14 to 16); and eight NME and See page 108
major line extension regulatory
approvals (2015 to 2016 target: NME Phase II starts/progressions NME and major LCM regional
eight to 10). approvals
Strengthen our early-stage pipeline
through novel science and technology.
Transform our innovation 16 11
and culture model
Focus on novel science, such as
immune-mediated therapy 2016 161 2016 11
combinations and PHC. 2015 11 2015 6
Co-location near bioscience clusters at 2014 13 2014 12
three strategic centres in Cambridge,
UK; Gaithersburg, Maryland US; Vidaza and durvalumab for the Tagrisso lung cancer (EU, JP) and
and Gothenburg, Sweden helps to treatment of acute myeloid leukaemia ctDNA blood test (US, JP); Brilinta/
leverage our capabilities and foster and CC486+durvalumab for Brilique post myocardial infarction
collaboration with leading scientists myelodysplastic syndromes (with (EU) and acute coronary syndromes
and research organisations. Celgene); MEDI0680+durvalumab for and post myocardial infarction (JP);
solid tumours; MEDI0562 (humanised Qtern Type 2 diabetes (EU); Bevespi
Accelerate through business OX40); AZD6738+Lynparza for gastric Aerosphere (PT003) COPD (US);
development cancer; AZD1775 (Wee1); Zurampic gout (EU); Zavicefta
Work to reinforce our therapy areas daratumumab+durvalumab for serious infections (EU); Pandemic Live
and strengthen our portfolio and multiple myeloma; in collaboration $WWHQXDWHG,QXHQ]D9DFFLQH
pipeline through targeted business with Incyte, epacadostat (IDO)+ SDQGHPLFLQXHQ]D (8 
development, including collaborations, durvalumab for solid tumours;
in-licensing and acquisitions. MEDI4166 (PCSK9/GLP-1); MEDI0382;
Collaborate strategically to broaden AZD4076; abediterol (AZD0548)
and accelerate the development of key (LABA); AZD1419 (Inhaled TLR9);
pipeline assets (externalisation) and MEDI2070 (IL-23); MEDI3902
divest non-core assets to realise value. SVHXGRPRQDVELVSHFLF 3VO3FU9 
MEDI8897 (RSV).
15 for determining Annual Bonus.
See page 108

Therapy Area Review from page 23  $FKLHYHVFLHQWLFOHDGHUVKLSIURPSDJH Development Pipeline from page 204

16 AstraZeneca Annual Report and Form 20-F Information 2016

Strategic Report
Return to growth
Strategic priorities Key performance indicators

Focus on Growth Platforms Brilinta/Brilique Diabetes Respiratory

Brilinta/Brilique Work to deliver
Brilinta/Briliques potential to reduce
cardiovascular deaths through
ongoing clinical studies.
Diabetes Work to maximise the
$839m $2,427m $4,753m
potential of our broad and innovative Product Sales Product Sales Product Sales
non-insulin, anti-diabetic portfolio
to transform patient care. 2016 $839m 2016 $2,427m 2016 $4,753m

From January 2017, New CVMD 2015 $619m 2015 $2,224m 2015 $4,987m
Growth Platform combines our 2014 $476m 2014 $1,870m 2014 $5,063m
Diabetes franchise, Brilinta/Brilique
and any new launches. Actual growth CER growth Actual growth CER growth Actual growth CER growth
2016 +36% 2016 +39% 2016 +9% 2016 +11% 2016 -5% 2016 -3%
Respiratory Work to maximise 2015 +30% 2015 +44% 2015 +19% 2015 +26% 2015 -2% 2015 +7%
pipeline value, devices and medicines 2014 +68% 2014 +70% 2014 +138% 2014 +139% 2014 +8% 2014 +10%
improve patient outcomes in asthma Brilinta delivered Product Sales of Diabetes Product Sales grew by 2016 was a challenging year.
and COPD. $839 million. Continued progress was 9% (11% at CER) despite intense Respiratory Product Sales declined by
New Oncology Aim to deliver seen across the US and Europe with competition in this space with a 5% (3% at CER), the main driver of this
six new cancer medicines to 45% and 12% growth (15% at CER) positive contribution from all Regions. being Symbicort, which continued to
patients by 2020. It became our sixth in the year respectively. Our focus in diabetes remains on grow volume share, however, Product
Growth Platform in January 2015 the fastest-growing SGLT2 and Sales were down by 12% (10% at CER),
and includes Lynparza, Iressa (US) GLP-1 classes. UHHFWLQJGHYHORSPHQWVLQWKH86DQG
Markets and Established ROW growth.
Japan Strengthen our Oncology
franchise and work to maximise the
success of our Diabetes medicines New Oncology Japan Emerging Markets
and established brands: Symbicort,
Nexium and Crestor.
Emerging Markets Focus on
delivering innovative medicines
by investing in Emerging Markets
$664m $2,184m $5,794m
Product Sales Product Sales Product Sales
capabilities, with a focus on China
and other leading markets, such 2016 $664m 2016 $2,184m 2016 $5,794m
2015 $119m 2015 $2,020m 2015 $5,822m
transformation of our capabilities
is supporting new products and 2014 N/A 2014 $2,227m 2014 $5,827m
Actual growth CER growth Actual growth CER growth Actual growth CER growth
Transform through specialty care, 2016 n/m 2016 n/m 2016 +8% 2016 -3% 2016 0% 2016 +6%
devices and biologics 2015 N/A 2015 N/A 2015 -9% 2015 +4% 2015 0% 2015 +12%
Biologics now account for about 2014 N/A 2014 N/A 2014 -10% 2014 -3% 2014 +8% 2014 +12%
half of our NMEs in development,
potentially enhancing asset longevity. New Oncology Product Sales of In Japan, Product Sales were up Emerging Markets growth mainly
A greater focus on innovative and Lynparza, Iressa (US) and Tagrisso E\ GRZQDW&(5 UHHFWLQJ driven by Brilinta, Forxiga and our
GLHUHQWLDWHGGHOLYHU\GHYLFHV were $664 million. Tagrisso continued exchange rate impact and the Respiratory franchise. China
DRUGVSDWLHQWVFKRLFHZKLOH to demonstrate strong uptake in the mandated biennial price cuts. We had represented just under half of the
ensuring product durability. US, Europe and Japan with global volume growth of about 2%. Our three total Emerging Markets Product
Our new specialty care portfolio is Product Sales of $423 million and 46 biggest medicines, Crestor, Nexium Sales in 2016.
expected to balance our strength regulatory approvals. Lynparza Product and Symbicort, continued to perform
in primary care medicines. Sales were $218 million. well, but Crestor Product Sales were
impacted by inventory reductions at
our local marketing partner.

Return to growth from page 48 Therapy Area Review from page 23 Geographical Review from page 226

AstraZeneca Annual Report and Form 20-F Information 2016 17

Strategic Report Strategy

Strategy and key performance indicators continued

Be a great place to work

Strategic priorities Key performance indicators

Evolve our culture Employee belief in our strategy Organisational structure Employees who would recommend
Work to improve our employees percentage of employees within six AstraZeneca as a great place to work
and Values and promote greater
understanding of and belief in
our strategy. 80% 82% 74%
Invest in and implement tailored
leadership development programmes.
2016 80%1 2016 82% 2016 74%1
Simplify our business 2
'HYHORSVLPSOHUPRUHHFLHQW 2015 89% 2015 71% 2015 83%2
SURFHVVHVDQGDWWHQRXU 2014 86%3 2014 75% 2014 82%3
organisational structure to encourage
accountability and improve decision This is a key indicator of employee This is a key indicator of our progress This is a key indicator of whether
making and communication. HQJDJHPHQW'HFOLQHUHHFWVLPSDFW LQRUJDQLVDWLRQDOHFLHQF\WKURXJK employees believe AstraZeneca is a
of reshaping the business. improved decision making, driving JUHDWSODFHWRZRUN'HFOLQHUHHFWV
Attract and retain the best talent accountability to the right level and impact of reshaping the business.
top talent with new capabilities. 1
Source: December 2016 Pulse survey 1
Source: December 2016 Pulse survey
across a sample of the organisation. across a sample of the organisation.
2 2
Source: January 2016 Pulse survey Source: January 2016 Pulse survey
across a sample of the organisation. across a sample of the organisation.
3 3
Source: Global FOCUS all-employee Source: Global FOCUS all-employee
survey. survey.

Be a great place to work from page 52 Employees from page 54

Do business sustainably
Strategic priorities Key performance indicators

Deliver business success Dow Jones Sustainability Screening, diagnosis and treatment Operational carbon footprint1
over the long term Index ranking of hypertension as part of Healthy
Deliver our business strategy in a way Heart Africa programme
and the planet.
Focus on:
86% 2 million
1,657 kt CO e 2

> maintaining ethics and

transparency in everything we do
> increasing access to healthcare for 2016 86% 2016 2m 2016 1,657 kt CO2e
more people 2015 84% 2015 1m 2015 1,743 kt CO2e
> minimising the environmental 2014 79% 2014 N/A N/A
impact of our products and
processes. Met the target of maintaining position Healthy Heart Africa was launched Our 2016 operational carbon footprint
Align our work with the UN in the Dow Jones Sustainability World in October 2014. By the end of 2016, met our target emission of 1,708 kt
Sustainable Development Goals and and Europe Indexes comprising the top we had conducted over two million CO2e and represents a 5% reduction
work to integrate our commitments 10% of the largest 2,500 companies hypertension screenings in the from our 2015 baseline.
into day-to-day business activities. with a score of 86%. community and healthcare facilities.

Operational carbon footprint is emissions

from all Scope 1, 2, and selected Scope 3
sources. See page 231.


reported on page 52 of the Annual Report.

18 AstraZeneca Annual Report and Form 20-F Information 2016

Strategic Report
Strategic priorities Key performance indicators

Drive on-market value Total Revenue1 1HWFDVKRZIURPRSHUDWLQJ Dividend per share1

Invest in R&D and on-market activities
Growth Platforms to return to
growth. Our aim is to deliver
industry-leading productivity by
restructuring to create scope for
$23,002m $4,145m $2.80
Maintain a progressive dividend
Policy is to maintain or grow 2016 $23,002m 2016 $4,145m 2016 $2.80
dividend per share. 2015 $24,708m 2015 $3,324m 2015 $2.80
Maintain a strong balance sheet 2014 $26,547m 2014 $7,058m 2014 $2.80
Target a strong, investment-grade
credit rating, operational cash Actual growth CER growth Actual growth
balance and periodic share 2016 -7% 2016 -5% 2016 +25%
repurchases. 2015 -7% 2015 +1% 2015 -53%
2014 +3% 2014 +5% 2014 -5%

Total Revenue comprised Product Cash generated from operating Dividend is consistent with the
Sales of $21,319 million (down by 10% activities improved cash management progressive dividend policy pursuant
at actual rate of exchange and 8% at SHUIRUPDQFHDQGRQHRWD[UHIXQGV to which the Board intends to maintain
CER) and Externalisation Revenue of or grow the dividend each year.
$1,683 million (up by 57% at actual
rate of exchange and 59% at CER).
Decline in Total Revenue at actual
weakness of key trading currencies
against the US dollar.

As detailed on page 142, Total Revenue First and second interim dividend
consists of Product Sales and for the year.
Externalisation Revenue.

Reported EPS Core EPS

$2.77 $4.31
2016 $2.77 2016 $4.31
2015 $2.23 2015 $4.26
2014 $0.98 2014 $4.28

Actual growth CER growth Actual growth CER growth

2016 +24% 2016 +9% 2016 +1% 2016 -5%
2015 +128% 2015 +137% 2015 0% 2015 +7%
2014 -52% 2014 -34% 2014 -15% 2014 -8%

Reported EPS of $2.77 represented Core EPS increased by 1% (decreased

growth of 24% (9% at CER). This 5% at CER), driven by the same rate of
included a gain of $0.76 on the decline in Total Revenue at CER.
revaluation of acquisition-related

Financial Review from page 62

AstraZeneca Annual Report and Form 20-F Information 2016 19

Strategic Report Strategy

Risk overview

Principal Risks
We face a diverse range of risks and uncertainties and this table provides insight into the Principal Risks that could have a materially
adverse effect on the business or results of operations. We outline why effective management of these risks is important and relevant
to the business, how we are managing them and which risks are rising, falling or have remained static during the past 12 months.
Our approach to risk management is designed to encourage clear decision making on which risks we take and how we manage these
risks. Fundamental to this process is a sound understanding of every risks potential strategic, commercial, nancial, compliance, legal
and reputational implications.
Risk category and Principal Risks Context/potential impact

Product pipeline and intellectual property

Delivery of pipeline and new products The development of any pharmaceutical product candidate is a complex, risky and lengthy process involving


approval and disclosure requirements EXVLQHVVRUQDQFLDOUHVXOWV


with a reasonable amount of certainty for a reasonable amount of time

access and competitive pressures and in individual countries. There can be additional pressure from governments and other healthcare payers

Quality and execution of commercial If commercialisation of a product does not succeed as anticipated, or its rate of sales growth is slower than
strategies anticipated, there is a risk that we may not be able to fully recoup the costs in launching it

Maintain supply of compliant, Delays or interruptions in supply can lead to recalls, product shortages, regulatory action, reputational harm
quality product and lost sales


operations. This could lead to regulatory penalties or non-compliance with laws and regulations

Delivery of gains from Inappropriately managed initiatives could lead to low employee engagement and reduced productivity, increased
productivity initiatives absence and attrition levels, or even industrial action. All could adversely impact the value of the initiative

Attract, develop, engage and retain Failure to attract and retain highly skilled personnel may weaken our succession plans for critical positions in the
at all levels the achievement of our strategic objectives

Legal, regulatory and compliance

medicines. Failure to do this could adversely impact our reputation, our business and the results of operations,
and could lead to product liability claims

Defence of product, pricing Investigations or legal proceedings could be costly, divert management attention or damage our reputation

Meet regulatory and ethical expectations Any failure to comply with applicable laws, rules and regulations, including bribery and corruption legislation,


20 AstraZeneca Annual Report and Form 20-F Information 2016

Strategic Report
Strategy key Trend key Further information on our key risk management
and assurance processes can be found in Risk
 $FKLHYHVFLHQWLFOHDGHUVKLS Be a great place to work Increasing risk
from pages 214 to 225 which also includes
a description of circumstances under which
Return to growth  $FKLHYH*URXSQDQFLDOWDUJHWV Decreasing risk
principal and other risks and uncertainties
Unchanged might arise in the course of our business and
their potential impact

Management actions Trend versus prior year

> Prioritise and accelerate our pipeline Increasing importance of pipeline contribution given loss of
> Strengthen pipeline through acquisitions, licensing and collaborations exclusivity on key brands
> 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

> Focus on Growth Platforms Global economic and political conditions placing downwards
> Demonstrating value of medicines/health economics pressure on healthcare pricing and spending, and therefore
> Global footprint on revenue

> Focus on Growth Platforms Loss of exclusivity on key brands increases challenge to achieve
> Accelerate and risk share through business development and strategic collaborations and alliances our short- to medium-term targets

> Business continuity and resilience initiatives, disaster and data recovery and emergency response plans Supply chain evolving to incorporate new supply chains and
> Establishment of new manufacturing facilities, creating capacity and technical capability to support new to support product launches
product launches, particularly biologics
> Contingency plans including dual sourcing, multiple suppliers and stock levels
> Quality management systems

> Disaster and data recovery plans Several key transformational programmes involving large
> Strategies to secure critical systems and processes IT-related aspects

> Appropriate project governance structure and oversight Ongoing restructuring projects
> Regular review of strategic initiatives by appropriate senior executive and Board level committees

> Evolve our culture Ongoing restructuring projects

> Development of our employees

reported risks through regulatory agencies and other parties. This includes a comprehensive and is anticipated to increase further as our pipeline develops. Our
pharmacovigilance programme supplemented by close monitoring and review of adverse events DELOLW\WRDFFXUDWHO\DVVHVVWKHVDIHW\DQGHFDF\RIQHZSURGXFWV
is inherently limited due to relatively short periods of product
testing and relatively small clinical study patient samples

> Combined internal and external counsel management

> Strong ethical and compliance culture Increasing government and regulatory scrutiny and evolving
> Established compliance framework in place including annual Code of Conduct training for all employees compliance challenges as complexity of business relationships
> Focus on due diligence and oversight of third party engagements increases
> Established new requirements on providing appropriate information about our products
> Established sustainability framework in place including a refreshed sustainability strategy for 2016

> Focus on Growth Platforms and innovative science in three main therapy areas Increasing challenge to balance long- and short-term investments
> Strengthen pipeline through acquisitions, licensing and collaborations as we navigate a period of loss of exclusivity on key brands
> Appropriate capital structure and balance sheet
> Portfolio-driven decision making process governed by senior executive-led committees

AstraZeneca Annual Report and Form 20-F Information 2016 21

Strategic Report Strategy

Risk overview continued

Managing risk processes implemented by management. The three-year detailed business plan
We work to ensure that we have effective Within each SET function, leadership teams recognises the signicant political
risk management processes in place to discuss the risks the business faces. Every uncertainty arising from Brexit, the US
support the delivery of our strategic year, we map these risks to AstraZenecas presidential election result and elections
priorities. This enables us to meet the risk taxonomy. This process provides a in other key markets. Risks to the sales
expectations of our stakeholders and Group-wide assessment for the Board, and cost forecasts are identied at a market
upholds our Values. We monitor our Audit Committee and SET. Quarterly, and SET function level. The plan is used
business activities and external and internal each SET function assesses changes to to perform central net debt and headroom
environments for new, emerging and these risks, new and emerging risks, and prole analysis. This analysis considers
changing risks to ensure that these are mitigation plans. These are assimilated into a severe but plausible downside scenario
managed appropriately. a Group Risk Report for the Board, Audit incorporating the Principal Risks such as
Committee and SET. Supporting tools are in market pricing and access, delivery of
The Board believes that existing processes place to assist risk leaders and managers in pipeline and loss of IP. The resilience of
provide it with adequate information on the managing, monitoring and planning for risk the Group to absorb further Principal Risk
risks and uncertainties we face. Details of and we continue to work on developing our events such as regulatory/litigious nes and
these risks and the potential impacts on our risk management standards and guidelines. the need to meet pension fund obligations
business are contained on pages 214 to Global Compliance, Finance and Internal has also been analysed. The Group has
225. The Board denes those risks which Audit Services support SET by advising on adequate resilience against these and the
have a potential to have a material impact policy and standard setting, monitoring and other Principal Risks due to our diversied
on our business or results of operations as auditing, communication and training, as product portfolio; our global footprint; our
our Principal Risks. well as reporting on the adequacy of line robust supply infrastructure; our access
management processes as they apply to to external nancing, which includes
Risk management embedded in risk management. committed facilities; and our ability to
business processes manage our cost base.
We strive to embed sound risk management We have a business resilience framework
in our strategy, planning, budgeting and which governs our ability to prevent or Based on the results of this analysis, the
performance management processes. quickly adapt to situations while maintaining Directors have a reasonable expectation
continuous business operations and that the Company will be able to continue
The Board denes the Groups risk appetite, safeguarding our people, processes and in operation and meet its liabilities as they
enabling the Group, in both quantitative and reputation. Within this we have business fall due over the three-year period of
qualitative terms, to judge the level of risk it continuity plans to address situations in their assessment.
is prepared to take in achieving its overall which specic risks have the potential to
objectives. The Board expresses the severely impact our business. These plans Brexit
acceptable levels of risk for the Group using include training and crisis simulation On 23 June 2016, the UK held a remain-or-
three key dimensions. These are: (i) earnings activities for business managers. leave referendum on the UKs membership
and cash ow; (ii) return on investment; within the EU, the outcome of which was
and (iii) ethics and reputation. Annually, More information about our Global Compliance a decision for the UK to exit from the EU
the Group develops a detailed three-year function and the Code of Conduct can be (Brexit). A process of negotiation will likely
found in the Corporate Governance Report
bottom-up business plan and 10-year determine the future terms of the UKs
from page 90
long-range projection to support the delivery relationship with the EU, as well as whether
of its strategy. The Board considers these Viability statement the UK will be able to continue to benet
in the context of the Groups risk appetite. In accordance with provision C.2.2 of the from the EUs free trade and similar
Adjustments are made to the plan or risk 2014 UK Corporate Governance Code, arrangements. Until the Brexit negotiation
appetite to ensure they remain aligned. the Board has determined that a three-year process is initiated and completed, it is
Our risk management approach is aligned period to 31 December 2019 constitutes an difcult to anticipate the potential impact
to our strategy and business planning appropriate period over which to provide its on AstraZenecas market share, sales,
processes. We cross-check nancial risks viability statement. protability and results of operations. The
and opportunities identied through the Group operates from a global footprint
business planning process and integrate The Board considers annually and on and retains exibility to adapt to changing
our ndings into the overall risk management a rolling basis, a three-year bottom-up circumstances. The uncertainty before,
reporting. Line managers are accountable detailed business plan. The Board also during and after the period of negotiation is
for identifying and managing risks and for considers a 10-year long-range projection also expected to increase volatility and may
delivering business objectives in accordance but, given the inherent uncertainty involved, have an economic impact, particularly in the
with the Groups risk appetite. believes that the three-year statement UK and Eurozone. The Board reviews the
presents readers of the Annual Report with potential impact of Brexit as an integral part
The Senior Executive Team (SET) is required a reasonable degree of assurance while still of its Principal Risks (as outlined on page 20)
by the Board to oversee and monitor the providing a longer-term perspective. rather than as a stand-alone risk. As the
effectiveness of the risk management process of Brexit evolves, the Board will
continue to assess its impact.

22 AstraZeneca Annual Report and Form 20-F Information 2016

Therapy Area Overview and Pipeline

Strategic Report
Our Therapy Area teams are focused on maximising the value of our pipeline for
patients and shareholders alike. We adopt a dynamic approach to portfolio management

Strategy We have completed the transformation For more information on our potential
We have transformed our drugs portfolio of our Oncology portfolio where we new products and product life-cycle
by focusing on three main therapy areas: are balancing our efforts across four developments, please see the Therapy Area
Oncology, Cardiovascular & Metabolic disease areas lung, ovarian, breast and pipeline tables on pages 26, 31, 36 and 38
Disease (CVMD) and Respiratory, while haematology and investing in immuno- and the Development Pipeline table from
selectively pursuing promising therapies in oncology (IO) which has the potential to page 204. For information on Patent Expiries
Autoimmunity, Infection and Neuroscience. benet patients in multiple tumour types of our Key Marketed Products, please see
Our sales in each of these areas in 2016 are and different lines of therapy. from page 211.
shown in the table below.
As we invest in our main therapy areas Indications for each product described in
We are building value by strengthening we continue to build upon our strong this Therapy Area Review may vary among
our in-line portfolios through commercial commercial and medical capabilities countries. Please see local prescribing
excellence, life-cycle management and to ensure that our medicines reach the information for country-specic indications
expansion into new patient populations as patients who need them most. for any particular product.
well as by translating our late-stage pipeline
into differentiated therapies for disease Development pipeline For those of our products subject to
areas with high unmet medical need. We As shown in the table overleaf, our pipeline litigation, information about material legal
continue to pursue externalisation where includes 132 projects, of which 120 are in proceedings can be found in Note 28 to the
it provides an opportunity to focus and the clinical phase of development, and Financial Statements from page 185.
enhance our portfolio as well as access we are making signicant progress in
capabilities we do not have internally. advancing our late-stage programmes Details of relevant risks are set out in
through regulatory approval with 14 NME Risk from page 214.
We are seeking to expand our or major LCM regulatory submissions
comprehensive Respiratory portfolio to during 2016, and 11 major approvals. At Partnering
meet the needs of asthma and COPD the end of 2016, we had 12 NME projects As outlined in Strategy and key
patients across the severity spectrum of in pivotal studies or under regulatory review performance indicators from page 16,
these diseases. Building on an ICS/LABA compared with 15 at the end of 2015. 15 business development, specically
foundation with Symbicort, we are evolving NMEs progressed to their next phase of partnering, is an important element of our
our mono- and xed-dose combination development, 22 projects were discontinued business. It supplements and strengthens
therapies as well as optimising our delivery in 2016, 17 for poorer than anticipated our pipeline and our efforts to achieve
device platforms. safety and efcacy results, four as a result of scientic leadership. We partner with
strategic shift in the environment or portfolio others around the world, including
In CVMD, we are expanding our portfolio prioritisation, and one because of a change academia, governments, industry, scientic
into the cardiovascular-renal area with late- in regulatory requirements. organisations and patient groups to access
stage assets such as ZS-9 and roxadustat, the best science to stimulate innovation and
as well as investing to explore the potential Our products accelerate the delivery of new medicines
benets of our SGLT2 and GLP-1 franchises While this Therapy Area Review to target unmet medical need. We currently
in chronic kidney disease (CKD) and heart concentrates on our key marketed have more than 600 collaborations around
failure (HF). products, many of our other products are the world.
crucial to our business in certain countries
in Emerging Markets.

Global Product Sales by therapy area

2016 2015 2014
Actual CER Actual CER Actual CER
Sales growth growth Sales growth growth Sales growth growth
$m % % $m % % $m % %
Oncology 3,383 20 20 2,825 (7) 7 3,027 (5) (2)
Cardiovascular & Metabolic Disease 8,116 (14) (13) 9,489 (3) 4 9,802 11 12
Respiratory 4,753 (5) (3) 4,987 (2) 17 5,063 8 10
Other Disease Areas 5,067 (20) (19) 6,340 (23) (16) 8,203 (9) (7)
Total 21,319 (10) (8) 23,641 (9) (1) 26,095 1 3

AstraZeneca Annual Report and Form 20-F Information 2016 23

Strategic Report Therapy Area Review

Therapy Area Overview and Pipeline continued

Development pipeline overview (as at 31 December 2016)

Phase I Phase II Late-stage development* Life-cycle management
41 36 27 28

> 41 projects in Phase I, including: > 36 projects in Phase II, including: > 27 projects in late-stage > 28 LCM projects
29 NMEs 25 NMEs development, either in Phase
projects that have reached Phase III for projects that have reached under regulatory review:
11 oncology combination projects Phase III 12 NMEs not yet approved
7 oncology combination projects in any market
9 projects exploring
additional indications for
these NMEs, of which 5 are
oncology combinations
5 NMEs already approved or
launched in the EU, China,
Japan and/or the US
approval of a launched NME
 10(VDQGVLJQLFDQWDGGLWLRQDO * Only includes material projects
in all markets.

More generally, our business development This activity creates additional value from grow the business, while we retain a
activity takes many forms and can be our existing medicines as well as recurring signicant proportion of the value, which
broadly grouped into: Externalisation Revenue and falls broadly we also book as Externalisation Revenue.
into two categories: (a) collaborations that
> alliances, collaborations and acquisitions help us access therapy area expertise and Alongside these externalisation
to enhance our portfolio and pipeline in (b) collaborations that help us increase opportunities, we also divest medicines
our main therapy areas the number of patients and the reach of that sit outside our main therapy areas and
> externalisation activity to maximise medicines in which we maintain an ongoing that can be deployed better by a partner,
the value of our assets interest, but which sit outside our main in order to redirect investment and resource
> divestments of non-priority medicines. therapy areas. in our main areas of focus while ensuring
continued or expanded patient access.
We continue to assess opportunities to Examples of collaborations that help us For example, in 2016, we sold to Pzer the
make strategic, value-enhancing additions access therapy area expertise include: commercialisation and development rights
to our portfolio and pipeline in our main to our late-stage small molecule antibiotics
therapy areas, including through in-licensing > in Alzheimers disease through our business in most markets outside the US.
and acquisitions. Acquisitions completed partnership with Lilly for the BACE The agreement reinforces our focus on
during 2016 included the acquisition of inhibitor developing transformational medicines
Takedas respiratory portfolio, in May, > in dermatology through our agreements in our three main therapy areas, while
and the acquisition of a controlling equity with Valeant and LEO Pharma for realising value through Pzers dedicated
position in Acerta Pharma, in February, brodalumab and LEO Pharma for commercialisation and development
both of which were signed in 2015. tralokinumab capabilities in anti-infectives.
> in haematology through our collaboration
Over the past three years, we have with Celgene for durvalumab. The resulting revenue from these activities
completed more than 270 major or supports our R&D investments in our
strategically important business development In each case we are optimising the main therapy areas. Ten transactions that
transactions, including some 80 in 2016. long-term value of each medicine through contribute to Externalisation Revenue and
Of these transactions, 55 were related to the collaboration. a further nine divestments or out-licences
pre-clinical assets or programmes and 11 to were completed in 2016.
PHC and biomarkers. 17 transactions helped Examples of collaborations that help us
expand our biologics capabilities. increase our reach to a greater number More information on our partnering activity in
of patients include Plendil, an established 2016 can be found in subsequent sections of
this Therapy Area Review, Business Review
Externalisation is a core component of our cardiovascular medicine, and the
from page 42, Financial Review from page 62
strategy and has an important role to play in anaesthetics portfolio. We partnered and Note 25 to the Financial Statements from
the delivery of our ambition as we continue with Aspen on our anaesthetics portfolio, page 173
to sharpen our focus on developing key as a company with established expertise
assets within our main therapy areas. who can dedicate the right resources to

24 AstraZeneca Annual Report and Form 20-F Information 2016

Tumour drivers and
resistance: AstraZeneca
is investigating a number
of proteins and signalling
molecules designed to
impact tumour growth and
resistance mechanisms.

Our ambition is to eliminate cancer as a
and collaborations. We seek to achieve
this by means of our combination-focused
pipeline that exploits the power of four

AstraZeneca Annual Report and Form 20-F Information 2016 25

Strategic Report Therapy Area Review

Oncology continued

Following the science Our strategic priorities Therapy area world market
In Oncology, our vision is to respond to (MAT/Q3/16)
of oncology unmet medical need by redening the
More than eight million lives are lost
every year to cancer. Even as R&D
continues to push boundaries in how
we understand and fight cancer, there
cancer treatment paradigm. We are
doing this through scientic innovation,
accelerated clinical programmes and
collaboration. We have a strong heritage
Annual worldwide market value
more than 40 years in developing
is still more to do. At AstraZeneca, we
cancer drugs. By the end of 2016, several Chemotherapy $19.7bn
are committed to advancing the science Hormonal therapies
submissions were underway and we aim
of oncology to deliver life-changing $11.0bn
to deliver at least four new cancer therapies,
medicines to people most in need. Monoclonal antibodies
in addition to Lynparza and Tagrisso, and (MAbs) $25.0bn
12 new line extensions by 2020. In 2015, Small molecule tyrosine
we decided to consider all new Oncology kinase inhibitors (TKIs)
launches, including Lynparza, Iressa (US)
Immune checkpoint
and Tagrisso, as our sixth Growth Platform, inhibitors $5.9bn
under the designation of New Oncology.

Our broad pipeline of next-generation

medicines is focused on four main Four key scientic platforms are driving our
disease areas: breast, ovarian, lung efforts to discover new cancer treatments:
and haematological cancers, using
four key scientic approaches: > Immunotherapy: Our ambition is to
immunotherapy, tumour drivers and be a scientic leader in immunotherapy,
resistance mechanisms, DNA damage a promising therapeutic approach that
response, and antibody-drug conjugates. harnesses the patients own immune
system to help ght cancer. We are
working to understand how cancer
evades the immune system and to identify
Oncology pipeline progressions approaches that enhance the immune
systems ability to ght cancer.
Regional approvals Tagrisso lung cancer (EU, JP) and ctDNA blood test (US, JP)* > Tumour drivers and resistance
Expedited review Breakthrough Therapy Designation: durvalumab bladder cancer (US) mechanisms: Potent inhibition of genetic
Orphan Drug Designation: acalabrutinib blood cancers (EU); selumetinib thyroid cancer disease drivers is a clinically validated
approach to shrink tumours and improve
Fast Track Designation: Lynparza ovarian cancer (2nd line) (US), prostate cancer (2nd line)
progression-free survival. Tumours,
Priority Review Designation: Tagrisso (CN); durvalumab bladder cancer (US)
however, eventually develop resistance
to these therapies. Our programmes seek
Regulatory submissions Faslodex breast cancer (1st line) (US, EU, JP)
to develop therapies that target resistance
Tagrisso lung cancer (CN)
mechanisms and the mutations that
Tagrisso lung cancer (AURA3 study for full approval) (US, EU)
cause cancer cells to proliferate.
Durvalumab bladder cancer (US)
> DNA damage response: Exploiting
Phase III investment Savolitinib papillary renal cell carcinoma
mechanisms that selectively damage
Durvalumab+tremelimumab hepatocellular carcinoma tumour cell DNA is another clinically
Phase II starts/progressions In collaboration with Celgene, the combination of Vidaza and durvalumab for the treatment validated approach to shrink tumours
of acute myeloid leukaemia and CC486+durvalumab for myelodysplastic syndromes;
MEDI0680+durvalumab for solid tumours; MEDI0562 (humanised OX40) for solid tumours; and improve progression-free survival.
AZD6738+Lynparza for gastric cancer; AZD1775 (Wee1) for solid tumours; Our programmes focus on identifying
daratumumab+durvalumab for multiple myeloma; in collaboration with Incyte, epacadostat
(IDO)+durvalumab for solid tumours and exploiting vulnerabilities unique to
Strategic transactions Acquisition of majority stake in Acerta Pharma providing access to acalabrutinib
tumour cells to kill the tumour cells while
completed minimising toxicity to the patient.
Setbacks and terminated FDA placed and subsequently lifted a partial clinical hold on the enrolment of new patients > Antibody-drug conjugates: The use
projects with head and neck squamous cell carcinoma (HNSCC) for clinical trials of durvalumab
of antibody-drug conjugates (ADC) is a
Tremelimumab DETERMINE, Lynparza GOLD, selumetinib SELECT-1 trials failed to meet clinically validated, highly potent approach
primary endpoint; voluntarily withdrew the marketing authorisation application submitted
to the EMA for cediranib in advanced ovarian cancer that selectively targets cancer cells.
O\PSKRPD0(',IRUVROLGWXPRXUVLQHELOL]XPDE 0(', ULWX[LPDEIRU engineering capabilities with cytotoxic
haematological malignancies; AZD5312 for solid tumours; AZD8835 for solid tumours;
TagrissoGXUYDOXPDE &$85$/ QGOLQHDGYDQFHG(*)5P7016&/&0(', drug molecules to attack and kill the
for solid tumours; durvalumab+MEDI6383 for solid tumours; MEDI0639 for solid tumours tumour while minimising toxicity to
the patient.

26 AstraZeneca Annual Report and Form 20-F Information 2016

Strategic Report
In February 2016, Tagrisso was approved endocrine therapy. In October 2016, at
Our marketed products by the EMA for the treatment of adult the European Society of Medical Oncology
patients with locally advanced or metastatic Congress, we presented positive results of
> Arimidex (anastrozole) EGFR T790M mutation-positive NSCLC. the Phase III FALCON clinical trial comparing
> Casodex/Cosudex (bicalutamide) In March 2016, it was approved in Japan the efcacy and safety of Faslodex 500mg
> Faslodex (fulvestrant) and, by the end of 2016, Tagrisso had with Arimidex in the 1st line advanced breast
received regulatory approval in more than cancer setting (hormone-nave patients).
> Iressa (getinib)
40 countries. In September 2016, the These positive outcomes will form the basis
> Lynparza (olaparib)
FDA approved a blood-based companion of a continuous expansion of Faslodex in
> Nolvadex (tamoxifen citrate) diagnostic test for use with Tagrisso. This metastatic breast cancer.
> Tagrisso (osimertinib) clinically-validated companion diagnostic
> Zoladex (goserelin acetate implant) test uses either tissue or a blood sample to Details of litigation relating to Faslodex
conrm the presence of a T790M mutation are included in Note 28 to the Financial
Full product information on page 211 in patients. Japan approved the same test Statements from page 185.
in December 2016.
Zoladex continues to be a signicant
Iressa was the rst EGFR-TKI to be asset in our on-market portfolio and a
approved in advanced NSCLC and, as of driver of our prostate cancer and breast
31 December 2016, had been approved in cancer portfolios.
We are also focused on identifying and 90 countries. Indicated for the treatment of
developing combination therapies. Our advanced EGFR mutation NSCLC, it is the
immuno-oncology portfolio, which we leading EGFR-TKI outside the US. Iressa
believe is one of the most comprehensive received approval in the US in July 2015.
in our industry, enables us to explore and
exploit scientic and biological synergies Lynparza is an oral poly ADP ribose
to pursue combinations that improve polymerase (PARP) inhibitor available to
outcomes and maximise patient benet. patients in 31 countries for the treatment
of adult patients with BRCA-mutated
Our 2016 focus high-grade serous epithelial ovarian,
In total, our marketed Oncology products fallopian tube or primary peritoneal cancer.
generated sales of $3.4 billion worldwide in In October 2016, AstraZeneca announced
2016. Sales from our New Oncology Growth positive high level results of SOLO-2,
Platform, totalled $0.7 billion in 2016, an a Phase III randomised, double-blind,
increase of 458% at actual rate of exchange placebo-controlled, multicentre study
(450% at CER) over 2015 ($0.1 billion). We of Lynparza maintenance monotherapy
continue to explore ways to maximise the in platinum sensitive relapsed BRCA
benet of our medicines for patients. gene-mutated ovarian cancer patients
who are in complete or partial response
Tagrisso is the rst approved epidermal following platinum-based chemotherapy.
growth factor receptor tyrosine kinase Data from SOLO-2 could form the core
inhibitor (EGFR-TKI) indicated for patients Phase III component for an FDA NDA
with metastatic EGFR T790M mutation- submission, a Japan NDA submission
positive non-small cell lung cancer (NSCLC).
This indication was approved in November
2015 under the FDAs Accelerated Approval
Programme based on tumour response rate
and an EU variation to the MAA in 2017.

Faslodex 500mg is approved in more than

80 countries, including the EU, the US and
and duration of response. Full approval for Japan. In March 2016, the FDA approved Annual cancer cases are expected to rise
this indication is dependent on verication a new indication expanding the use of from 14 million in 2012 to an estimated
and description of clinical benet in the Faslodex, in combination with palbociclib 22 million within the next two decades.
conrmatory trial, AURA3, for which positive (Pzer), for the treatment of women with
results were presented in December. hormone receptor-positive (HR+), human Source: WHO Factsheet February 2014 (data from 2012).

The EMA and FDA accepted the AURA3 epidermal growth factor receptor 2 negative
submission in October and November (HER2-) advanced or metastatic breast
respectively, and the FDA has granted cancer whose cancer has progressed after
it a Priority Review.

AstraZeneca Annual Report and Form 20-F Information 2016 27

Strategic Report Therapy Area Review

Oncology continued

In the pipeline Tumour drivers and resistance EMA for the treatment of chronic
Our Oncology pipeline continued to mechanisms franchise lymphocytic leukaemia (CLL)/small
progress in 2016. It now includes 32 NMEs > Tagrisso is a highly selective, irreversible lymphocytic lymphoma (SLL), mantle cell
in development. We also expanded several inhibitor of the activating sensitising EGFR lymphoma (MCL) and lymphoplasmacytic
of our projects to incorporate novel mutation and the resistance mutation lymphoma (Waldenstrms
combinations and various types of cancer. T790M. The product is being investigated macroglobulinaemia, WM).
Some of our projects from each of our in Phase III studies in the adjuvant setting
platforms are outlined below. for the treatment of patients with EGFRm DNA damage response franchise
NSCLC and in the advanced setting as a > Lynparza is being evaluated in a broad
Immuno-oncology franchise 1st line treatment of EGFRm NSCLC and range of Phase III trials, including BRCAm
> Durvalumab (MEDI4736) is an anti-PD-L1 as a 2nd line treatment of EGFRm adjuvant and metastatic breast cancer,
antibody in Phase III development for T790M NSCLC. Additionally, studies in gBRCAm pancreatic cancer, gBRCAm
NSCLC as a monotherapy and in combination with small molecules are ovarian cancer and prostate cancer.
combination with tremelimumab, an under investigation. Lynparza was granted Breakthrough
anti-Cytotoxic T-Lymphocyte-Associated > Selumetinib is a mitogen-activated protein Therapy Designation by the FDA for
protein 4 antibody. The lung cancer kinase inhibitor in Phase III development treatment of BRCA1/2 or ATM gene-
programme includes studies in the for adjuvant differentiated thyroid cancer. mutated metastatic castration resistant
1st line, 2nd line and 3rd line setting. In May 2016, selumetinib was granted prostate cancer. In May 2016, the
Additional registration studies are Orphan Drug Designation by the FDA for Lynparza GOLD study in 2nd line gastric
progressing in head and neck squamous differentiated thyroid cancer. In August cancer failed to meet its primary endpoint
cell carcinoma (1st and 2nd line), and 2016, the selumetinib Phase III study of overall survival. In October 2016, results
bladder cancer (1st line). The development SELECT-1 in 2nd line KRAS mutant from the Phase III SOLO-2 trial
programme also includes additional NSCLC failed to meet its primary demonstrated a clinically meaningful and
Phase I and Phase II studies in a broad endpoint of progression-free survival. statistically signicant improvement of
range of solid tumours and an extensive > Cediranib is an orally administered progression-free survival (PFS) among
range of combination programmes. In multi-Vascular Endothelial Growth Factor patients treated with Lynparza tablets
February 2016, durvalumab was granted receptor (VEGFR) inhibitor which is (300mg twice daily) compared to placebo
Breakthrough Therapy Designation by currently being tested in combination and provided additional evidence to
the FDA for the treatment of patients with with Lynparza in patients with platinum- support the potential use of Lynparza
PD-L1 positive inoperable or metastatic sensitive relapsed (PSR) ovarian cancer as a monotherapy for the maintenance
urothelial bladder cancer and, in and platinum-resistant/refractory (PRR) treatment of platinum-sensitive relapsed,
December 2016, it was additionally ovarian cancer. In September 2016, BRCA-mutated ovarian cancer.
granted Priority Review status with AstraZeneca made the decision to > AZD1775 is a Wee1 inhibitor in Phase II
a Prescription Drug User Fee Act set withdraw the MAA for cediranib in development for ovarian and other solid
for the second quarter of 2017. combination with platinum-based tumours in combination with Lynparza.
> MEDI0680 is an antiprogrammed cell chemotherapy followed by maintenance > Phase I clinical studies are progressing
death protein 1 (PD-1) MAb that may help monotherapy for the treatment of adult for the ATR inhibitor AZD6738 (2nd line
promote an effective anti-tumour immune patients with platinum-sensitive relapsed gastric cancer with Lynparza and also in
response by blocking the interactions ovarian cancer (ICON6). combination with ionising radiation in solid
between PD-1 and its ligands. It could > AZD5363 is a protein kinase B (AKT) tumours), the ATM inhibitor AZD0156 (for
also improve the intrinsic functionality of inhibitor in Phase II development for the treatment of gastric and colorectal
T-cells by triggering internalisation of PD-1, breast and prostate cancer. cancers) and the aurora b kinase
a mechanism that may be unique to > Savolitinib (AZD6094) is a hepatocyte AZD2811 (in solid tumours).
MEDI0680. MEDI0680 is in Phase I growth factor receptor (c-MET) inhibitor.
development for solid tumours as a It is in Phase II development for lung and
monotherapy and in combination with renal cancer.
durvalumab. > Vistusertib (AZD2014) is an inhibitor of the
> Other immuno-oncology agents in early mammalian target of rapamycin serine/
development include: MEDI6383, a threonine kinase (TORC1, TORC2) and is
human tumour necrosis factor receptor
superfamily, member 4 (OX40) agonist;
MEDI9447 targeting ecto-5-nucleotidase
(CD73); and MEDI1873 targeting
in Phase II development for the treatment
of solid and haematological tumours.
> AZD9496 is a selective oestrogen
receptor down-regulator (SERD) in
glucocorticoid-induced tumour necrosis Phase I development for the treatment Cancer is a leading cause of death
factor receptor-ligand (GITRL). These of breast cancer. worldwide and accounted for 8.2 million
agents are in Phase I development for > Acalabrutinib is a Brutons tyrosine kinase deaths in 2012.
a range of solid tumours and have the (BTK) inhibitor in Phase III development in
potential for combination with other B-cell malignancies and solid tumours. In Source: WHO Factsheet February 2014 (data from 2012).

molecules in the portfolio. April 2016, acalabrutinib was designated

as an orphan medicinal product by the

28 AstraZeneca Annual Report and Form 20-F Information 2016

Strategic Report
combination with Incytes oral indoleamine
dioxygenase-1 (IDO1) inhibitor, epacadostat

We also extended our collaboration with

Moderna to discover, co-develop and
co-commercialise messenger RNA (mRNA)
therapeutic candidates for the treatment
of a range of cancers.

In February 2016, we completed a

transaction for a majority equity stake
investment in Acerta Pharma. The
transaction provides AstraZeneca with a
potential best-in-class irreversible oral BTK
inhibitor, acalabrutinib (ACP-196), currently
inPhase III development for B-cell blood
cancers and in Phase I/II clinical trials in
multiple solid tumours.

In June 2016, we signed a denitive

agreement with Foundation Medicine, Inc.
todevelop a novel companion diagnostic
assay for Lynparza to support its global
ing fo
ing f r thee futuree: development programme. The companion
Pe o alised hea e lthc
a e (P
H ) in
n diagnostic seeks to enable physicians
im muno
nc olog
ologgy (I
O) to identify those patients most likely to
benet from AstraZenecas rst-in-class
PARP inhibitor.
AstraZeneca has been at the forefront Antibody-drug conjugates franchise
of PHC since its inception, with 80% of > Moxetumomab pasudotox, an anti-CD22 In November 2016, CancerLinQ, a non-prot
current investigative molecules using a recombinant immunotoxin, is being subsidiary of the American Society of
PHC approach. This research includes investigated in a Phase III study for adult Clinical Oncology, announced a new
investment in understanding the science patients with hairy cell leukaemia who non-exclusive partnership with AstraZeneca,
of PD-L1 protein expression, which plays have relapsed after, or not responded to, which will use CancerLinQ Discovery, a
a role in suppressing the immune system. standard therapy. groundbreaking offering that aims to provide
Testing for expression levels of PD-L1 > MEDI4276 is a HER2 bispecic ADC, insights through the analysis of real-world
may help to identify patients most likely which entered clinical development for cancer care data. As a Founding Enterprise
WREHQHWIURP,2EDVHGFDQFHUWKHUDSLHV a range of solid tumours. Partner, AstraZeneca will be able to gather
However, choosing between the many insights on specic cancer care questions
PD-L1 diagnostic tests available can be Key Oncology collaborations and provide critical input to maximise
challenging. We embarked on a series of and transactions CancerLinQ Discoverys utility and usability.
studies to compare the currently available Collaboration is key to accessing the best
PD-L1 tests across various tumour types, science and technology, achieving scientic
and demonstrated a strong association leadership and delivering innovative,
concordance between most of them. life-changing medicines. In 2016, we
This research suggests that the tests continued to strengthen our portfolio and
might one day be used interchangeably
patients for IO therapies, thereby driving
accelerate clinical programmes through
acquisitions and collaborations.

In January 2016, we announced a new

collaboration with Incyte to evaluate the More than 60% of the worlds total new
efcacy and safety of Incytes Janus- annual cancer cases occur in Africa,
associated kinase (JAK) 1 inhibitor, Asia and Central and South America.
INCB39110, in combination with Tagrisso. These regions account for 70% of the
This builds on an existing collaboration worlds cancer deaths.
between the two companies to explore
AstraZenecas anti-PD-L1 immune Source: WHO Factsheet February 2014 (data from 2012).

checkpoint inhibitor, durvalumab, in

AstraZeneca Annual Report and Form 20-F Information 2016 29

Strategic Report Therapy Area Review

Cardiovascular &
Current treatments for
Metabolic Disease
hyperkalaemia, a potentially
life-threatening condition
associated with chronic
kidney disease and chronic
heart failure, are poorly
tolerated by patients.
AstraZeneca is developing
We push the boundaries of science
a treatment which traps
potassium in the gut and
to create life-changing medicines for
removes it from the body.
patients that reduce morbidity, mortality
and organ damage by addressing
multiple risk factors.
Strategic Report
Following the science We are seeking to unlock the scientic Therapy area world market
potential of our CVMD therapy area by (MAT/Q3/16)
of cardiovascular and investigating disease causes and
metabolic disease
AstraZeneca is following the science to
transform how cardiovascular disease
progression, supporting our larger objective
of innovating to develop novel therapeutic
approaches. Our efforts aim to reduce
long-term morbidity and mortality, and
Annual worldwide market value
(CVD), chronic kidney disease (CKD) and to ultimately reduce the burden, as well
diabetes are understood, interact and as the human, social and economic costs, High blood pressure
impact one another ensuring the focus of these diseases. $37.9bn
Abnormal levels of
of treatment is across cardiovascular and blood cholesterol
metabolic disease (CVMD) to slow Our commitment is demonstrated in both $26.7bn
progression and save more lives. our clinical development and life-cycle Diabetes $70.9bn
management programmes. More than Thrombosis $8.6bn
Our strategic priorities 60,000 patients are participating in our Other $42.7bn
Our strategic focus is on transformative R&D-led cardiovascular trials at more
medicines that address the high unmet than 6,000 sites worldwide. Our focus
medical need in CVMD, including on diabetes research includes almost
thrombosis (blood clotting), atherosclerosis 50 clinical trials worldwide with an
(hardening of the arteries), dyslipidaemia enrolment target of 56,000 patients. > Collaboration with the Harvard Stem Cell
(abnormal levels of blood lipids), chronic Institute to adapt a technique that creates
heart failure (CHF), diabetes and CKD. Our scientic leadership is strengthened by human beta cells from stem cells in the
developing cutting edge technologies with search for new, transformative treatment
Currently an estimated 17.5 million people our strategic partners: options for diabetes.
die annually from CVD, representing 31%
of all global deaths, and CVD is the leading > Participation in the RPC2 consortium
cause of death in people with CKD and (renal precompetitive consortium) formed Cardiovascular disease
people with diabetes. Despite improvements with the University of Michigan and Lilly Our 2016 focus
in the diagnosis and treatment of CVMD, to identify new therapeutic targets for the Acute coronary syndromes (ACS) is an
unmet medical need, as well as access and treatment of CKD. umbrella term for sudden chest pain
affordability challenges, remain high, while > Alliance with Moderna and Professor Ken and other symptoms due to ischaemia
co-morbidity is common in patients living Chien at the Integrated Cardio Metabolic (insufcient blood supply) to the heart.
with CVMD. Centre (ICMC), Karolinska Institutet in ACS is associated with considerable
Stockholm, Sweden, to identify targets mortality and morbidity. There is a
and pathways involved in repairing signicant need to improve patient
damaged cardiac muscle. outcomes and reduce treatment costs.

Brilinta/Brilique is an oral antiplatelet

treatment for ACS. It is approved in over
100 countries, including the US, Canada
and Brazil under the trade name Brilinta,
and in the EU, Iceland and Norway under
the trade name Brilique. Since it was rst
Cardiovascular & Metabolic Disease pipeline progressions launched in Europe in December 2010,
it has been included in 12 major ACS
Regional approvals Brilinta/Brilique post myocardial infarction (EU) and acute coronary syndromes and post
myocardial infarction (JP)
treatment guidelines globally.
In February 2016, the European Commission
Expedited review None
granted marketing authorisation for Brilique
Regulatory submissions ZS-9 hyperkalaemia in response to a CRL (US)
for long-term prevention of cardiovascular
death, heart attack and stroke for patients
Two further submissions await regulatory acceptance
with a history of heart attack. The EU
Phase III investment Forxiga heart failure; Forxiga chronic kidney disease
approval was based on the results from
Phase II starts/progressions MEDI4166 diabetes/cardiovascular disease; MEDI0382 diabetes/obesity; AZD4076
the PEGASUS TIMI-54 trial, a large-scale
non-alcoholic steatohepatitis outcomes trial involving more than
Strategic transactions Partnering with 3SBio Inc. for commercialisation of Bydureon and Byetta in China 21,000 patients.
Setbacks and terminated Brilinta SOCRATES and EUCLID trials failed to meet primary endpoint; CRL received from
projects FDA for ZS-9 for treatment of hyperkalaemia; Epanova/Farxiga combination discontinued
for non-alcoholic steatohepatitis (NASH)

AstraZeneca Annual Report and Form 20-F Information 2016 31

Strategic Report Therapy Area Review

Cardiovascular & Metabolic Disease continued

In March 2016, the SOCRATES trial top-line In October 2016, the EUCLID Phase III
Our marketed products results were announced. The trial assessed trial in peripheral artery disease (PAD)
the efcacy of Brilinta 90mg tablets twice results were announced. Brilinta did not
Cardiovascular disease daily when compared to aspirin 100mg demonstrate benet over clopidogrel in a
> Atacand1/Atacand HCT/Atacand Plus once daily in patients with acute ischaemic symptomatic PAD patient population and
(candesartan cilexetil) stroke or transient ischaemic attack. Fewer did not meet the primary endpoint of the
> Brilinta/Brilique (ticagrelor) events were observed on Brilinta versus the trial. However, the safety prole observed in
> Crestor 2 (rosuvastatin calcium) comparator in the overall trial population; both this trial and the SOCRATES trial was
> Imdur 3 (isosorbide mononitrate) the trend, however, did not reach statistical consistent with the known safety prole of
> Plendil 4 (felodipine) signicance and the primary efcacy Brilinta. Based on the current expectations,
endpoint of time to rst occurrence of it is unlikely that we will seek regulatory
> Seloken/Toprol-XL5 (metoprolol succinate)
any event from the composite of stroke submission of an indication in PAD.
> Tenormin6 (atenolol)
(ischaemic or haemorrhagic), myocardial
> Zestril 7 (lisinopril dihydrate) infarction (MI) and death was not met. Crestor is approved in 109 countries
for the treatment of dyslipidaemia and
In March 2016, the American College of hypercholesterolaemia (elevated
Metabolic disease
> Bydureon (exenatide XR injectable suspension)
Cardiology (ACC) and American Heart cholesterol). The medicine has been shown
Association (AHA) updated their treatment to effectively lower low-density lipoprotein
> Byetta (exenatide injection)
guidelines for ACS and the duration of dual cholesterol (LDL-C) and achieve LDL-C
> Farxiga/Forxiga (dapagliozin)
antiplatelet therapy. Brilinta is now preferred goals and to increase high-density
> Kombiglyze XR (saxagliptin and metformin HCl) over clopidogrel for the management of lipoprotein cholesterol (HDL-C) and reduce
> Komboglyze (saxagliptin and metformin HCl) patients with ACS who have received a atherosclerotic plaque. Crestor faces
> Onglyza (saxagliptin) coronary stent and in non-ST Elevation ACS competition from atorvastatin (Lipitor) and
> Qtern (saxagliptin/dapagliozin) patients treated with medical therapy alone. other generic products. The substance
> Symlin (pramlintide acetate)
This update was the rst time that the patent protecting Crestor in the US expired
ACC and AHA have recommended Brilinta on 8 January 2016 and the paediatric
> Xigduo (dapagliozin and metformin HCI)
over clopidogrel for patients who have exclusivity period expired on 8 July 2016.
> Xigduo XR (dapagliozin and metformin HCI)
experienced an ST-elevation myocardial Watson Laboratories, Inc. and Actavis, Inc.
infarction (STEMI). began selling generic rosuvastatin in the
Full product information on page 211 US in May 2016 as the result of a litigation
The update was also the rst US guideline settlement with AstraZeneca. Details of
Licensed from Takeda Chemicals Industries Ltd.
Licensed from Shionogi. The extension of the global to provide the medical community with these matters are included in Note 28
licence agreement with Shionogi for Crestor and the insights drawn from the PEGASUS TIMI-54 to the Financial Statements, from page 185.
b-DQXDU\ trial. The guideline supported continuation Additional manufacturers have made
Divested China rights to China Medical Systems of P2Y12 platelet inhibitor therapy beyond generic rosuvastatin available in the
Divested China rights to China Medical Systems 12 months in prior MI patients who are not US in 2016, in line with AstraZenecas
+ROGLQJV/WGHHFWLYH)HEUXDU\ at high bleeding risk. business assumptions.
Divested US rights to Tenormin to Alvogen Pharma US There were three new treatment guidelines Epanova (omega-3-carboxylic acids)
Licensed from Merck. Divested US rights to Zestril to
updated in China in the rst half of 2016. is the rst FDA approved prescription
$OYRJHQ3KDUPD86,QFHHFWLYH-DQXDU\ The ACS Emergency Room Rapid omega-3 fatty acid in free fatty acid form.
Guideline, Chinese PCI Guideline and the It has the potential to help patients with
Coronary Artery Bypass Graft Consensus severe hypertriglyceridaemia by reducing
(2016) Guideline. These recommended high triglycerides (TG) levels. Epanova is
Brilinta as rst-choice treatment over any approved in the US as an adjunct to diet
other platelet inhibitor. to reduce TG levels in adult patients with
severe hypertriglyceridaemia (TG levels
The Japanese Ministry of Health, Labour 500mg/dL). We remain committed to
and Welfare approved Brilinta 90mg for the launch of Epanova in the US and other
patients with ACS for whom the use of other key markets.
antiplatelet medicines in combination with
aspirin is difcult. Brilinta 60mg was also
approved for patients who have suffered
a heart attack at least one year prior and
are at high risk of developing a further
atherothrombotic event.

32 AstraZeneca Annual Report and Form 20-F Information 2016

Strategic Report
Our 2016 focus
We are focused on redening the Type 2
diabetes treatment approach and harnessing
complementary mechanisms of action, as
well as evaluating potential CV outcomes
benet. Our current portfolio is intended to
enable combination treatment, and data
from our Phase III programmes are expected
to further support the outcomes benet of
this new class approach.

In 2016, we saw ongoing approvals

and launches for Farxiga/Forxiga for the
sti g for the future: treatment of Type 2 diabetes. Starting with
Patients with chronic kidney dise
issease the EU in 2012, it is now approved in over
KD)) an
d he
art failure (HF) 85 countries. It is under regulatory review
in 12 additional countries.

/ a is an SGLT2 inhibitor We are also committed to further evaluating Xigduo is approved in 55 countries,
indicated for the treatment of Type 2 the clinical prole of Epanova and identifying including the US with Xigduo XR with
diabetes. It is also being investigated other patient groups it may benet. ongoing approvals in 2017 expected. In
in two Phase IIIb outcome trials for the AstraZeneca continues to advance its 2016, we continued to receive approvals
management of CKD and HF in people large-scale CV outcomes trial (STRENGTH), and launch the Bydureon Pen in new
with and without Type 2 diabetes. This STatin Residual risk reduction with EpaNova markets, which is now either approved
PDUNVWKHUVWWLPHDPDMRURXWFRPHWULDO in hiGh cardiovascular risk paTients with or launched in 30 countries, including the
ZLOOEHFRQGXFWHGWRHYDOXDWHWKHHHFWRI Hypertriglyceridaemia, to evaluate the safety US, Japan and key European countries.
an SGLT2 inhibitor in CKD, for which and efcacy of Epanova on CV outcomes The Bydureon Pen is a pre-lled, single-use
there are currently few treatment options in combination with statin therapy for pen injector. In the US, we are engaged in
DQGDVLJQLFDQWXQPHWPHGLFDOQHHG the treatment of patients with mixed patent litigation against multiple generic
dyslipidaemia who are at increased risk companies challenging patents listed in
of CV disease. the FDA Orange Book with reference to
Onglyza, and are awaiting the outcome of
a trial that took place in September 2016.
Clinical studies
Metabolic and renal
PARTHENON is AstraZenecas largest ever diseases
cardiovascular (CV) outcomes programme Type 2 diabetes is a chronic progressive
involving nearly 80,000 patients. It includes disease that accounts for more than 90%
ve key studies covering broad patient of diabetes cases worldwide. Disease
populations across varying timescales and prevalence continues to grow, particularly
aims to support four new indications for among those at a younger age, and many
Brilinta/Brilique over the next four years. patients require multiple medications.
Following the SOCRATES and EUCLID Various oral generic and branded
trials, which failed to meet primary endpoint, treatments exist and newer classes of
THEMIS is the next major trial, studying treatments continue to enter the market.
the benet of ticagrelor for the prevention
of CV events among Type 2 diabetic There are more than 200 million people
patients. The whole programme continues worldwide living with CKD and AstraZeneca
to progress. is working to create an innovative standard

To better understand the interplay between

CKD, CVD and diabetes, AstraZeneca
recently announced two Phase IIIb
of care to prevent, treat and manage CKD
with a long-term ambition of modifying
the disease itself. Complications of CKD,
such as hyperkalaemia and anaemia, are
outcomes trials designed to evaluate the associated with signicant CV risk plus An estimated 17.5 million people die
potential role of an SGLT2 inhibitor, which morbidity and mortality. annually from CV disease, representing
is currently indicated for the treatment of 31% of all global deaths. More than
Type 2 diabetes, in the management of both three-quarters of these deaths occur
CHD and CKD in people with and without in low- to middle-income countries.
Type 2 diabetes. This marks the rst time Source: WHO Factsheet 2016 (data from 2012).
a major outcome trial will evaluate the effect
of an SGLT2 inhibitor on CKD.

AstraZeneca Annual Report and Form 20-F Information 2016 33

Strategic Report Therapy Area Review

Cardiovascular & Metabolic Disease continued

In July 2016, we also saw the approval submitted data which it had yet to review.
of Qtern (a xed-dose combination of In October 2016, the FDA conrmed

422m saxagliptin and dapagliozin) by the

European Commission for the treatment
of Type 2 diabetes in European markets
the rst DPP-4i/SGLT2i combination
acceptance of the NDA resubmission.
The resubmission did not require the
generation of new data and a regulatory
decision is expected in the rst half of 2017.
The number of people with diabetes product to be approved in Europe. The Interactions are ongoing with other health
has risen from 108 million in 1980 to resubmission for Qtern in the US was authorities in the EU and Australia, where
422 million in 2014. Diabetes prevalence completed and accepted by the FDA, ZS-9 is currently under separate regulatory
has been rising more rapidly in middle- and we anticipate a Prescription Drug review. Additional regulatory submissions
and low-income countries. User Fee Act date in early 2017. in other markets are planned for 2017.
Source: WHO Factsheet November 2016.
In September, we saw positive results Verinurad (RDEA3170) is a potent selective
from the Phase III DURATION-8 trial, uric acid reabsorption inhibitor that has been
demonstrating that Bydureon (exenatide in Phase II development as a urate-lowering
extended-release formulation) 2mg once- therapy. We will now progress development
weekly in combination with Forxiga of verinurad for CKD in a Phase II trial, which
(dapagliozin) 10mg once-daily, signicantly is planned to start during 2017.
reduced blood sugar as measured by
HbA1c, versus the individual medicines For more information please see Financial
alone in patients with Type 2 diabetes Review from page 62
inadequately controlled on metformin.
Clinical studies
In the pipeline The Dapagliozin Effect on CardiovascuLAR
The Phase III programme for a once-weekly Events (DECLARE) study, a large CV
suspension of Bydureon continues to outcomes trial to assess the impact of
progress and the Bydureon auto-injector Farxiga/Forxiga on CV risk/benet, when
is due for submission to the FDA in 2017. added to a patients current diabetes

200m Through our strategic collaboration with

FibroGen and Astellas, we continue to
develop roxadustat, a potential rst-in-class
therapy, continued in 2016. The trial was
fully enrolled in 2015 with approximately
17,000 adult patients with Type 2 diabetes
and is expected to be completed in 2019.
&.'DHFWVDQHVWLPDWHGPLOOLRQ oral hypoxia-inducible factor prolyl
people worldwide. hydroxylase inhibitor (HIF-PHI) in Phase III The Exenatide Study of Cardiovascular
development for the treatment of anaemia Event Lowering (EXSCEL) study also
Source: Ojo A. Addressing the Global Burden of Chronic
Kidney Disease Through Clinical and Translational Research. in patients with CKD, including those who continued during 2016. This study, which
Transactions of the American Clinical and Climatological are dialysis dependent and non-dialysis began in 2010 and is expected to end in
Association 2015; 125: 229-246.
dependent. Roxadustat is in Phase III in the 2018, is evaluating the impact of Bydureon,
US, Europe, Japan and China. The Phase III in addition to standard of care, on CV
programme consists of 15 studies enrolling outcomes in patients with Type 2 diabetes.
more than 7,000 patients worldwide.
To date, roxadustat has been studied in AstraZeneca and FibroGen continue to
over 1,100 subjects in completed Phase I investigate roxadustat for the treatment
and II studies. of anaemia in patients with CKD. The
OLYMPUS and ROCKIES pivotal studies
We continue to progress ZS-9 (sodium evaluate roxadustat for the treatment of
zirconium cyclosilicate), a treatment for anaemia in patients with CKD not on dialysis
hyperkalaemia being developed by ZS and on dialysis, respectively. The initial data
Pharma, a wholly-owned subsidiary of read-out for our sponsored trials is expected
AstraZeneca which was acquired in to align with the availability of pooled safety
December 2015. data in coordination with our partners,
expected in early 2018, and we anticipate
In May 2016, the FDA issued a complete a 2018 regulatory ling in the US.
response letter (CRL) regarding the NDA
for ZS-9. The CRL referred to observations
arising from a pre-approval inspection at
the manufacturing facility and the FDA
acknowledged the receipt of recently-

34 AstraZeneca Annual Report and Form 20-F Information 2016

One of our key focus areas in
Respiratory is lung immunity,
where we are aiming to reset
immunological dysfunctions
that may be underlying
causes of disease.

We aim to transform the treatment of
respiratory disease with our growing
portfolio of inhaled and biologic medicines

AstraZeneca Annual Report and Form 20-F Information 2016 35

Strategic Report Therapy Area Review

Respiratory continued

Following the science Asthma is one of the most common and Therapy area world market
chronic lung diseases worldwide and a (MAT/Q3/16)
of respiratory disease serious global health problem, affecting the
Our 40-year heritage in respiratory
medicines is just the beginning
of our story. The age of targeted
lungs airways. Inammation and narrowing
of the airways may cause wheezing,
breathlessness, chest tightness and
coughing. Fixed-dose combinations (FDCs)
Annual worldwide market value
biologics to address the unmet
of an inhaled corticosteroid (ICS) with a
needs of specific patient populations
long-acting beta2-agonist (LABA) such as Asthma $19.4bn
has now arrived in asthma, and COPD $15.4bn
Symbicort are the cornerstone of treatment,
AstraZeneca has three biologics in Other $30.0bn
helping to treat moderate-to-severe asthma.
mid- or late-stage development with
For patients with mild asthma, we are
each one targeting different biologic
investigating the use of Symbicort dosed
pathways that play important roles
as needed, recognising the variability and
in this heterogeneous disease.
inammatory nature of disease in these
patients. For the approximately 10%
Our strategic priorities
of asthma patients who have severe,
Respiratory is one of AstraZenecas main
uncontrolled asthma despite standard-of-
therapy areas, and our medicines reached
care medications, we are working to
more than 18 million patients in 2016. We
develop targeted biologics that address Our 2016 focus
have a strong pipeline with about 22,000
the underlying causes of disease. The We continue to invest in Symbicort,
patients involved in clinical trials, and we
FDA and EMA have accepted regulatory which was the number one ICS/LABA
expect up to four launches of new
submissions for benralizumab, our rst combination globally in volume terms
medicines between 2016 and 2020.
respiratory biologic, which is being in 2016. In the US, the FDA approved
developed for severe asthma. Symbicort Inhalation Aerosol 80/4.5
Our work focuses on transforming the
micrograms for the treatment of asthma
treatment of asthma and COPD in three
COPD is a progressive and chronic disease. in paediatric patients aged six to 12 years.
areas: (i) inhaled combinations at the core
There are unmet needs in the treatment of The FDA approval is based on the CHASE
of care, (ii) biologic medicines for the unmet
COPD, such as exacerbation and symptom (ChildHood Asthma Safety and Efcacy)
needs of specic patient populations, and
control, improving health status and slowing clinical trial programme, which included the
(iii) scientic advancements where our
the decline of lung function and disease CHASE 3 Phase III trial. In addition, on 25
ambition is to achieve disease modication
progression. We foresee physicians January 2017, the FDA granted six months
and durable remission. We have
increasingly treating earlier and more of paediatric exclusivity for Symbicort
considerable capabilities in inhalation
actively with different strategies for Inhalation Aerosol. Budesonide/formoterol
technologies, which span both pressurised
inammatory and non-inammatory was already approved in the US to treat
metered-dose inhalers (pMDIs) and dry
patients, and both our portfolio and asthma in patients 12 years and older and
powder inhalers (DPIs), as well as our
development pipeline address these for the maintenance treatment of airow
innovative particle Co-Suspension Delivery
different needs in mild and severe disease. obstruction in COPD in adults.
Technology. In our early development
pipeline, we focus our research on three key
In the EU, two new indications were
areas: lung immunity, lung epithelium and
approved during 2016 Symbicort pMDI
lung regeneration.
for the treatment of COPD and Symbicort
SMART for adolescents with asthma.
Also, Pulmicort continues to be a leading
ICS therapy, with signicant sales growth
in 2016 driven by China and other
Emerging Markets.
Respiratory pipeline progressions
In April 2016, the FDA approved Bevespi
Regional approvals Bevespi Aerosphere (PT003) COPD (US) Aerosphere inhalation for the long-term
Expedited review None maintenance treatment of airow
Regulatory submissions %HQUDOL]XPDEVHYHUHDVWKPD 86(8  obstruction in patients with COPD, including
One further submission awaits regulatory acceptance chronic bronchitis and/or emphysema.
Phase III investment None Bevespi Aerosphere is the rst combination
long-acting muscarinic antagonist (LAMA)
Phase II starts/progressions Abediterol (AZD0548) for asthma/COPD; AZD1419 (inhaled TLR9) asthma
and LABA medicine to be delivered in
Strategic transactions Acquisition of Takedas core respiratory business a pMDI and the rst medicine using

Setbacks and terminated AZD8999 for COPD; MEDI7836 for asthma; AZD7624 for COPD

36 AstraZeneca Annual Report and Form 20-F Information 2016

Strategic Report
Our marketed products
> Accolate (zarlukast)
> Bevespi Aerosphere (glycopyrrolate
and formoterol fumarate)
> Bricanyl Respules (terbutaline)1
> Bricanyl Turbuhaler (terbutaline)2
> Daliresp/Daxas (roumilast)
> Duaklir Genuair (aclidinium/formoterol)2
> Eklira Genuair/Tudorza Pressair (aclidinium)2

> Oxis Turbuhaler (formoterol)2
> Pulmicort Turbuhaler/Pulmicort Flexhaler
> Pulmicort Respules (budesonide)1
> Symbicort pMDI (budesonide/formoterol) It is estimated that approximately oral corticosteroid use in this same
> Symbicort Turbuhaler (budesonide/formoterol)2 315 million people worldwide patient population. Benralizumab is also
VXHUIURPDVWKPD in development for COPD. Phase III results
Full product information on page 211 and regulatory lings for COPD studies are
Inhalation suspension.
expected in 2018.
In a dry powder inhaler. Source: To T, Stanojevic S, Moores G et al. Global asthma
health survey. BioMed Central Public Health. 2012: 12(204)
that binds to IL-13. Blocking IL-13 is a
potentially important target in the treatment
of certain types of severe asthma,
AstraZenecas unique Co-Suspension In the pipeline estimated to affect around half the total
Delivery Technology. The technology is In COPD, PT010 is a twice-daily triple severe asthma population. Analysis of
designed to enable medicine crystals to inhaled medicine combination LAMA/ the tralokinumab Phase II data suggests
be evenly distributed in the aerosol allowing LABA/ICS composed of glycopyrrolate, that IL-13 neutralisation may improve lung
for more consistent delivery of one or more formoterol and budesonide (key function and reduce asthma exacerbation
different medicines from a single pMDI. components of Symbicort and Bevespi rate in a subpopulation of moderate-
The technology is also being applied to a Aerosphere) in late-stage development. to-severe asthma patients who are
range of AstraZeneca respiratory inhaled PT010 is delivered in a pMDI using the uncontrolled with standard-of-care therapy.
combination therapies currently in clinical Aerosphere Technology. Topline data from In August 2014, we initiated a Phase III
development, such as the xed-dose triple the KRONOS study will be available in 2017. programme to evaluate the safety and
combination of LAMA/LABA/ICS (PT010). efcacy of tralokinumab in reducing asthma
Benralizumab is an anti-eosinophil MAb exacerbations in adults and adolescents
We have launched the LAMA/LABA that directly induces cellular apoptosis, with severe, inadequately controlled asthma.
combination Duaklir for the maintenance which results in rapid and near-complete The Phase III asthma programme is on track
treatment of COPD symptoms in 25 depletion of eosinophils. Eosinophils to deliver results in the second half of 2017.
countries across Europe, Asia and are the biological effector cells that
Latin America. Phase III development drive inammation and airway hyper-
in the US and China is underway with responsiveness in approximately 50%
anticipated regulatory lings in 2018 of asthma patients. The FDA and EMA
and 2019 respectively.

In May 2016, we completed our acquisition

of Takedas core respiratory business.
have accepted regulatory submissions
for benralizumab, based on our Phase III
clinical trial programme. The SIROCCO and
CALIMA studies demonstrated that adding
The deal included the acquisition of non-US benralizumab to standard-of-care medicine The global prevalence of COPD is estimated
rights to Daliresp, which is known as Daxas signicantly reduced exacerbations and to be 329 million people and WHO predicts
in certain countries. In December 2016, improved lung function and asthma that COPD will become the third leading
we completed the divestment of the non-US symptoms in severe asthma patients with cause of death worldwide by 2030.
rights to Rhinocort Aqua, a nasal spray an eosinophilic phenotype compared to 1
indicated for rhinitis nasal polyps, to patients taking a placebo. These outcomes preferences in severe COPD and asthma: a comprehensive
Cilag GmbH International, an afliate of were demonstrated for the eight week literature review. International Journal of COPD. 2015: 10:
Johnson & Johnson. dosing regimen, which may support less- 2
Source: WHO. Burden of COPD.
frequent dosing than available medicines. respiratory/copd/burden/en/. Accessed December 2016.

An additional Phase III study showed

benralizumab also reduced dependence on

AstraZeneca Annual Report and Form 20-F Information 2016 37

Strategic Report Therapy Area Review

Other Disease Areas

In addition to our focus on the treatment of diseases Psoriasis is a chronic disease in which the
immune system causes skin cells to grow
in our three main therapy areas, we are also selectively rapidly. Instead of being shed, the skin cells
active in the areas of Autoimmunity, Infection and pile up, causing painful and itchy, red, scaly
patches that can bleed. Approximately
Neuroscience, as well as Gastroenterology, where 100 million people worldwide suffer from
we aim to develop best-in-class therapies and follow psoriasis. Despite available treatment
options for moderate-to-severe plaque
an opportunity-driven approach. psoriasis, many patients do not experience
a resolution of underlying inammation,
clearing of symptoms or an improved
quality of life.

Our approach in our other disease areas as infection, nephritis and cardiovascular Gout is a serious, chronic, progressive
looks to maximise revenue through disease. Inammation of the kidneys caused and debilitating form of inammatory arthritis
externalisation and on-market products; by SLE known as lupus nephritis can that affects more than 15.8 million people
advance the novel product pipeline with lead to signicant morbidity and even in major markets. The underlying cause
partnerships where appropriate; and death. Current treatment of SLE focuses of gout is hyperuricemia (elevated serum
preserve a company stake in the most on suppressing symptoms and controlling uric acid), which leads to the deposition
promising assets. disease ares and, in the case of lupus of crystals primarily in the joints and in
nephritis, preventing renal failure. other tissues. This can result in recurrent
Autoimmunity attacks of inammatory arthritis and, if
Systemic lupus erythematosus (SLE), Neuromyelitis optica (NMO) is a rare, life- left uncontrolled, can lead to chronic,
or lupus, is an autoimmune disease threatening autoimmune disease of the progressive arthritis and tophus (visible soft
that occurs when the immune system central nervous system in which the bodys tissue deposits of urate crystals) formation.
produces antibodies that attack healthy immune system attacks healthy cells, most
tissue, including skin, joints, kidney, the commonly in the optic nerves and spinal Rheumatoid arthritis is an autoimmune
brain and blood vessels. SLE can cause cord, resulting in severe damage. NMO disease that affects about 1% of the
a wide range of symptoms. Among these causes severe muscle weakness and population and causes inammation in
are pain, rashes, fatigue, swelling in joints, paralysis, loss of vision, respiratory failure, the joints, with joint pain and swelling
and fevers. SLE is associated with a problems with bowel and bladder function symptoms. There is a need for novel
greater risk of death from causes such and neuropathic pain. treatments, since only about a third of
patients treated with biologics achieve
their treatment goals.

In the pipeline
We are strengthening our pipeline and
improving treatment options and clinical
outcomes for patients with inammatory
and autoimmune diseases. Common
Other Disease Areas pipeline progressions molecular pathways are often shared
across multiple autoimmune diseases,
Regional approvals Zurampic gout (EU) which provides opportunities to identify
Zavicefta (previously CAZ AVI) serious infections (EU) and work with approaches that could
disease (US)
Anifrolumab is a developmental MAb that
Regulatory submissions Lesinurad+allopurinol FDC gout (US) inhibits the activity of all type I interferon (IFN)
Phase III investment $='$O]KHLPHUVGLVHDVH$70$9, IRUVHULRXVEDFWHULDOLQIHFWLRQVWUDORNLQXPDE  receptors, which play a central role in lupus.
decisions for atopic dermatitis
A majority of patients with SLE show a high
Phase II starts/progressions MEDI2070 for Crohns disease; MEDI3902 for the prevention of nosocomial pseudomonas
pneumonia; MEDI8897 for RSV interferon gene signature, and increased
Strategic transactions Licensing agreements with Ironwood for the US rights to Zurampic and with Grunenthal
levels of type I IFN have been shown to
completed GmbH for rights in the EU and Latin America; two licensing agreements with LEO Pharma correlate with SLE disease activity and
on our dermatology portfolio (brodalumab for EU, and tralokinumab for atopic dermatitis);
severity. Phase II trial results presented
agreement with ProStrakan Group (now Kyowa Kirin International plc) for the rights to in November 2015 demonstrated that
anifrolumab signicantly reduced disease
Setbacks and terminated Abrilumab for Crohns disease/ulcerative colitis; MEDI7510 for prevention of RSV disease activity in moderate-to-severe SLE patients
projects in older patients
as measured by several SLE composite
* Achieved as a result of partnering; will not be progressed by AstraZeneca.

38 AstraZeneca Annual Report and Form 20-F Information 2016

Strategic Report
agreement entered into in July 2016. Valeant
and LEO Pharma assume decision making
on future development and all development
costs associated with brodalumab.

Zurampic inhibits the urate transporter,

URAT1, which is responsible for the
majority of the renal reabsorption of uric
acid. By inhibiting URAT1, Zurampic
increases uric acid excretion and thereby
lowers serum uric acid levels. In combination
with the current standard-of-care, xanthine
oxidase inhibitors (XOIs) allopurinol or
febuxostat, Zurampic provides a dual
Investing for the future: mechanism of action to increase
Breaking the lupus code excretion and decrease production of
uric acid, enabling more patients with
inadequately controlled gout to achieve
Recognition of the importance of the role endpoints. It also improved symptoms of target treatment goals.
played by the interferon pathway in lupus lupus such as rash and arthritis. Anifrolumab
led to the development of anifrolumab, an is currently in Phase III development for SLE In April 2016, AstraZeneca entered into a
LQYHVWLJDWLRQDOSRWHQWLDOO\UVWLQFODVV and Phase II for lupus nephritis. A Phase I licensing agreement with Ironwood for the
MAb that inhibits the activity of all type 1 subcutaneous administration study was exclusive US rights to Zurampic. Zurampic
interferons (IFN). Anifrolumab is being completed in 2016 with plans for further was approved by the FDA in December
developed with an IFN gene signature studies ongoing. 2015, in combination with an XOI, for the
diagnostic test designed to identify treatment of hyperuricemia associated with
SDWLHQWVZKRPD\EHPRUHOLNHO\WREHQHW In March 2016, the FDA granted Orphan gout in patients who have not achieved
from treatment. The role of the interferon Drug Designation for inebilizumab (MEDI- target serum uric acid levels with an XOI
pathway may go beyond lupus; elevated 551) for the treatment of patients with NMO alone. Ironwood launched Zurampic in the
type 1 IFN signature has been found in as well as neuromyelitis optica spectrum US in October 2016. In addition, Ironwood
several other autoimmune diseases. disorders (NMOSD). Inebilizumab is an has exclusive US rights to the xed-dose
anti-CD19 MAb currently in Phase IIb clinical combination of lesinurad and allopurinol.
development. The FDAs Orphan Drug
Designation programme provides orphan In February 2016, the European Commission
status to potential medicines intended for granted marketing authorisation for Zurampic
the safe and effective treatment, diagnosis 200mg in combination with an XOI for the
or prevention of rare diseases or disorders adjunctive treatment of hyperuricemia in
that affect fewer than 200,000 people gout patients (with or without tophi) who
in the US. have not achieved target serum uric acid
levels with an adequate dose of an XOI alone.
Brodalumab is a human MAb that
targets the interleukin-17 (IL-17) receptor. In June 2016, we licensed out the exclusive
Brodalumab is currently under regulatory rights to Zurampic in the EU, Switzerland,
review in the US and Europe for adult Iceland, Norway and Liechtenstein, and in
patients with moderate-to-severe plaque all Latin American countries to Grnenthal
psoriasis, with decisions anticipated in GmbH. The agreement includes rights to
early 2017. the xed-dose combination of lesinurad
and allopurinol in gout.
Through a collaboration agreement,
Valeant, an expert in dermatology, has Verinurad (RDEA3170) is a potent selective
an exclusive licence to develop and uric acid reabsorption inhibitor, also
commercialise brodalumab globally, except intended for use as a combination urate-
in Japan and certain other Asian countries lowering therapy with XOIs. Verinurad is in
where rights are held by Kyowa Hakko Phase II development. We have recently
Kirin, and in Europe, where LEO Pharma initiated plans to study verinurad for CKD
holds exclusive rights to develop and in a Phase II study.
commercialise brodalumab based on an

AstraZeneca Annual Report and Form 20-F Information 2016 39

Strategic Report Therapy Area Review

Other Disease Areas continued

Mavrilimumab, an investigational MAb that hospitalisations and admissions to

Our marketed products inhibits a key pathway in the development paediatric intensive care units and leads to
of rheumatoid arthritis, achieved its primary nearly 200,000 deaths globally in children
Infection and secondary endpoints in recently under ve years of age, with the majority
> Fluenz Tetra/FluMist Quadrivalent1,2 (inuenza completed Phase IIb trials. Results showed of deaths occurring in developing countries.
vaccine live) that mavrilimumab improved signs and Synagis is approved in more than 80
> Synagis3 (palivizumab) symptoms of rheumatoid arthritis, measures countries and is the global standard of care
of disability and patient-reported outcomes. for RSV prevention. We continue to work
Full product information on page 211 with our worldwide partner, AbbVie, to

Intra-nasal. Infection protect vulnerable infants.
Daiichi Sankyo holds rights to Fluenz Tetra/FluMist
Quadrivalent in Japan.
Seasonal inuenza is a serious public
US rights only. AbbVie holds rights to Synagis outside health problem that causes severe illness MEDI8897 is a novel extended half-life MAb
the US.
and death in high-risk populations. In for the prevention of serious respiratory
2016, the US Centers for Disease Control disease caused by RSV in infants. It requires
and Prevention (CDC) issued an interim dosing only once per RSV season a
recommendation that FluMist Quadrivalent/ potential breakthrough in RSV prophylaxis.
> Movantik/Moventig (naloxegol)
Fluenz Tetra should not be used in the US In November 2016, the rst patient was
> Seroquel IR (quetiapine fumarate)
for the 2016 to 2017 inuenza season based dosed in a Phase IIb trial. The FDA granted
> Seroquel XR (quetiapine fumarate) Fast Track status to MEDI8897 in April 2015.
on concerns regarding low effectiveness
> Vimovo1 (naproxen and esomeprazole
of the vaccine in the US during the last
three inuenza seasons (2013 to 2016). Through a broad collaboration and
> Zomig (zolmitriptan) signicant funding, AstraZeneca joined in
The vaccine remains licensed in the US
and AstraZeneca/MedImmune remain a public-private partnership with Vaccines
Full product information on page 211 Europe, the European Commission, the
committed to FluMist Quadrivalent and
 LFHQVHGIURP3R]HQ'LYHVWHG86ULJKWVWR+RUL]RQ supporting it in the US and in the rest of the European Federation of Pharmaceutical
3KDUPD86$,QFHHFWLYH1RYHPEHU Industries and Associations (EFPIA) and the
world. The FDA continues to nd that the
benets of FluMist Quadrivalent outweigh Innovative Medicines Initiative (IMI) to further
Gastrointestinal any potential risks. We are conducting dene the substantial unmet needs of RSV
> Losec/Prilosec (omeprazole) non-clinical and clinical studies in order to in paediatrics and older adults. Funding
> Nexium (esomeprazole magnesium) provide data to help support a renewed for the partnership, called RESCEU, will
recommendation for use in the US in future support the existing MEDI8897 programme
Full product information on page 211 seasons. The vaccine continues to be and further strengthens our relationship
recommended for use in many countries with IMI.
outside the US based on their respective
public health authorities review of existing In June 2016, the European Commission
and recent vaccine effectiveness data. We granted marketing authorisation for
also recently reached an agreement with Zavicefta (ceftazidime-avibactam, previously
the WHO to donate and supply at reduced known as CAZ AVI), a new combination
prices a portion of vaccine production in antibiotic for the treatment of patients with
the event of an inuenza pandemic. serious Gram-negative bacterial infections

3-5m MEDI8852, an investigational human

MAb for the treatment of patients
hospitalised with Type A strain inuenza,
requiring hospitalisation.

Zavicefta has been developed in response

to the urgent need for new antibiotics to
$QQXDOLQXHQ]DHSLGHPLFVDUH treat serious infections that are becoming
received Fast Track Designation from the
estimated to result in about three increasingly resistant, such as multi-drug
FDA in March 2016.
WRYHPLOOLRQFDVHVRIVHYHUHLOOQHVV resistant P. aeruginosa, carbapenem-
and about 250,000 to 500,000 deaths. resistant Gram-negative pathogens, and
Since its approval in 1998, Synagis has
helped protect at risk babies globally against ESBL-producing Enterobacteriaceae.
Source: WHO Factsheet November 2016.
respiratory syncytial virus (RSV). RSV is
a common seasonal virus and the most In December 2016, we conrmed the
prevalent cause of lower respiratory tract completion of an agreement to sell the
infections among infants and young development and commercialisation rights
children, affecting approximately two-thirds of our late-stage, small molecule antibiotics
of all infants in their rst year of life (68% business to Pzer. The portfolio comprised
by 12 months of age and 97% by 24 months Zinforo, Zavicefta, Merrem, ATM-AVI and
of age). It is the leading cause of CXL in all markets where we held the rights.

40 AstraZeneca Annual Report and Form 20-F Information 2016

Strategic Report
We are committed to ensuring that pain
patients who need to manage the side
effect of opioid induced constipation
continue to get access to Movantik/
Moventig. In March 2016, AstraZeneca
announced an agreement with ProStrakan
Group, now Kyowa Kirin International
plc, for the rights to Moventig (naloxegol)
in the EU, Iceland, Norway, Switzerland
and Liechtenstein. In December 2016,
we completed a sub-licence to Knight
Therapeutics Inc. to commercialise
Movantik/Moventig in Canada and Israel.
Investing for the future: This follows the 2015 co-commercialisation
Searching for a treatment for agreement with Daiichi Sankyo for Movantik
$O]KHLPHUVGLVHDVH in the US. These agreements are in line
with delivering on our externalisation
strategy to create value by partnering on
$O]KHLPHUVGLVHDVHUHPDLQVRQHRIWKH Neuroscience pipeline assets that are outside our three
largest areas of unmet medical need and Current commercialised AstraZeneca main therapy areas.
DQGVFLHQWLFLQWHUHVW$='RXU Zomig (triptan) and Seroquel (atypical Gastrointestinal
BACE inhibitor in collaboration with Lilly antipsychotics), which have lost exclusivity In 2016, use of Nexium continued to grow
received Fast Track Designation by the in all major markets. In November 2016, in markets including China and Japan.
FDA in August 2016. two licensed generics of Seroquel XR Demand for Nexium in China is expected
were launched in the US. In June 2016, to continue to grow over the next several
AstraZeneca announced an agreement years, based on broader geographic
with Aspen Global Incorporated, part expansion as well as anticipated label
of Aspen Group, for the rights to the expansions, and has the potential to
global anaesthetics portfolio outside become a top-selling medicine in its class,
the US. The agreement covered seven as in Japan. Patent protection for Nexium
established medicines Diprivan (general remains in Japan. For the rest of the world,
anaesthesia), EMLA (topical anaesthetic) Nexium is subject to generic competition.
and ve local anaesthetics (Xylocaine/
Xylocard/Xyloproct, Marcaine, Naropin,
Carbocaine and Citanest).

AZD3293 is our BACE inhibitor which

we are progressing in collaboration with
Lilly for the potential treatment of Alzheimers
disease. It experienced several critical
milestones throughout 2016, including
continuation of the Phase II/III trial
AMARANTH into Phase III and the initiation
of DAYBREAK-ALZ, a new Phase III trial
to evaluate the safety and efcacy of
AZD3293 in people with mild Alzheimers
dementia. The investigational treatment
also received Fast Track Designation by
the FDA in August 2016.

Further underpinning AstraZenecas

commitment to Alzheimers disease,
in December 2016, we announced
that MEDI1814, an investigational MAb
selective for toxic proteins associated with
Alzheimers disease, will be developed
beyond Phase I, also in collaboration
with Lilly.

AstraZeneca Annual Report and Form 20-F Information 2016 41

Strategic Report Business Review

Business Review

Our science is led by our two biotech
SLSHOLLQH units which conduct innovative discovery
from initial target selection to Phase II trial
focuses on scientic advances in small
DVXVWDLQDEOHZD\ \ molecules, nucleotides and other emerging
technologies and drug discovery platforms,
while MedImmune is responsible for global
biologics R&D. Both units are responsible
for delivering projects to our Global
Overview Medicines Development (GMD) unit for
late-stage development.
> Focused investment in accelerating late-stage programmes to ensure
new treatments get to patients safely and as quickly as possible We have three strategic R&D centres:
personalised healthcare information on our move to Cambridge,
> Six Growth Platforms represented 63% of revenues in 2016, up 4% announced in 2013, see page 7.
at actual exchange rates (5% at CER) over 2015
> In April, announced further focus on our main therapy areas to drive Our Global Product and Portfolio Strategy
greater productivity across the organisation, sharpen the prioritisation group (GPPS) leads our therapy area
of investments, increase partnering and streamline our operations activities. GPPS also serves as the bridge
> Began to refresh our sustainability programme and embed it into our between our R&D and Commercial
business practices, with focus on three areas: ethics and transparency; functions and works to provide strategic
b oade g access to healthcare;
broadening ea t ca e; and
a d environmental
e v o e ta protection
p otect o direction from early-stage research to
> Committed to delivering value in pricing our medicines with policy based commercialisation. GPPS also works
on four principles closely with healthcare providers,
> Continued to promote a safe and healthy work environment, coupled regulatory authorities and those who pay
with our commitment to working only with those who share our for our medicines, seeking to ensure those
ethical standards medicines help to full unmet medical
need and provide economic as well as
therapeutic benets.

We group our Commercial functions into

Regions: North America (US and Canada);
Europe; International East (China, Hong
Kong, Asia Area, Australia & New Zealand);
and International West (Russia & Eurasia,
Throughout this Annual Report this symbol Middle East & Africa, Latin America and
LGHQWLHVVXVWDLQDELOLW\FRQWHQW Brazil). Japan is categorised separately
and is one of our Growth Platforms.

42 AstraZeneca Annual Report and Form 20-F Information 2016

Strategic Report
Our Operations function plays a key > align costs to our changing business that broadens access to our medicines,
role in the development, manufacturing, shape and to streamline our operations minimises the environmental footprint of
testing and delivery of our medicines at a global, regional and country level; our products and processes, and ensures
to our customers. reshaping manufacturing as we build that ethics and transparency underpin
our biologics capacity; to drive everything we do. Our commitment to
Restructuring simplication; and to implement growing our business in a sustainable way
Since 2007, we have made signicant efforts small footprint changes. also helps us protect our licence to operate,
to restructure and reshape our business attract and retain talent, manage risk and,
to improve long-term competitiveness. Full Restructuring charges of $1,107 million most importantly, deliver life-changing
details are provided in the Financial Review were incurred in the year and we remain medicines to patients. The SET and Board
from page 62. We have created a leaner on track to realise the benets and incur regularly review our sustainability work as
and simpler organisation, focused on driving the costs we announced. part of their risk management and business
distinctive science in our main therapy review activities.
areas. To advance our strategy, in April Sustainability
2016, we announced plans to: We want to be valued and trusted by our Refreshed sustainability strategy
stakeholders as a source of great medicines In 2016, we embarked on a process to
> sharpen prioritisation of investments over the long term. That is why we are refresh and focus our sustainability
and focus in our main therapy areas, committed to operating in a way that programme and further embed it into our
particularly Oncology recognises the interconnection between business practices and strategic priorities.
> increase partnering in relation to projects business growth, the needs of society and We worked with an independent think-tank
in our inammation, infection and the limitations of our planet. This means to complete a sustainability materiality
neuroscience disease areas, and to delivering our business strategy in a way assessment to help identify priorities.
products in markets where there is
a clear rationale

Sustainability framework
A sustainability framework is embedded in the way we operate:

Non-Executive Director, Genevive Berger, oversees implementation
of the sustainability framework and reporting to the Board.

SET is responsible for the framework.
Senior managers throughout the Group are accountable for operating
Sustainability in line with the sustainability commitments within their areas, taking
Advisory Board into account national, functional, and site issues and priorities.
Regular engagement
Established in 2015 Line managers are accountable for ensuring that their teams understand with external
and meets twice annually the requirements and improvement targets, and that people are clear about stakeholders, which
to provide external what is expected of them as they work to achieve our business goals. takes place with a range
insight, feedback and of socially responsible
Sustainability Council investors and other
advice to help sharpen
The Council is chaired by a SET member, currently Katarina Ageborg. interest groups, provides
our understanding of,
Members comprise senior leaders from each relevant SET function. Its the opportunity for
and responses to,
agenda focuses on driving long-term value creation by, among other things: sustainable issues or
established and
emerging sustainability > agreeing sustainability priorities for the Group in line with strategic concerns to be raised
issues. The Advisory business objectives and discussed.
Board also helps identify
> managing and monitoring the annual process of setting sustainability
opportunities for further
objectives and targets, as well as reviewing performance against KPIs
innovation and
collaboration. > agreeing appropriate policy positions to support our objectives and
reputation management.

Sustainability Working Group

A network of SET function representatives and subject matter experts
supports the Council. The network reviews issues with the potential to
impact AstraZenecas sustainability agenda and helps deliver the
substantive elements of our programme.

AstraZeneca Annual Report and Form 20-F Information 2016 43

Strategic Report Business Review

Business Review continued

The assessment process identied 1. Broadening access to healthcare. > Applying sound bioethics to all our work
27 sustainability issues relevant to us. Through collaboration and innovation we and maintaining a strong focus on patient
These became the basis for benchmarking strive to expand access to our medicines by: safety (see pages 47 and 48).
analysis, engagement with external and
internal stakeholders, and an internal > Exploring innovative ways of increasing 3. Environmental protection.
review that examined our areas of access to healthcare for more people, We follow the science to protect the
strength, weakness and opportunity, tailored to meet differing patient needs planet by:
and our alignment with the UN and circumstances (see page 51 and
Sustainable Development Goals. Healthy Heart Africa on page 49). > Managing our impact on the environment,
> Making a positive contribution to our local across all our activities, with a particular
Through this process, we have identied communities around the world, through focus on carbon emissions, waste and
three priority areas that, given their community support programmes water use.
alignment with our Purpose and business consistent with improving health and > Minimising the environmental impact of
strategy, will allow us to have the most promoting science (see page 53). our products (see pages 60 and 61).
impact in beneting our patients, our
Company, broader society and the planet. 2. Ethics and transparency. Our focus on these three areas does not
We remain committed to managing and We will maintain integrity in everything diminish our commitment to other areas
building our performance in the other we do by: of our sustainability agenda. For example:
areas within the scope of AstraZenecas
sustainability programmes, such as human > Working to consistent global standards of > Ensuring that diversity in its broadest
rights, diversity, and workplace health and ethical sales and marketing practices in all sense is reected in our leadership and
safety. We will continue to work across our our markets (see page 52). people strategies (see page 55).
business to integrate these commitments > Working only with suppliers who have > Continuing to develop and embed
into the way we work, engage with standards consistent with our own as we a consistent approach to human
stakeholders and evaluate our performance. increase our outsourcing to drive rights across our worldwide activities
The three priority areas are as follows. business efciency (see page 52). (see page 56).
> Working on continued transparency with > Promoting the safety, health and
our data in clinical trials, enhancing the wellbeing of all our people worldwide
understanding of how our medicines (see page 53).
work and benet patients (see page 47).

Benchmarking and assurance

Our work in sustainability has been recognised by a number of organisations in 2016:

DJSI CDP Access to Medicine Index Bureau Veritas has provided

> Second in Pharmaceuticals, > Climate A List Among the top 9% > Biggest riser in the Index since the independent external assurance to
Biotechnology and Life Sciences of companies participating in CDPs last survey, moving to 7th place in a limited level on the sustainability
industry group. climate change programme in 2016 from 15th in 2014. information contained within this
recognition of our actions to reduce Annual Report.
> Sector best scores attained for: > Recognition for industry best
emissions and mitigate climate
Occupational Health and Safety, practice in a number of areas,
Code of Conduct, Marketing including transparent approach to
Practices, Climate Strategy and > Water A List Among the leading intellectual property in relation to
Health Outcomes Contribution. 25 companies for our commitment to Index Countries: disclosing where
transparency around environmental we will not enforce patents, where
risks and demonstration of pursuing we would consider granting a
best practice. licence, and disclosing the status
of our patents for products used
> Supplier Climate A List Among For more information
to treat Index Diseases.
the 3% of companies awarded an on Bureau Veritas work and
$JUDGHIRURXUHRUWVDQGDFWLRQV benchmarking, please see
to combat climate change by Sustainability: supplementary
implementing programmes to information on page 231 and the
reduce emissions in both direct
Sustainability pages on our
operations and supply chain.

44 AstraZeneca Annual Report and Form 20-F Information 2016

Strategic Report
Safety, Health and Environment strategy cardiac regeneration. We also extended
Throughout 2016, we worked to embed $FKLHYHVFLHQWLF our partnership with Moderna to include
our 2016 to 2025 Safety, Health and immuno-oncology programmes, combining
Environment (SHE) strategy and deliver the
leadership MedImmunes protein engineering and
targets we have set ourselves as regards: cancer biology expertise with Modernas
We are using our distinctive technology.
> eliminating workplace accidents and VFLHQWLFFDSDELOLWLHVLQVPDOO
illnesses (see page 53) molecules and biologics, including See Oncology from page 25 for more
> protecting natural resources (see pages information
immunotherapies and protein
60 and 61) engineering, as well as investing in
> ensuring the environmental safety of our Working collaboratively and fostering
key programmes and focused
products (see page 61). open innovation
business development, to deliver
Our biotech-style operating model gives
We have made good progress to date, life-changing medicines. us access to the best science, both internal
attaining independent verication that our and external, and we are open to exploring
climate change targets are science-based, Overview new and different kinds of collaborations.
setting out our RE100 strategy to source > Launched six diagnostic tests linked to Our partnership models include in-licensing
100% renewable power globally, and our products in line with our personalised of new chemical modalities and platforms,
disclosing our climate information in public healthcare (PHC) strategy disease understanding, technology
reports. We have also made a commitment > Delivered clinical trial data and advances, uncovering novel target
to responsible water stewardship as part submissions that resulted in 11 approvals opportunities, and clinical partnerships.
of The Business Alliance for Water and for brand new medicines in the US, EU, For example, two key pieces of scientic
Climate partnership. We are working closely China or Japan research were published in high-impact
with our operating sites to agree on specic > 6LPSOLHGSURJUDPPHVSURFHVVHVDQG journals by scientists at our joint centre for
contributions to our 2025 strategy targets. systems, and prioritised resources cardiometabolic diseases at the Karolinska
More information on our performance in towards late-stage drug development Institutet. We also identify collaborations
2016 can be found in Safety, health and > Published 75 manuscripts in high-impact that allow us to out-license our technology
wellbeing on page 53 and Environment publications compared to seven in 2010 platforms. For instance, we have expanded
from page 60. > Continued to strengthen early-stage the utilisation of our ADC technology
portfolio with new drug modalities, platform through an agreement with
We are proud of the external recognition DOORZLQJXVWRH[SDQGLQWRQRYHOVFLHQWLF Regeneron Pharmaceuticals Inc., giving them
we are receiving for our work. As shown to areas while maintaining a clear focus on access to MedImmunes ADC technology.
the left, the Dow Jones Sustainability Index disease mechanisms
(DJSI) has scored our climate change > Strive to access the best science, both In 2016, IMED continued to pioneer new
strategy and occupational health and safety internal and external, in our biotech units, approaches to open innovation, enabling
performance as best in our industry. Our and we are open to exploring new and our scientists more freely to share their ideas
submissions to investor benchmarking GLHUHQWNLQGVRIFROODERUDWLRQV and collaborate on projects with external
organisation, CDP achieved an A-list > Committed to working responsibly and in scientists. The IMED Open Innovation portal
ranking for both climate change and water accordance with our global bioethics policy allows external researchers to access the
stewardship. During 2016, we committed full range of open innovation programmes.
approximately $25 million to natural By the end of 2016, our teams had reviewed
resource projects at our sites. These Early science more than 500 proposals for new drug
projects are expected to accelerate our We continued to strengthen our early-stage projects. Of these, 26 have progressed
resource efciency performance and portfolio with new drug modalities such as as far as clinical trials, while more than 150
include: solvent recovery to reduce modied RNA, anti-micro RNA, antisense are at pre-clinical trial stage.
hazardous waste; a novel heat pump oligonucleotides, bi-specic monoclonal
system to reduce reliance on natural gas; antibodies (MAbs) and antibody-drug During 2016, MedImmune continued
and a number of resource efciency minor conjugates (ADC). This is allowing us to to forge collaborations, including
works programmes. Site water stress expand into novel scientic areas while a research collaboration with the
assessments and natural resource audits maintaining a clear focus on disease University of California, San Francisco
continue to identify further opportunities for mechanisms. In 2016, in partnership US, with an emphasis on basic research
management and investment. We continue with Regulus Therapeutics Inc., we saw and translational sciences. We also
to hold third party suppliers accountable AZD4076, an anti-micro RNA targeting announced an innovative programme
for protecting the environment across our the miR103/107 gene, being dosed into with Johns Hopkins University, providing
supply chains and we are active members patients. These patients had non-alcoholic a rst-of-its-kind industry-academic PhD
of the Pharmaceutical Supply Chain Initiative steatohepatitis or silent-liver disease, for programme in the US. Furthermore, in
to promote a collaborative approach across which there are no approved medicines. late 2016, MedImmune and a consortium
our industry. Also in 2016, in partnership with Moderna, of UK universities Cambridge, Leeds,
we led the clinical trials application for Manchester and Shefeld announced
AZD8601, a modied RNA for VEGF-A for that they will be afforded a Collaborative

AstraZeneca Annual Report and Form 20-F Information 2016 45

Strategic Report Business Review

Business Review continued

linked to molecular mechanisms of disease

across our main therapy areas. The initiative
includes new collaborations with Human
Longevity, Inc., US, the Wellcome Trust
Sanger Institute, UK, and The Institute
for Molecular Medicine, Finland. We are
also establishing an in-house Centre for
Genomics Research led by Professor
David Goldstein, a leader in genomics.
This Centre aims to apply genomic
insight across our entire R&D pipeline by
developing a bespoke database comprising
genome sequences from samples donated
by patients in clinical trials together with
ng for the fuutu
ture: associated clinical and drug response data.
Listening to patieents
Late-stage development
GMD designs and delivers clinical trials
Since 2015, we have introduced over Training Partnership (CTP), structured and makes regulatory submissions to
60,000 patients from the PatientsLikeMe as 12 PhD studentships, from the seek approval for new drugs and line
network to our research teams to inform Biotechnology and Biological Sciences extensions. During 2016, we delivered
our R&D programmes. After simulating Research Council (BBSRC). These CTP clinical trial data and submissions that
a clinical study visit with lupus patients, studentships are designed to invest in the resulted in 11 approvals for brand new
their feedback resulted in 16 changes training of the next generation of scientists, medicines in the US, EU, China or Japan.
to the way the study was conducted. providing access to facilities and expertise We also had some setbacks during the
unavailable in an academic setting alone. year, with some disappointing Phase III data
That study is now delivering ahead results for example, Brilinta for peripheral
of time, demonstrating the value of Our personalised healthcare strategy arterial disease, selumetinib for non-small
working with patients to deliver more Personalised healthcare (PHC) allows us cell lung cancer, and tremelimumab for
HFLHQWUHVHDUFK:HEHOLHYHWKDWWKLV to tailor both new and existing treatments mesothelioma see Cardiovascular &
will improve our ability to bring more to the needs of individual patients by means Metabolic Disease and Oncology from
life-changing medicines, more quickly of diagnostic tests. It is an integral part of pages 30 and 25 respectively for more
to more patients. our plans to achieve scientic leadership information. However, this is to be expected
and we are committed to bringing PHC to when we are investigating treatments for
patients in all main disease areas. Three diseases that are hard to treat.
of our products (Iressa, Lynparza and
Tagrisso) are coupled with companion In order to maintain a focus on our main
diagnostic tests that select patients based therapy areas and enable us to maximise
on their molecular proles. In addition, time and resources in accelerating certain
80% of our clinical pipeline is following our programmes, we identied opportunities
PHC approach and over 50 planned drug to collaborate on developing assets within
launches by 2023 require a diagnostic test. our late-stage pipeline. For example, we
made an agreement for the development
In 2016, we worked with our partners to of tralokinumab for patients with atopic

launch six diagnostic tests linked to our dermatitis (allowing us to focus on its
products increasing our total number of development for asthma) and an agreement
diagnostics launched since 2014 to 15. for an accelerated global development
Our commitment to bring PHC to patients programme for savolitinib for patients
In 2016, launched six diagnostic in all main disease areas has resulted in with papillary renal cell carcinoma.
tests linked to our products. our rst diagnostic test outside oncology:
the Nova Biomedical Pro Uric Acid Test. Accelerating the pipeline
It is a hand-held serum uric acid point of In 2016, we presented scientic rationale
care test, aligned to Zurampic, which can that resulted in 10 regulatory designations
be used to measure a patients response for Priority or Fast Track review for new
to gout treatment. We are also developing medicines which offer the potential to
diagnostic tests with Abbott for treating address unmet medical need in certain
asthma and with Qiagen for treating lupus. diseases, and we also worked to secure
Orphan Drug status for the development
Also in 2016, we announced our integrated of medicines to treat very rare diseases.
genomics initiative which focuses on the For example, in the US, we were granted
discovery of new targets and biomarkers Breakthrough Therapy Designation for our
46 AstraZeneca Annual Report and Form 20-F Information 2016
Strategic Report
immunotherapy treatment durvalumab for scientic leadership. It is also critical for the framework for ensuring a consistent,
bladder cancer. We also received Fast Track recruiting and retaining the best scientists high-quality approach worldwide. Protecting
Designation for Lynparza for 2nd line ovarian from around the world. Scientists from IMED, participants throughout the trial process is
cancer and for MEDI8852 for patients MedImmune and GMD have published 75 a priority and we have strict procedures to
hospitalised with Type A strain inuenza. manuscripts (a record number) in high- help ensure participants are not exposed
Orphan Drug Designations were granted impact peer-reviewed journals, each with to unnecessary risks.
for acalabrutinib for three haematological an impact factor exceeding 15 (Thomson
indications, for selumetinib for differentiated Reuters 5yr IF score) and a score exceeding All our clinical studies are designed and
thyroid cancer, and for MEDI-551 for treating 1,050 in total. This represents an eleven-fold nally interpreted in-house but some are
neuromyelitis optica. We are also working improvement since our drive to publish in conducted by CROs on our behalf. In 2016,
alongside regulatory authorities to drive high-impact journals began in 2010. approximately 48% of patients in our small
change within the regulatory environment molecule studies and 44% of patients in our
by ensuring that the clinical benets of Responsible research biologics studies were monitored by CROs.
our medicines for patients are clearly Our commitment to working in a We require these organisations to comply
understood. For example, using Patient transparent and ethical manner is essential with our global standards and we conduct
Reported Outcomes data can help dene to achieving scientic leadership and risk-based audits to monitor compliance.
how oncology medicines are used to delivering life-changing medicines. Our
treat patients with cancer. global standards of bioethics apply to all our We believe that transparency enhances
research activity, whether conducted by us the understanding of how our medicines
With 132 drug projects in the pipeline, or third parties on our behalf. The following work and benet patients. We publish
GMD is prioritising by focusing investment sections summarise our activities in this area information about our clinical research,
to accelerate specic programmes, so for more information, see our website, as well as the registration and results of
that new treatments get to patients more our clinical trials regardless of whether
quickly but still safely. As a result, several they are favourable for all products and
immuno-oncology clinical trials, including Patient safety all phases, including marketed medicines,
some for lung cancer, head and neck Patient safety is very important and we drugs in development and drugs where
cancer and bladder cancer, completed strive to minimise the risks and maximise development has been discontinued.
recruitment in 2016, with read-outs expected the benets of our medicines. Through
in 2017. Teams have also been quick to a pharmacovigilance programme, we In 2016, we implemented new global
turn positive clinical trial data into regulatory monitor our medicines once they are in the standards which give patients and
submissions. In 2016, we made submissions marketplace to learn of any side effects not researchers more information about
in the US and EU for our rst respiratory identied during the development process our research. Specically:
biologic treatment, benralizumab, for severe and provide information concerning the
safety prole of our medicines to regulators, > Every patient who participates in
asthma and for our lung cancer treatment,
healthcare professionals and, where a study sponsored by us receives
Tagrisso, in China. We secured a priority
appropriate, patients. a note recognising their contribution
review for Tagrisso following its accelerated
as well as a copy of the studys Trial
development programme and previous
We have a dedicated patient safety team Results Summary.
approvals in the US, EU, Japan and 13
to help us full our commitment to patient > In 2016, we launched a portal (https://
other countries.
safety. Each developing and marketed
We also work in partnership to advance our medicine is allocated a Global Safety for external researchers to allow them
clinical research from strategic alliances Physician and a patient safety scientist. to request our clinical data and reports
with contract research organisations In addition, each market is supported by to support additional research. We have
(CROs) for the delivery of clinical trials, to a dedicated patient safety manager. Our responded to over 50 requests so far.
academic collaborations. These include Chief Medical Ofcer is accountable for
For more information, please see our website,
new partnerships with the Department of the benet/risk proles of our products ZZZDVWUD]HQHFDFRPRURXUFOLQLFDOWULDOV
Medical Statistics at the London School of in development and on the market. He ZHEVLWHZZZDVWUD]HQHFDFOLQLFDOWULDOVFRP
Hygiene & Tropical Medicine and with the provides medical oversight and enforces
University of Manchesters Health eResearch risk assessment processes to help us make
Clinical trials by region
Centre. These partnerships aim to deploy efcient and informed decisions about
patient safety. Small
statistical techniques in examining clinical Region molecule Biologics
and healthcare data to make medicines more Europe 15% 23%
personalised and effective for patients, and Clinical trials and transparency
US/Canada 27% 26%
to drive smarter clinical trials. In 2016, we conducted a range of clinical
Asia Pacic 15% 11%
trials at many sites as shown in the chart
Central/Eastern Europe 28% 24%
2XUVFLHQWLFUHSXWDWLRQ to the right. This broad span helps ensure
Japan 2% 5%
Demonstrating the quality of the research that study participants reect the diversity
Latin America 10% 10%
conducted in our laboratories, through of patients for whom our medicines are
Middle East and Africa 3% 1%
publication in high-quality and high-impact intended and identies the patients for
journals, is an essential element in building whom the medicine may be most benecial.
our scientic reputation and achieving Our global governance process provides

AstraZeneca Annual Report and Form 20-F Information 2016 47

Strategic Report Business Review

Business Review continued

Research use of human biological we also highlighted our latest renement Our plans for growth
samples techniques and approach to implementing Our Commercial teams, which comprised
The use of human biological samples, the 3Rs in a recent blog for the UK National around 34,100 employees at the end of
such as solid tissue, biouids and their Council for the 3Rs. Internally we are 2016, are active in more than 100 countries.
derivatives, plays a vital role in developing working to rene our study designs by In most countries, we sell our medicines
a deeper understanding of human diseases improving access to a refreshed training through wholly-owned local marketing
and their underlying mechanisms, which programme on the principles of good companies. We also sell through distributors
helps us develop effective, new and statistical practice. The objective of this and local representative ofces and market
personalised medicines. training is to ensure that scientists are better our products largely to primary care and
able to appropriately power their studies, specialty care physicians.
When we conduct this important research, account for variability and control bias
we maintain policies and processes to wherever possible. Even as we continue to be impacted by
ensure that we comply with the law and the loss of exclusivity on some of our
meet regulatory concerns. We place an Animal research use varies depending on leading medicines, such as Crestor,
emphasis on informed consent that protects numerous factors, including our amount of Nexium and Seroquel, we have witnessed
the rights and expectations of donors and pre-clinical research, the complexity of the increasing revenues from our growth
families throughout the process of our diseases under investigation and regulatory brands and launches. This return to growth
acquisition, use, storage and disposal of the requirements. We believe that without our is underpinned by our internal Growth
samples. Protecting the condentiality of a active commitment to reducing, rening, or Platforms which are our growth levers.
donors identity is of the utmost importance, replacing animals in research, our animal As our strategy has progressed, so our
and a key part of our process includes the use would be much greater. In 2016, we Growth Platforms have evolved, as shown
coding of biological samples and associated used 193,451 animals in-house (2015: in Strategy and key performance indicators
data (including genetic data). 182,055). In addition, 25,651 animals were from page 16. Respiratory was joined by
used by CROs on our behalf (2015: 33,220). New Oncology from January 2015 and,
In rare circumstances, we may use human from January 2017, New CVMD replaced
fetal tissue (hFT) or human embryonic stem Diabetes and Brilinta/Brilique. Our two
cells (hESC). In these circumstances, an remaining Growth Platforms, Emerging
internal review of the scientic validity of the 2. Return to growth Markets and Japan, reect the importance
research proposal will be conducted and of these markets to growing future revenues.
permission to use the tissue will be granted We seek to return to growth by Overall, our Growth Platforms grew by 4%
only when no other scientically reasonable focusing on our Growth Platforms at actual exchange rates (5% at CER) in
alternative is available. We also insist our and leveraging our strong global 2016 and now represent 63% of all revenues.
third party vendors adopt the highest ethical commercial presence, particularly
standards and we rigorously assess the in Emerging Markets, to ensure the However, the pharmaceutical market
ability of tissue suppliers to meet our quality is highly competitive. For example, our
right medicines are available and
and ethical expectations. We are committed Diabetes franchise continues to see pricing
to minimising the use of fetal tissue by
that patients have access to them. pressure. In immuno-oncology, the large
exploring technological alternatives. number of clinical trials that are being
Overview carried out highlight the competitive
To date, seven research proposals that > Ongoing scrutiny of pharmaceutical nature of this area and renders speed
include use of cells derived from hFT have pricing in US and Europe to market critical.
been received for consideration, but none > Despite biennial price cuts, Japan
of these has progressed so far, either for remained an attractive market More information on our performance
scientic or other reasons. We continue > Third fastest growing top 10 multinational around the world in 2016 can be found in
the Geographical Review from page 226
to review our processes for the supply pharmaceutical company in Emerging
of hFT but, at the end of 2016, had yet Markets
to approve a single source. Currently, four > Growth rate in China expected to US
projects using three different hESC lines moderate due to increased price pressure As the eleventh largest prescription-
have been approved. and hospital cost containment based pharmaceutical company in the
> Pricing policy based on principles of value, US, we have a 3.9% market share of US
Animal research VXVWDLQDELOLW\DFFHVVDQGH[LELOLW\ pharmaceuticals by sales value.
We are committed to helping the public > Sought to make our medicines more
understand our use of animals in research DRUGDEOHIRUVHOISD\SDWLHQWVEDVHG In 2016, sales in the US decreased by
and our methods for reducing, rening, or on ability to pay 22% to $7,365 million (2015: $9,474
replacing this use (3R approach). > Expanded Healthy Heart Africa million). Declines in revenue from Nexium,
programme from Kenya to Ethiopia Crestor and Synagis were partially offset
We share our transparency goals externally and partnered with The US Presidents by the strong performance of our Growth
through presentations at conferences and Emergency Plan for AIDS Relief Platforms, including Farxiga, Bydureon
workshops throughout the US and EU, and and Brilinta, the launches of Lynparza and

48 AstraZeneca Annual Report and Form 20-F Information 2016

Strategic Report
Tagrisso, and the impact of completing the
acquisition of Actavis rights to Tudorza and
Daliresp in the US.

The US healthcare system is complex with

multiple payers and intermediaries exerting
pressure on patient access to branded
medicines through regulatory and voluntary
rebates. Regulatory rebates are statutorily
mandated chargebacks and discounts
paid on government-funded programmes
such as Medicaid, Department of Defense
(including TRICARE) and Department
of Veterans Affairs. Voluntary rebates
are paid to managed care organisations
and pharmacy benet managers for
Inve s in
g fo
forr th
e fu
e commercially insured patients, including
hy He
H art Africa Medicare Part D patients. In the Medicare
Part D programme, in addition to voluntary
negotiated rebates, branded pharmaceutical
Healthy Heart Africa (HHA) was launched Following the success of HHA in Kenya, manufacturers are statutorily required to pay
in Kenya in October 2014 in collaboration we developed a partnership with the 50% of the patients out-of-pocket costs
with the Ministry of Health in support of its Federal Ministry of Health in Ethiopia to during the coverage gap portion of their
commitment to combat NCDs. integrate HHA programming into the benet design. As part of the ACA, we also
Ethiopian healthcare system in support of pay a portion of an overall industry Patient
HHA aims to reach 10 million hypertensive the Government National Strategic Action Protection and Affordable Care Act Branded
patients across Sub-Saharan Africa by Plan for NCDs. Prescription Drug Fee.
2025 and, after two years, it has already:
In September, we announced a $10 million, In 2016, the overall measurable reduction
> conducted over two million hypertension YH\HDUJOREDOSXEOLFSULYDWHSDUWQHUVKLS in our prot before tax for the year due to
screenings in the community and in with The US Presidents Emergency Plan discounts on branded pharmaceuticals and
health facilities for AIDS Relief (PEPFAR) that will expand an industry-wide excise fee was $471 million
> trained over 3,000 healthcare workers, access to HIV/AIDS and hypertension (2015: $786 million; 2014: $714 million).
including doctors, nurses, community VHUYLFHVE\RHULQJWKHPLQDQLQWHJUDWHG
health volunteers and pharmacists manner at existing PEPFAR-supported In the US, there is signicant pricing
to provide education and awareness, HIV/AIDS sites, beginning in Kenya. For pressure driven by payer consolidation,
screening and treatment services for H[DPSOHZRUNLQJDJHPHQDUHDGLFXOW restrictive reimbursement policies and
hypertension across 31 counties population to engage for HIV care, and cost control tools, such as exclusionary
> activated 403 health facilities to provide HHAs innovative way of working presents formularies and price protection clauses.
hypertension services, including an opportunity for the partnership with Many formularies employ generic rst
the establishment of secure supply PEPFAR to improve HIV care in this strategies and/or require physicians
chains for low-cost, high-quality hard-to-reach population. to obtain prior approval for the use of
antihypertensive medicines. 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 2016,
84.7% of prescriptions dispensed in the
US were generic, compared with 84.0%
in 2015. In addition, patients are seeing

3,000 changes in the design of their health plan

benets and may experience variation,
including increases, in both premiums and
out-of-pocket payments for their branded
Trained over 3,000 healthcare workers medications. The patient out-of-pocket
as part of Healthy Heart Africa. 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

AstraZeneca Annual Report and Form 20-F Information 2016 49

Strategic Report Business Review

Business Review continued

out-of-pocket thresholds. We understand environment, increased government moderated while the sales growth from
that our medicines will not benet patients interventions (for example, on price and new products such as Brilinta and the
if they are unable to afford them, and that volume) and parallel trade across markets Diabetes portfolio has started to pick up.
is why we offer a number of resources also affected sales. Despite these Brilinta and the Diabetes portfolio grew by
and programmes that can help patients conditions, we continue to launch innovative 18% (actual and CER) and 57% (actual
afford their medications by reducing their medicines across Europe and saw and CER) respectively.
out-of-pocket costs. We focus our formulary signicant progress within our Growth
* Established ROW comprises Australia, Canada,
access on affordability for patients through Platforms, in particular with Forxiga, Xigduo, New Zealand and Japan.
rebate payments as well as savings cards Brilinta, Lynparza and Tagrisso.
for eligible patients when the out-of-pocket
costs are not affordable. Established Rest of World (ROW)* Emerging Markets: expansion
In 2016, sales in Japan increased by 8% at and collaboration
Ongoing scrutiny of the US pharmaceutical actual rate of exchange (decreased 3% at Emerging Markets, as dened in Market
industry, focused largely on pricing, CER) to $2,184 million (2015: $2,020 million), denitions on page 239, comprise
is placing increased emphasis on the as a result of the biennial National Health various countries with dynamic, growing
value of medicines. This scrutiny is likely Insurance (NHI) price cuts effective from economies. As outlined in Marketplace from
to continue from many stakeholders, 1 April 2016. We experienced price cuts page 11, these countries represent a major
including policymakers and legislators. of approximately 5% on our 2016 revenue. growth opportunity for the pharmaceutical
Proposed policy and legislative changes Despite the NHI price cuts, across our industry due to strong demand and sound
which are being considered, include Growth Platforms we saw strong volume economic fundamentals. Emerging Markets
different approaches to price controls on growth. Particularly strong performance are not immune, however, to economic
medicines (including price transparency), from Nexium and Crestor, and the Diabetes downturn. Market volatility is higher than in
potential changes to government regulated franchise helped to drive this volume Established Markets and various political and
programmes (such as Medicare Part growth, offsetting generic competition. economic challenges exist. These include
B, Medicare Part D, Medicaid or other In addition, in May 2016, we launched regulatory and government interventions.
provisions under the ACA), and changes Tagrisso in Japan which generated
affecting the commercial importation of $82 million of sales and we expect will With revenues of $5,794 million,
medicines into the US. continue to be a major driver of growth. AstraZeneca was the fth largest
We now hold ninth position in the ranking multinational pharmaceutical company,
While widespread adoption of a broad of pharmaceutical companies by sales of as measured by prescription sales, and the
national price-control scheme in the near medicines in Japan. Despite the biennial third fastest-growing top 10 multinational
future is unlikely, we expect the increased government price cuts and increased pharmaceutical company in Emerging
focus on pharmaceutical prices and their intervention from the government to rapidly Markets in 2016.
impact on healthcare costs to continue for increase the volume share of generic
the foreseeable future. products, Japan remains an attractive In China, AstraZeneca is the second largest
market for innovative pharmaceuticals. pharmaceutical company in the hospital
For more information on pricing pressure and sector, as measured by sales. Sales in
the ACA, please see Marketplace from page 11 Canada has a mixed public/private payer China in 2016 increased by 4% at actual rate
system for medicines that is funded by the of exchange (10% at CER) to $2,636 million
Europe provinces, insurers and individual patients. (2015: $2,530 million). We delivered sales
The total European pharmaceutical market It has also now become common for public growth above the growth rate of the hospital
was worth $201 billion in 2016. We are payers to negotiate lower non-transparent market sector through strategic brands
the twelfth largest prescription-based prices after they have gone through a review investment, systematic organisational
pharmaceutical company in Europe (see by the Canadian Agency for Drugs and capability improvements and long-term
Market denitions on page 239) with a Technology in Health, a health technology market expansion programmes in core
2.4% market share of pharmaceutical assessment body. Most private insurers therapy areas. The industry growth rate
sales by value. pay full price although there is increasing is expected to be moderated to high
pressure to achieve lower pricing. Overall, single digits, impacted by increased price
In 2016, our sales in Europe decreased by the split for AstraZenecas portfolio is 65% pressure and hospital cost containment.
5% at actual rate of exchange (3% at CER) funded by private payers and 35% with Nevertheless, the healthcare environment
to $5,064 million (2015: $5,323 million). public plans. in China remains dynamic. Opportunities
Key drivers of the decline, leaving aside are arising from incremental healthcare
the impact of divestments, such as the Our sales in Australia and New Zealand investment, strong underlying demand and
anaesthetics portfolio, were continued declined by 12% at actual rate of exchange the emergence of innovative medicines.
competition from Symbicort analogues, (10% at CER) in 2016. This was primarily
ongoing volume erosion of Pulmicort, due to the continued erosion of Crestor, Growth drivers for Emerging Markets
Seroquel XR and Nexium following loss of Atacand and Nexium by generic medicines. include our new medicines, notably Brilinta
exclusivity, and pricing and volume pressure Sales declined less in 2016 than in 2015 and Forxiga, and our Diabetes, Respiratory,
for Crestor. The continued macroeconomic as the pace of generic erosion has been Oncology and CV portfolios. To educate

50 AstraZeneca Annual Report and Form 20-F Information 2016

Strategic Report
understand their priorities and
requirements, and play a leading role in
projects to align better the requirements
of regulatory and health technology
assessment (HTA) agencies or other
organisations that provide value
assessment of medicines. For example,
we have a leading role in the European
IMI ADAPT-SMART programme for
exploring adaptive licensing.
> We pursue a exible pricing approach
that reects the wide variation in global
healthcare systems. We have developed
ing fo
for thhe fu
e: patient access programmes that are
H aligned with the ability to pay of patients
]LO and healthcare systems. We are
committed to the appropriate use
of managed entry schemes and the
%UD]LOKDVODUJHVRFLRHFRQRPLF physicians about our broad portfolio, we development of real world evidence
GLVSDULWLHVDQGGHVSLWHDXQLYHUVDO are selectively investing in sales capabilities and we are investigating innovative
KHDOWKFDUHV\VWHPWKHPDLQVRXUFHRI where opportunities from unmet medical approaches to the pricing of medicines,
IXQGLQJIRUPHGLFLQHVUHPDLQVWKHSULYDWH need exist. We are also expanding our such as payment for outcomes received
VHFWRULQFOXGLQJLQGLYLGXDOVSD\LQJ reach through multi-channel marketing by the patient and healthcare system.
PHGLFLQHVZHKDYHEHHQH[SORULQJKRZ Pricing and access to healthcare
ZHFDQXVHHFRQRPLFGDWDWROLQNDQ Pricing and delivering value We continue to make our medicines
LQGLYLGXDOVDELOLW\WRSD\ZLWKWKHSULFHRI Our medicines help treat unmet medical affordable to more people on a
RXUPHGLFLQHVVXSSRUWLQJRXUZRUNZLWK need, improve health and create economic commercially and socially sustainable
OLIHVW\OHDQGGLVHDVHDZDUHQHVVDGYLFH benets. Effective treatments can lower basis. As, on average, almost half of
7KLVODWHVWDSSURDFKEXLOGVRQRXU)D] healthcare costs by reducing the need for medicine funding in emerging countries
%HPSURJUDPPHZKLFKKDVKHOSHGVRPH more expensive care, preventing more is paid for by the user or their families,
PLOOLRQSDWLHQWVVLQFHLWZDVODXQFKHG serious and costly diseases and increasing we base our approach in these markets
LQ productivity. Nevertheless, and as outlined on an understanding of their economic
in Marketplace from page 11, we are acutely circumstances and the burden placed
aware of the economic challenges faced by on them by health costs. Our new pricing
payers and remain committed to delivering strategy addressing out-of-pocket funding,
value. We are committed to a pricing policy developed in 2016, focuses on two of our
for our medicines based on four principles: therapy areas, Respiratory and CVMD,
and uses socio-economic evaluation on
> We determine the price of our medicines a country-by-country basis to determine
while considering their full value for affordable price points for self-pay patients
patients, payers and society. The based on ability to pay.
agreement on price involves many
national, regional and local stakeholders, Our efforts to price medicines affordably
reecting factors such as clinical benet, were seen by the Access to Medicine
cost effectiveness, improvement to life Foundation as an important step and,
expectancy and quality of life. together with our approach to IP and our
> We aim to ensure the sustainability capacity building strategy in markets such
of both the healthcare system and as Brazil and China, contributed to our rise

2.5m our research-led business model. We

believe we share a collective responsibility
with healthcare providers and other
stakeholders to work together to enable
from 15th place in 2014 to 7th place in 2016
in the Foundations biennial Access to
Medicine Index. For more information on
our initiatives, see Healthy Heart Africa
2XU)D]%HPSURJUDPPHLQ%UD]LOKDV an efcient healthcare system for patients on page 49, affordability programme in
helped some 2.5 million patients. today and support a pipeline of new Brazil on this page, and our Young Health
medicines for patients tomorrow. Programme on page 53. We will continue
> We seek to ensure appropriate patient to work with partners and patients to
access to our medicines. We work develop sustainable access initiatives for
closely with payers and providers to as many patients as possible.

AstraZeneca Annual Report and Form 20-F Information 2016 51

Strategic Report Business Review

Business Review continued

Code of Conduct; one is for new starters the Company. More information about
3. Be a great place to introduce the Code, while the other is material legal proceedings can be found
the annual training for all employees, which in Note 28 to the Financial Statements
to work serves as an important reminder of our key from page 185.
commitments and principles.
Great people (see Employees from Transparency reporting
page 54) are central to our success During 2016, we continued to train AstraZeneca is committed to the highest
and being a great place to work is employees on the ethical standards that standards of conduct in all of our operations,
DWWKHKHDUWRIRXUHRUWVWRUHOHDVH govern the way we operate. We maintain including transparency in how we partner
the talents of our people. We promote a robust compliance programme in our with physicians and medical institutions.
efforts to ensure that there is compliance In the US, our external transparency
a culture, both for employees and
with all applicable laws, regulations and reporting meets the requirements of the
those third parties with whom we
adopted industry codes, and that our Physician Payments Sunshine Act (Open
work, that delivers sustainable business is operating with high ethical Payments), as well as relevant state
good performance and long-term standards. Our compliance programme transparency laws. In Europe, AstraZenecas
business success. is delivered by dedicated compliance reporting meets the requirements of the
professionals who advise on and monitor European Federation of Pharmaceutical
Overview adherence to our Code of Conduct, Global Industries and Associations (EFPIA)
> We continued to train employees on Policies and supporting requirements. Disclosure Code, as well as applicable
the ethical standards that govern the These professionals also support our line local transparency requirements.
way we operate managers locally, seeking to ensure that
> :HLGHQWLHGVL[FRQUPHGEUHDFKHVRI their staff meet our high ethical standards. Working with suppliers
external sales and marketing regulations A network of nominated signatories With most of our API manufacturing
or codes reviews our promotional materials and outsourced, we need an uninterrupted
> We carried out 8,977 risk assessments activities against applicable requirements. supply of high-quality raw materials. We
on third parties as part of our risk In 2016, audit professionals in Internal therefore place great importance on our
management process Audit Services also conducted compliance global procurement policies and integrated
> We are developing a health and wellbeing audits on selected marketing companies. risk management processes. We purchase
framework based on the WHO Healthy When engaging third parties for sales and materials from a wide range of suppliers
Workplace Model marketing activities or other services, we and work to mitigate supply risks, such as
> 2YHUPLOOLRQ\RXQJSHRSOHDFURVVYH are committed to working with only those natural or man-made disasters that disrupt
continents were provided with skills and third parties who embrace high standards of supply chains or the unavailability of raw
information to improve their health ethical behaviour consistent with our own. materials. Contingency plans include using
dual or multiple suppliers where appropriate,
We identied six conrmed breaches of maintaining adequate stock levels and
Sales and marketing ethics external sales and marketing regulations working to mitigate the effect of pricing
We are committed to employing high ethical or codes in 2016 (2015: 11). uctuations in raw materials.
standards of sales and marketing practice
worldwide, which are detailed in our Code There were 1,729 instances, most of them We also seek to manage reputational
of Conduct and supporting Global Policies minor, of non-compliance with our Code risk. Our ethical standards are integral to
on Ethical Interactions. Approximately of Conduct, Global Policies or supporting our procurement and partnering activities
34,100 employees are engaged in our requirements in our Commercial Regions, and we continuously monitor compliance
Commercial activities. We report publicly including instances by employees and third through assessments and improvement
on the number of: parties (2015: 1,749). programmes. We work only with those
suppliers whose standards of ethical
> conrmed breaches of external sales We removed a total of 222 employees and behaviour are consistent with our own.
and marketing codes third parties from their roles as a result of We will not use suppliers who are unable
> breaches of our Code of Conduct, Global these breaches (a single breach may involve to meet our standards.
Policies or supporting requirements by more than one person). We also formally
employees and third parties in our warned 429 others and provided further To achieve this, we have an established
Commercial Regions, and associated guidance or coaching on our policies to process for third party risk management.
corrective actions. 1,283 more. The most serious breaches This process assesses risk based upon
were raised with the Audit Committee. dened criteria. These include risks related
Alongside our Company Values, our Code to bribery and corruption, data privacy,
of Conduct guides us on how we can make The US Foreign Corrupt Practices Act the environment and wages. Each step
the best day-to-day choices on behalf investigation involving AstraZeneca was of the process provides an additional level
of AstraZeneca and act in a consistent, resolved in 2016 following a civil settlement of assessment, and we conduct more
responsible way, worldwide. There are two agreed with the SEC; the DOJ closed its detailed assessments on those relationships
mandatory training courses dedicated to the investigation without taking action against identied as higher risk. Through this

52 AstraZeneca Annual Report and Form 20-F Information 2016

Strategic Report
risk-mitigation process, we seek to better on the World Health Organizations Healthy Program. Additionally, we donated over
understand the partners risk approach and Workplace Model, which will give sites $20 million in products across multiple
seek to ensure the partner understands and and marketing companies a blueprint for therapeutic areas to our NGO partners
can meet our standards. We conducted a continuous improvement in this area. AmeriCares and Direct Relief International
total of 8,977 assessments in 2016, taking in support of public health needs and
our total number of assessments to 21,622 In 2016, we carried out a number of disaster relief.
since May 2014. Of these, 6,622 were in activities and initiatives focused on delivery
the Asia Pacic region, 6,488 in Europe and of improvements in key areas of concern, Young Health Programme
5,712 in the Americas. The remaining 2,800 including driver safety, fall prevention, We continued to develop the three strands
assessments relate to global suppliers and behavioural SHE, risk management, of our Young Health Programme (YHP):
those based in the Middle East and Africa. industrial hygiene and stress management. on-the-ground programmes; advocacy;
We also continued to focus on learning from and research and evidence generation.
In 2016, we conducted 66 audits on incidents, using a dedicated website where Our on-the-ground programmes focus
high-risk suppliers, seeking to ensure all employees can access the learning to on the primary prevention of NCDs and
that they employ appropriate practices help ensure incidents are not repeated. associated adolescent risk behaviours.
and controls. Thirty two percent of From 2010 to 2016, the programme has
suppliers met our expectations, with a Vehicle collisions provided over 1.6 million young people in
further 42% implementing improvement Collisions communities across ve continents with
plans to address minor instances of Year per million km Target the skills and information they need to
non-compliance. Through our due diligence 2016 3.62 4.00 improve their health. Over 47,000 of these
process, we rejected 40 suppliers because 2015 4.13 5.60 young people have been trained to share
of reputational concerns. this health information with their peers and
Reportable injuries the community. The programmes have also
Safety, health and wellbeing Reportable trained more than 12,600 frontline health
We work to promote a safe, healthy and injury rate workers in adolescent health. 2016 saw
per million
energising work environment for employees Year hours worked Target the launch of a programme in Kenya, the
and partners. As outlined in our Safety, 2016 1.45 1.64 extension of the India programme to 2020
Health and Environment (SHE) strategy 2015 1.73 N/A and a new programme in Canada. Further
on page 45, we have established a set of programmes are in development for 2017.
safety, health and wellbeing targets aimed
at supporting our people and keeping Community investment Further information on YHP can be found on its
AstraZeneca among the sector leaders Our global community investment strategy website,
in SHE performance. focuses on healthcare in the community
and science. For example, 2016 was the Disaster relief
We made good progress against our sixth year of our partnership with the UK The British Red Cross continues to act as
new strategic targets in 2016, achieving a educational charity Career Ready to support our global disaster relief partner, channelling
16% reduction in the reportable injury rate increased participation by 16- to 19-year- the bulk of our disaster relief donations.
and a 12% reduction in vehicle collision olds in science, technology, engineering In addition to the charitable donations
rate from 2015 baseline. Building on our and maths subjects. referenced in Community investment above,
previous success in establishing a culture in July 2016 we donated $200,000 via the
of health and wellbeing, we are developing In 2016, we spent a total of approximately British Red Cross to the Kuala Lumpur
a health and wellbeing framework, based $501 million (2015: approximately Emergency Response Unit, and $25,000 to
$680 million) on community investment replenish stocks of hygiene kits at the British
sponsorships, partnerships and charitable Red Cross/Crescent Panama Warehouse
donations worldwide, including our following Hurricane Matthew.
product donation and patient assistance
programmes which make our medicines
available free of charge or at reduced prices.

In 2016, we provided more than $466 million

(2015: over $617 million) in savings to almost
200,000 patients in the US and Puerto Rico

21,000 through our AZ&Me Prescription Savings

Carried out more than 21,000

supplier assessments since May 2014.

AstraZeneca Annual Report and Form 20-F Information 2016 53

Strategic Report Resources Review

Resources Review

Iff we are to acchieve our stra

ategic priorrities, we need
2XUHP PSOR\HHV To achieve our strategic priorities,
are our grreatest asset but we alsso reely on our we continue to acquire, retain and
develop a talented and diverse
intellectuaal property and our R& &D investm men nt, our workforce united in the pursuit
manufa acturing resources and our inform mation servicces of our Purpose and Values.
UHVRXUFHVHFLHQWO\ > Hired 9,200 permanent employees
to help us achieve our strategic priorities
> Piloted an online Leading People
Overview development experience
> Established a global target for all
> 59,700 employees in more than 100 countries employees to have a development
> People strategy built around four key pillars: build and develop conversation with their manager
organisations and capabilities; develop a strong and diverse pipeline and associated development plan
of leaders; drive a vibrant, high-performing culture; and generate a passion > Increased the gender diversity
for people development of our leadership
and related IP protections for inventions programme
> 31 sites in 18 countries where we are working on the development,
manufacture and supply of our products
> Launched our Operations 2020 strategy to enhance supply capabilities We value the talents and skills of our
in order to respond better to patient and market needs employees and our people strategy
> Three strategic
g R&D centres: in the US (Gaithersburg,
( g, MD);
); UK supports our strategic priority of being
(Cambridge); and Sweden (Gothenburg). A total of nine R&D sites in a great place to work.
> Our vision for IT focuses on areas that will enable competitive advantage Build and develop organisations
for us and capabilities
> Embedding our 2025 Safety, Health and Environment strategy into During 2016, we hired 9,200 permanent
our business employees. An additional 200 employees
joined us through acquisitions, most
notably Takeda and Acerta Pharma.
We are committed to hiring and promoting
talent ethically and in compliance
with applicable laws. Our policies and
procedures are designed to help protect
against discrimination on any grounds
(including disability) and cover recruitment
and selection, performance management,
career development and promotion,

54 AstraZeneca Annual Report and Form 20-F Information 2016

Strategic Report
transfer, training, retraining (including Voluntary employee turnover increased Sales and Marketing
retraining, if needed, for people who have marginally to 9.6% in 2016 from 8.6% in workforce
become disabled), and reward. To help 2015 (restated 2015 number). The voluntary composition (%)
deliver our strategic priorities, we are employee turnover rate among our high Emerging Markets 57%
identifying and recruiting emerging talent, as performers also increased in 2016 to 6.1%. Established Markets
well as investing in internships and We seek to reduce regretted turnover 43%
recruitment opportunities globally. For through more effective hiring and induction,
example, we conduct a global programme high-level reviews of resignations, risk
to hire recent graduates for our assessments and retention plans.
procurement, quality, engineering, IT and
supply chain functions. We also have a Develop a strong and We continue to focus on diversity and
graduate programme for IMED, which diverse pipeline of leaders inclusion with a goal to increase the
complements our established IMED Post To foster innovation, we seek to harness presence of women on our leadership
Doctorate Programme for researcher different perspectives, talents and ideas as teams. In 2016, we piloted a European
recruitment. Additionally, we offer a 12-week well as ensuring that our employees reect Women as Leaders experience to
internship opportunity for business school the diversity of the communities in which support the accelerated development
students to contribute to key initiatives in our we operate. of high potential women in AstraZeneca.
Oncology therapeutic area. In 2017, this programme will be offered
During 2016, we implemented new talent globally. As shown in the gender diversity
Hiring over recent years means that management and succession planning gure on the next page, women comprise
employees with less than two years processes. This focused on the deliberate 49.9% of our global workforce. There are
service now represent 30% of our global identication, sourcing and accelerated currently three women on our Board (30%).
workforce (up from 20% in 2012). This development of our highest potential talent, Below Board level, the representation of
provides a greater balance in terms of seeking to ensure that we have credible women in senior roles (ie roles at Career
refreshing talent and retaining organisational successors with the capabilities and Level F or above which constitute the six
experience. The composition of our experiences necessary for our business highest bands of our employee population)
international workforce has also changed critical roles. increased to 43.2% in 2016, which
with our business focus. This can be seen exceeded our Scorecard target of 42.5%
in the Sales and Marketing gures to the for this measure and compares favourably
right, which shows a greater concentration to external benchmarks.
in Emerging Markets.

A global business 700 6,500 5,700 1,300

employees employees employees employees
13,000 in Canada in UK in Sweden in Russia 10,800
59,700 (1.2%) (10.9%) (9.6%) (2.1%)
employees employees
in US in China
(21.8%) (18.1%)
employees by geographical area

Co-locating around three strategic

7,400 2,900
R&D centres employees in employees
> Cambridge, UK (2,000 employees) Other Europe in Japan
> Gaithersburg, Maryland US (2,900 employees) (12.4%) (4.9%)
> Gothenburg, Sweden (2,200 employees)

Employees by
reporting region (%)

US 21.8%
Europe 32.9%
Established 3,000 1,700 5,700 1,000
Rest of World 7.7% employees in employees in employees in employees
Emerging Central and Middle East 2WKHU$VLD3DFLF in Australia
Markets 37.6% South America and Africa (9.6%) and New Zealand
(5.1%) (2.7%) (1.6%)
All numbers as at 31 December 2016

AstraZeneca Annual Report and Form 20-F Information 2016 55

Strategic Report Resources Review

Resources Review continued

We continue to develop high-quality leaders. Equally important are our performance- Generate a passion for
In 2016, 15% of the approximately 130 related bonus and incentive plans. We people development
leadership roles that report to our senior encourage participation in various employee We encourage employees to take
leadership team were either promoted into share plans, some of which are described ownership of their own development
the leadership population, or moved roles in the Directors Remuneration Report and encourage leaders to spend time
within the leadership population. To ensure from page 103, and also in Note 27 to the supporting their employees development.
our senior leadership reects our diverse Financial Statements, from page 182. To support this, in 2016 we implemented
geographic footprint, we track the country a global platform to increase the visibility
of origin of senior leaders and reect this Employee opinion surveys help us measure and accessibility of job opportunities.
in our diversity targets. In 2016, 14.5% of employee satisfaction and engagement
leadership roles that report to our senior and how we are doing in our aim of being We strive to attract talent by offering
leadership team have a country of origin a great place to work. Our most recent rewarding careers that connect the potential
that is an Emerging Market or Japan (an survey, carried out in December 2016, of our people with the capabilities required
increase from 5% in 2012). showed a decline compared to the survey by our business. We are focusing on
at the start of the year in scores for all ensuring development opportunities are
Drive a vibrant, high-performing 10 items common to both surveys. available to all employees, alongside our
culture Although this might not be unexpected investment in our highest potential talent.
Continuing our emphasis on high given the action we are taking to reshape In 2016, we piloted a new best-practice
performance, in 2016, we extended our our business to improve long-term technology-enabled leadership experience,
single global performance management competitiveness, we are continuing to focus rooted in social learning, with 180 supply
framework and approach to cover 94% on improving areas identied in our surveys and manufacturing leaders based in West
of the workforce. We also implemented as being important drivers of employee Chester and Mount Vernon in the US, and
a global annual salary and incentive engagement. For example, we are driving Vorsino in Russia. This experience can be
review process which covers 60% of the our agenda around people development, accessed on any device at any time, with
workforce. We require every employee encouraging improved dialogue between the goal of implementing global technology
to have high quality objectives, aligned to colleagues and their line managers on enabled development programmes in 2017.
our strategy, which we monitor closely. development. We have also continued our
Managers are accountable for working with efforts to simplify the work environment Human rights
their employees to develop individual and for colleagues, whether this be through We are committed to respecting and
team performance targets, and for ensuring simplifying business processes or improving promoting international human rights not
employees understand how they contribute the IT tools we use in the workplace. only in our own operations, but also in our
to our overall business objectives. wider spheres of inuence (such as our
third party providers). To that end, we
integrate human rights considerations into
our policies, processes and practices.
We are also committed to ensuring that
Gender diversity there is no modern slavery or human
trafcking in our supply chains or any part
Board of Directors Directors of the of our business. Our full statement required
of the Company 10 Companys under section 54 of the UK Modern Slavery
subsidiaries* 435 Act will be published on our website,
Male 70% Male 71.7%, later in 2017.
Female 30% Female 28.3%
We support the principles set out in the
United Nations Universal Declaration of
Human Rights and the International Labour
Organizations (ILO) standards on child
SET* 12 AstraZeneca labour and minimum wages. We are also
employees 59,700 members of the United Nations Global
Compact on Human Rights.
Male 67% Male 50.1%
Female 33% Female 49.9% In 2016, we began conducting our third
biennial Human Rights labour review in
all countries where we have a presence.
The review focuses on ILO core themes,
including freedom of association and
* For the purposes of section 414C(8)(c)(ii) of the Companies Act 2006, Senior Managers are the SET, the directors of all collective bargaining, child labour,
of the subsidiaries of the Company and other individuals holding named positions within those subsidiaries.

56 AstraZeneca Annual Report and Form 20-F Information 2016

Strategic Report
discrimination, working hours and wages, patent proceedings. For information about
including questions on the Living Wage. Intellectual Property third party challenges to patents protecting
Where a gap to ILO minimum standards our products, see Note 28 to the Financial
is identied, we will put in place local plans Discovering and developing Statements from page 185. For more
to close those gaps. In 2016, AstraZeneca PHGLFLQHVUHTXLUHVDVLJQLFDQW information on the risks relating to patent
became accredited with the Living Wage investment of resources by research- litigation and early loss and expiry of
Foundation in the UK and will treat this as based pharmaceutical companies. patents, please see Risk from page 214.
an experience to be evaluated alongside
The process can take a decade or
all other associated evidence in respect The basic term of a patent is typically
more. For this to be a viable
of seeking a global solution, for example, 20 years from the ling of the patent
monitoring impact on our cost base. investment, new medicines must be application with the relevant patent
safeguarded from being copied with ofce. However, a product protected by
Managing change a reasonable amount of certainty for a pharmaceutical patent may not be
In 2013, we announced plans to invest in a reasonable period of time. marketed for several years after ling,
three strategic R&D centres as outlined due to the duration of clinical trials and
in Organisation on page 42. This affected regulatory approval processes. Patent Term
employees in the US and the UK. We Our industrys principal economic safeguard Extensions (PTE) are available in certain
encouraged and supported employees to is a well-functioning patent system that major markets, including the EU and the
relocate and have made good progress. For recognises our efforts and rewards US, to compensate for these delays.
example, as at 31 December 2016, 2,000 innovation with appropriate protection The term of the PTE can vary from zero
employees were working in Cambridge and, and allows time to generate the revenue to ve years, depending on the time taken
of these employees, 500 have relocated we need to reinvest in pharmaceutical to obtain any marketing approval. The
from other sites in the UK. In addition to the innovation. Patent rights are limited by maximum patent term, when including PTE,
750 employees hired in 2015 and 2016, we territory and duration. A signicant portion cannot exceed 15 years (EU) or 14 years
expect to hire a further approximately 350 of a patents duration can be spent during (US) from the rst marketing authorisation.
employees in Cambridge in 2017. We are R&D, before it is possible to launch the
using interim infrastructure in and around protected product. Therefore, we commit Patent expiries
Cambridge to house these employees signicant resources to establishing and The tables on pages 211 to 213 set out
until our new site is ready. For employees defending our patent and related IP certain patent expiry dates and sales for
who do not accept offers to relocate to protections for inventions. our key marketed products.
Cambridge, we provide career support,
outplacement support and competitive Patent process Other exclusivities
severance packages. We le patent protection applications In addition to patent protection, regulatory
for our inventions to safeguard the large data protection (RDP or data exclusivity) is
For more information on Cambridge, see page investment required to obtain marketing an important IP right, which arises in respect
7; on our restructuring programme, please see approvals for potential new drugs. As we of data which is required to be submitted
Restructuring from page 69 and Financial
further develop a product and its uses, to regulatory authorities to obtain marketing
Review from page 62
these new developments may necessitate approvals for our medicines. Signicant
new patent lings. We apply for patents investment is required to generate such
Employee relations through government patent ofces around data (for example, through conducting
We seek to follow a global approach the world. These assess whether our global clinical trials) and this proprietary data
to employee relations guided by global inventions meet the strict legal requirements is protected from use by third parties (such
employment principles and standards, for a patent to be granted. Our competitors as generic manufacturers) for a number of
local laws and good practice. We work to can challenge our patents in patent ofces years in a limited number of countries. The
develop and maintain good relations with and/or courts. We may face challenges early period of such protection, and the extent
local workforces and work closely with in the patent application process and to which it is respected, differs signicantly
our recognised national trade unions. throughout a patents life. The grounds for among countries. RDP is an important
We also regularly consult with employee these challenges could be the validity of a protection for our products, and we strive to
representatives or, where applicable, trade patent and/or its effective scope and are enforce our rights to it, particularly as patent
unions, who share our aim of retaining key based on ever-evolving legal precedents. rights are increasingly being challenged.
skills and mitigating job losses. We are experiencing increased challenges
in the US and elsewhere in the world (such The RDP period starts from the date of the
as in Australia, Brazil, Canada, China, rst marketing approval from the relevant
Europe and Japan) and there can be no regulatory authority and runs parallel to any
guarantee of success for either party in patent protection. RDP generally expires
prior to patent expiry in all major markets.

AstraZeneca Annual Report and Form 20-F Information 2016 57

Strategic Report Resources Review

Resources Review continued

If a product takes an unusually long time inspections together with the outcomes
to secure marketing approval, or if patent Manufacturing of internal audits and, where necessary,
protection has not been secured, has implemented improvement actions.
expired or has been lost, then RDP may be Our 2020 strategy provides a focus
the sole IP right protecting a product from for our investments to help ensure We are committed to maintaining the
copying. Generic manufacturers should not we are able to respond to patient and highest ethical standards and compliance
be allowed to rely on AstraZenecas data to market needs for our medicines. with internal policies, laws and regulations.
support the generic products approval or We review and comment upon evolving
marketing until the RDP right has expired. national and international compliance
In the EU, the RDP period is eight years Overview regulations through our membership of
followed by two years marketing exclusivity. > Operations 2020 strategy started with industry associations including IFPMA,
a number of global initiatives in 2016 EFPIA and PhRMA.
In the US, new chemical entities (NCEs) are > Biologics manufacturing footprint
entitled to a period of ve years exclusivity increased in preparation for new product Pharmaceutical Technology &
under the Federal Food, Drug and Cosmetic launches Development (PT&D)
Act. This period of exclusivity runs parallel > The Pharmaceutical Technology & In January 2016, the integration of PT&D into
to any pending or granted patent protection Development teams have been integrated Global Operations commenced to support
and starts at the approval of the new into Operations to enhance the way we further and accelerate successive new
application. As with RDP, there are design, develop, manufacture and launch product launches, new device platforms
circumstances where this protection could new products and manage an increase in the overall
be the sole IP right protecting a product product portfolio complexity. The integration
from being copied. Further, under the is also expected to enhance collaboration
Biologics License Application process, the Strategy and alignment and our focus on late-stage
FDA will grant 12 years data exclusivity for a Operations 2020 strategy was launched in development, adding substantial scientic
new biologic to an innovator manufacturer. 2015 to enhance supply capabilities in order expertise and leadership to Operations.
to respond better to patient and market
Under Orphan Drug laws in the EU and US, needs. Our strategy focuses on supporting We are actively working on over 150 drug
exclusivity is granted to an innovator who the delivery of our new product launches, projects across our R&D and Commercial
gains approval for a pharmaceutical product strengthening our science and technology portfolios, supporting more than 300
developed to treat a rare disease. What capabilities across the globe, creating a AstraZeneca clinical studies worldwide
qualies as a rare condition differs between more agile and exible supply chain, and and an additional 400 External Sponsored
the EU and US. Qualifying Orphan Drugs embedding Lean principles throughout our Research studies. We also support over 100
are granted 10 years market exclusivity in network. Our objective is to be recognised in-line brands and small molecule products.
the EU and seven years market exclusivity as a leader in biopharmaceutical supply
in the US. chain by the end of 2020. Our continued science and technology
innovation allows us to enable and
Compulsory licensing Quality, regulation and compliance differentiate products including Lynparza,
Compulsory licensing (where a Patent We are committed to high product Tagrisso, acalabrutinib, Brilinta and new
Authority imposes a licence on the Patentee) quality, which underpins the safety and respiratory products such as PT010 as they
is on the increase in certain markets in efcacy of our medicines. We maintain are introduced into the marketplace and
which we operate. We recognise the right of a comprehensive quality management ultimately into the hands of patients globally.
developing countries to use the exibilities in system to assure compliance and quality.
the World Trade Organizations Agreement Similarly, we set strict standards for safety, Manufacturing capabilities
on Trade-Related Aspects of Intellectual health and environment at each of our sites. Our principal tablet and capsule formulation
Property Rights (including the Doha Manufacturing facilities and processes sites are in the UK, Sweden, China,
amendment) in certain circumstances, such are subject to rigorous and continuously Puerto Rico and the US, with local/regional
as a public health emergency. We believe evolving regulatory standards. They supply sites in Russia, Japan, Indonesia,
this should apply only when all other ways are subject to inspections by regulatory Egypt, India, Germany, Mexico, Brazil,
of meeting the emergency needs have authorities, who are authorised to mandate Argentina and Algeria. We also have major
been considered and where healthcare improvements to facilities and processes, formulation sites for the global supply of
frameworks and safeguards exist to ensure halt production and impose conditions for parenteral and/or inhalation products in the
the medicines reach those who need them. production to resume. US, Sweden, France, Australia and the UK.
Most of the manufacture of API is delivered
In 2016, we hosted 33 independent through the efcient use of external sourcing
inspections from 18 regulatory authorities. that is complemented by internal capability
We reviewed observations from these in Sweden.

58 AstraZeneca Annual Report and Form 20-F Information 2016

Strategic Report
At the end of 2016, approximately 12,200
people resources
employed at 31 Operations
sites in 18 countries.
We have approximately 8,400
employees in our R&D organisation,
working in various sites around
the world.

Our small molecule sites are located in

the UK (Alderley Park, Cambridge and
Maccleseld), Sweden (Gothenburg), the
US (Gaithersburg, Maryland, Waltham,
s in
ng fo
forr th
e fu
t re
re:: Massachusetts and California), Japan
Ma ufact
ing bi
b ol
gics (Osaka) and China (Shanghai). Our biologics
sites are located in the UK (Cambridge)
and in the US (Gaithersburg, Maryland
We are investing in our supply network, For biologics, our principal commercial and California). Our Gaithersburg, Maryland
with a focus on increasing production manufacturing facilities are in the US US; Cambridge, UK; and Warsaw, Poland
capacity to support the growing demand (Frederick, Maryland; Greater Philadelphia, sites focus on late-stage development for
for biologics. The addition of three new Pennsylvania; Boulder and Longmont, small molecules and biologics across our
high-tech biologics manufacturing Colorado), the UK (Speke), and the entire portfolio.
facilities (Grtuna in Sweden (above), and Netherlands (Nijmegen) with capabilities in
Boulder and Longmont, both in Colorado process development, manufacturing and In 2016, R&D expenditure was $5,890
in the US) to our supply network will distribution of biologics, including global million in our R&D organisation (2015:
leave us well-positioned for the future. supply of MAbs and inuenza vaccines. $5,997 million; 2014: $5,579 million),
including core R&D costs of $5,631 million
We are developing our manufacturing (2015: $5,603 million; 2014: $4,941 million).
capability in biologics and expect our bulk In addition, we spent $821 million on
manufacturing facility in Boulder, Colorado acquiring product rights (such as
US to be licensed for commercial in-licensing) (2015: $1,341 million;
production by the end of 2017. In Sweden, 2014: $907 million). We also invested
we expect our new $285 million biologics $178 million on the implementation of
manufacturing facility to be available for our R&D restructuring strategy (2015:
clinical trial programmes by the end of $258 million; 2014: $497 million). The
2018 and fully operational by 2019. These allocations of spend by early-stage and
projects, in addition to an expansion plan late-stage development are presented
at Frederick, Maryland US, will increase in the R&D spend analysis table below.
production capacity to support the growing
demand for biologics, which represents R&D spend analysis
about half of our development pipeline. We 2016 2015 2014
acquired our facility in Longmont, Colorado Discovery and
US, in 2016 which will both support our early-stage
operations in Boulder and provide space for development 36% 39% 47%
additional biologics expansion as required. Late-stage
development 64% 61% 53%
For small molecules we are constructing a
new small scale development and launch

8,400 facility alongside our existing manufacturing

facility in Wuxi, China. In addition, regulatory
validation work continues at Vorsino, Russia,
which opened in 2015. First commercial
Around 8,400 employees production commenced in early 2016,
in our R&D organisation. improving our ability to supply local markets.

At the end of 2016, approximately 12,200

people were employed at 31 Operations
sites in 18 countries.

AstraZeneca Annual Report and Form 20-F Information 2016 59

Strategic Report Resources Review

Resources Review continued

We are working to reduce our greenhouse

Information technology Environment gas emissions by, among other things,
investment in improving energy and fuel
and information services We follow the science to protect efciency and pursuing lower-carbon
resources the planet by managing our impact alternatives to fossil fuels, utilising a
on the environment across all hierarchy approach of Avoid-Reduce-
Our continuing vision for IT is to our operations. Substitute. During 2016, site energy use
focus on areas that may provide a improved to reduce consumption by 0.2%
competitive advantage for and procurement of electricity from certied
Overview renewable sources increased to represent
> ,QGHSHQGHQWYHULFDWLRQRIVFLHQFHEDVHG 58% of total electricity imports. Our travel
climate change targets and commitment and freight transport emissions decreased
to responsible water stewardship due to reduced business air travel,
At the end of 2016, we successfully > 2016 greenhouse gas footprint reduced increased fuel efciency of our commercial
completed our three-year IT Transformation by 5% sales eet and continued achievement in
Programme. The wide-ranging programme > 2016 waste management generation switching freighting of goods from air to sea.
has delivered improved productivity, increased by 1%
efciency, responsiveness and innovation > 2016 water consumption performance
allowing us to better support our business reduced by 5% Operational greenhouse gas footprint
priorities while at the same time signicantly emissions (tonnes CO2e)
reducing cost.
2016 1,656,917
2015 1,743,199
First, to implement our vision for IT, we seek As outlined in Safety, Health and
2014 N/A
to identify, prioritise and drive adoption of Environment strategy on page 45, we have
new technologies to support the business begun work on delivering our 2016 to 2025
and enable our science. Second, we aim Safety, Health and Environment (SHE)
to make signicant investments in data and targets. Our 2016 natural resource targets Waste production (tonnes)
analytics to allow the business to manage included reducing:
2016 37,923
information more effectively in order to
2015 37,510
drive faster, more effective decision making. > operational greenhouse gas footprint by
2014 35,797
Finally, we seek to drive operational 2% to 1,708,335 tonnes CO2e
excellence and improvements in the > waste generation by 2% to 36,760 tonnes
performance, stability, security and cost > water use by 2% to 4.13 million m3.
of the underlying application landscape Water use (million m3)
and infrastructure of our IT. The table to the right provides data on our
2016 3.99
global greenhouse gas emissions, waste
2015 4.21
Protecting our IT systems, IP and production and water consumption for
2014 3.79
condential information against cyberattacks 2016. The data coverage includes 100%
is a key concern. Our IT organisation of our owned and controlled sites globally.
seeks continuous improvement of our IT 2015 data was recalculated to include
protection by developing and implementing acquired sites that form part of the 2016
robust, effective and agile risk-based to 2025 strategy baseline.
approaches to protect our resources
and keep pace with the rapidly evolving We continue to integrate environmental
cybersecurity risk landscape. To help guard considerations across a medicines entire
against cybercrime, we have adopted a life-cycle, from discovery, R&D to
comprehensive cybersecurity process manufacturing, commercialisation and
and policy, which we regularly review and disposal. This considers the natural
update. We monitor our systems and data resources used to manufacture our
with sophisticated technology to identify products and the environmental impact of
and address potential weaknesses in the our active pharmaceutical ingredients (APIs).
management of cybersecurity risk.

At the end of 2016, our IT organisation

comprised approximately 3,500 people
across our sites in the UK, Sweden, the US,
and our new technology centres in India
(Chennai) and Mexico (Guadalajara).

60 AstraZeneca Annual Report and Form 20-F Information 2016

Strategic Report
We recognise the need to use water
responsibly and, where possible, to
minimise water use in our facilities.
In 2016, we targeted a 2% reduction from
our 2015 water use. In 2016, our water
footprint was 3.99 million m3, a 5%
reduction. This was achieved in part by
investing in water efciency projects such
as the reclamation and reuse of water
at a number of our manufacturing sites
in Australia and the US. During 2016, our
major sites completed Water Conservation
Plans and we standardised the assessment
Innve estin
ing g fo
for th
he future: of water stress across our network, enabling
Fo win
ing g th
e sc
c to protect prioritisation of water efciency in areas
he en nvi
n en
entt where water scarcity is of greatest concern.

We are also working on measuring and

We were one of only four FTSE 350 Our pMDI inhaler therapy relies on reporting the environmental impact of our
companies to have had our climate hydrouoroalkane (HFA) propellants which external manufacturing activity and work
change targets approved by the Science affects our greenhouse gas footprint. While to set appropriate environmental targets
Based Targets initiative which is a HFAs have no ozone depletion potential with our suppliers. We capture data for
partnership with CDP, the UN Global and a third or less of the global warming more than 90% (based on spend) of the
Compact, World Resources Institute, potential than the chlorouorocarbons they globally managed outsourced manufacture
and World Wide Fund for Nature. The replace, they are still potent greenhouse of key intermediates and APIs, formulation
initiative seeks to create a systematic gases. During 2016, we continued to and packaging for our established brands.
change in how targets are set, so that explore practical opportunities to reduce Understanding and management of
companies contribute their fair share of the climate impact of these devices while our external supplier footprint will be a
the challenging emissions reduction continuing to full patient needs. Including continued focus of our SHE commitment
needed to limit global temperature emissions from patient use of our inhaler going forward.
c ease to under
u de two degrees
deg ees centigrade.
ce t g ade. therapies, our aim by 2016 was to reduce
our operational greenhouse gas footprint With regard to pharmaceuticals in the
by 2% from our 2015 level. We achieved environment (PIE), we manage the
this, with our operational greenhouse gas manufacturing emissions of our APIs
footprint totalling 1,656,917 metric tonnes in a responsible manner to ensure that
in 2016, a reduction of 5% from our we do not exceed the safe discharge
2015 baseline. standards set for our own manufacturing
sites and those of key suppliers. We review
For more information on carbon reporting, compliance with these safe discharge
please see Sustainability: supplementary standards annually. Using a concept
information from page 231
called ecopharmacovigilance, we review
emerging science and literature for new
Waste management is another key information that might change the way we
aspect of our commitment to minimise assess and manage any environmental risks
environmental impact. In 2016, we targeted associated with our products. Our proactive
a 2% reduction in waste generation from our SHE research also addresses some of the
2015 baseline. In 2016, our total waste was key risks posed by PIE. In 2016, we signed
37,923 metric tonnes, a 1% increase on an industry declaration presented to the
2015. Although we initiated waste reduction United Nations General Assembly ensuring
projects, such as major investment to the responsible use, patient access and
enable solvent reuse at a Swedish production of antibiotics to help combat
manufacturing site, these were insufcient the threat of antimicrobial resistance.
to offset the increase in activity across
our network. While waste prevention Further information, including environmental
is an essential goal, we seek to maximise risk assessment data for our medicines, is
treatment by material recycling and
avoiding landll disposal when prevention sustainability.html
is impractical.

AstraZeneca Annual Report and Form 20-F Information 2016 61

Strategic Report Financial Review

Financial Review

Product Sales were supplemented by

$1.7 billion of Externalisation Revenue
arising from partnerships including the
global agreement with Aspen for the
commercial rights to the anaesthetics
portfolio and local agreements in China for
Plendil and in the US for Toprol-XL. The level
of sustainable and ongoing income from
such partnerships and collaborations has
continued to increase during 2016.

Excluding the impact of Externalisation

Revenue, the Reported Gross Prot margin
was broadly stable in the year, with lower
restructuring and amortisation charges
offset by the adverse impact from the mix
SHUIRUPDQFHUHHFWHGWK KH of sales and a write-down of FluMist
inventory in the US. Excluding the lower
ZKKLFKZDVCresttorrLLQWWKH862YHUDOO7RWDO5HYHQXH Core Gross Prot margin declined by
one percentage point to 82%.
Reported Other Operating Income was
$1.7 billion in the year and included receipts
In 2016, continued growth in Emerging in Saudi Arabia. However, China maintained from the divestments of the small molecule
Markets and Diabetes, coupled with strong growth of 4% (CER: growth of 10%), ahead antibiotics business to Pzer and Rhinocort
sales of our New Oncology medicines and of the overall market, and Russia grew at 1% Aqua to Cilag.
further progress for Brilinta, resulted in a 4% (CER: growth of 13%).
increase (CER: 5% increase) in our Growth Reported Operating Prot increased by 19%
Platform Sales. Our Diabetes franchise grew by 9% (CER: (CER: increased by 9%) to $4.9 billion and
grew by 11%) to $2.4 billion and Farxiga Core Operating Prot declined by 3% (CER:
However, the continued effect of patent became our largest-selling diabetes declined by 7%) to $6.7 billion. Reported
expiries, in particular the US entry of Crestor medicine, consolidating its position as global earnings per share increased by 24%
generic medicines, resulted in a decline in leader in the SGLT2 class. Brilinta sales (CER: increased by 9%) to $2.77 and Core
Total Revenue of 7% (CER: decline of 5%) in increased by 36% (CER: increased by 39%) earnings per share increased by 1% (CER:
the year. Our continued focus on cost to $839 million, reecting updated preferred declined by 5%) to $4.31. Both Reported
discipline delivered a decrease of 2% (CER: guidelines from the American College of and Core EPS included a non-recurring
increase restricted to 2%) in Reported R&D Cardiology and the American Heart benet of $0.36, following agreements
costs and stable (CER: increase restricted to Association. In addition, sales of our New between the Canadian tax authority and the
5%) Core R&D costs, despite the absorption Oncology medicines reached $664 million UK and Swedish tax authorities in respect of
of Acerta Pharma and ZS Pharma costs. in the year, with Tagrisso and Lynparza transfer pricing arrangements for the period
The decline of 15% (CER: decline of 12%) in growing strongly. Respiratory declined from 2004 to 2016.
Reported SG&A costs, which also beneted by 5% (CER: declined by 3%) in the year,
from fair value adjustments to long-term impacted by US pricing pressure on We generated a net cash inow from
liabilities, and the decline of 12% (CER: Symbicort. Japan Product Sales increased operating activities of $4.1 billion in the year
decline of 9%) in Core SG&A costs, by 8% (CER: declined by 3%). with a continued improvement in working
reected the evolving shape of the business capital investment. We maintain a strong,
and efciency savings. This, combined with Patent expiries continued to impact investment-grade credit rating and, in May,
a non-recurring benet resulting from negatively in our Established Markets and issued a total of $2.5 billion of loans for
agreements on transfer pricing between more than offset the performance of the general corporate purposes. We ended
various tax authorities, delivered Reported Growth Platforms. US sales fell by 22% to the year with net debt of $10.7 billion.
EPS of $2.77 and Core EPS of $4.31. $7.4 billion and reected the competition
from generic Crestor medicines that entered
Product Sales in Emerging Markets were the US market from July and the continued
stable compared to 2015 (CER: grew decline of Nexium sales following the loss of
by 6%) in the year at $5.8 billion, against a US exclusivity in 2015. Sales in Europe were Marc Dunoyer
background of challenging macro-economic down by 5% (CER: down 3%) and sales in Chief Financial Ofcer
conditions in Latin America. We have other Established Markets grew by 2%
reduced our activities in Venezuela and (CER: fell by 4%).
there were also cuts in healthcare spending

62 AstraZeneca Annual Report and Form 20-F Information 2016

Strategic Report
Contents > The adverse impact on pharmaceutical Emerging Markets at at actual
prices as a result of the macroeconomic exchange rates (CER: 6% growth)
Introduction 62 and regulatory environment. For instance, supported by China, up by 4%
Business background and results although there is no direct governmental (CER: up by 10%)
overview 63 control on prices in the US, action from Diabetes up 9% (CER: up 11%), which
Measuring performance 64 federal and individual state programmes included growth of 70% (CER: growth
Results of operations summary and health insurance bodies is leading to of 72%) on Farxiga which became
analysis of year ended 31 December 2016 65 downward pressures on realised prices. our largest-selling diabetes medicine
&DVKRZDQGOLTXLGLW\ 70 In other parts of the world, there is a Japan up 8% (CER: down 3%) to
Financial position 72 variety of price and volume control $2,184 million
Capitalisation and shareholder return 76 mechanisms and retrospective rebates Brilinta Product Sales up 36% (CER:
Future prospects 76 based on sales levels that are imposed up39%) to $839 million
Financial risk management 76 bygovernments. Respiratory down 5% (CER: down 3%)
Critical accounting policies and estimates 77 > The timings of new product launches, reecting an 18% fall in US Product
Sarbanes-Oxley Act Section 404 81 which can be inuenced by national Sales of Symbicort
regulators, and the risk that such new New Oncology Product Sales of
products do not succeed as anticipated, $664 million.
together with the rate of sales growth and > Reported operating prot was up 19%
The purpose of this Financial Review is costs following new product launches. (CER: up 9%) to $4,902 million (2015:
to provide a balanced and comprehensive > Currency uctuations. Our functional $4,114 million). The increase reected
analysis of the nancial performance of the and reporting currency is the US dollar, thereduction in SG&A costs, largely
business during 2016, the cash ow and but wehave substantial exposures dueto fair value gains on contingent
liquidity position of the business, the to other currencies, in particular the consideration and lower legal charges.
nancial position as at the end of the year, euro, Japanese yen, pounds sterling, This reduction in SG&A costs more than
and the main business factors and trends Chineserenminbi and Swedish krona. offset the decline in Product Sales, while
which could affect the future nancial > Macro factors such as greater demand we continued to invest in our pipeline and
performance of the business. from an ageing population and increasing Growth Platforms.
requirements of Emerging Markets. > Revaluations of contingent consideration
Business background and results resulted in a reduction of $1,158 million in
overview Over the longer term, the success of our SG&A costs in the year, and included a
The business background is covered in R&D is crucial and we devote substantial decrease of $999 million relating to the
theMarketplace section from page 11, the resources to this area. The benets of this acquisition of BMSs share of the Global
Therapy Area Review from page 23 and the investment are expected to emerge over the Diabetes Alliance, based on revised
Geographical Review from page 226, and long term and there is considerable inherent milestone probabilities, and revenue and
describes in detail the developments in both uncertainty as to whether and when it will royalty forecasts. Total restructuring costs
our products and the geographical regions generate future products. associated with the global programme
in which we operate. to reshape the cost base of our business
The most signicant features of our nancial were $1,107 million in 2016.
As described earlier in this Annual Report, results in 2016 are: > Core operating prot was down 3%
sales of our products are directly inuenced (CER:down 7%) to $6,721 million (2015:
by medical need and are generally paid for > Total Revenue down 7% to $23,002 $6,902 million).
by health insurance schemes or national million (CER: down 5%). Product Sales > Reported operating margin of 21.3% of
healthcare budgets. Our operating results were down 10% (CER: down 8%) Total Revenue was up 4.6 percentage
can be affected by a number of factors reecting the entry in the US of multiple points (CER: 2.6 percentage points).
other than the delivery of operating plans Crestor generic medicines, as well as Core operating margin was 29.2% of
and normal competition, such as: thereducing impact of Nexium generic Total Revenue (2015: 27.9%).
medicines in the US and the impact of > Reported EPS was up 24% (CER: up 9%)
> The risk of competition from generics pricing pressure in the US on Symbicort. to $2.77. Core EPS for the full year was
following loss of patent protection or Product Sales of Crestor, Nexium $4.31, up 1% (CER: down 5%).
patent expiry of one of our products or and Symbicort in the US declined > Dividends paid amounted to $3,561
anat risk launch by a competitor or by 57%,39% and 18% respectively. million (2015: $3,486 million).
the launch of a generic competitor in the > Revenues of our Growth Platforms
same class as one of our products, with increased 4% (CER: increased 5%) and
the potential adverse effects on sales constituted 63% of our Total Revenue, with
volumes and prices. Details of patent
expiries for our key marketed products
are included in Patent Expiries of Key
Marketed Products from page 211.

AstraZeneca Annual Report and Form 20-F Information 2016 63

Strategic Report Financial Review

Financial Review continued

Measuring performance (by retranslating the current years nancial measures that illustrate clearly,
The following measures are referred to in performance at previous years on a year-on-year or period-by-period basis,
this Financial Review when reporting on our exchange rates and adjusting for other the impact on our performance caused by
performance both in absolute terms, but exchange effects, including hedging). factors such as changes in revenues and
more often in comparison to earlier years: A reconciliation of the Reported results expenses driven by volume, prices and cost
adjusted for the impact of currency levels relative to such prior years or periods.
> Reported performance. Reported movements is provided in the 2016
performance takes into account all the Reported operating prot table on Readers of the Annual Report should
factors (including those which we cannot the page opposite. note that Core results cannot be achieved
inuence, such as currency exchange > Gross and operating margin percentages. without incurring the costs that the Core
rates) that have affected the results of These measures set out the progression measures exclude such as:
ourbusiness, as reected in our Group of key performance margins and illustrate
Financial Statements prepared in the overall quality of the business. > Amortisation of intangible assets which
accordance with IFRSs as adopted by > Prescription volumes and trends for key generally arise from business combinations
theEU and as issued by the IASB (IFRS). products. These measures can represent and individual licence acquisitions.
> Core nancial measures. These are the real business growth and the We adjust for these charges because
non-GAAP measures because, unlike progress of individual products better and their pattern of recognition is largely
Reported performance, they cannot be more immediately than invoiced sales. uncorrelated with the underlying
derived directly from the information in > Net funds/debt. This represents our cash performance of the business. However,
the Group Financial Statements. These and cash equivalents, current investments a signicant part of our revenues could
measures are adjusted to exclude certain and derivative nancial instruments less not be generated without owning the
signicant items, such as interest-bearing loans and borrowings. associated acquired intangible assets.
amortisation and impairment of > Charges and provisions related to our
intangibles, including impairment We strongly encourage readers of the global restructuring programmes which
reversals but excluding any charges Annual Report not to rely on any single can take place over a signicant period
relating to IT assets nancial measure but to review our nancial of time, given the long life-cycle of our
charges and provisions related to our statements, including the notes thereto, business. We adjust for these charges
global restructuring programmes (this and our other publicly led reports, carefully and provisions because they primarily
includes such charges that relate and in their entirety. reect the nancial impact of change
to the impact of our global restructuring to legacy arrangements, rather than
programmes on our capitalised CER measures allow us to focus on the the underlying performance of our
IT assets) changes in revenues and expenses driven ongoing business. However, our Core
other specied items, principally by volume, prices and cost levels relative to results do reect the benets of such
comprising legal settlements and the prior period. Revenues and cost growth restructuring initiatives.
acquisition-related costs which include expressed in CER allows management to
fair value adjustments and the imputed understand the true local movement in It should also be noted that other costs
nance charge relating to contingent revenues and costs, in order to compare excluded from our Core results, such
consideration. recent trends and relative return on as nance charges related to contingent
In determining the adjustments to arrive investment. CER growth rates can be used consideration will recur in future years
at the Core result, we use a set of to analyse revenues in a number of ways and other excluded items such as
established principles relating to the but, most often, we consider CER growth impairments and legal settlement costs,
nature and materiality of individual by products and groups of products, and by along with other acquisition-related costs,
items or groups of items, excluding, for countries and regions. CER revenues growth may recur in the future.
example, events which (i) are outside the can be further analysed into the impact of
normal course of business, (ii) are incurred revenues volumes and selling price. Similarly, As shown in the 2016 Reconciliation of
in a pattern that is unrelated to the trends CER cost growth helps us to focus on the Reported results to Core results table
in the underlying nancial performance of real local change in costs so that we can on the page opposite, our reconciliation
our ongoing business, or (iii) are related manage the cost base effectively. of Reported nancial information to Core
to major acquisitions, to ensure that nancial measures includes a breakdown
We believe that disclosing Core nancial of the items for which our Reported nancial
investors ability to evaluate and analyse
and growth measures, in addition to our information is adjusted and a further
the underlying nancial performance
Reported nancial information, enhances breakdown by specic line item as such
of our ongoing business is enhanced.
investors ability to evaluate and analyse items are reected in our Reported income
See the 2016 Reconciliation of Reported
the underlying nancial performance of statement. This illustrates the signicant
results to Core results table on the
our ongoing business and the related key items that are excluded from Core nancial
opposite page for areconciliation
business drivers. As detailed in our 2012 measures and their impact on our Reported
of Reported to Core performance.
Annual Report, we revised our denition nancial information, both as a whole and
> Constant exchange rate (CER) growth
of Core nancial measures in 2013, with in respect of specic line items.
rates. These are also non-GAAP
consistent application thereafter. The
measures. These measures remove
adjustments are made to our Reported Management presents these results
the effects of currency movements
nancial information in order to show Core externally to meet investors requirements

64 AstraZeneca Annual Report and Form 20-F Information 2016

Strategic Report
for transparency and clarity. Core nancial to differentiate between different kinds nancial information, may differ from
measures are also used internally in the of costs and they should not be used similarly titled non-GAAP measures
management of our business performance, in isolation. You should also refer to our of other companies.
in our budgeting process and when Reported nancial information in the 2016
determining compensation. Reported operating prot table below and The SET retains strategic management
our reconciliation of Core nancial measures of the costs excluded from Reported
Core nancial measures are non-GAAP to Reported nancial information in the nancial information in arriving at Core
measures. All items for which Core nancial Reconciliation of Reported results to Core nancial measures, tracking their impact
measures are adjusted are included in results table below for our discussion of on Reported operating prot and EPS, with
our Reported nancial information as they comparative Actual growth measures that operational management being delegated
represent actual costs of our business in reect all factors that affect our business. on a case-by-case basis to ensure clear
the periods presented. As a result, Core accountability and consistency for each
nancial measures merely allow investors Our determination of non-GAAP measures, cost category.
and our presentation of them within this

Results of operations summary analysis of year ended 31 December 2016

2016 Reported operating profit
2016 2015 Percentage of Total Revenue 2016 compared with 2015
due to
CER exchange Reported Reported Actual CER
Reported growth effects Reported 2016 2015 growth growth1
$m $m $m $m % % % %
Product Sales 21,319 (1,990) (332) 23,641 (10) (8)
Externalisation Revenue 1,683 634 (18) 1,067 58 59
Total Revenue 23,002 (1,356) (350) 24,708 (7) (5)
Cost of sales (4,126) 332 188 (4,646) (17.9) (18.8) (11) (7)
Gross prot 18,876 (1,024) (162) 20,062 82.1 81.2 (6) (5)
Distribution costs (326) (4) 17 (339) (1.5) (1.4) (4) 1
Research and development expense (5,890) (150) 257 (5,997) (25.6) (24.3) (2) 2
Selling, general and administrative costs (9,413) 1,373 326 (11,112) (40.9) (44.9) (15) (12)
Other operating income and expense 1,655 178 (23) 1,500 7.2 6.1 10 12
Operating prot 4,902 373 415 4,114 21.3 16.7 19 9
Net nance expense (1,317) (1,029)
Share of after tax losses of joint ventures and associates (33) (16)
Prot before tax 3,552 3,069
Taxation (146) (243)
Prot for the period 3,406 2,826

Basic earnings per share ($) 2.77 2.23


2016 Reconciliation of Reported results to Core results

Core1 2016
amortisation BMSs share Legal
2016 Restructuring and of diabetes provisions 2016 Actual CER
Reported costs impairments alliance and other Core1 growth growth
$m $m $m $m $m $m % %
Gross prot 18,876 130 124 19,130 (7) (6)
Product Sales gross margin %2 80.8% 82.0%
Total Revenue gross margin % 82.1% 83.2%
Distribution costs (326) (326) (4) 1
Research and development expense (5,890) 178 81 (5,631) 5
Selling, general and administrative costs (9,413) 823 1,000 (627) 48 (8,169) (12) (9)
Other operating income and expense 1,655 (24) 86 1,717 13 14
Operating prot 4,902 1,107 1,291 (627) 48 6,721 (3) (7)
Operating margin as a % of Total Revenue 21.3% 29.2%
Net nance expense (1,317) 389 267 (661)
Taxation (146) (232) (307) 23 4 (658)
Basic earnings per share ($) 2.77 0.69 0.78 (0.17) 0.24 4.31
Each of the measures in the Core column in the above table are non-GAAP measures.

AstraZeneca Annual Report and Form 20-F Information 2016 65

Strategic Report Financial Review

Financial Review continued

Total Revenue Established Markets were up 2% (CER: a reduction of 18% in the US due to the
Total Revenue for the year was down 7% to down 4%) at $3,096 million including an impact of a competitive environment on net
$23,002 million, comprising Product Sales increase of 8% in Japan (CER: decrease pricing. Nexium Product Sales were down
of $21,319 million (down 10%) and of 3%) to $2,184 million, with Crestor 19% (CER: down 18%), including a 39%
Externalisation Revenue of $1,683 million Product Sales in Japan stable at $521 decrease in the US, reecting lower demand
(up 58%). At CER, Total Revenue declined million. Product Sales in Emerging Markets and inventory de-stocking as a result of the
by 5% in the year. were at (CER: up 6%) at $5,794 million in loss of exclusivity in 2015. Strong underlying
2016 despite growth in China of 4% (CER: volume growth in Emerging Markets drove a
Product Sales growth of 10%) to $2,636 million, as we 5% Global Product Sales increase (CER: 8%
The decline in Product Sales primarily encountered challenging macro-economic increase) in Pulmicort, with 66% of Product
reected the entry in the US of multiple conditions in Latin America, where full-year Sales of the medicine coming from that
Crestor generic medicines. Product Sales declined by 20% (CER: region in the year.
declined by 7%) to $516 million.
By Geography Growth Platforms
US Product Sales were down 22% to By Product In the periods under review, our Growth
$7,365 million, reecting the competition Our largest selling products in 2016 were Platforms included products in our three
from multiple generic Crestor medicines Crestor ($3,401 million), Symbicort ($2,989 main therapy areas, and a focus on
that entered the US market from July 2016 million), Nexium ($2,032 million) and Pulmicort the Emerging Markets and Japan. Our
as well as lower Product Sales of Nexium ($1,061 million). Global Product Sales of Growth Platforms grew by 4% (CER: 5%),
and Symbicort. In Europe, strong growth in Crestor declined in the year by 32% (CER: representing 63% of Total Revenue after
Product Sales of Forxiga and Brilique were declined by 32%), which primarily reected removing the effect of certain Product
more than offset by a decline in Symbicort, the market entry of multiple Crestor generic Sales which are included in more than
leading to a decrease of 5% (CER: decrease medicines. Symbicort global Product Sales one Growth Platform.
of 3%) in the region in total to $5,064 million. declined by 12% (CER: down 10%) including

Growth Platforms
2016 2015 Actual CER
Product Sales Product Sales growth growth
$m $m % %
Respiratory 4,753 4,987 (5) (3)
Brilinta 839 619 36 39
Diabetes 2,427 2,224 9 11
Emerging Markets 5,794 5,822 6
Japan 2,184 2,020 8 (3)
New Oncology1 664 119 n/m n/m
Total Growth Platform Product Sales2 14,491 14,003 4 5
New Oncology comprises Lynparza, Iressa (US) and Tagrisso.
Certain Product Sales are included in more than one Growth Platform. Total Growth Platform sales represents the net total sales for all Growth Platforms.

Externalisation Revenue
2016 2015
$m $m
Global non-US anaesthetics portfolio (Aspen) upfront 520
Plendil (China Medical System Holdings) upfront 298
Toprol-XL (Aralez) upfront 175
tralokinumab (LEO Pharma) upfront 115
AZD3293 (Lilly) milestone 100 50
durvalumab (Celgene) upfront 450
Movantik (Daiichi Sankyo) upfront 200
brodalumab (Valeant) upfront 100
Nexium (Daiichi Sankyo) milestone 123
Others 356 57
Total upfront/milestones 1,564 980
Royalties 119 87
Total Externalisation Revenue 1,683 1,067

66 AstraZeneca Annual Report and Form 20-F Information 2016

Strategic Report
Product Sales of our Respiratory > In October 2016, we announced an Product Sales. For an initial period of 10
medicines declined by 5% (CER: declined agreement with Aralez for the rights years, we will manufacture and supply
by 3%) reecting pricing pressure in the to the branded and authorised generic the products to Aspen at cost plus 20%.
US for Symbicort. (marketed by Par Pharmaceuticals) for Aspen have assumed responsibility for all
Toprol-XL (metoprolol succinate) in the activities relating to the sale of the portfolio
Sales of Brilinta in the year were $839 US. Aralez paid us $175 million upon in all relevant markets.
million, an increase of 36% (CER: increase of completion of the transaction. Aralez will > In February 2016, we entered into a
39%). Brilinta sales in the US were up 45% also pay us up to $48 million in milestone licensing agreement with China Medical
to $348 million, as it remained the branded and sales-related payments, as well as System Holdings Ltd (CMS) for the
oral anti-platelet market leader in the US. mid-teen percentage royalties on sales. commercialisation rights in China to
We will continue to manufacture and our calcium channel blocker, Plendil
Our Diabetes Product Sales were 9% supply Toprol-XL and the authorised (felodipine). Plendil achieved Product
higher than in 2015 (CER: 11% higher), generic medicine to Aralez. We will retain Sales in China of $189 million in 2015.
driven primarily by growth of 70% (CER: a signicant ongoing interest in Toprol-XL Under the terms of the agreement, CMS
growth of 72%) on Farxiga with global sales in the rest of the world, and signicant paid us $155 million in 2016 for the licence
of $835 million as it became our largest- interest in the US through the ongoing to sell Plendil in China, and committed to
selling Diabetes medicine. manufacture and supply of the product. pay us a further $155 million in 2017
> In June 2016, we entered into a licence (recognised as Externalisation Revenue
Product Sales in Emerging Markets were agreement with LEO Pharma for the in 2016 after applying a discount factor
at compared to 2015 (CER: increase of global development and commercialisation of 8%). We will manufacture and supply
6%). Product Sales in China increased of tralokinumab in dermatology the medicine to CMS and retain the
by 4% in 2016 (CER: increased by 10%) indications. We will continue to develop global rights to Plendil outside China. The
representing 45% of Emerging Markets tralokinumab in asthma, and will transaction did not include the transfer of
Product Sales in the year. manufacture and supply tralokinumab any of our employees or facilities. Over the
to LEO Pharma at a mark-up of 10% term of the licence, we will supply nished
Japan Product Sales increased by 8% on cost. LEO Pharma have been granted product to CMS for a supply value
(CER: declined by 3%). an exclusive licence to the global equivalent to approximately 40% of the
dermatology rights to tralokinumab, net sales value booked by CMS for Plendil
Product Sales of New Oncology medicines which has completed Phase IIb for in each given year and will sit on the
were up to $664 million in 2016 (2015: $119 atopic dermatitis. LEO Pharma paid an Joint Steering Committee governing the
million), $423 million of which came from upfront payment to us of $115 million commercialisation of the product in China.
Tagrisso (2015: $19 million) which became for the exclusive licence. LEO Pharma > In September 2015, we announced
our leading medicine for the treatment will also pay us up to $1 billion in that we had entered into a collaboration
of lung cancer in the year. commercially-related milestones agreement with Valeant under which
and up to mid-teen tiered percentage we will grant an exclusive licence for
Externalisation Revenue royalties on Product Sales. Valeant to develop and commercialise
Externalisation Revenue, alongside > In June 2016, we announced that we brodalumab. Under the agreement,
Product Sales, is included in Total had entered into a commercialisation Valeant will hold the exclusive rights to
Revenue. Externalisation Revenue includes agreement with Aspen for rights to its develop and commercialise brodalumab
development, commercialisation and global anaesthetics portfolio outside globally, except in Japan and certain
collaboration revenue, such as royalties and the US. The agreement covers seven other Asian countries where rights are
milestone receipts. Income is recorded as established medicines Diprivan, EMLA held by Kyowa Hakko Kirin under a prior
Externalisation Revenue when we have a and ve local anaesthetics (Xylocaine, arrangement with Amgen. Valeant
signicant ongoing interest in the product Marcaine, Naropin, Carbocaine and will assume all development costs
and/or it is repeatable business and there Citanest). Under the terms of the associated with the regulatory approval
is no derecognition of an intangible asset. agreement, Aspen acquired the for brodalumab. Under the terms of
Disposals of assets and businesses, where commercialisation rights for an upfront the agreement, Valeant made an upfront
we do not retain an interest, are recorded in consideration of $520 million ($410 million payment to us of $100 million and
other operating income. paid on completion and $110 million may also pay pre-launch milestones
to be paid in 2017). Additionally, Aspen of up to $170 million and further sales
Details of our signicant business will pay us up to $250 million on a Product related milestone payments of up to
development transactions which give rise Sales-related payment, as well as double $175 million. If approved, we will share
to Externalisation Revenue are given below: digit percentage trade mark royalties on prots with Valeant.

AstraZeneca Annual Report and Form 20-F Information 2016 67

Strategic Report Financial Review

Financial Review continued

> In April 2015, we signed a Collaboration we will be responsible for manufacturing. Reported other operating income in
and License Agreement with Celgene, The companies are jointly responsible for the year was up 10% (CER: up 12%) at
a global leader in haematological the commercialisation of AZD3293. $1,655 million which, in addition to royalty
cancers, to develop and commercialise income of $165 million for Crestor and
durvalumab across a range of blood As detailed in Risk from page 214, the $134 million for Human Papillomavirus (HPV)
cancers including non-Hodgkin development of any pharmaceutical product vaccine, includes $368 million on the sale
lymphoma, myelodysplastic syndromes candidate is a complex and risky process of our small-molecule antibiotics business
and multiple myeloma. Under the terms of that may fail at any stage in the development to Pzer, $321 million on the sale of our
the agreement, Celgene made an upfront process due to a number of factors non-US rights to Rhinocort Aqua to Cilag,
payment of $450 million to us in relation to (including items such as failure to obtain $183 million on the sale of our non-US rights
durvalumab, which is recorded within regulatory approval, unfavourable data from to Imdur and $148 million (after deduction
Externalisation Revenue. Celgene will lead key studies, adverse reaction to the product of $83 million payable to Amgen) on the
on development across all clinical trials candidate or indications of other safety disposal of global rights to MEDI2070 to
within the collaboration and took on all concerns). The potential future milestones Allergan. As these elements of our income
R&D costs until the end of 2015, after quoted above are subject to these risks. arose from product divestments, where
which they now take on 75% of these we no longer retain a signicant element of
costs. Celgene will also be responsible Gross margin, operating margin continued interest, in accordance with our
for global commercialisation of approved and earnings per share Externalisation Revenue denition and the
treatments. We will manufacture and Reported gross margin as a percentage of requirements of IFRS, proceeds from these
record all sales of durvalumab and will Product Sales was 80.8% in the year, 0.5 divestments continue to be recorded as
pay a royalty to Celgene on worldwide percentage points higher than last year. other operating income.
sales in haematological indications. The Excluding the impact of Externalisation
royalty rate will start at 70% and will Revenue, the Reported gross margin was In 2015, Reported other operating income
decrease to approximately half of the broadly at compared to 2015 at CER, included $380 million for the divestment
sales of durvalumab in haematological with lower restructuring and amortisation of rights to the Entocort business in the
indications over a period of four years. charges offset by an adverse impact from US to Elan Pharma International Limited,
> In March 2015, we announced a the mix of sales, the market entry of multiple part of the Perrigo Group, $215 million
co-commercialisation agreement with Crestor generic medicines in the US and a for the divestment of the rights to sell and
Daiichi Sankyo, for Movantik in the US. write-down of FluMist inventory in the US. develop Entocort capsules and enema
The drug was launched on 31 March formulations outside the US to Tillotts
2015. Under the terms of the agreement, Reported R&D expense in the year was Pharma AG, $193 million gain on the
Daiichi Sankyo paid a $200 million upfront down 2% (CER: up 2%) to $5,890 million, divestment of the global rights to develop,
fee and will pay subsequent sales-related as we continued our focused investment manufacture and commercialise Myalept
payments of up to $625 million. $200 in the pipeline. Adjusting for exchange subject to an existing distributor licence with
million was recorded in Externalisation rate movements, the full-year increase Shionogi covering Japan, South Korea, and
Revenue in 2015. We will be responsible at CER reected the number of potential Taiwan with Aegerion and $165 million for the
for manufacturing, will record all sales medicines in pivotal trials as well as the divestment of Caprelsa in an agreement with
and will make sales-related commission inclusion of the R&D costs of ZS Pharma Genzyme Corporation, part of Sano S.A.
payments to Daiichi Sankyo. Both and Acerta Pharma. These costs were
companies will be jointly responsible partially offset by lower restructuring Reported operating prot increased
for commercial activities. costs and impairment charges. by 19% (CER: increased by 9%) to
> In September 2014, we entered into an $4,902 million in the year. The Reported
agreement with Lilly to jointly develop Reported SG&A costs declined by 15% operating margin increased by 4.6
and commercialise AZD3293, an oral (CER: declined by 12%) to $9,413 million percentage points (CER: 2.6 percentage
beta secretase cleaving enzyme (BACE) reecting the fair value adjustment to points) to 21.3% of Total Revenue. The
inhibitor currently in development as acquisition-related liabilities based on increase reected the reduction in SG&A
a potential treatment for Alzheimers revised milestone probabilities and costs which more than offset the decline
disease. Under the terms of the revenue and royalty forecasts relating in Product Sales and Externalisation
agreement, Lilly will pay us up to $500 to the acquisition of BMSs share of Revenue, while we continued to invest in
million in development and regulatory the Global Diabetes Alliance and the our pipeline and Growth Platforms.
milestone payments. We received the acquisition of Almirall. The decline was
rst milestone payment of $50 million in also driven by the movement to a more Core operating prot declined by 3%
2015, and a further $100 million in 2016. even split between the sale of primary and (CER: declined by 7%) in the year to
The companies will equally share all specialty care medicines and efciency $6,721 million. Fair value adjustments
future costs for the development and savings in sales and marketing operations to acquisition-related liabilities reduced
commercialisation of AZD3293, as well and further reductions in IT costs. These SG&A costs and increased Reported
as net global revenues post-launch. Lilly actions included a material reduction in the operating prot by $1,158 million in the
lead the clinical development, working sales and head-ofce structure in the US current year (2015: $432 million). These fair
with researchers from our Innovative marketing business. value movements reected estimates for
Medicines Unit for neuroscience, while future liabilities that can change materially
over time.
68 AstraZeneca Annual Report and Form 20-F Information 2016
Strategic Report
Reported net nance expense was value decrease of $999 million reecting authority and the UK and Swedish tax
$1,317 million (2015: $1,029 million). The lower expected Diabetes portfolio authorities in respect of transfer pricing
increase of $288 million was largely due revenues in line with latest forecasts arrangements for the 13-year period from
to an increase in Net Debt that was driven was partially offset by $372 million of 2004-2016, the Core tax rate was 18%.
by the acquisition of ZS Pharma and the amortisation charges and $389 million
majority investment in Acerta Pharma. of interest charges relating to a discount The tax paid for the year was $412 million
Excluding the discount unwind on unwind on contingent consideration (12% of Reported prot and 7% of Core
acquisition-related liabilities and other arising on the acquisition. prot). The cash tax paid for the year was
adjustments, Core Net Finance Expense > Net legal provisions and other charges of $266 million higher than the tax charge
increased by 31% (CER: increased by $315 million (2015: $211 million), including for the year as a result of certain items
46%) in the year to $661 million. $267 million discount unwind charges, with no cash impact including a $453
offset by $199 million of net fair value million adjustment following the agreement
Prot before tax amounted to $3,552 million adjustments relating to contingent between the Canadian tax authority and the
in 2016 (2015: $3,069 million). Pre-tax consideration arising on our other UK and Swedish tax authorities referred to
adjustments to arrive at Core prot before business combinations as detailed in above, other net reductions in provisions for
tax amounted to $2,475 million in 2016 Note 18 to the Financial Statements from tax contingencies of $52 million, $244 million
(2015: $3,312 million), comprising $1,819 page 164. The net charge of $315 million of deferred tax credits, net cash refunds
million adjustments to operating prots also included legal charges relating to the received following agreement of prior period
(2015: $2,788 million) and $656 million to unsuccessful defence of the validity of tax liabilities and audit settlements of $274
net nance expenses (2015: $524 million). Crestor-related patents in Australia, million and other cash tax timing differences.
Excluded from Core results were: damages claims in Europe relating to
Seroquel XR and other matters. Further Reported post-tax prot for the year was
> Restructuring costs totalling $1,107 million details of legal proceedings we are $3,406 million, an increase of 21% (CER:
(2015: $1,034 million), incurred as we currently involved in are contained within increase of 6%). Reported earnings per
continued to enhance productivity Note 28 to the Financial Statements from share was up 24% (CER: up 9%) to $2.77.
through the implementation of our page 185.
restructuring initiatives. To continue the Total comprehensive income decreased by
focus on cost discipline, in 2016 we Reported EPS of $2.77 in the year $860 million from the prior year, resulting
announced plans to advance our strategy represented growth of 24% (CER: growth in a net income of $1,628 million for 2016.
through sharper focus by streamlining of 9%), partly reecting the revaluation This was driven by the increase in prot
operations, primarily in Commercial and of acquisition-related liabilities described for the year of $580 million being more
Manufacturing, to redeploy investment to above. Core EPS in the year increased than offset by a reduction of $1,440 million
key therapy areas, particularly Oncology. by 1% (CER: declined by 5%) to $4.31. in other comprehensive income. The
We incurred restructuring costs totalling The CER decline of 5% mirrored the decrease in other comprehensive income
$555 million relating to this programme in rate of decline in Total Revenue. Both arose principally from losses recorded on
2016. We also disposed of our R&D Reported and Core EPS in the year the remeasurement of our dened benet
facility in Bangalore, India in the period included a non-recurring benet of pension liability of $575 million (2015:
and announced plans to bring together $0.36, following agreements between gains of $652 million) due to a decrease
ve of our San Francisco Bay Area, US the Canadian tax authority and the UK in the discount rate applied to our pension
sites into one location. and Swedish tax authorities. liabilities reecting an increase in corporate
> Amortisation totalling $1,247 million bond yields and other reference interest
(2015: $1,460 million) relating to intangible The Reported taxation charge for the year rate instruments, and foreign exchange
assets, except those related to IT and of $146 million (2015: $243 million) consisted losses arising on consolidation of the Group
to our acquisition of BMSs share of of a current tax charge of $370 million numbers of $1,050 million (2015: losses
our Global Diabetes Alliance (which (2015: $633 million) and a credit arising from of $528 million) as a result of the strong
are separately detailed below). Further movements on deferred tax of $224 million performance of the US dollar against
information on our intangible assets is (2015: $390 million). The current tax charge other major currencies in 2016.
contained in Note 9 to the Financial included a prior period current tax credit of
Statements from page 157. $14 million (2015: $404 million). Restructuring
> Intangible impairment charges of $44 Since 2007, we have undertaken
million (2015: $143 million) excluding those The Reported tax rate for the year was 4% signicant efforts to restructure and
related to IT. Further details relating to (2015: 8%). The Reported tax rate of 4% reshape our business to improve long-term
intangible asset impairments are included beneted from a $453 million adjustment competitiveness, the rst two phases of
in Note 9 to the Financial Statements from following agreements between the which were completed in 2011.
page 157. Canadian tax authority and the UK and
> Net credit associated with our acquisition Swedish tax authorities. Excluding these In 2013, we announced our Phase 4
of BMSs share of our Global Diabetes effects, the Reported tax rate for the year restructuring programme, which was
Alliance in February 2015 amounting was 17%. The Core tax rate for the year subsequently expanded in 2014. This
to $238 million (2015: net cost of $463 was 11%. Excluding the benet following consisted of centralisation of our global R&D
million). A contingent consideration fair agreements between the Canadian tax footprint into three strategic centres,

AstraZeneca Annual Report and Form 20-F Information 2016 69

Strategic Report Financial Review

Financial Review continued

transformation of the IT organisation, This resulted in $102 million of restructuring particularly Oncology. Restructuring costs
closure of a number of manufacturing costs in 2015, with a further $47 million associated with this programme are
facilities and other activities to simplify incurred in 2016. Furthermore, as part expected to be $1.5 billion by the end of
and streamline the organisation. At the of our ongoing commitment to improve 2017 and generate net annualised benets
time of the announcement, the Phase 4 productivity, we initiated multi-year of $1.1 billion by 2018. We incurred
programme was estimated to incur $3.2 transformation programmes within our restructuring costs totalling $555 million
billion of costs and deliver $1.1 billion of G&A functions (principally Finance and relating to this programme in 2016.
annualised benets by 2016. By the end of HR) with anticipated costs by the end of
2016, the Phase 4 programme had incurred 2018 of $258 million. Once complete, we The aggregate restructuring charge incurred
costs of $3.3 billion and realised annual expect these transformation programmes in 2016 across all our restructuring
benets of $0.9 billion, creating headroom to deliver annualised benets of $100 million programmes was $1,107 million. Final
for investment in our pipeline and launch by the end of 2018. By the end of 2016, estimates for programme costs, benets
capability. The Phase 4 programme is now these programmes had incurred costs and headcount impact in all functions are
expected to complete in 2018 with total of $124 million. subject to completion of the requisite
programme costs estimated to be consultation in the various areas. Our priority
$3.6 billion and annualised benets In 2016, we announced plans to advance as we undertake these restructuring initiatives
$1.2 billion. During the latter part of 2015, our strategy through sharper focus by is to work with our affected employees on
we implemented further targeted streamlining operations, primarily in the proposed changes, acting in accordance
restructuring of our Commercial business. Commercial and Manufacturing, to with relevant local consultation requirements
redeploy investment to key therapy areas, and employment law.
Summary cash flows
2016 2015 2014
$m $m $m
Net (debt)/funds brought forward at 1 January (7,762) (3,223) 39
Prot before tax 3,552 3,069 1,246
Sum of changes in interest, tax, depreciation, amortisation, impairment, and share of after tax losses
on joint ventures and associates 3,707 3,897 4,173
Movement in working capital and short-term provisions 926 (49) 2,508
Tax paid (412) (1,354) (1,201)
Interest paid (677) (496) (533)
Gains on disposal of intangible assets (1,301) (961)
Fair value movements on contingent consideration arising from business combinations (1,158) (432) 512
Non-cash and other movements (492) (350) 353
Net cash available from operating activities 4,145 3,324 7,058
Disposal/(purchase) of intangibles (net) 559 (330) (1,740)
Upfront payments on business acquisition (2,564) (2,446) (3,804)
Payment of contingent consideration from business combinations (293) (579) (657)
Other capital expenditure (net) (1,405) (1,326) (924)
Investments (3,703) (4,681) (7,125)
Dividends (3,561) (3,486) (3,521)
Share proceeds 47 43 279
Distributions (3,514) (3,443) (3,242)
Other movements 177 261 47
Net debt carried forward at 31 December (10,657) (7,762) (3,223)

Net debt/funds reconciliation

2016 2015 2014
$m $m $m
Cash and cash equivalents 5,018 6,240 6,360
Other investments1 898 613 795
Net derivative nancial instruments 235 438 465
Cash, short-term investments and derivatives 6,151 7,291 7,620
Overdraft and short-term borrowings (451) (849) (1,486)
Finance leases (93) (95) (108)
Current instalments of loans (1,769) (912)
Loans due after one year (14,495) (14,109) (8,337)
Loans and borrowings (16,808) (15,053) (10,843)
Net debt (10,657) (7,762) (3,223)
Other investments in 2016 includes $14 million of non-current investments which is not separately disclosed on the Statement of Financial Position.

70 AstraZeneca Annual Report and Form 20-F Information 2016

Strategic Report
Bonds issued in 2016 and 2015
Net book
value of
bond at
Face value 31 December
Repayment of bond 2016
dates $m $m
Bonds issued in 2016:
0.25% Euro bond 2021 566 522
0.75% Euro bond 2024 1,016 937
1.25% Euro bond 2028 897 827
Total 2016 2,479 2,286
Bonds issued in 2015:
Floating rate notes 2018 400 399
1.750% Callable bond 2018 1,000 998
2.375% Callable bond 2020 1,600 1,589
3.375% Callable bond 2025 2,000 1,976
4.375% Callable bond 2045 1,000 979
Total 2015 6,000 5,941

Net cash generated from operating activities of $2,446 million, primarily related to the In May 2016, we issued 2.2 billion of
was $4,145 million in the year ended 31 ZS Pharma acquisition. Further details of bonds in the euro debt capital markets
December 2016, compared with $3,324 business combination acquisitions and with maturities of 5, 8 and 12 years.
million in 2015. The increase of $821 million their impact on our cash ows and balance
reected improved cash management sheet are given in the table on page 73. In November 2015, we issued bonds
performance and one-off tax refunds in Investment cash outows also include $293 worth $6 billion to fund the acquisition of ZS
2016 compared to an increase of $49 million million (2015: $579 million) of payments Pharma, to repay certain of our outstanding
in working capital and short-term provisions against contingent consideration arising on commercial paper obligations and for
in the prior year. business combinations and $868 million general corporate purposes. The bonds
(2015: $1,460 million) for the purchase of are listed in the table above.
Gains on disposal of intangible assets of other intangible assets, which included
$1,301 million included $368 million on $561 million on the purchase of the In 2015, we repaid a 5.125% non-callable
the disposal of our late-stage antibiotics core respiratory assets of Takeda. The euro bond which had a 31 December 2015
business, $321 million on the sale of our comparative period of 2015 included $684 carrying value of $912 million.
rights to Rhinocort Aqua outside of the US, million on the acquisition of the rights to
$231 million on the out-licence agreement Actavis branded respiratory portfolio in the At 31 December 2016, outstanding
for MEDI-2070, and $183 million for the US and Canada. gross debt (interest-bearing loans and
divestment of the global rights to Imdur borrowings) was $16,808 million (2015:
outside the US. 2015 included $380 million Investment cash inows include $1,427 $15,053 million). Of the gross debt
on the disposal of US rights to Entocort, million (2015: $1,130 million) from the sale of outstanding at 31 December 2016, $2,307
$215 million on the disposal of Rest of intangible assets, including $552 million for million is due within one year (2015: $916
World rights to Entocort, $193 million on the disposal of our late-stage antibiotics million). Net debt at 31 December 2016 was
the disposal of global rights to Myalept and business, $330 million for the sale of our $10,657 million, compared to $7,762 million
$165 million on the disposal of global rights rights to Rhinocort Aqua outside of the US at the beginning of the year, as a result of
to Caprelsa. Fair value adjustments on and $250 million on the out-licence the net cash outow as described above.
acquisition-related liabilities were a credit agreement for MEDI-2070. The comparative
of $1,158 million in 2016 (2015: a credit of period in 2015 included the divestments of Off-balance sheet transactions and
$432 million) including $999 million on our Entocort in the US for $380 million, and in commitments
acquisition of BMSs share of our Global the Rest of World for $215 million and of We have no off-balance sheet arrangements
Diabetes Alliance in February 2015. Other Myalept for $325 million. and our derivative activities are non-
non-cash movements amounted to $492 speculative. The following table on page
million in 2016 (2015: $350 million). Net cash distributions to shareholders 72 sets out our minimum contractual
were $3,514 million (2015: $3,443 million) obligations at the year end.
Investment cash outows of $3,703 million including dividends of $3,561 million (2015:
(2015: $4,681 million) included $2,383 million $3,486 million). Proceeds from the issue of
relating to the majority investment in Acerta shares on the exercise of share options
Pharma. This compared to cash payments amounted to $47 million (2015: $43 million).
relating to business acquisitions in 2015

AstraZeneca Annual Report and Form 20-F Information 2016 71

Strategic Report Financial Review

Financial Review continued

Payments due by period

Less than Over 2016 2015
1 year 1-3 years 3-5 years 5 years Total Total
$m $m $m $m $m $m
Bank loans and other borrowings1 2,829 3,421 3,843 14,796 24,889 23,263
Finance leases 42 40 13 95 141
Operating leases 98 145 102 96 441 409
Contracted capital expenditure 629 629 518
Total 3,598 3,606 3,958 14,892 26,054 24,331
Bank loans and other borrowings include interest charges payable in the period, as detailed in Note 26 to the Financial Statements on page 178.

In 2016, net assets decreased by $1,840 Fair values of assets and liabilities acquired, payments as detailed in Note 18 to the
million to $16,669 million. The decrease in and consideration for the acquisitions in Financial Statements on page 164. All these
net assets is broadly as a result of dividends 2016 and 2015, as at the acquisition date, future payments are treated as contingent
of $3,540 million and adverse movements are summarised on the opposite page. consideration on our balance sheet, and
on exchange taken to reserves of $1,641 are fair valued using decision-tree analyses,
million, partially offset by the Group prot Contingent consideration with key assumptions, including the
of $3,406 million. The majority of our acquisitions in probability of success, the potential for
recent years have included elements of delays and the expected levels of future
Business combinations consideration that are contingent on future revenues. The fair value is updated at each
In 2016, we acquired a majority equity stake development and/or sales milestones, balance sheet reporting date to reect our
in Acerta Pharma. In 2015, we completed with both the diabetes and respiratory latest estimate of the probabilities of these
the acquisition of ZS Pharma. During 2016 acquisitions in 2014 also including royalty key assumptions. Given the long-term
we revised our assessment of the fair values payments linked to future revenues. The nature of our contingent consideration
of the assets and liabilities acquired with acquisitions of ZS Pharma in 2015 and payments, the fair value calculation includes
ZS Pharma, as a result of new information Acerta Pharma in 2016 had no contingent the discounting of future potential payments
obtained about facts and circumstances consideration element. to their present value using discount rates
that existed at the date of acquisition that appropriate to the period over which
impact the value of deferred tax. This has Our agreement with BMS provides for payments are likely to be made. Over time,
resulted in a reduction to both deferred tax potential further payments of up to $0.7 as the target date of a consideration
liabilities and goodwill of $68 million. Further billion for future regulatory, launch and payment approaches, the discount in
details of our business combinations are sales-related milestones, and various absolute terms of such future potential
contained in Note 25 to the Financial sales-related royalty payments up until 2025. payment to its present value decreases.
Statements from page 173. Our transaction with Almirall includes further Therefore, in each period we take a
payments of up to $1.0 billion for future corresponding charge reecting the
development, launch, and sales-related passage of time. We refer to this charge
milestones and various other sales-related as discount unwind.

Financial position 31 December 2016

All data in this section is on a Reported basis.

Summary statement of financial position

2016 Movement As restated1 Movement 2014
$m $m $m $m $m
Property, plant and equipment 6,848 435 6,413 403 6,010
Goodwill and intangible assets 39,244 4,798 34,446 1,915 32,531
Inventories 2,334 191 2,143 183 1,960
Trade and other receivables 5,474 (2,055) 7,529 (815) 8,344
Trade and other payables (19,974) (854) (19,120) 757 (19,877)
Provisions (1,418) (176) (1,242) (135) (1,107)
Net income tax payable (954) 142 (1,096) 929 (2,025)
Net deferred tax liabilities (2,854) (1,483) (1,371) (794) (577)
Retirement benet obligations (2,186) (212) (1,974) 977 (2,951)
Non-current other investments (excluding Treasury investments of $14 million in 2016) 713 255 458 (44) 502
Investment in associates and joint ventures 99 14 85 26 59
Net debt (10,657) (2,895) (7,762) (4,539) (3,223)
Net assets 16,669 (1,840) 18,509 (1,137) 19,646

72 AstraZeneca Annual Report and Form 20-F Information 2016

Strategic Report
Business combinations
2016 2015
Acerta ZS Pharma
Pharma As Restated
$m $m

Assets acquired:
Non-current assets
Property, plant and equipment 21
Goodwill 19 388
Intangible assets 7,307 3,162
Current assets 253 169
Current liabilities (90) (50)
Non-current liabilities (1,777) (990)
Non-controlling interests (1,903)
Total assets 3,809 2,700
Upfront consideration 2,477 2,700
Deferred consideration 1,332
Total consideration 3,809 2,700

Contingent consideration arising on business combinations

2016 2015
Acquisition of Acquisition of
BMSs share Other BMSs share of Other
of Diabetes business Total Diabetes business Total
Alliance combinations 2016 Alliance combinations 2015
$m $m $m $m $m $m
At 1 January 5,092 1,319 6,411 5,386 1,513 6,899
Settlements (242) (51) (293) (325) (254) (579)
Fair value adjustments (999) (159) (1,158) (378) (54) (432)
Discount unwind 389 108 497 409 115 524
Foreign exchange (1) (1)
At 31 December 4,240 1,217 5,457 5,092 1,319 6,411

Both the discount unwind and any Further details of our business combinations restructuring of our US joint venture
movements of the fair value of the in the past three years are contained in with Merck in 1998 and the acquisition
underlying future payments can result in Note 25 to the Financial Statements from of BMSs share of the Global Diabetes
signicant income statement movements. page 173. Further information on our Alliance. Goodwill of $19 million arising
As detailed in the Results of operations business combinations can also be found on the acquisition of Acerta Pharma was
section above, these movements are treated in the Investments, divestments and capital capitalised in 2016.
as non-Core items in our income statement expenditure section of the Financial Review
analysis. In 2016, we recorded an interest from page 75. Intangible assets amounted to $27,586
charge of $497 million on the discount million at 31 December 2016 (2015: $22,646
unwind on contingent consideration arising Property, plant and equipment million). Intangible asset additions were
on our business combinations, and a net fair Property, plant and equipment increased $8,205 million in 2016 (2015: $4,640 million),
value decrease on contingent consideration by $435 million to $6,848 million. Additions including product rights acquired in the
of $1,158 million (which resulted in a credit to of $1,449 million (2015: $1,422 million) were acquisition of Acerta Pharma of $7,307
our income statement for the same amount) offset by depreciation of $609 million (2015: million ($3,162 million on the acquisition of
driven, principally, by revised forecasts $677 million), impairments of $2 million ZS Pharma in 2015). Amortisation in the year
for revenues for our Diabetes franchise (2015: $28 million) and disposals of $74 was $1,701 million (2015: $1,999 million).
reecting the competitive marketplace. million (2015: $70 million). Impairment charges in the year amounted
At 31 December 2016, our contingent to $45 million (2015: $148 million), including
consideration balance held on the balance Goodwill and intangible assets $15 million for RDEA119. Disposals of
sheet amounted to $5,457 million (2015: Our goodwill of $11,658 million (2015: intangible assets totalled $331 million
$6,411 million) with the movements of the $11,800 million) principally arose on the in the year (2015: $169 million).
balance detailed in the table above. acquisition of MedImmune in 2007, the

AstraZeneca Annual Report and Form 20-F Information 2016 73

Strategic Report Financial Review

Financial Review continued

Further details of our additions to intangible authorities in respect of transfer pricing freeze pensionable pay at 30 June 2010
assets, and impairments recorded, arrangements for the 13-year period from levels. During 2016, we realised a credit
are included in Note 9 to the Financial 2004-2016, partially offset by net cash of $74 million on our Pensions Increase
Statements from page 157. refunds received following agreement Exchange (PIE) exercise which offered
of prior period tax liabilities and audit certain pensioner members the option of
Receivables, payables and provisions settlements of $274 million. The tax taking a higher amount of pension right
Trade and other receivables decreased receivable balance of $426 million (2015: away, in exchange for giving up any potential
by $2,055 million with trade receivables $387 million) comprises tax owing to us future ination linked increases on all or part
reduced by $2,050 million to $2,583 million from certain governments expected to be of their pension.
as a result of more factored invoices during received on settlements of transfer pricing
the year and lower gross invoiced sales audits and disputes of $161 million (see From 2017, for our largest pension plans,
in the US. Non-current other receivables Note 28 to the Financial Statements from we will move to a multiple discount rate
decreased by $6 million to $901 million, the page 185) and cash tax timing differences approach. This will result in separate
majority of which is the Shionogi Crestor of $265 million. discount rates for dened benet
royalty prepayment as detailed in Note 13 obligations, service cost and interest
to the Financial Statements on page 161. Net deferred tax liabilities increased by cost. This change had no effect on the
$1,483 million in the year mainly due to 2016 expense, and will not affect the
Trade and other payables increased by deferred tax liabilities arising from the future measurement of the dened benet
$854 million in 2016 to $19,974 million, acquisition of Acerta Pharma. Additional obligations, but will impact the service cost
including a $1,901 million put option, and information on the movement in deferred and interest cost in future years.
$1,332 million deferred consideration on tax balances is contained in Note 4 to the
the majority investment in Acerta Pharma, Financial Statements from page 150. Further details of our pension schemes
partially offset by reductions in contingent are included in Note 20 to the Financial
consideration of $954 million, a decrease Retirement benefit obligations Statements from page 165.
in trade payables of $479 million, and a Net retirement benet obligations increased
decrease of $495 million on rebates and by $212 million in 2016 (2015: decrease Commitments and contingencies
chargebacks driven by reduced Product of $977 million) to $2,186 million. Net We have commitments and contingencies
Sales in the US. Further details on the remeasurement adjustments of $575 which are accounted for in accordance
put option are included in Note 25 to the million in the UK, Sweden and Germany with the accounting policies described
Financial Statements from page 173. arising from reductions in discount rate in the Financial Statements in the Group
assumptions were partially offset by a Accounting Policies section from page 142.
The increase in provisions of $176 million $312 million impact of exchange rate We also have taxation contingencies. These
in 2016 included $988 million of additional movements in the year as the US dollar are described in the Taxation section in the
charges recorded in the year, partially strengthened against pound sterling, Critical accounting policies and estimates
offset by $686 million of cash payments. euro and Swedish krona and employer section on page 81 and in Note 28 to the
Included within the $988 million of charges contributions to the pension scheme of Financial Statements from page 185.
for the year were $578 million for our global $192 million. Benets paid amounted to
restructuring initiatives and $223 million in $500 million (2015: $580 million). Research and development
respect of legal charges. Cash payments collaboration payments
included $433 million for our global Approximately 92% of our obligations Details of future potential R&D collaboration
restructuring programmes. Further details are concentrated in the UK, the US payments are also included in Note 28 to
of the charges made against provisions and Sweden. In recent years, we have the Financial Statements on page 185.
are contained in Notes 19 and 28 to the undertaken several initiatives to reduce our
Financial Statements on page 165, and net pension obligation exposure. For the UK As detailed in Note 28, payments to our
185 to 191, respectively. dened benet pension scheme, which is collaboration partners may not become
our largest dened benet scheme, these payable due to the inherent uncertainty in
Tax payable and receivable initiatives have included agreeing funding achieving the development and revenue
Net income tax payable has decreased principles for cash contributions to be paid milestones linked to the future payments.
by $142 million to $954 million, principally into the UK pension scheme to target a As part of our overall externalisation
due to a $453 million adjustment following level of assets in excess of the current strategy, we may enter into further
agreements between the Canadian tax expected cost of providing benets, and, collaboration projects in the future that
authority and the UK and Swedish tax in 2010, amendments to the scheme to may include milestone payments and,

74 AstraZeneca Annual Report and Form 20-F Information 2016

Strategic Report
therefore, as certain milestone payments a Phase III initiation milestone of $100 have exclusive access to select any target
fail to crystallise due to, for example, million, as well as additional regulatory of our choice in cardiometabolic and renal
development not proceeding, they may and sales-related milestones. We record diseases, as well as selected targets in
be replaced by potential payments under all sales and will pay Innate Pharma oncology, over a period of up to ve years
new collaborations. double digit royalties on net sales. The for subsequent development of messenger
arrangement includes the right for Innate RNA Therapeutics. In addition, Moderna
Investments, divestments and Pharma to co-promote in Europe for a is entitled to an additional $180 million
capital expenditure 50% prot share in the territory. for the achievement of three technical
We have completed over 270 major > In July 2013, we entered into a strategic milestones. Through this agreement, we
or strategically important business collaboration with FibroGen to develop have the option to select up to 40 drug
development transactions over the past and commercialise roxadustat (FG-4592), products for clinical development and
three years, ve of which were accounted a rst-in-class oral compound in Moderna will be entitled to development
for as business acquisitions under IFRS 3 late-stage development for the treatment and commercial milestone payments as
Business Combinations, being the majority of anaemia associated with chronic well as royalties on drug sales. We will
investment in Acerta Pharma in 2016, kidney disease (CKD) and end-stage renal lead the pre-clinical, clinical development
the acquisition of ZS Pharma in 2015, the disease (ESRD). This broad collaboration and commercialisation of therapeutics
acquisition of BMSs share of our Global focuses on the US, China and all major resulting from the agreement and
Diabetes Alliance, the rights to Almiralls markets excluding Japan, Europe, the Moderna will be responsible for designing
respiratory franchise and the acquisition CIS, the Middle East and South Africa, and manufacturing the messenger RNA
of Deniens in 2015. which are covered by an existing Therapeutics against selected targets.
agreement between FibroGen and We are currently progressing 19 projects
In addition to the business development Astellas. Under the arrangement, we across CVMD and Oncology. Utilising
transactions detailed under Externalisation agreed to pay FibroGen upfront and both companies expertise, signicant
Revenue from page 67 of this Financial subsequent non-contingent payments progress has also been made to the
Review, the following signicant collaborations totalling $350 million, as well as potential technology platform, with the focus on
remain in the development phase: development-related milestone payments formulation, safety, and drug metabolism
of up to $465 million, and potential future and pharmacokinetics.
> In April 2015, we entered into two sales-related milestone payments, in
oncology agreements with Innate addition to tiered royalty payments on We determine the above business
Pharma, rstly, a licence which provides future sales of roxadustat in the low development transactions to be signicant
us with exclusive global rights to 20% range. Additional development using a range of factors. We look at the
co-develop and commercialise IPH2201 milestones will be payable for any specic circumstances of the individual
in combination with durvalumab, and subsequent indications which the externalisation arrangement and apply
secondly, an option to license exclusive companies choose to pursue. We will be several quantitative and qualitative
global rights to co-develop and responsible for the US commercialisation criteria. Because we consider business
commercialise IPH2201 in monotherapy of roxadustat, with FibroGen undertaking development transactions to be an
and other combinations in certain specied promotional activities in the extension of our R&D strategy, the expected
treatment areas. Under the terms of ESRD segment in this market. The total value of development payments
the combination licence, we assumed companies will also co-commercialise under the transaction and its proportion
exclusive global rights to research, roxadustat in China where FibroGen will of our annual R&D spend, both of which
develop, and commercialise IPH2201 in be responsible for clinical trials, regulatory are proxies for overall R&D effort and cost,
combination with durvalumab. We jointly matters, manufacturing and medical are important elements of the signicance
fund Phase II studies with Innate Pharma affairs, and we will oversee promotional determination. Other quantitative criteria we
and we lead the execution of these studies. activities and commercial distribution. apply include, without limitation, expected
Under the terms of the agreements, we > In March 2013, we signed an exclusive levels of future sales, the possible value of
made an initial payment to Innate Pharma agreement with Moderna to discover, milestone payments and the resources used
of $250 million, which included the develop and commercialise pioneering for commercialisation activities (for example,
consideration for exclusive global rights to medicines based on messenger RNA the number of staff). Qualitative factors we
co-develop and commercialise IPH2201 Therapeutics for the treatment of serious consider include, without limitation, new
in combination with durvalumab, as well cardiovascular, metabolic and renal market developments, new territories, new
as access to IPH2201 in monotherapy diseases, as well as cancer. Under the areas of research and strategic implications.
and other combinations in certain terms of the agreement, we made an
treatment areas. The agreement includes upfront payment of $240 million. We will

AstraZeneca Annual Report and Form 20-F Information 2016 75

Strategic Report Financial Review

Financial Review continued

Capitalisation and shareholder return

Dividends for 2016
$ Pence SEK Payment date
First interim dividend 0.90 68.7 7.81 12 September 2016
Second interim dividend 1.90 150.2 16.57 20 March 2017
Total 2.80 218.9 24.38

Capitalisation As we experience a period of patent We focus our insurance resources on the

The total number of shares in issue at expiries: most critical areas, or where there is a
31 December 2016 was 1,265 million legal requirement, and where we can get
(2015: 1,264 million). 1.1 million Ordinary > Our immediate priorities are to continue best value for money. Risks to which we
Shares were issued upon share option to drive Product Sales of our on-market pay particular attention include business
exercises for a total of $47 million. medicines through investment in our interruption, directors and ofcers liability,
Shareholders equity decreased by Growth Platforms and our portfolio of and property damage. Insurance for
$3,636 million to $14,854 million at the legacy medicines outside of the Growth product liability has not been available on
year end. Non-controlling interests were Platforms. The Growth Platforms include commercially acceptable terms for several
$1,815 million (2015: $19 million), with products in our three main therapy areas, years and we have not purchased in the
the increase in the year as a result of the and a focus on the Emerging Markets and market product liability insurance since
acquisition of a 55% equity stake in Japan. We are also pursuing business February 2006.
Acerta Pharma. development and investment in R&D.
We have already accelerated a number Taxation
Dividend and share repurchases of projects and progressed them into Our approach to managing tax risk is
The Board has recommended a second Phase III development. integrated with our broader business
interim dividend of $1.90 (150.2 pence, > Our late-stage pipeline is progressing risk management and compliance
16.57 SEK) to be paid on 20 March ahead of plans. Our science-driven, framework. Our approach is to manage
2017. This brings the full-year dividend to collaborative culture is driving increased tax risks and tax costs in a manner
$2.80 (218.9 pence, 24.38 SEK). Against R&D productivity. consistent with applicable regulatory
Core earnings per share the Group has > Our long-term aspiration, in line with our requirements and with shareholders best
a dividend cover ratio of 1.5 in 2016 strategic ambition, is to achieve scientic long-term interests, taking into account
(2015: 1.5). leadership and sustainable growth. operational, economic and reputational
factors. We manage tax risks in the context
This dividend is consistent with the We expect 2017 Total Revenue to decline of substantive business transactions.
progressive dividend policy, by which the by low to mid single-digit percent at CER
Board intends to maintain or grow the compared to 2016. Core R&D costs as a Treasury
dividend each year. percentage of Total Revenue are expected The principal nancial risks to which we
to be broadly in line with 2016. We are also are exposed are those arising from liquidity,
The Board regularly reviews its distribution anticipating a further reduction in Core interest rate, foreign currency and credit.
policy and its overall nancial strategy to SG&A costs in 2017 versus 2016. Core We have a centralised treasury function to
continue to strike a balance between the earnings per share is expected to decrease manage these risks in accordance with
interests of the business, our nancial in 2017 by low to mid teens percent at CER. Board-approved policies. Specically,
creditors and our shareholders. Having This guidance reects a signicantly higher liquidity risk is managed through maintaining
regard for business investment, funding expected effective Core tax rate of 16 to access to a number of sources of funding
the progressive dividend policy and 20% (2016: 11%). to meet anticipated funding requirements,
meeting our debt service obligations, the including committed bank facilities and cash
Board currently believes it is appropriate Financial risk management resources. Interest rate risk is managed
to continue the suspension of the share Financial risk management policies through maintaining a debt portfolio that
repurchase programme which was Insurance is weighted towards xed rates of interest.
announced in October 2012. Our risk management processes are Accordingly, our net interest charge is not
described in Risk overview from page 20. signicantly affected by movements in
Future prospects These processes enable us to identify oating rates of interest. We monitor the
As outlined earlier in this Annual Report, our risks that can be partly or entirely mitigated impact of currency on a portfolio basis
strategy is focused on innovation, returning through the use of insurance. We negotiate (to recognise correlation effect), and may
to growth and building a sustainable, the best available premium rates with hedge to protect against signicant adverse
durable and more protable business. insurance providers on the basis of our impacts on cash ow over the short- to
In support of this, we made certain choices extensive risk management procedures. medium-term. We also hedge the currency
around our three strategic priorities.

76 AstraZeneca Annual Report and Form 20-F Information 2016

Strategic Report
exposure that arises between the booking Revenue recognition pay rebates based on the specic terms
and settlement dates on non-local currency Product Sales are recorded at the invoiced of agreements with the US Department
purchases and sales by subsidiaries and amount (excluding inter-company sales of Health and Human Services and with
the external dividend. and value-added taxes) less movements individual states, which include product
in estimated accruals for rebates and usage and information on best prices
Credit risk is managed through setting and chargebacks given to managed-care and and average market prices benchmarks.
monitoring credit limits appropriate for the other customers and product returns a > Contractual, under which entities such as
assessed risk of the counterparty. particular feature in the US. It is the Groups third party managed-care organisations
policy to offer a credit note for all returns are entitled to rebates depending on
Our capital and risk management objectives and to destroy all returned stock in all specied performance provisions,
and policies are described in further detail markets. Cash discounts for prompt which vary from contract to contract.
in Note 26 to the Financial Statements payment are also deducted from sales.
from page 177 and in Risk overview from Revenue is recognised at the point of The effects of these deductions on our
page 20. Sensitivity analysis of the Groups delivery, which is usually when title passes US pharmaceuticals revenue and the
exposure to exchange rate and interest rate to the customer, either on shipment or movements on US pharmaceuticals revenue
movements is also detailed in Note 26 to on receipt of goods by the customer provisions are set out overleaf.
the Financial Statements from page 177. depending on local trading terms.
Accrual assumptions are built up on a
Critical accounting policies Rebates, chargebacks and returns product-by-product and customer-by-
and estimates in the US customer basis, taking into account specic
Our Financial Statements are prepared in When invoicing Product Sales in the US, we contract provisions coupled with expected
accordance with IFRSs as adopted by the estimate the rebates and chargebacks that performance, and are then aggregated
EU (adopted IFRS) and as issued by the we expect to pay. These rebates typically into a weighted average rebate accrual
IASB, and the accounting policies employed arise from sales contracts with third party rate for each of our products. Accrual rates
are set out in the Group Accounting Policies managed-care organisations, hospitals, are reviewed and adjusted on a monthly
section in the Financial Statements from long-term care facilities, group purchasing basis. There may be further adjustments
page 142. In applying these policies, we organisations and various federal or when actual rebates are invoiced based
make estimates and assumptions that state programmes (Medicaid contracts, on utilisation information submitted to us
affect the Reported amounts of assets and supplemental rebates etc). They can be (in the case of contractual rebates) and
liabilities and disclosure of contingent assets classied as follows: claims/invoices are received (in the case
and liabilities. The actual outcome could of regulatory rebates and chargebacks).
differ from those estimates. Some of these > Chargebacks, where we enter into We believe that we have made reasonable
policies require a high level of judgement arrangements under which certain estimates for future rebates using a similar
because the areas are especially subjective parties, typically hospitals, long-term care methodology to that of previous years.
or complex. We believe that the most critical facilities, group purchasing organisations, Inevitably, however, such estimates involve
accounting policies and signicant areas of the Department of Veterans Affairs, Public judgements on aggregate future sales
judgement and estimation are in: Health Service Covered Entities and the levels, segment mix and the customers
Department of Defense, are able to buy contractual performance.
> revenue recognition products from wholesalers at the lower
> research and development prices we have contracted with them. Overall adjustments between gross and net
> business combinations and contingent The chargeback is the difference between US Product Sales amounted to $12,275
consideration the price we invoice to the wholesaler million in 2016 (2015: $14,167 million) with
> impairment testing of goodwill and and the contracted price charged by the decrease driven by an overall reduction
intangible assets the wholesaler to the other party. in our US Product Sales.
> litigation Chargebacks are credited directly to
> post-retirement benets the wholesalers. Cash discounts are offered to
> taxation. > Regulatory, including Medicaid and other customers to encourage prompt
federal and state programmes, where we payment. Accruals are calculated based
on historical experience and are adjusted
to reect actual experience.

AstraZeneca Annual Report and Form 20-F Information 2016 77

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Financial Review continued

Gross to net Product Sales US pharmaceuticals

2016 2015 2014
$m $m $m
Gross Product Sales 19,640 23,641 23,414
Chargebacks (3,449) (2,985) (2,794)
Regulatory Medicaid and state programmes (1,903) (1,714) (1,389)
Contractual Managed-care and Medicare (5,219) (7,543) (7,730)
Cash and other discounts (358) (472) (436)
Customer returns (130) (333) (295)
US Branded Pharmaceutical Fee (145) (174) (113)
Other (1,071) (946) (537)
Net Product Sales 7,365 9,474 10,120

Movement in provisions US pharmaceuticals

Brought Carried
forward at Adjustment in forward at
1 January Provision for respect of Returns and 31 December
2016 current year prior years payments 2016
$m $m $m $m $m
Chargebacks 324 3,470 (21) (3,211) 562
Regulatory Medicaid and state programmes 777 1,976 (73) (1,873) 807
Contractual Managed-care and Medicare 2,206 5,517 (298) (5,982) 1,443
Cash and other discounts 44 358 (396) 6
Customer returns 467 130 (124) 473
US Branded Pharmaceutical Fee 264 195 (50) (149) 260
Other 186 1,071 (1,096) 161
Total 4,268 12,717 (442) (12,831) 3,712

Brought Carried
forward at Adjustment in forward at
1 January Provision for respect of Returns and 31 December
2015 current year prior years payments 2015
$m $m $m $m $m
Chargebacks 457 3,019 (34) (3,118) 324
Regulatory Medicaid and state programmes 707 1,809 (95) (1,644) 777
Contractual Managed-care and Medicare 2,366 7,666 (123) (7,703) 2,206
Cash and other discounts 33 464 8 (461) 44
Customer returns 318 349 (16) (184) 467
US Branded Pharmaceutical Fee 245 206 (32) (155) 264
Other 163 947 (1) (923) 186
Total 4,289 14,460 (293) (14,188) 4,268

Recognition of
US Branded
Brought Pharmaceutical Carried
forward at Fee as a Adjustment in forward at
1 January revenue Provision for respect of Returns and 31 December
2014 deduction current year prior years payments 2014
$m $m $m $m $m $m
Chargebacks 355 2,838 (44) (2,692) 457
Regulatory Medicaid and state programmes 784 1,544 (155) (1,466) 707
Contractual Managed-care and Medicare 1,714 7,703 27 (7,078) 2,366
Cash and other discounts 32 436 (435) 33
Customer returns 222 295 (199) 318
US Branded Pharmaceutical Fee 132 113 245
Other 74 537 (448) 163
Total 3,181 132 13,466 (172) (12,318) 4,289

78 AstraZeneca Annual Report and Form 20-F Information 2016

Strategic Report
Industry practice in the US allows We have distribution service agreements undelivered component is contingent on
wholesalers and pharmacies to return with major wholesaler buyers which serve future events (such as sales) and so cannot
unused stocks within six months of, and to reduce the speculative purchasing be anticipated.
up to 12 months after, shelf-life expiry. behaviour of the wholesalers and reduce
The customer is credited for the returned short-term uctuations in the level of Research and development
product by the issuance of a credit note. inventory they hold. We do not offer Our business model includes investment
Returned products are not exchanged for any incentives to encourage wholesaler in targeted business developments to
products from inventory and once a return speculative buying and attempt, where strengthen our portfolio, pipeline and
claim has been determined to be valid and a possible, to restrict shipments to underlying capabilities. These business development
credit note has been issued to the customer, demand when such speculation occurs. transactions include collaborations, asset
the returned products are destroyed. At in-licences and business acquisitions.
the point of sale in the US, we estimate the Component revenue accounting
quantity and value of products which may A consequence of charging all internal Each transaction is considered to
ultimately be returned. Our returns accruals R&D expenditure to the income statement establish whether it qualies as a business
in the US are based on actual experience. in the year in which it is incurred (which combination by applying the criteria
Our estimate is based on the preceding 12 is normal practice in the pharmaceutical assessment detailed in IFRS 3 Business
months for established products together industry) is that we own valuable intangible Combinations.
with market-related information, such as assets which are not recorded on the
estimated stock levels at wholesalers and balance sheet. We also own acquired On the acquisition of a business, fair values
competitor activity, which we receive via intangible assets which are included on the are attributed to the identiable assets and
third party information services. For newly balance sheet. As detailed on page 67, our liabilities and contingent liabilities unless
launched products, we use rates based on externalisation business model means that, the fair value cannot be measured reliably,
our experience with similar products or a from time to time, we sell such assets and in which case the value is subsumed into
pre-determined percentage. generate income. Sales of product lines goodwill. Goodwill is the difference between
are often accompanied by an agreement the fair value of the consideration and the fair
For products facing generic competition, on our part to continue manufacturing the value of net assets acquired. Fair value is the
we may lose the ability to estimate the relevant product for a reasonable period price that would be received to sell an asset
levels of returns from wholesalers with the (often about two years) while the purchaser or pay for a liability in an orderly transaction
same degree of precision that we can for constructs its own manufacturing facilities. at the date of acquisition. The price may
products still subject to patent protection. The contracts typically involve the receipt be directly observable but in most cases is
This is because we may have limited or no of an upfront payment, which the contract estimated using valuation techniques which
insight into a number of areas: the actual attributes to the sale of the intangible assets, normally involve predicting future cash ows
timing of the generic launch (for example, a and ongoing receipts, which the contract and applying a market participant discount
generic manufacturer may or may not have attributes to the sale of the product we rate. Further details of our recent business
produced adequate pre-launch inventory); manufacture. In cases where the transaction acquisitions are included in Note 25 to the
the pricing and marketing strategy of the has two or more components, we account Financial Statements from page 173.
competitor; the take-up of the generic; and for the delivered item (for example, the
(in cases where a generic manufacturer has transfer of title to the intangible asset) as Future contingent elements of consideration,
approval to launch only one dose size in a separate unit of accounting and record which may include development and launch
a market of several dose sizes) the likely revenue on delivery of that component, milestones, revenue threshold milestones
level of switching from one dose to another. provided that we can make a reasonable and revenue-based royalties, are fair valued
Under our accounting policy, revenue estimate of the fair value of the undelivered at the date of acquisition using decision-tree
is recognised only when the amount component. Where the fair market value of analysis with key inputs including probability
of the revenue can be measured reliably. the undelivered component (for example, of success, consideration of potential
Our approach in meeting this condition a manufacturing agreement) exceeds the delays and revenue projections based on
for products facing generic competition contracted price for that component, we the Groups internal forecasts. Unsettled
will vary from product to product depending defer an appropriate element of the upfront amounts of consideration are held at fair
on the specic circumstances. consideration and amortise this over the value within payables with changes in fair
performance period. However, where value recognised immediately in prot.
The adjustment in respect of prior years the fair market value of the undelivered Several of our recent business combinations
increased 2016 net US pharmaceuticals component is equal to or lower than the have included signicant amounts of
revenue by 6.0% (2015: 3.1%; 2014: contracted price for that component, we contingent consideration. Details of
1.7%). However, taking into account the treat the whole of the upfront amount the movements in the fair value of the
adjustments affecting both the current and as being attributable to the delivered contingent consideration in the year, and the
the prior year, 2015 revenue would have intangible assets and recognise that part range of possible contingent consideration
been increased by 1.6% and 2014 revenue of the revenue upon delivery. No element amounts that may eventually become
would have been increased by 1.2%, by of the contracted revenue related to the payable are contained in Note 18
adjustments between years. undelivered component is allocated to the to the Financial Statements on page 164.
sale of the intangible asset. This is because
the contracted revenue relating to the

AstraZeneca Annual Report and Form 20-F Information 2016 79

Strategic Report Financial Review

Financial Review continued

Where not all of the equity of a subsidiary our recent business combinations, Assessments as to whether or not to
is acquired, the non-controlling interest as detailed in Note 25 to the Financial recognise provisions or assets and of
is recognised either at fair value or at the Statements from page 173, have added the amounts concerned usually involve a
non-controlling interests proportionate signicant product, marketing and series of complex judgements about future
share of the net assets of the subsidiary, distribution intangible rights to our intangible events and can rely heavily on estimates
on a case-by-case basis. Put options over asset portfolio. We are satised that the and assumptions. We believe that the
non-controlling interests are recognised as carrying values of our intangible assets provisions recorded are adequate based
a nancial liability measured at amortised as at 31 December 2016 are fully justied on currently available information and that
cost, with a corresponding entry in either by estimated future cash ows. The the insurance recoveries recorded will
retained earnings or against non-controlling accounting for our intangible assets is be received. However, given the inherent
interest reserves on a case-by-case basis. fully explained in Note 9 to the Financial uncertainties involved in assessing the
Statements from page 157. outcomes of these cases and in estimating
Impairment testing of goodwill the amount of the potential losses and
and intangible assets Further details of the estimates and the associated insurance recoveries, we
As detailed above, we have signicant assumptions we make in impairment testing could in future periods incur judgments or
investments in goodwill and intangible of intangible assets are included in Note 9 insurance settlements that could have a
assets as a result of acquisitions of to the Financial Statements. material adverse effect on our results in any
businesses and purchases of assets, particular period.
such as product development and Litigation
marketing rights. In the normal course of business, contingent The position could change over time, and
liabilities may arise from product-specic there can, therefore, be no assurance that
Details of the estimates and assumptions and general legal proceedings, from any losses that result from the outcome of
we make in our annual impairment testing guarantees or from environmental liabilities any legal proceedings will not exceed the
of goodwill are included in Note 8 to the connected with our current or former amount of the provisions that have been
Financial Statements on page 156. The sites. Where we believe that potential booked in the accounts.
Group, including acquisitions, is considered liabilities have a less than 50% probability
a single cash-generating unit for impairment of crystallising, or where we are unable to Although there can be no assurance
purposes. No impairment of goodwill make a reasonable estimate of the liability, regarding the outcome of legal proceedings,
was identied. we treat them as contingent liabilities. These we do not currently expect them to have
are not provided for but are disclosed in a material adverse effect on our nancial
Impairment reviews have been carried Note 28 to the Financial Statements from position, but they could signicantly affect
out on all intangible assets that are in page 185. our nancial results in any particular period.
development (and not being amortised),
all major intangible assets acquired during In cases that have been settled or Post-retirement benefits
the year and all intangible assets that have adjudicated, or where quantiable nes and We offer post-retirement benet plans
had indications of impairment during the penalties have been assessed and which which cover many of our employees around
year. Sales forecasts and specic allocated are not subject to appeal (or other similar the world. In keeping with local terms and
costs (which have both been subject to forms of relief), or where a loss is probable conditions, most of these plans are dened
appropriate senior management sign- (more than 50% assessed probability) and contribution in nature, where the resulting
off) are discounted using appropriate we are able to make a reasonable estimate income statement charge is xed at a set
rates based on our risk-adjusted, pre-tax of the loss, we indicate the loss absorbed level or is a set percentage of employees
weighted average cost of capital. Our or the amount of the provision accrued. pay. However, several plans, mainly in the
weighted average cost of capital reects UK (which has by far the largest single
factors such as our capital structure Where it is considered that the Group is scheme), the US, Sweden and Germany
and our costs of debt and equity. In more likely than not to prevail, or in the are dened benet plans where benets
building to the range of rates used in rare circumstances where the amount are based on employees length of service
our internal investment appraisal of future of the legal liability cannot be estimated and nal salary (typically averaged over
projects and capital investment decisions, reliably, legal costs involved in defending one, three or ve years). The UK and US
we adjust our weighted average cost the claim are charged to prot as they are dened benet schemes were closed to
of capital for other factors which reect, incurred. Where it is considered that we new entrants in 2000. All new employees
without limitation, local matters such have a valid contract which provides the in these countries are offered dened
as risk on a case-by-case basis. right to reimbursement (from insurance or contribution schemes.
otherwise) of legal costs and/or all or part
A signicant portion of our investments of any loss incurred or for which a provision In applying IAS 19 Employee Benets,
in intangible assets and goodwill arose has been established and we consider we recognise all actuarial gains and losses
from the restructuring of the joint venture recovery to be virtually certain, then the immediately through Other Comprehensive
with Merck in 1998, the acquisition of best estimate of the amount expected Income. Investment decisions in respect
MedImmune in 2007, and the payments to be received is recognised as an asset. of dened benet schemes are based
arising from the restructuring of the joint on underlying actuarial and economic
venture with Merck in the US. In addition, circumstances with the intention of ensuring

80 AstraZeneca Annual Report and Form 20-F Information 2016

Strategic Report
that the schemes have sufcient assets Further details of the estimates and Strategic Report
to meet liabilities as they fall due, rather assumptions we make in determining
than meeting accounting requirements. our recorded liability for transfer pricing The Strategic Report, which has been
The trustees follow a strategy of awarding contingencies and other tax contingencies prepared in accordance with the
mandates to specialist, active investment are included in the Tax section of Note 28 to requirements of the Companies Act
managers, which results in a broad the Financial Statements from page 185. 2006, comprises the following sections:
diversication of investment styles and
asset classes. The investment approach is Sarbanes-Oxley Act Section 404 > AstraZeneca at a glance
intended to produce less volatility in the plan As a consequence of our NYSE listing, > Chief Executive Ofcers Review
asset returns. we are required to comply with those > Strategy, including Risk overview
provisions of the Sarbanes-Oxley Act > Therapy Area Review
In assessing the discount rate applied applicable to foreign issuers. Section > Business Review
to the obligations, we have used rates 404 of the Sarbanes-Oxley Act requires > Resources Review
on AA corporate bonds with durations companies annually to assess and make > Financial Review
corresponding to the maturities of those public statements about the quality and
obligations, except in Sweden where we effectiveness of their internal control over and has been approved and signed
have used rates on mortgage bonds as the nancial reporting. As regards Sarbanes- on behalf of the Board.
market in high quality corporate bonds is Oxley Act Section 404, our approach is
insufciently deep. based on the Committee of Sponsoring A C N Kemp
Organizations (COSO) 2013 framework. Company Secretary
In all cases, the pension costs recorded in 2 February 2017
the Financial Statements are assessed in Our approach to the assessment has
accordance with the advice of independent been to select key transaction and nancial
qualied actuaries, but require the exercise reporting processes in our largest operating
of signicant judgement in relation to units and a number of specialist areas,
assumptions for long-term price ination, (eg nancial consolidation and reporting,
and future salary and pension increases. treasury operations and taxation etc),
so that, in aggregate, we have covered
Further details of our accounting for post- a signicant proportion of the key lines in
retirement benet plans are included in our Financial Statements. Each of these
Note 20 to the Financial Statements from operating units and specialist areas has
page 165. ensured that its relevant processes and
controls are documented to appropriate
Taxation standards, taking into account, in particular,
Accruals for tax contingencies require the guidance provided by the SEC. We
management to make judgements and have also reviewed the structure and
estimates of exposures in relation to tax operation of our entity level control
audit issues. Tax benets are not recognised environment. This refers to the overarching
unless the tax positions will probably be control environment, including structure
sustained based upon managements of reviews, checks and balances that are
interpretation of applicable laws and essential to the management of a well-
regulations and the likelihood of settlement. controlled business.
Once considered to be probable,
management reviews each material tax The Directors have concluded that our
benet to assess whether a provision internal control over nancial reporting
should be taken against full recognition is effective at 31 December 2016 and
of the benet on the basis of potential the assessment is set out in the Directors
settlement through negotiation and/or Responsibilities for, and Report on,
litigation. Accruals for tax contingencies are Internal Control over Financial Reporting
measured using the single best estimate on page 133. KPMG LLP has audited the
of likely outcome approach. Any liability to effectiveness of our internal control over
interest on tax liabilities is provided for in the nancial reporting at 31 December 2016
tax charge. and, as noted in the Auditors Reports on
the Financial Statements and on Internal
We face a number of audits in jurisdictions Control over Financial Reporting (Sarbanes-
around the world and, in some cases, are in Oxley Act Section 404) on page 134, their
dispute with the tax authorities. The issues report is unqualied.
under discussion are often complex and
can require many years to resolve.

AstraZeneca Annual Report and Form 20-F Information 2016 81

Corporate Governance

Chairmans Statement

Directors take
very seriously their
responsibility to have
a robust governance
structure in place.

In 2016, your Board of Directors continued to focus the cycle of innovation. We need to
work hard to continue to improve R&D
on impplementing the sttrategy upon which we productivity by carefully selecting those
embarrked in 2013, as well as ensuring that our therapy areas and projects in which we
invest, as well as controlling costs.
progrress was underpinnned by good governance.
Returns to shareholders and outlook
In 2016, Reported earnings per share
(EPS) of $2.77 for the year represented an
Strategic progress An uncertain world increase of 9%, including a gain of $0.76
As reported by Pascal Soriot, our Chief Our performance in 2016 and in the year on the revaluation of acquisition-related
Executive Ofcer, we made good progress ahead takes place in an uncertain world. liabilities. Core EPS in the year declined by
in delivering our strategic priorities in 2016. The economic recovery following the global 5% to $4.31, driven by the decline in Total
During the year, we brought a sharper nancial crisis is still precarious and is Revenue. Both Reported and Core EPS for
focus to our three main therapy areas fuelling calls for restrictions on trade and the year included a non-recurring benet of
and boosted pipeline productivity further. immigration. In the UK, following the vote $0.36, following agreements between the
As is to be expected, we encountered for Brexit, we expect increased uncertainty Canadian tax authority and the UK and
some setbacks on the way but our both in the UK and the Eurozone. In Swedish tax authorities.
underlying business is growing and a new the US, we expect the increased focus
AstraZeneca is emerging, driven by our on pharmaceutical prices and their impact Given this performance, the Board was able
competitive franchises and our businesses on healthcare costs to continue, while to declare a second interim dividend of
in Emerging Markets. there remains uncertainty over the future $1.90 per share (150.2 pence, 16.57 SEK)
of the Affordable Care Act and what might bringing the dividend per share for the full
As Marc Dunoyer, our Chief Financial replace it. year to $2.80 (218.9 pence, 24.38 SEK).
Ofcer, outlines, our nancial results for At the same time, the Board reafrmed its
2016 were in line with expectations and On the other hand, and against this commitment to the Companys progressive
reected the ongoing transition of our uncertain background, we believe the dividend policy.
Company. The fall in Product Sales revenue demand for healthcare will continue to
was primarily due to the entry of generic increase with a growing and ageing world Sound governance
competition to Crestor in the US. We now population. Access to our range of AstraZenecas Directors take very seriously
look ahead to the impact of our recent innovative medicines also continues to their responsibility to have a robust
launches as well as the future launches that improve. Of course, challenges will always governance structure in place to ensure
are to come from our late-stage pipeline. remain in what is a very competitive that we are able properly to discharge
marketplace. These include the continuing, our responsibilities in setting our strategy,
Each year the Board reviews our strategy. and planned for, cycle of expiring patents as well as monitoring and reviewing
Our review in 2016 conrmed our belief that that lie at the heart of our business model, progress as it is implemented, and ensuring
2017 has the potential to be a dening year as well as competition from and the that we manage our risks and carry out
for AstraZeneca as we bring new medicines growing use of generic medicines. We business responsibly.
to patients across the globe. We have the need to obtain regulatory approval for new
opportunity to launch several life-changing medicines, secure reimbursement for those We are also very conscious that, as
medicines for cancer, respiratory and medicines, and achieve pricing and sales Directors, we are accountable to our
metabolic diseases. sufcient to generate revenue and sustain shareholders and must have regard to

82 AstraZeneca Annual Report and Form 20-F Information 2016

Compliance with the UK Corporate Governance Code

We have prepared this Annual Report We have complied throughout the

with reference to the UK Corporate accounting period with the provisions
Governance Code published by the of the UK Corporate Governance Code,
UK Financial Reporting Council (FRC) which is available on the FRCs website.
in September 2014.
This Corporate Governance Report
(together with other sections of this
Annual Report) describes how we apply
the main principles of good governance
in the UK Corporate Governance Code.

Corporate Governance
other stakeholders such as employees, During the year we said farewell to two In the annual Dow Jones Sustainability
customers, suppliers, the communities in members of the Board. Jean-Philippe Index, we improved our score compared
which we do business and the environment. Courtois stood down from the Board with 2015 and came second in the
We welcome the opportunity at our Annual on 1December. He was approaching Pharmaceuticals, Biotechnology and Life
General Meeting to meet and answer nine years tenure and had recently taken Sciences industry group. We also achieved
shareholders questions. We also maintain on new responsibilities at Microsoft. an A-list ranking for climate change, supplier
an active dialogue with shareholders We will miss his business acumen, climate change and water stewardship by
throughout the year and listen to views of extensive experience of the global investor benchmarking organisation CDP.
representatives of investors and nancial technology industry, common sense
institutions. The views of other stakeholders and collegiality. We wish him all the best In the biennial Access to Medicine Index,
are also important. for his future endeavours. our efforts to improve access to our
innovative medicines and to healthcare
We maintain an active dialogue with Earlier in the year, Dr Cornelia (Cori) more generally was recognised in
shareholders about executive remuneration. Bargmann, also stood down from the AstraZeneca being the biggest riser in the
Our pay structure is intended to be sufcient Board after accepting a new position as Index since the last survey. We moved to
to attract and retain high-calibre individuals President of Chan Zuckerberg Science, 7th place in 2016 from 15th in 2014 and
in order to deliver the Companys strategy. part of the Chan Zuckerberg Initiative. were recognised for multiple best practices
In setting individual pay levels, we consider We congratulate Cori on her new andinnovations.
the individuals skills and experience, internal appointment and thank her for her
relativities and conditions in the local contribution to AstraZeneca. Life-changing medicines
external market. Over the course of 2016, In 2016, we made good progress pushing
we have reviewed our Remuneration Searches for new Non-Executive Directors the boundaries of science to deliver
Policy and in his introduction to this years are continuing and succession plans will be medicines to patients. Your Board of
Directors Remuneration Report on page announced during 2017. Directors remains focused on ensuring
103, Graham Chipchase, Chairman of the that more patients are able to benet
Remuneration Committee, gives more A sustainable business from our expanding portfolio of innovative
details about the changes we are proposing As we look ahead and plan for the medicines that meet unmet medical
and why. We are grateful to those who sustainable growth of AstraZeneca, how need and change lives.
contributed to the review and the Board weoperate is as important as what we do.
commends the revised Remuneration Policy Itis therefore particularly gratifying to see
to shareholders for approval. increasing external recognition of our efforts
to operate in a sustainable way and in a
Board changes waythat recognises the interconnection
I am grateful to Graham and all the between business growth, the needs of Leif Johansson
Directors for their contribution during 2016, society, and the limitations of our planet. Chairman
especially those of my other colleagues This means delivering our business
who have the added responsibility of strategyso that access to our medicines is
chairing Board Committees: Rudy broadened, the environmental footprint of
Markham, our Senior independent our products and processes is minimised,
Non-Executive Director, who chairs the and ethics and transparency underpin
Audit Committee and Bruce Burlington everything we do.
who chairs the Science Committee.

AstraZeneca Annual Report and Form 20-F Information 2016 83

Corporate Governance

Corporate Governance Overview

How our governance supports the delivery of our strategy.

Board Audit Committee Remuneration Committee

Chairman: Leif Johansson Chairman: Rudy Markham Chairman: Graham Chipchase

The Audit Committee provides The Remuneration Committee
All Directors are collectively responsible for the success of the Group. assurance to the Board in the considers and sets, on behalf
They also have various responsibilities concerning the integrity of LQWHUQDOFRQWUROVRYHUQDQFLDO compensation payments) of
QDQFLDOLQIRUPDWLRQLQWHUQDOFRQWUROVDQGULVNPDQDJHPHQW matters; our internal controls over Executive Directors and other
QRQQDQFLDOPDWWHUVFRPSOLDQFH senior executives. No Director
The Board is responsible for setting our strategy and policies, overseeing
risk and corporate governance, and monitoring progress towards meeting
Conduct; the quality of the own remuneration.
our objectives and annual plans. It is accountable to our shareholders for
Companys relationship with
the proper conduct of the business and our long-term success, and
represents the interests of all stakeholders.
The Board conducts an annual review of the Groups overall strategy. WKHb&RPSDQ\VLQWHUQDODXGLW
The CEO, CFO and Senior Executive Team (SET) take the lead in IXQFWLRQDQGWKHHHFWLYHQHVVRI
developing our strategy, which is then reviewed, constructively challenged the Companys risk management
and approved by the Board. framework, in each case with the
ultimate aim of protecting our
The Board has delegated some of its powers to the CEO and operates with
shareholders interests.
the assistance of four Committees.
Members of the Board and their biographies are shown on pages 86 and 87.

Corporate Governance Report from page 90 Audit Committee Report from Directors Remuneration
page 98 Report from page 103

Board Committee membership and meeting attendance in 2016

Name Board Audit Remuneration Governance Science Independent1
Cori Bargmann 8(9) 3(3) 
Genevive Berger 11(11) 4(4) 
Bruce Burlington 10(11) 5(5) 4(4) Chairman 4(4) 
Ann Cairns 8(11) 4(5) 
Graham Chipchase 11(11) Chairman 5(5) 4(4) 
Jean-Philippe Courtois 8(10) 4(4) 
Marc Dunoyer 11(11) N/A
Leif Johansson Chairman 11(11) 4(5) Chairman 4(4) N/A4
Rudy Markham  11(11) Chairman 5(5) 4(5) 4(4) 
Pascal Soriot 11(11) N/A
Shriti Vadera 11(11) 5(5) 5(5) 
Marcus Wallenberg 9(11) 4(4)
Note: number in brackets denotes number of meetings during the year that Board members were entitled to attend.
As determined by the Board for the purposes of the UK Corporate Governance Code.
Leif Johansson was considered by the Board to be independent upon his appointment as Chairman. In accordance with the UK Corporate Governance Code, the test of independence is not
appropriate in relation to the Chairman after his appointment.

84 AstraZeneca Annual Report and Form 20-F Information 2016

Nomination and Science Committee Senior Executive Team Key governance roles
Governance Committee
Chairman: Leif Johansson Chairman: Bruce Burlington The members of the SET are: Chairman:
Leadership, operation and
The Nomination and Governance The Science Committee provides >CEO governance of the Board, ensuring
Committee recommends new assurance to the Board regarding > CFO %RDUGHHFWLYHQHVV
Board appointments for decision the Groups R&D activities !1LQH([HFXWLYH9LFH CEO:
by the Board and, more broadly, by reviewing and assessing Presidents (EVPs) from across Responsible to the Board for the
considers succession planning for our approaches in our chosen the organisation, representing management, development and
senior executive management and WKHUDS\DUHDVWKHVFLHQWLF the three science units, the performance of the business
Board positions. The Nomination technology and R&D capabilities YHFRPPHUFLDOXQLWV
Senior independent
and Governance Committee also we deploy; the quality and (including GPPS), Operations

Corporate Governance
Acts as a sounding board for the
developments in corporate and our decision making. > General Counsel
Chairman and an intermediary for
governance. !&KLHI&RPSOLDQFH2FHU
other Directors and shareholders
when necessary
The SET is the body through
which the CEO exercises the
authority delegated to him
by the Board. It usually meets
monthly and considers major
business issues and makes
recommendations to the CEO,
and typically reviews matters that
are to be submitted to the Board
for its consideration. The CEO
is responsible for establishing
and chairing the SET.

Nomination and Governance Science Committee from The biographies of SET

Committee from page 93 page 93 members are shown on pages
88 and 89

Gender split of Length of tenure of

Directors as at Non-Executive Directors
31 December 2016
Male 7 Under 3 years 1
Female 3 Ann Cairns
36 years 4
Leif Johansson
Genevive Berger
Graham Chipchase
Shriti Vadera
69 years 2
Bruce Burlington
nationalities as at Rudy Markham
31 December 2016 9+ years 1
American 1 Marcus Wallenberg
British 4
French 3
Swedish 2

AstraZeneca Annual Report and Form 20-F Information 2016 85

Corporate Governance

Board of Directors
as at 31 December 2016

1 Leif Johansson (65)

Non-Executive Chairman of the Board
(April 2012*)

Committee membership Chairman of the

Nomination and Governance Committee and
member of the Remuneration Committee
Skills and experience From 1997 to 2011, Leif was
Chief Executive Ofcer of AB Volvo. Prior to that, he
1 2 served at AB Electrolux, latterly as Chief Executive
Ofcer from 1994 to 1997. He was a Non-Executive
Director of BMS from 1998 to September 2011,
serving on the Boards Audit Committee, and
Compensation and Management Development
Committee. He holds an MSc in engineering from
Chalmers University of Technology, Gothenburg.
Other appointments Leif is Chairman of global
telecommunications company, LM Ericsson. He
holds board positions at Autoliv, Inc and Ecolean
3 4 AB.He has been a member of the Royal Swedish
Academy of Engineering Sciences since 1994,
serving as Chairman since 2012. Leif is also
a member of the European Round Table of
Industrialists and Chairman of the International
Advisory Board of the Nobel Foundation.
2 Pascal Soriot (57)
Executive Director and CEO (October 2012)
Skills and experience Pascal brings a passion
for science and medicine as well as signicant
5 6
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 Ofcer of Roches
pharmaceuticals division from 2010 to September
2012 and, prior to that, Chief Executive Ofcer of
Genentech, a biologics business, where he led its
successful merger with Roche. Pascal joined the
pharmaceutical industry in 1986 and has worked
7 8 in senior management roles in numerous major
companies around the world. He is a doctor of
veterinary medicine (cole Nationale Vtrinaire
dAlfort, Maisons-Alfort) and holds an MBA from
HEC, Paris.
3 Marc Dunoyer (64)
Executive Director and CFO (November 2013)
Skills and experience Marcs career in
pharmaceuticals, which has included periods
9 10 withRoussel Uclaf, Hoechst Marion Roussel and
GlaxoSmithKline (GSK), has given him extensive
industry experience, including nance and
accounting; corporate strategy and planning;
research and development; sales and marketing;
business reorganisation; and business development.
Marc is a qualied accountant and joined AstraZeneca
in 2013, serving as Executive Vice-President, GPPS
from June to October 2013. Prior to that, he served
as Global Head of Rare Diseases at GSK and
(concurrently) Chairman, GSK Japan. He holds
an MBA from HEC, Paris and a Bachelor of Law
degree from Paris University.

86 AstraZeneca Annual Report and Form 20-F Information 2016

4 Rudy Markham (70) 7 Ann Cairns (59) 9 Shriti Vadera (54)
Senior independent Non-Executive Director Non-Executive Director (April 2014) Non-Executive Director (January 2011)
(April 2015. Member of the Board since
Committee membership Member of the Committee membership Member of the Audit
September 2008)
Audit Committee Committee and the Remuneration Committee
Committee membership Chairman of the Skills and experience Ann has more than 20 Skills and experience Shriti has signicant
AuditCommittee and member of the years experience as a senior leader, having held knowledge of global nance, emerging markets and
RemunerationCommittee and Nomination management positions across Europe and the public policy. She has advised governments, banks
andGovernance Committee US, and has previously run global retail, commercial and investors on the Eurozone crisis, the banking
Skills and experience Rudy has signicant and investment banking operations. As president sector, debt restructuring and markets. She has
international business and nancial experience, of International Markets at MasterCard, Ann is served as a G20 Adviser and a Minister in the UK
having formerly held various senior commercial and responsible for the management, growth and Cabinet Ofce and Business Department and
nancial positions with Unilever, culminating in his expansion of all markets and customer-related International Development Department. She has
appointment as its Chief Financial Ofcer. He also activities outside of North America. Prior to also served on the Council of Economic Advisers,
served as a Non-Executive Director of the UK MasterCard, in 2011, Ann oversaw the European HM Treasury, where she focused on business and
Financial Reporting Council from 2007 to 2012 and liquidation of Lehman Brothers Holdings international economic issues. Prior to that, Shriti
formerly as Chairman and a Non-Executive Director International and was the Chief Executive, spent 14 years in investment banking with SG

Corporate Governance
of Moorelds Eye Hospital NHS Foundation Trust. Transaction Banking at ABN AMRO. In 2017, Ann Warburg/UBS.
will join the board of directors of Intercontinental
Other appointments Rudy is a non-executive Other appointments Shriti is Chairman of
Exchange, Inc., a company listed on the New York
member of the Boards of United Parcel Services Inc. Santander UK plc and Senior Independent Director
Stock Exchange. Ann holds a Pure Mathematics
and Legal & General plc. He is also Vice Chairman of BHP Billiton.
degree from Shefeld University and an MSc
of the Supervisory Board of Corbion NV (formerly
from Newcastle University. Among her many 10 Marcus Wallenberg (60)
CSM NV), a Fellow of the Chartered Institute of
accomplishments, Ann has been an award-winning Non-Executive Director (April 1999)
Management Accountants and a Fellow of the
research engineer and was the rst woman qualied Committee membership Member of the Science
Association of Corporate Treasurers.
to go offshore in Britain. Ann is a champion of Committee
5 Genevive Berger (61) inclusion digital, nancial and gender and is also
Non-Executive Director (April 2012) a member of the World Food Programme Skills and experience Marcus has international
investment committee. business experience across various industry
Committee membership Member of the Science sectors, including the pharmaceutical industry
Committee and oversees sustainability matters on 8 Graham Chipchase (53) from his directorship with Astra prior to 1999.
behalf of the Board Non-Executive Director (April 2012)
Other appointments Marcus is Chairman of
Skills and experience Genevive was Chief Committee membership Chairman of the Skandinaviska Enskilda Banken AB, Saab AB and
Science Ofcer at Unilever PLC and a member Remuneration Committee and member of the FAM AB. He is a member of the boards of Investor
of the Unilever Leadership Executive from 2008 to Nomination and Governance Committee AB, Temasek Holdings Limited, and the Knut and
April2014. She holds three doctorates in physics, Alice Wallenberg Foundation.
Skills and experience Graham served as Chief
human biology and medicine and was appointed
Executive Ofcer of global consumer packaging
Professor of Medicine at lUniversit Pierre et Marie
company, Rexam PLC from 2010 to 2016 after
Curie, Paris in 2006. Her previous positions include * Date of appointment.
serving at Rexam as Group Director, Plastic
Professor and Hospital Practitioner at lHpital de la
Packaging and Group Finance Director. Previously,
Piti-Salptrire in Paris; Director of the Biotech and
he was Finance Director of Aerospace Services at
Agri-Food Department; Head of the Technology
the global engineering group GKN PLC from 2001
Directorate at the French Ministry of Research and
to 2003. After starting his career with Coopers &
Technology; Director General, at the Centre National
Lybrand Deloitte, he held various nance roles in
de la Recherche Scientique; and Chairman of the
the industrial gases company The BOC Group PLC
Health Advisory Board of the EU Commission.
(now part of The Linde Group). He is a Fellow of the
Other appointments In May 2015, Genevive was Institute of Chartered Accountants in England and
appointed as a Director of Air Liquide S.A. for a term Wales and holds an MA (Hons) in chemistry from
of four years. She is currently Chief Research Ofcer Oriel College, Oxford.
at Firmenich SA, Geneva, Switzerland.
Other appointments In January 2017, Graham
6 Bruce Burlington (68) joined Brambles Limited, the Sydney-listed supply
Non-Executive Director (August 2010) chain logistics company, as CEO designate, and
Committee membership Chairman of the Science will become CEO from 20 February 2017.
Committee and member of the Audit Committee
and the Nomination and Governance Committee
Skills and experience Bruce is a pharmaceutical
product development and regulatory affairs
consultant and brings extensive experience in these
areas. He spent 17 years with the FDA, serving as
Director of its Center for Devices and Radiological
Health, as well as holding various senior roles in the
Center for Drug Evaluation and Research. After
leaving the FDA, he held various senior executive
positions at Wyeth (now part of Pzer).
Other appointments Bruce is a Non-Executive
Director of the International Partnership for

AstraZeneca Annual Report and Form 20-F Information 2016 87

Corporate Governance

Senior Executive Team

as at 31 December 2016

1 2 3

4 5 6

7 8 9

10 11 12

1 Pascal Soriot Regulatory and IP. Prior to AstraZeneca, Katarina He is a graduate of the University of Wisconsin and
CEO established her own law rm and worked as a later earned his doctorate in biochemistry and his
lawyer on both civil and criminal cases. Katarina medical degree at the University of California, San
See page 86. holds a Master of Law Degree from Uppsala Francisco.
2 Marc Dunoyer University School of Law in Sweden.
5 Pam Cheng
CFO 4 Dr Sean Bohen Executive Vice-President, Operations
See page 86. Executive Vice-President, and Information Technology
Global Medicines Development and
3 Katarina Ageborg Chief Medical Ofcer Pam joined AstraZeneca in June 2015 after having
Chief Compliance Ofcer spent 14 years in Global Manufacturing and Supply
Sean was appointed Executive Vice-President, Chain roles at Merck/MSD. Pam was the Head of
Katarina was appointed Chief Compliance Ofcer GMD in September 2015 and leads our global Global Supply Chain Management & Logistics for
and a member of the SET on 1 July 2011. She has late-stage development organisation for both small Merck from 2006 to 2011 and led the transformation
overall responsibility for the delivery, design and molecules and biologics. He is also the Companys of Merck supply chains across the global supply
implementation of the Companys compliance Chief Medical Ofcer and is responsible for network. More recently, Pam was President of MSD
programme and since her appointment has patient safety across the entire AstraZeneca and China, responsible for MSDs entire business in
driven increased efciency and effectiveness in MedImmune portfolio. He joined AstraZeneca China. Prior to joining Merck, Pam held various
compliance. She has also assumed responsibility from Genentech, where he held a number of senior engineering and project management positions at
for Safety, Health & Environment, and most recently leadership roles across various therapy areas and Universal Oil Products, Union Carbide Corporation
in 2015 for the Companys sustainability programme. was most recently Senior Vice President of Early and GAF Chemicals. Pam holds Bachelors and
Katarina led the Global IP function from 2008 to Development. Before joining Genentech, Sean Masters degrees in chemical engineering from
2011, during which time she streamlined the was a Clinical Instructor in Oncology at Stanford Stevens Institute of Technology in New Jersey and
organisation and launched a new patent ling University School of Medicine, a research associate an MBA in marketing from Pace University in New
strategy. After joining AstraZeneca in 1998, she held at the Howard Hughes Medical Institute and a York. She has been a member of the Board of
a series of senior legal roles supporting Commercial, postdoctoral fellow at the National Cancer Institute. Directors for Codexis Inc. (CDXS) since 2014.

88 AstraZeneca Annual Report and Form 20-F Information 2016

6 Fiona Cicconi 9 Mark Mallon 11-H3RWW
Executive Vice-President, Human Resources Executive Vice-President, Global Product and General Counsel
Portfolio Strategy, Global Medical Affairs &
Fiona joined AstraZeneca in September 2014 as Jeff was appointed General Counsel in January
Corporate Affairs
Executive Vice-President, Human Resources. She 2009 and has overall responsibility for all aspects
Executive Vice-President, International West
started her career at General Electric, where she of AstraZenecas Legal and IP function. He joined
held various human resources roles within the Mark was appointed Executive Vice-President, AstraZeneca in 1995 and has worked in various
oil and gas business, which included experience Global Product and Portfolio Strategy, Global litigation roles, where he has had responsibility for IP,
in major global acquisitions and driving change. Medical Affairs & Corporate Affairs in August 2016, anti-trust and product liability litigation. Before joining
Subsequently, Fiona spent a number of years leading AstraZenecas global marketing and AstraZeneca, he spent ve years at the US legal rm
at Cisco, overseeing human resources in seven commercial portfolio strategy as well as the medical Drinker Biddle and Reath LLP, where he specialised
countries in Europe and latterly handling employee affairs and corporate affairs functions. Prior to this, in pharmaceutical product liability litigation and
relations in Europe, Middle East and Africa, before Mark was EVP for the International region with anti-trust advice and litigation. He received his
joining Roche in 2006. There, she was most recently responsibility for the growth and performance of bachelors degree in political science from Wheaton
responsible for global human resources for Pharma AstraZenecas commercial businesses in various College and his Juris Doctor Degree from Villanova
Technical Operations, where her primary focus was parts of the world, including Asia Pacic, Russia, University School of Law.
to identify and develop a sustainable supply of Latin America, the Middle East and Africa. He retains 12 Leon Wang

Corporate Governance
leadership and talent from within the organisation. responsibility for these International businesses Executive Vice-President, Asia Pacic
7 Dr Ruud Dobber excluding Asia Pacic for which a new SET position
was created in early 2017. Since joining AstraZeneca Leon was appointed Executive Vice-President,
Executive Vice-President, North America
in 1994, Mark has held a number of senior sales and Asia Pacic in January 2017. This is a region of
Ruud was appointed Executive Vice-President, marketing roles, including Regional Vice-President great importance for the future of the Group and
North America in August 2016 and is responsible for Asia Pacic, President of AstraZenecas Chinese Leon is responsible for the overall strategy and
for driving growth and maximising the contribution and Italian subsidiaries, Chief Operating Ofcer the promotion of the sustainable growth of our
of the commercial operations in North America of AstraZenecas Japanese subsidiary and activities in China and Hong Kong, Asia Area,
to AstraZenecas global business. Ruud joined Vice-President of AstraZenecas US gastrointestinal Australia and New Zealand. He joined AstraZeneca
AstraZeneca in 1997 and has held various senior and respiratory businesses. He has served as a China in 2013 as a Vice-President and became
commercial and leadership roles. Most recently, member of the Board of Directors for Christiana President in 2014. Under his leadership China
Ruud was Executive Vice-President, Europe Care, the largest hospital system in Delaware. became AstraZenecas second-largest market
and oversaw business functions in the 28 EU He has also been an Executive Committee Member worldwide. Leon has 20 years of experience in
member states. Ruud was also responsible for for R&D-based Pharmaceutical Association the pharmaceutical industry, including a series of
the development of our late-stage, small Committee, the China industry association for positions of increasing responsibility in marketing
molecule antibiotic pipeline as well as its global innovative pharmaceutical companies. Mark and business leadership at Roche where he
commercialisation. Prior to that, Ruud was Regional began his career in the pharmaceutical industry was a Business Unit Vice President before joining
Vice-President of AstraZenecas European, Middle in management consulting. He holds a degree AstraZeneca. He is Council Vice Chairman of the
East and African division, Regional Vice-President in chemical engineering from the University of Shanghai Association of Foreign Investment,
for the Asia Pacic region and Interim Executive Pennsylvania and an MBA in marketing and nance Executive Committee Member responsible for
Vice-President, GPPS. Ruud was a member of the from the Wharton School of Business. Pricing of the R&D-based Pharmaceutical
Board and Executive Committee of the European Association Committee under the China Association
10 Dr Menelas Pangalos
Federation of Pharmaceutical Industries and of Enterprises with Foreign Investment and
Executive Vice-President, IMED Biotech Unit
Associations (EFPIA) and was previously Chairman Corporate Advisory Board Member of China
and Global Business Development
of the Asia division of Pharmaceutical Research and Europe International Business School. He holds
Manufacturers of America. Holding a doctorate in Menelas (Mene) was appointed Executive a Bachelor of Arts from Shanghai International
immunology from the University of Leiden in the Vice-President, IMED Biotech Unit in January 2013 Studies University and an EMBA from China
Netherlands, Ruud began his career as a scientist, and leads AstraZenecas small molecule research Europe International Business School.
researching in the eld of immunology and ageing. and early development activities. In 2016, Mene was
also made Global Head of Business Development.
8 Dr Bahija Jallal Note: The position of Executive Vice-President, Europe is
Mene joined AstraZeneca from Pzer, where he was
Executive Vice-President, MedImmune vacant at the date of this report with recruitment activity
Senior Vice-President and Chief Scientic Ofcer of underway. From September 2016 until January 2017, the
Bahija was appointed Executive Vice-President, Neuroscience Research. Previously, he held senior position was held by Luke Miels (who prior to that led GPPS,
MedImmune in January 2013 and is responsible for discovery and neuroscience roles at Wyeth and AstraZenecas global marketing, business development and
commercial portfolio strategy operations). It was announced
biologics research and development activities. Bahija GSK. He completed his undergraduate degree in in January 2017 that Mr Miels would leave AstraZeneca to
is tasked with advancing the biologics pipeline of biochemistry at the Imperial College of Science take up a senior position with a main competitor. As a result,
medicines. She joined MedImmune in 2006 as and Technology, London and earned a doctorate Mr Miels was placed on garden leave pending agreement
Vice-President, Translational Sciences and has of his start date.
in neurochemistry from the University of London.
held roles of increasing responsibility at AstraZeneca. He is a Visiting Professor of Neuroscience at Kings
Prior to joining AstraZeneca, Bahija worked with College London and is a Fellow of Clare Hall at the
Chiron Corporation, where she served as Vice- University of Cambridge. Mene is a Fellow of the
President, Drug Assessment and Development. Academy of Medical Sciences and the Royal Society
Bahija received a Masters degree in biology from of Biology. In the UK, Mene serves on the Medical
lUniversit de Paris VII and her doctorate in Research Council, is on the Board of the British
physiology from lUniversit Pierre et Marie Curie, Pharmaceutical Group and a Non-Executive Director
Paris VI. She conducted her postdoctoral research of the UK Precision Medicine Catapult.
at the Max-Planck Institute of Biochemistry in
Martinsried, Germany. She is the President of the
Board of Directors of the Association for Women
in Science and she is also on the Board of Trustees
of the Johns Hopkins University.

AstraZeneca Annual Report and Form 20-F Information 2016 89

Corporate Governance

Corporate Governance Report

Board composition As shown in the Corporate Governance our shareholders is maintained and that
The membership of the Board at Overview, there are four principal Board their issues and concerns are understood
31 December 2016 and information about Committees. The membership and work and considered.
individual Directors is contained in the Board of these Committees is described on the
of Directors section on pages 86 and 87. following pages. In addition, there may from The Board held 11 meetings in 2016,
time to time be constituted ad hoc Board including its usual annual strategy review.
Corporate governance Committees for specic projects or tasks. Five took place in London, UK; one in
We have prepared this Annual Report with Cambridge, UK; one at the ofces of
reference to the UK Corporate Governance In these cases, the scope and AstraZenecas subsidiary in Japan; and four
Code published by the UK Financial responsibilities of the Committee are by telephone conference call. The Board
Reporting Council (FRC) in September 2014. documented. The Board provides adequate is currently scheduled to meet six times in
resources to enable each Committee to 2017 and will meet at such other times as
This Corporate Governance Report undertake its duties. may be required to conduct business.
(together with other sections of this Annual
Report) describes how we apply the main Reserved matters and delegation As part of the business of each Board
principles of good governance in the UK of authority meeting, the CEO typically submits a
Corporate Governance Code. We have The Board maintains and periodically progress report, giving details of business
complied throughout the accounting period reviews a list of matters that are reserved to, performance and progress against the
with the provisions of the UK Corporate and can only be approved by, the Board. goals the Board has approved. To ensure
Governance Code, which is available These include: the appointment, termination that the Board has good visibility of the
on the FRCs website, and remuneration of any Director; approval key operating decisions of the business,
of the annual budget; approval of any item of members of the SET attend Board meetings
Leadership and responsibilities xed capital expenditure or any proposal for regularly and Board members meet other
The roles of Chairman and CEO are the acquisition or disposal of an investment senior executives throughout the year.
split. Leif Johansson, our Non-Executive or business which exceeds $150 million; the The Board also receives accounting and
Chairman, is responsible for leadership of raising of capital or loans by the Company other management information about our
the Board. Our CEO, Pascal Soriot, leads (subject to certain exceptions); the giving of resources, and presentations from internal
the SET and has executive responsibility for any guarantee in respect of any borrowing and external speakers on legal, governance
running our business. The Board comprises of the Company; and allotting shares of the and regulatory developments. At the end
10 Non-Executive Directors, including the Company. The matters that have not been of Board meetings, the Non-Executive
Chairman, and two Executive Directors expressly reserved to the Board are Directors meet without the Executive
the CEO, Pascal Soriot, and the CFO, Marc delegated by the Board to its Committees Directors present to review and discuss any
Dunoyer. Its responsibilities are set out in the or the CEO. matters that have arisen during the meeting
Corporate Governance Overview on pages and/or such other matters as may appear
84 and 85. As at 31 December 2016, two The CEO is responsible to the Board to the Non-Executive Directors to be
Non-Executive Director positions were for the management, development and relevant in properly discharging their duty
vacant and work is continuing to identify performance of our business for those to act independently.
and secure the services of new Board matters for which he has been delegated
members, as described in the Nomination authority from the Board. Although the CEO %RDUGHHFWLYHQHVV
and Governance Committee section on retains full responsibility for the authority Composition of the Board, succession
page 93. delegated to him by the Board, he has planning and diversity
established, and chairs, the SET, which The Nomination and Governance
Rudy Markham, who joined the Board is the vehicle through which he exercises Committee and, where appropriate, the full
as a Non-Executive Director in 2008, that authority in respect of our business. Board, regularly review the composition of
wasappointed as our Senior independent the Board and the status of succession to
Non-Executive Director in April 2015. The roles of the Board, Board Committees, both senior executive management and
The role of the Senior independent Chairman and CEO are documented, as Board level positions. Directors have regular
Non-Executive Director is to serve as a are the Boards reserved powers and contact with, and access to, succession
sounding board for the Chairman and as delegated authorities. candidates for senior executive
an intermediary for the other Directors management positions.
when necessary. The Senior independent Operation of the Board
Non-Executive Director is also available The Board discharges its responsibilities The Board aims to maintain a balance in
to shareholders if they have concerns that as set out in the Corporate Governance terms of the range of experience and skills
contact through the normal channels of Overview on pages 84 and 85 through of individual Board members, which
Chairman or Executive Directors has failed a programme of meetings that includes includes relevant international business,
to resolve, or for which such contact is regular reviews of nancial performance pharmaceutical industry and nancial
inappropriate. and critical business issues, and the formal experience, as well as appropriate scientic
annual strategy review day. The Board also and regulatory knowledge. The biographies
aims to ensure that a good dialogue with of Board members set out on pages 86 and

90 AstraZeneca Annual Report and Form 20-F Information 2016

87 give more information about current Corporate Governance Code, the test of Appointments to the Board
Directors in this respect. The Board views independence is not appropriate in relation The Nomination and Governance
gender, nationality and cultural diversity to the Chairman after his appointment. Committee section on page 93 provides
among Board members as important information about the appointment process
considerations when reviewing the Marcus Wallenberg was appointed as for new Directors.
composition of the Board. The Board a Director of Astra in May 1989 and
recognises, in particular, the importance subsequently became a Director of the Newly appointed Directors are provided
of gender diversity. Currently, 37% of the Company in 1999. He is a Non-Executive comprehensive information about the Group
Companys Non-Executive Directors are Director of Investor AB, which has a 4.1% and their role as Non-Executive Directors.
women and women make up 30% of the interest in the issued share capital of They also typically participate in tailored
full Board. Although it has not set any the Company as at 2 February 2017. induction programmes that take account
specic measurable objectives, the Board Mr Wallenberg, Investor AB and a number of their individual skills and experience.
intends to continue with its current approach of Wallenberg charitable foundations are
to diversity in all its aspects, while at the connected. For these reasons, the Board Time commitment
same time seeking Board members of the does not believe that he can be determined Our expectation is that Non-Executive

Corporate Governance
highest calibre, and with the necessary independent under the UK Corporate Directors should be prepared to commit
experience and skills to meet the needs Governance Code. However, the Board 15 days a year, as an absolute minimum,
of the Company and its shareholders. believes that he has brought, and continues to the Groups business. In practice, Board
Information about our approach to diversity to bring, considerable business experience members time commitment exceeds this
in the organisation below Board level can be and makes a valuable contribution to the minimum expectation when all the work that
found in Employees from page 54. work of the Board. In April 2010, he was they undertake for the Group is considered,
appointed as a member of the Science particularly in the case of the Chairman of
The following changes to the composition Committee, reecting his interest in the Board and the Chairmen of the Board
of the Board and its Committees have innovation and R&D, knowledge of the Committees. As well as their work in relation
occurred during the period covered by history of the Company and its scientic to formal Board and Board Committee
this Annual Report: heritage and culture, and his broad meetings, the Non-Executive Directors
experience of other industries and also commit time throughout the year to
> Cornelia (Cori) Bargmann stepped down businesses in which innovation and R&D meetings and telephone calls with various
from the Board and as a member of the are important determinants of success. levels of executive management, visits to
Science Committee with effect from AstraZenecas sites throughout the world
1 October 2016 after she accepted a new Conflicts of interest and, for new Non-Executive Directors,
position as President of Chan Zuckerberg The Articles enable the Directors to induction sessions and site visits.
Science, part of the Chan Zuckerberg authorise any situation in which a Director
Initiative. has an interest that conicts or has the On occasions when a Director is
> Jean-Philippe Courtois stepped down potential to conict with the Companys unavoidably absent from a Board or Board
from the Board and as a member of interests and which would otherwise be a Committee meeting, for example where
the Audit Committee with effect from breach of the Directors duty, under Section a meeting clashes with their existing
1 December 2016. Mr Courtois was 175 of the Companies Act 2006. The Board commitments, they still receive and review
appointed as a Non-Executive Director has a formal system in place for Directors to the papers for the meeting and typically
in 2008. The Nomination and Governance declare such situations to be considered for provide verbal or written input ahead of the
Committee started succession planning authorisation by those Directors who have meeting, usually through the Chairman of
earlier in 2016 in anticipation of Mr no interest in the matter being considered. the Board or the Chairman of the relevant
Courtois reaching nine years tenure In deciding whether to authorise a situation, Board Committee, so that their views
as a Board member in 2017. the non-conicted Directors must act in the are made known and considered at the
way they consider, in good faith, would be meeting. Given the nature of the business
Independence of the Non-Executive most likely to promote the success of the to be conducted, some Board meetings are
Directors Company, and they may impose limits or convened at short notice, which can make
During 2016, the Board considered the conditions when giving the authorisation, it difcult for some Directors to attend due
independence of each Non-Executive or subsequently, if they think this is to prior commitments.
Director for the purposes of the UK appropriate. Situations considered by
Corporate Governance Code and the the Board and authorisations given are Information and support
corporate governance listing standards recorded in the Board minutes and in The Company Secretary is responsible
of the NYSE (Listing Standards). With the a register of conicts maintained by the to the Chairman for ensuring that all
exception of Marcus Wallenberg, the Board Company Secretary, and are reviewed Board and Board Committee meetings
considers that all of the Non-Executive annually by the Board. The Board believes are properly conducted, that the Directors
Directors are independent. Leif Johansson that this system operates effectively. receive appropriate information prior
was considered by the Board to be to meetings to enable them to make
independent upon his appointment as an effective contribution, and that
Chairman. In accordance with the UK governance requirements are considered
and implemented.

AstraZeneca Annual Report and Form 20-F Information 2016 91

Corporate Governance

Corporate Governance Report continued

The Company maintained Directors and further improving full Board oversight of The Board intends to continue to comply
Ofcers Liability Insurance cover throughout succession planning for Board-level roles; with the UK Corporate Governance Code
2016. The Directors are also able to obtain providing more opportunities for Board guidance that the evaluation should be
independent legal advice at the expense members to meet senior employees having externally facilitated at least every three
of the Company, as necessary, in their the potential to progress to the most senior years and expects to commission the next
capacity as Directors. executive roles in the Company; and how externally facilitated review in 2017.
best to maintain the right balance of Board
The Company has entered into a deed of time for R&D matters on the one hand, Re-election of Directors
indemnity in favour of each Board member and commercial and operations matters In accordance with Article 66 of the
since 2006. These deeds of indemnity are on the other. Articles, all Directors retire at each AGM
still in force and provide that the Company and may offer themselves for re-election
shall indemnify the Directors to the fullest As part of each Directors individual by shareholders. Accordingly, all of the
extent permitted by law and the Articles, discussion with the Chairman, his or her Directors will retire at the AGM in April 2017.
in respect of all losses arising out of, or contribution to the work of the Board The Notice of AGM will give details of those
in connection with, the execution of their and personal development needs were Directors seeking re-election.
powers, duties and responsibilities as considered. Directors training needs
Directors of the Company or any of its are met by a combination of internal Accountability
subsidiaries. This is in line with current presentations and updates and external Risk management and internal control
market practice and helps us attract and speaker presentations as part of Board The Board has overall responsibility for
retain high quality, skilled Directors. and Board Committee meetings; specic our system of internal controls and risk
training sessions on particular topics, where management policies and has an
Performance evaluation required; and the opportunity for Directors ongoing responsibility for reviewing their
During the year, the Board conducted the to attend external courses at the Companys effectiveness. During 2016, the Directors
annual evaluation of its own performance cost, should they wish to do so. In respect continued to review the effectiveness of our
and that of its Committees and individual of the 2016 annual performance evaluation it system of controls, risk management and
Directors. The 2016 evaluation involved was concluded that each Director continues high level internal control processes. These
each Board member responding to a to perform effectively and to demonstrate reviews included an assessment of internal
web-based questionnaire covering a wide commitment to his or her role. controls and, in particular, nancial,
range of topics prepared by Lintstock Ltd operational and compliance controls, and
(Lintstock), a London-based corporate The 2016 evaluation also included a risk management and their effectiveness,
advisory rm that provides objective and review of the performance of the Chairman supported by management assurance of
independent counsel to leading European by the other Directors, led by the Senior the maintenance of controls reports from IA,
companies. Lintstock supplies software independent Non-Executive Director and as well as the external auditor on matters
and services to the Company Secretarys absent the Chairman. The review covered identied in the course of its statutory audit
team for Board evaluation questionnaires how Board meetings were managed and work. The system is designed to manage
and for the management of insider lists but chaired; the Chairmans broader activities rather than eliminate the risk of failure
has no other commercial relationship with for the Company (for example, his to achieve business objectives and can
the Company. interactions with employees in various only provide reasonable (not necessarily
parts of the business); his relationship absolute) assurance of effective operation
Feedback from the questionnaire was with shareholders and other external and compliance with laws and regulations.
discussed by the Board at its meeting in stakeholders in various parts of the world,
January 2017 and was also used by the such as governments and senior regulatory The internal control framework was in
Chairman as the basis for individual authority ofcials; his relationship with operation throughout 2016 and continues
conversations with each Board member executive management; and suggestions to operate up to the date of the approval of
prior to the full Board discussion. In respect as to areas that the Board might prioritise this Annual Report. The Directors believe
of the 2016 evaluation, overall it was for its work in 2017. It was concluded that that the Group maintains an effective,
concluded that the Board continues to overall the Chairman continues to perform embedded system of internal controls and
operate effectively and in an open manner very effectively, both in respect of Board complies with the FRCs guidance entitled
and no signicant problems were raised. matters and in relation to other aspects Guidance on Risk Management, Internal
The questionnaire feedback and both the of his chairmanship role, and that he Control and Related Financial and Business
individual and the full Board discussions continues to devote signicant time to Reporting and, in the view of the Directors,
included suggestions about providing more promoting the interests of the Company no signicant deciencies have been
strategic, competitive and nancial context for the long-term benet of shareholders identied in the system.
for Board members in respect of their and other stakeholders.
reviews of the Companys very early-stage More information about the ways in which
science and development programmes; The reviews of the Boards Committees we manage our business risks and describe
maintaining and further improving the did not raise any signicant problems and our principal risks and uncertainties is set
diversity of the Board; maintaining and concluded that the Committees are out in the Risk overview from page 20 and
operating effectively. Risk from page 214.

92 AstraZeneca Annual Report and Form 20-F Information 2016

Remuneration We have frequent discussions with based on the merits of the candidates and
Information about our approach to institutional shareholders on a range of the relevance of their background and
remuneration and the role and work of the issues. In addition to holding discussions experience, measured against objective
Remuneration Committee, including our with groups of shareholders, we also hold criteria, with care taken to ensure that
policy on executive remuneration, is set individual meetings with some of our largest appointees have enough time to devote
out in the Directors Remuneration Report. institutional shareholders to seek their views. to our business.
Board members are kept informed of any
Policy on external appointments and issues, and receive regular reports and The Nomination and Governance
retention of fees presentations from executive management Committee also advises the Board
Subject to specic Board approval in and our brokers to assist them to develop periodically on signicant developments in
each case, Executive Directors and other an understanding of major shareholders corporate governance and the Companys
SET members may accept external views about the Group. From time to compliance with the UK Corporate
appointments as non-executive directors time, we conduct an audit of institutional Governance Code.
of other companies, and retain any related shareholders to ensure that we are
fees paid to them, provided that such communicating clearly with them and that During 2016, the members of the

Corporate Governance
appointments are not considered by the a high quality dialogue is being maintained. Nomination and Governance Committee
Board to prevent or reduce the ability of the The results of this audit are reported to, were Leif Johansson (Chairman of the
executive to perform his or her role within and discussed by, the full Board. We also Committee), Rudy Markham, Bruce
the Group to the required standard. respond to individual ad hoc requests for Burlington and Graham Chipchase. Each
discussions from institutional shareholders member is a Non-Executive Director and
Relations with shareholders and analysts. Our Investor Relations team considered independent by the Board. The
In our quarterly, half yearly and annual acts as the main point of contact for Company Secretary acts as secretary to the
nancial and business reporting to investors throughout the year. As discussed Nomination and Governance Committee.
shareholders and other interested parties, above, the Senior independent Non-
we aim to present a balanced and Executive Director, Rudy Markham, is The Nomination and Governance
understandable assessment of our strategy, also available to shareholders if they have Committee considers both planned and
nancial position and prospects. concerns that contact through the normal unplanned (unanticipated) succession
channels of Chairman, CEO and/or CFO scenarios and met four times in 2016,
We make information about the Group has failed to resolve, or in relation to spending the majority of its time on
available to shareholders through a range which such contact is inappropriate. All succession planning for Non-Executive
of media, including our corporate website, shareholders, including private investors, Directors with the assistance of the search, which contains a have an opportunity at the AGM to put rms MWM Consulting, Spencer Stuart
wide range of data of interest to institutional questions to members of the Board and Korn Ferry and continued routine
and private investors. We consider our about our operation and performance. succession planning (internal and external)
website to be an important means of Formal notication of the AGM is sent to for the roles of CEO and CFO, with the
communication with our shareholders. shareholders at least one month in advance. assistance of Spencer Stuart. Korn
All Board members ordinarily attend the Ferry and Spencer Stuart periodically
The Company has been authorised by AGM to answer questions raised by undertake executive search assignments
shareholders to place shareholder shareholders. In line with the UK Corporate for the Company.
communications (such as the Notice of Governance Code, details of proxy voting by
AGM and this Annual Report) on the shareholders, including votes withheld, are The attendance record of the Nomination
corporate website in lieu of sending paper given at the AGM and are posted on our and Governance Committees members
copies to shareholders (unless specically website following the AGM. is set out on page 84.
requested). While recognising and
respecting that some shareholders may Nomination and Governance The Nomination and Governance
have different preferences about how they Committee Committees terms of reference are available
receive information from us, we will continue The Nomination and Governance on our website,
to promote the benets of electronic Committees role is to recommend to the
communication given the advantages that Board any new Board appointments and to Science Committee
this has over traditional paper-based consider, more broadly, succession plans at The Science Committees core role is to
communications, both in terms of the Board level. It reviews the composition of provide assurance to the Board regarding
congurability and accessibility of the the Board using a matrix that records the the quality, competitiveness and integrity
information provided and the consequent skills and experience of current Board of the Groups R&D activities by way of
cost savings and reduction in environmental members, comparing this with the skills and meetings and dialogue with our R&D
impact. experience it believes are appropriate to the leaders and other scientist employees;
Companys overall business and strategic visits to our R&D sites throughout the world;
needs, both now and in the future. Any and review and assessment of:
decisions relating to the appointment of
Directors are made by the entire Board

AstraZeneca Annual Report and Form 20-F Information 2016 93

Corporate Governance

Corporate Governance Report continued

> the approaches we adopt in respect 404 of the Sarbanes-Oxley Act requires making that drives business performance
of our chosen therapy areas companies to include in their annual report and accountability.
> the scientic technology and R&D on Form 20-F led with the SEC, a report
capabilities we deploy by management stating its responsibility for Specically, the ESPCs have responsibility
> the decision-making processes for R&D establishing internal control over nancial for the following:
projects and programmes reporting and to assess annually the
> the quality of our scientists and their effectiveness of such internal control. > approving early-stage investment decisions
career opportunities and talent We have complied with those provisions > prioritising the respective portfolios
development of the Sarbanes-Oxley Act applicable to > licensing activity for products in Phase I
> benchmarking against industry and foreign private issuers. The Board continues and earlier
scientic best practice, where to believe that the Group has a sound > delivering internal and external
appropriate. corporate governance framework, good opportunities
processes for the accurate and timely > reviewing allocation of R&D resources.
The Science Committee periodically reviews reporting of its nancial position and results
important bioethical issues that we face, of operations, and an effective and robust Late Stage Product Committee (LSPC)
and assists in the formulation of, and agrees system of internal controls. We have The LSPC is also a senior level governance
on behalf of the Board, appropriate policies established a Disclosure Committee, body, accountable for the quality of the
in relation to such issues. It may also further details of which can be found in portfolio post-Phase III investment decision.
consider, from time to time, future trends the Disclosure Committee section below. Jointly chaired by the EVPs of GMD and
in medical science and technology. The GPPS, members include, as appropriate,
Science Committee does not review The Directors assessment of the members of the SET, including the CEO and
individual R&D projects but does review, effectiveness of internal control over CFO, and members of the GMD and GPPS
on behalf of the Board, the R&D aspects nancial reporting is set out in Directors leadership teams.
of specic business development or Responsibilities for, and Report on, Internal
acquisition proposals and advises the Control over Financial Reporting in the The LSPC seeks to maximise the value
Board on its conclusions. Financial Statements on page 133. of our investments in the late-stage
portfolio, also ensuring well-informed
During 2016, the members of the Science We are required to disclose any signicant and robust decision making. Specic
Committee, all of whom have a knowledge ways in which our corporate governance accountabilities include:
of, or an interest in, life sciences, were Bruce practices differ from those followed by US
Burlington (Chairman of the Committee), companies under the Listing Standards. > approval of the criteria supporting Proof
Cori Bargmann until she stepped down In addition, we must comply fully with the of Concept
from the Board with effect from 1 October provisions of the Listing Standards relating > decision to invest in Phase III development
2016, Genevive Berger and Marcus to the composition, responsibilities and based on agreement of commercial
Wallenberg. As usual, the EVP, GMD; the operation of audit committees, applicable opportunity and our plans to develop
EVP, IMED; and the EVP, MedImmune, to foreign private issuers. These provisions the medicine
participated in meetings of the Science incorporate the rules concerning audit > evaluation of the outcome of the
Committee as co-opted members in 2016. committees implemented by the SEC under development programme and decision
The Vice-President, IMED Operations acts the Sarbanes-Oxley Act. We have reviewed to proceed to regulatory ling
as secretary to the Science Committee. the corporate governance practices > decision to invest in life-cycle
required to be followed by US companies management activities for the late-stage
The Science Committee met twice in under the Listing Standards and our assets
person in 2016, in Gothenburg, Sweden corporate governance practices are > decision to invest in late-stage business
and Gaithersburg, US and held two other generally consistent with those standards. development opportunities.
meetings, both of which were by telephone,
to review specic business development Business organisation Disclosure Committee
or acquisition proposals and aspects of Early Stage Product Committees (ESPCs) Our disclosure policy provides a framework
the Group scorecard in relation to Achieve The ESPCs are senior level, cross-functional for the handling and disclosure of inside
scientic leadership targets. governance bodies with accountability for information and other information of interest
oversight of our early-stage small molecule to shareholders and the investment
The Science Committees terms of and biologics portfolio to Proof of Concept community. It also denes the role of the
reference are available on our website, stage. The EVPs of our two science units, Disclosure Committee. The members of IMED and MedImmune, chair our ESPCs. the Disclosure Committee in 2016 were:
The ESPCs seek to deliver a ow of the CFO, who chaired the Disclosure
US corporate governance requirements products to GMD for Phase III development Committee; the EVP, GMD (who is also the
Our ADSs are traded on the NYSE and, through to launch. The ESPCs also seek Companys Chief Medical Ofcer); the EVP,
accordingly, we are subject to the reporting to maximise the value of our internal and GPPS, Global Medical Affairs & Corporate
and other requirements of the SEC external R&D investments through robust, Affairs; the General Counsel; the Vice-
applicable to foreign private issuers. Section transparent and well-informed decision President, Corporate Affairs; the Vice-

94 AstraZeneca Annual Report and Form 20-F Information 2016

President, Investor Relations; and the and ensuring that employees and > compliance with signicant policies,
Vice-President Finance, Group Controller. external parties can raise any concerns. plans, procedures, laws, and regulations
Other senior executives attend its meetings Global Compliance and IA work with > reliability and integrity of management
on an agenda-driven basis. The Deputy various specialist compliance functions and nancial information processes,
Company Secretary acted as secretary to throughout our organisation to coordinate including the means to identify, measure,
the Disclosure Committee. The Disclosure compliance activities. classify, and report such information
Committee meets regularly to assist and > safeguarding of assets.
inform the decisions of the CEO concerning We take all alleged compliance breaches
inside information and its disclosure. and concerns extremely seriously, and Based on its activity, IA is responsible for
Periodically, it reviews our disclosure investigate them and report the outcome of reporting signicant risk exposures and
controls and procedures and its own such investigations to the Audit Committee, control issues identied to the Board and
operation as part of work carried out to as appropriate. Internal investigations are to senior management, including fraud
enable management and the Board to undertaken by staff from our Global risks, governance issues, and other
assure themselves that appropriate Compliance, Human Resources and/or matters needed or requested by the Audit
processes are operating for both our Legal functions. When necessary, external Committee. It may also evaluate specic

Corporate Governance
planned disclosures, such as our quarterly advisers are engaged to conduct and/or operations at the request of the Audit
results announcements and scheduled advise on investigations. Serious breaches Committee or management, as appropriate.
investor relations events, and our unplanned are raised with the Audit Committee.
disclosures in response to unforeseen Where a signicant breach has occurred, Code of Conduct
events or circumstances. During 2016, we management, in consultation with our Legal Our Code of Conduct (the Code),
implemented the requirements of the EU function, will consider whether the Group which is available on our website,
Market Abuse Regulation, which involved needs to disclose and/or report the ndings, applies to all
making some changes to our disclosure to a regulatory or governmental authority. full-time and part-time Directors, ofcers,
controls and procedures. employees and temporary staff, in all
Risk from page 214 companies within our Group worldwide.
Disclosure of information to auditors A Finance Code complements the Code
The Directors who held ofce at the date Global Compliance provides direct and applies to the CEO, the CFO, the
of approval of this Annual Report conrm assurance to the Audit Committee on Groups principal accounting ofcers
that, so far as they are each aware, there matters concerning compliance issues, (including key Finance staff in major
is no relevant audit information of which including an analysis of compliance overseas subsidiaries) and all Finance
the Companys auditors are unaware; and breaches. Complementing this, IA function employees. This reinforces the
each Director has taken all the steps that carries out a range of audits that include importance of the integrity of the Groups
he or she ought to have taken as a Director compliance-related audits and reviews Financial Statements, the reliability of the
to make himself or herself aware of any of the assurance activities of other Group accounting records on which they are
relevant audit information and to establish assurance functions. The results from based and the robustness of the relevant
that the Companys auditors are aware of these activities are reported to the controls and processes.
that information. Audit Committee.
The Code is at the core of our compliance
Global Compliance and Internal Audit IA is established by the Audit Committee programme. It has been translated into
Services (IA) on behalf of the Board and acts as an 40 languages and provides clear direction
The role of the Global Compliance independent and objective assurance as to how our commitment to honesty and
function is to help the Group achieve function guided by a philosophy of adding integrity is to be realised through consistent
its strategic priorities by doing business value to improve the operations of the actions across all areas of the business.
the right way, with integrity and high Group. The scope of IAs responsibilities
ethical standards. Global Compliance encompasses, but is not limited to, Compliance with the Code is mandatory
continues to focus on ensuring the delivery the examination and evaluation of the and every employee receives annual training
of an aligned approach to compliance adequacy and effectiveness of the Groups on it which they are required to complete.
that addresses key risk areas across governance, risk management, and internal The Code is reviewed periodically and
the business, including risks relating control processes in relation to the Groups updated to take account of changing legal
to external parties and anti-bribery/ dened goals and objectives. and regulatory obligations. Our Global
anti-corruption. Our priorities include Policies, as well as local and functional
improving compliance behaviours through Internal control objectives considered by procedures, support the Code and provide
effective training and communication; IA include: clear guidance in key risk areas.
monitoring compliance with our Code of
Conduct, Global Policies and supporting > consistency of operations or programmes The Code contains information on how
requirements; conducting appropriate risk with established objectives and goals and to report possible violations through our
assessments and due diligence on third effective performance Helpline, which includes the AZethics
parties whom we engage for services; > effectiveness and efciency of operations telephone lines, the AZethics website, and
and employment of resources the Global Compliance email and postal

AstraZeneca Annual Report and Form 20-F Information 2016 95

Corporate Governance

Corporate Governance Report continued

addresses described in the Code. The > AstraZeneca UK Limited: Algeria (scientic The nancial position of the Group, its
externally-operated website is available in 38 ofce), Angola, Belarus, Chile, Costa Rica, cash ows, liquidity position and borrowing
languages, and the phone lines are operable Croatia, Cuba, Dubai (branch ofce), facilities are described in the Financial
in 96 countries, to facilitate reporting. Our Georgia, Ghana (scientic ofce), Jordan, Review from page 62. In addition, Note 26
reporting channels are available to both Kazakhstan, Romania, Russia, Saudi to the Financial Statements from page 177
employees and to external parties to report Arabia (scientic ofce), Serbia, Slovenia includes the Groups objectives, policies and
any concerns. Reports can be made (branch ofce), Syria, Ukraine and Yemen processes for managing capital; nancial
anonymously where desired and where (scientic ofce) risk management objectives; details of its
permitted by local law. Anyone who raises > AstraZeneca AB: Egypt (scientic ofce) nancial instruments and hedging activities;
a potential breach in good faith is fully and Slovakia (branch ofce) and its exposures to credit, market and
supported by management. > AstraZeneca Singapore Pte Limited: liquidity risk. Further details of the Groups
Vietnam cash balances and borrowings are included
In 2016, 320 reports of alleged compliance > Astra Export & Trading AB: United in Notes 16 and 17 to the Financial
breaches or other ethical concerns were Arab Emirates (branch ofce). Statements from page 162.
made through the Helpline, including reports
made by any anonymous route that could Distributions to shareholders The Group has considerable nancial
be considered whistleblowing; in 2015 there dividends for 2016 resources available. As at 31 December
were 326 reports. The majority of cases Details of our distribution policy are set out 2016 the Group had $5.7 billion in nancial
come to our attention through management in the Financial Review from page 76 and resources (cash balances of $5.0 billion
and self-reporting, which can be seen as an Notes 22 and 23 to the Financial Statements and undrawn committed bank facilities of
indication that employees are comfortable on page 172. $3.0 billion which are available until April
in raising their concerns with line managers, 2020, with only $2.3 billion of debt due
local Human Resources, Legal or The Companys dividend for 2016 of $2.80 within one year). The Groups revenues
Compliance, as recommended in the Code (218.9 pence, SEK 24.38) per Ordinary are largely derived from sales of products
and reinforced in the 2016 Code training. Share amount to, in aggregate, a total which are covered by patents which provide
dividend payment to shareholders of a relatively high level of resilience and
Other matters $3,542 million. An employee share trust, predictability to cash inows, although
Corporate governance statement under AstraZeneca Share Trust Limited, waived our revenue is expected to continue to
the UK Disclosure Guidance and its right to a dividend on the Ordinary be signicantly impacted by the expiry of
Transparency Rules (DTR) Shares that it holds and instead received patents over the medium term. In addition,
The disclosures that full the requirements a nominal dividend. government price interventions in response
of a corporate governance statement under to budgetary constraints are expected
the DTR can be found in this section and in A shareholders resolution was passed at to continue to adversely affect revenues
other parts of this Annual Report as listed the 2016 AGM authorising the Company in many of our mature markets. However,
below, each of which is incorporated into to purchase its own shares. The Company we anticipate new revenue streams from
this section by reference: did not repurchase any of its own shares in both recently launched medicines and
2016. On 31 December 2016, the Company products in development, and the Group
> major shareholdings did not hold any shares in treasury. has a wide diversity of customers and
> Articles. suppliers across different geographic areas.
Going concern accounting basis Consequently, the Directors believe that,
Shareholder Information from page 232 Information on the business environment overall, the Group is well placed to manage
and Corporate Information on page 237 in which AstraZeneca operates, including its business risks successfully.
the factors underpinning the industrys
Subsidiaries and principal activities future growth prospects, is included in the After making enquiries, the Directors have
The Company is the holding company Strategic Report. Details of the product a reasonable expectation that the Company
for a group of subsidiaries whose principal portfolio of the Group are contained in and the Group have adequate resources
activities are described in this Annual both the Strategic Report (in the Therapy to continue in operational existence for
Report. The Groups principal subsidiaries Area Review from page 23) and the the foreseeable future. Accordingly, they
and their locations are given in Group Directors Report. Information on patent continue to adopt the going concern
Subsidiaries and Holdings in the Financial expiry dates for key marketed products is basis in preparing the Annual Report
Statements on page 193. included in Patent Expiries of Key Marketed and Financial Statements.
Products from page 211. Our approach to
Branches and countries in which the product development and our development Changes in share capital
Group conducts business pipeline are also covered in detail with Changes in the Companys Ordinary
In accordance with the Companies Act additional information by therapy area Share capital during 2016, including details
2006, we disclose below our subsidiary in the Strategic Report. of the allotment of new shares under the
companies that have representative or Companys share plans, are given in Note
scientic branches/ofces outside the UK: 22 to the Financial Statements on page 172.

96 AstraZeneca Annual Report and Form 20-F Information 2016

Directors shareholdings of various state candidates. No corporate services. More information about this work
The Articles require each Director to be donations were made at the federal level and the audit and non-audit fees that we
the benecial owner of Ordinary Shares and all contributions were made only where have paid are set out in Note 30 to the
in the Company with an aggregate allowed by US federal and state law. We Financial Statements on page 192. The
nominal value of $125 (which currently publicly disclose details of our corporate US external auditor is not engaged by
represents at least 500 shares because political contributions, which can be found AstraZeneca to carry out any non-audit
each Ordinary Share has a nominal value on our website, work in respect of which it might, in the
of $0.25). Such holding must be obtained sustainability/corporate-transparency.html. future, be required to express an audit
within two months of the date of the The annual corporate contributions budget opinion. As explained more fully in the Audit
Directors appointment. At 31 December is reviewed and approved by the US Committee Report from page 98, the Audit
2016, all of the Directors complied with Vice-President, Corporate Affairs and the Committee has established pre-approval
this requirement and full details of each President of our US business to ensure policies and procedures for audit and
Directors interests in shares of the Company robust governance and oversight. US non-audit work permitted to be carried out
are set out in Directors interests in shares citizens or individuals holding valid green by the external auditor and has carefully
on pages 114 and 115. Information about cards exercised decision making over monitored the objectivity and independence

Corporate Governance
the shareholding expectations of the the contributions and the funds were not of the external auditor throughout 2016.
Remuneration Committee (in respect of provided or reimbursed by any non-US legal
Executive Directors and SET members) entity. Such contributions do not constitute Directors Report
and the Board (in respect of Non-Executive political donations or political expenditure for The Directors Report, which has been
Directors) is also set out in Directors the purposes of the Companies Act 2006 prepared in accordance with the
interests in shares on pages 114 and 115. and were made without any involvement requirements of the Companies Act 2006,
of persons or entities outside the US. comprises the following sections:
Political donations
Neither the Company nor its subsidiaries Significant agreements > Chief Executive Ofcers Review
made any EU political donations or incurred There are no signicant agreements to > Therapy Area Review
any EU political expenditure in 2016 and they which the Company is a party that take > Business Review
do not intend to do so in the future in respect effect, alter or terminate on a change > Resources Review, including Employees
of which shareholder authority is required, or of control of the Company following a > Financial Review: Financial risk
for which disclosure in this Annual Report is takeover bid. There are no persons with management
required, under the Companies Act 2006. whom we have contractual or other > Corporate Governance: including the
However, to enable the Company and its arrangements, who are deemed by the Audit Committee Report and Corporate
subsidiaries to continue to support interest Directors to be essential to our business. Governance Report
groups or lobbying organisations concerned > Directors Responsibility Statement
with the review of government policy or law Use of financial instruments > Development Pipeline
reform without inadvertently breaching the The Notes to the Financial Statements, > Sustainability: supplementary information
Companies Act 2006, which denes political including Note 26 from page 177, include > Shareholder Information
donations and other political expenditure in further information on our use of nancial > Corporate Information
broad terms, a resolution will be put to instruments.
shareholders at the 2017 AGM, similar to and has been approved by the Board
that passed at the 2016 AGM, to authorise Annual General Meeting and signed on its behalf.
the Company and its subsidiaries to: The Companys AGM will be held on
27 April 2017. The meeting place will be The Board considers this Annual Report,
> make donations to political parties in London, UK. A Notice of AGM will be sent taken as a whole, to be fair, balanced
or independent election candidates to all registered holders of Ordinary Shares and understandable, and provides the
> make donations to political organisations and, where requested, to the benecial necessary information for shareholders
other than political parties holders of shares. to assess AstraZenecas position and
> incur political expenditure, up to an performance, business model and strategy.
aggregate limit of $250,000. External auditor
A resolution will be proposed at the AGM A C N Kemp
Corporate political contributions in the US on 27 April 2017 for the appointment of Company Secretary
are permitted in dened circumstances PricewaterhouseCoopers LLP (PwC) as 2 February 2017
under the First Amendment of the US auditor of the Company. The external
Constitution and are subject to both federal auditor during 2016 was KPMG LLP. The
and state laws and regulations. In 2016, the proposed change of auditor follows a
Groups US legal entities made contributions recommendation by the Audit Committee to
amounting in aggregate to $1,568,250 the Board in 2015 based on a formal tender
(2015: $1,224,550) to national political in line with best practice. During 2016,
organisations, state-level political party KPMG undertook various non-audit
committees and to campaign committees

AstraZeneca Annual Report and Form 20-F Information 2016 97

Corporate Governance

Audit Committee Report

The quality of
reporting is underpinned
controls, appropriate
accounting practices and
policies, and the exercise
of good judgement.

n th
his Report we desscribe the worrk of the Risk management
During the year, the Committee regularly
QLFDQWLLVVVXHVLW reviewed the Companys approach to risk
considdereed in 2016. Our main n prioritties were to receive management, its risk reporting framework
and risk mitigation. These discussions also
QDQFLDOUUHSRUWLQJ provided the context for the Committees
DQGGPDDQDJHPHQWD DQG consideration of the Directors viability
statement and the analysis that underpins
&RGHRI& &RQGXFWW the assurance provided by that statement.
DQGUUHOHYDQWOOHJLVVODWLRQ For more details on the viability statement,
please refer to the Risk overview from
page 20. The Committees consideration
Financial reporting to ensure that items are appropriately of risk management was supported by
The quality of AstraZenecas nancial accounted for in Reported and deep dive reviews of key activities such
reporting is underpinned by effective internal Core results. as: supply chain responsiveness;
controls, appropriate accounting practices improvements to IS/IT infrastructure and
and policies, and the exercise of good Following the competitive tender of the the adequacy of cybersecurity; commercial
judgement. The Committee reviewed, at Companys external audit services in 2015 operations in China and the US; and pricing,
least quarterly, the Companys signicant and the Boards decision to recommend the reimbursement and market access. Further
accounting matters and, where appropriate, appointment of PwC to shareholders at the information on the Companys Principal
challenged managements decisions before Companys 2017 AGM, the Committee has Risks are on pages 20 to 21. The Committee
approving the accounting policies applied. monitored the transition planning to ensure visited the Companys US Commercial head
the Company is well prepared for a change ofce in Wilmington and the MedImmune
During 2016, the Committee reviewed of external auditors should this be approved leadership team in Gaithersburg to gain
aspects of the Groups signicant by shareholders. further insight into emerging risks as the
restructuring programmes initiated from Companys strategy develops in a dynamic
2013 onwards, including accounting for In December 2015, the FRC announced external environment.
restructuring charges, control over capital that it would conduct a thematic review of
expenditure and arrangements for companies tax reporting to encourage more Compliance with the Code of Conduct
monitoring the effective implementation transparent recording of the relationship The Committees priorities continue to
of these programmes. The Committee between the tax charges and accounting include: maintaining compliance with the
continued to monitor the inclusion of prot. The FRC Corporate Reporting Review Companys Code of Conduct; high ethical
Externalisation Revenue in AstraZenecas Team subsequently conducted a review of standards; and operating within the law
Statement of Comprehensive Income. the tax disclosures in the Companys in all countries where we conduct business
For more information on Externalisation nancial statements for the year ended 31 or have interactions. In 2015, the Company
Revenue, please refer to the Financial December 2015 and in 2016 conrmed that had met all of its obligations under its
Review from page 62. they had no substantive issues to raise. The ve-year Corporate Integrity Agreement
Committee took note of and was satised in the US, which terminated in April 2015.
The Committee looked closely at intangible with relevant reports from the regulators that During a visit to the Companys US
asset impairment reviews, including reviews exercise routine oversight over the Companys Commercial head ofce in Wilmington,
of our FluMist and Ardea intangible assets; external auditors, the FRC and the Public the Committee heard about how the US
legal provisions and other related charges, Company Accounting Oversight Board. Compliance Programme has evolved,
after completion of the Corporate Integrity

98 AstraZeneca Annual Report and Form 20-F Information 2016

Agreement, to maintain strong focus and Audit Committee membership > monitoring and reviewing the role,
remain relevant, proactively addressing and attendance resources and effectiveness of the
key compliance risks. Throughout 2016, All Committee members are Non-Executive Companys Internal Audit function, its
the Committee monitored and reviewed Directors and considered by the Board to Compliance function, the external audit
compliance with our Code of Conduct, be independent under the UK Corporate process and the Companys relationship
including the effectiveness of our Governance Code. The Committees with its external auditor
anti-bribery and anti-corruption controls, members are Rudy Markham (Committee > monitoring and reviewing the external
across the Group. The Committee Chairman), Bruce Burlington, Ann Cairns auditors independence and objectivity
prioritised its focus on countries where we and Shriti Vadera. Jean-Philippe Courtois > ensuring the provision of non-audit
have signicant operations and countries was a member of the Committee until services by the external auditor are
in which doing business is generally he stepped down from the Board on appropriate and in accordance with policy
considered to pose a higher corruption or 1 December 2016. approved by the Committee
general compliance risk such as the US, > making recommendations to the Board
the UK, China, Japan, Nigeria and India. In December 2016, the Board determined for shareholder approval relating to the
that, for the purposes of the UK Corporate appointment, reappointment and removal

Corporate Governance
Engagement with senior leaders Governance Code, at least one Audit of the external auditor, and to approve the
The Committee considers it important to Committee member has recent and remuneration and terms of engagement
interact with members of management relevant nancial experience and that of the external auditor
below the SET. In July, members of the Rudy Markham and Ann Cairns are nancial > monitoring the Companys response to
Committee visited the Companys US experts for the purposes of the Sarbanes- any external enquiries and investigations
Commercial and MedImmune leadership Oxley Act. The Board of Directors regarding matters within the Committees
teams in Wilmington and Gaithersburg biographies on pages 86 and 87 contain area of responsibility.
respectively. We talked to senior leaders details of each Audit Committee members
about the opportunities and challenges skills and experience. Audit Committee meeting minutes are
the Company faces, and the current and circulated to the Board. Following each
emerging risks arising from the development The Audit Committee held ve meetings in Committee meeting, the Committee
and successful delivery to patients of 2016 and Committee members attendance Chairman informs the Board of the principal
medicines from our rapidly evolving pipeline. is set out in the table on page 84. matters the Committee considered and of
The Committee also met informally with any signicant concerns it has or that have
senior leaders from the Operations IS/IT, Role and operation of the been reported by the external auditor, the
Finance, Legal and Global Payer Evidence Audit Committee Vice-President, IA or the Chief Compliance
& Pricing teams. In June 2016, I participated The Audit Committees terms of Ofcer. The Committee identies matters
in a discussion at the Companys Internal reference are available on our website, that require action or improvement and
Audit Services (IA) team conference on makes recommendations on the steps
the role of the Board and Audit Committee to be taken.
generally and at AstraZeneca, and I shared The Committee regularly reports to the
my perspective on the importance of the Board on how it discharges its main The Committees work is supported by
work of IA in providing assurance on responsibilities, which include: valuable insight gained from its interactions
AstraZenecas risk management, controls with other Board Committees, senior
and governance generally. > monitoring the integrity of the Companys executives, managers and external experts.
nancial reporting and formal Committee meetings are routinely attended
Finally, I would like to offer thanks from the announcements relating to its nancial by the CFO; the General Counsel; the Chief
Committee to Jean-Philippe Courtois, who performance, and reviewing signicant Compliance Ofcer; the Vice-President,
retired from the Committee on 1 December nancial reporting judgements contained IA; the Vice-President Finance, Group
2016, for his valued contribution to the within them Controller; and the Companys external
Committee and its work. > ensuring the Companys Annual Report auditor. The CEO attends on an agenda-
and Accounts present a fair, balanced driven basis.
We value dialogue with our shareholders and understandable assessment of the
and welcome your feedback on this report. Companys position and prospects In addition, the Committee and separately
> reviewing the effectiveness of the the Committee Chairman, meet privately
Yours sincerely Companys internal nancial controls, with the CFO; Chief Compliance Ofcer;
internal non-nancial controls, risk General Counsel; Vice-President, IA; and
management systems (including the Companys external auditor on an
whistleblowing procedures) and individual basis to ensure the effective
compliance with laws and the ow of material information between
Rudy Markham AstraZeneca Code of Conduct the Committee and management.
Chairman of the Audit Committee

AstraZeneca Annual Report and Form 20-F Information 2016 99

Corporate Governance

Audit Committee Report continued

Activities of the Audit Committee > data from reports made by employees via Matters considered and discussed by the
in 2016 the AZethics helpline, online facilities and Audit Committee in addition to its usual
During 2016 and in January 2017, the Audit other routes regarding potential breaches business as described above included:
Committee considered and discussed the of the Code of Conduct, together with the
following standing items: results of enquiries into those matters > signicant capital expenditure and the
> reports from the Group Treasury function, execution of restructuring programmes,
> key elements of the Financial Statements in particular, concerning the Companys including the construction of the new
and the estimates and judgements liquidity and cash position and the strategic bioscience site and corporate
contained in the Companys nancial appropriateness of its investment head ofce in Cambridge, UK and review
disclosures. Accounting matters management policy in the context of of historic restructuring programmes
considered included the areas described the current economic situation > the level of assurance regarding the
in the Financial Review under Critical > the going concern assessment and effective integration of recently acquired
accounting policies and estimates (with adoption of the going concern basis entities and their compliance with Group
a focus on accounting issues relevant to in preparing this Annual Report and the policies and governance arrangements
revenue recognition, litigation and taxation Financial Statements. More information > regular updates from the IT team with
matters, goodwill and intangible asset on the basis of preparation of Financial particular attention to cybersecurity
impairment) from page 77 and other Statements on a going concern basis and the progress of the Groups IT
important matters such as monitoring is set out in the Financial Statements infrastructure transformation, including
the accounting for Externalisation on page 142 the set-up of the global technology centre
Revenue in the Groups Consolidated > the preparation of the Directors viability in Chennai, India and related business
Statement of Comprehensive Income. statement and the adequacy of the continuity arrangements, noting a new
The Committee reviewed the Companys analysis supporting the assurance global technology centre in Guadalajara,
denition of Externalisation Revenue provided by that statement Mexico has become operational
against market practice, and individual > quarterly reports from the General > supply chain responsiveness for launches
judgements on items falling within that Counsel on the status of signicant of new products, in particular biologics,
denition. Discussion of these matters litigation matters and governmental including critical capabilities and robust
was supported by papers prepared by investigations processes that will support delivery of the
management and the external auditor, > audit and non-audit fees of the external evolving pipeline
and input from the Science Committee auditor during 2016, including the > opportunities, challenges, compliance
(as appropriate) objectivity and independence of the and risk management discussed with the
> the external auditors reports on its audit external auditor through the application US commercial business leadership team
of the Group Financial Statements, and of the Non-Audit Services Policy as and MedImmune leadership team during
reports from management, IA, Global described further below. Further the Committees visit to the Companys
Compliance and the external auditor on information about the audit and non-audit Wilmington and Gaithersburg sites
the effectiveness of our system of internal fees for 2016 is disclosed in Note 30 to > key compliance risks arising from our
controls and, in particular, our internal the Financial Statements on page 192 activities in China, including the
control over nancial reporting > the Audit Committee conducted the effectiveness of controls, noting senior
> quarterly reports of work carried out by annual evaluation of its own performance leaderships continued focus on a strong
IA, Global Compliance and Finance with each Committee member compliance and ethics culture as the
including the status of follow-up actions responding to a web-based questionnaire China business grows
with management prepared by an external third party. > consideration of major trends regarding
> the Companys principal, enduring and The effectiveness review of the Audit pricing, reimbursement and market
emerging risks, including the Companys Committee was assessed as high access for biopharmaceuticals, and
risk management approach, risk reporting performing with a good balance struck the key external and internal risks the
framework and risk mitigation. More between the necessary rigour and a Company faces
information about the principal risks faced holistic understanding of issues under > monitoring the external audit transition
by the Company is set out in the Risk consideration, quality engagement with process to ensure an effective transition
overview section from page 20 the business outside formal meetings, of the Groups external auditors in 2017,
> compliance with applicable provisions of and appropriate attention given to the subject to shareholders approval to
the Sarbanes-Oxley Act. In particular, the external auditor transition appoint the new external auditor at the
status of compliance with the programme > effectiveness review of Internal Audit, Companys AGM in April 2017
of internal controls over nancial reporting which noted an external assessment > the Groups approach to taxation noting
implemented pursuant to Section 404 of of IA observed that the function is well that AstraZeneca aims to comply with
the Sarbanes-Oxley Act. The Committee respected and trusted, providing tax laws in the countries in which it does
continued its focus on IT controls in the assurance that is aligned to the business and is committed to transparent
context of the changes to the Groups IT Companys risk prole and well- and constructive relationships with all
environment. More information about this coordinated with the other risk and relevant tax authorities
is set out in the Sarbanes-Oxley Act assurance functions. IA continues to build
Section 404 section of the Financial its capabilities seeking opportunities for
Review on page 81 continuous improvement.

100 AstraZeneca Annual Report and Form 20-F Information 2016

> relevance to the Company of new a signicant development milestone such liabilities is set out in Note 28 to the Financial
Compliance and Disclosure Interpretations as the publication of clinical trial results Statements from page 185.
issued by the SEC on the use of which could signicantly alter managements
non-GAAP measures, in particular the forecasts for the product. Tax accounting
disclosure of and prominence given The Audit Committee reviewed the
to non-GAAP measures and the In 2016, the Audit Committee considered Companys approach to tax including
appropriateness of items removed from specic impairment review papers and governance, risk management and
GAAP numbers in arriving at non-GAAP supporting information on the Groups compliance, tax planning, dealings
measures FluMist and Ardea intangible assets. with tax authorities and the level of tax
> proposals for the Directors Slavery The FluMist impairment review included risk the Company is prepared to accept.
and Human Trafcking Statement detailed consideration of the impact The full statement, which was published
and the adequacy of the arrangements of the announcement in June 2016 by in November 2016, can be found at
supporting the assurance provided by the Advisory Committee on Immunization In 2016, following
that statement, and preparation for Practices of the Center for Disease a review by the FRC designed to encourage
compliance with the Market Abuse Control and Prevention of an interim more transparent recording of the relationship

Corporate Governance
Regulation before it came into force recommendation on the use of FluMist between the tax charges and accounting
on 3 July 2016 Quadrivalent in the US during the 2016/2017 prot, the FRC conrmed that they had
> monitoring the resource requirements inuenza season. The Ardea intangible no substantive issues to raise in respect
of key control functions (Finance, IA, asset impairment review included of the tax disclosures in the Companys
Compliance) with particular reference considerations in both the gout indication 2015 accounts. The FRC has noted that
to succession planning and the potential as well as indications in the CVMD their review does not provide assurance
impact of ongoing restructuring on the therapy area. The Audit Committee that our report and accounts are correct
effectiveness of risk and control processes. obtained valuable input from the Science in all material respects and that the
Committee for this review. The Audit FRCs role is not to verify the information
6LJQLFDQWQDQFLDOUHSRUWLQJLVVXHV Committee agreed with the conclusion provided but to consider compliance
considered by the Audit Committee that no impairment was required. with reporting requirements.
in 2016
Revenue recognition In 2016, there were no signicant Retirement benefits
The US is our largest single market and impairments of intangible assets. Pension accounting continues to be a
sales accounted for 35% of our Product signicant area of focus recognising the
Sales in 2016. Revenue recognition, Litigation and contingent liabilities level of pension fund decit and its sensitivity
particularly in the US, is impacted by The Audit Committee was regularly to small changes in interest rates, which
rebates, chargebacks, cash discounts informed by the General Counsel the Committee continues to monitor
and returns (for more information, please and external auditor about IP litigation, carefully. The Audit Committee reviewed
see the Financial Review from page 62). product liability actions and governmental the Companys dened benet pension
The Audit Committee pays particular investigations that might result in nes or global funding objective and principles,
attention to managements estimates of damages against the Company, to assess focusing in particular on the Companys
these items, its analysis of any unusual whether provisions should be taken and, main dened benet pensions obligations
movements and their impact on revenue if so, when and in what amount. Of the in the UK, Sweden and the US, and the
recognition informed by commentary matters the Committee considered in dened benet plans in Germany.
from the external auditor. 2016, the most signicant included: FCPA
investigation (US); Nexium anti-trust litigation Internal controls
Valuation and possible impairment (US); Pulmicort Respules patent litigation The Audit Committee receives a report of
of intangible assets (US); Faslodex patent litigation (US and the matters considered by the Disclosure
The Group carries signicant intangible Europe); and Crestor damages claims Committee during each quarter. At the
assets on its Balance Sheet arising from (Australia). The US FCPA investigation was January 2017 meeting, the CFO presented
the acquisition of businesses and IP rights resolved in 2016 following a civil settlement to the Committee the conclusions of the
to medicines in development and on the agreed with the SEC; the DOJ closed its CEO and the CFO following the evaluation
market. Each quarter, the CFO outlines investigation without taking action against of the effectiveness of our disclosure
the carrying value of the Groups intangible the Company. Notwithstanding the controls and procedures required by Item
assets and, in respect of those intangible Companys success defending the claims 15(a) of Form 20-F at 31 December 2016.
assets that are identied as at risk of in the Nexium anti-trust case, the plaintiffs Based on their evaluation, the CEO and the
impairment, the difference between the continue to seek opportunities to assert CFO concluded that, as at that date, we
carrying value and managements current their claims. Faslodex patent litigation maintained an effective system of disclosure
estimate of discounted future cash ows for continues in the US and Europe. controls and procedures.
at risk products (the headroom). Products Settlements have been reached with lead
will be identied as at risk because the litigants in the US. Further information about
headroom is small or, for example, in the the Companys litigation and contingent
case of a medicine in development, there is

AstraZeneca Annual Report and Form 20-F Information 2016 101

Corporate Governance

Audit Committee Report continued

There was no change in our internal control categories of work: audit services; Fees paid to the auditor for audit,
over nancial reporting that occurred during audit-related services; and tax services. audit-related and other services are
the period covered by this Annual Report The policies dene the type of work that analysed in Note 30 to the Financial
that has materially affected, or is reasonably falls within each of these categories and Statements on page 192. Fees for non-audit
likely to materially affect, our internal control the non-audit services that the external services amounted to 29% of the fees paid
over nancial reporting. auditor is prohibited from performing to KPMG for audit, audit-related and other
under the rules of the SEC and other services in 2016.
Appointing the auditor relevant UK and US professional and
As we reported in 2012, the Audit regulatory requirements. The pre-approval $VVHVVLQJH[WHUQDODXGLWHHFWLYHQHVV
Committee determined that the audit would procedures permit certain audit, audit- In accordance with its normal practice,
be put out to tender by 2018 in accordance related and tax services to be performed the Audit Committee considered the
with the UK Corporate Governance Code by the external auditor during the year, performance of KPMG and its compliance
and guidance issued by the FRC. KPMG subject to fee limits agreed with the with the independence criteria under the
was rst appointed as sole external auditor Audit Committee in advance. The Audit relevant statutory, regulatory and ethical
to Zeneca Group PLC in 1993 and to Committee is mindful of the 70% non-audit standards applicable to auditors. Having
AstraZeneca PLC in 2001 following a services fee cap under EU regulation, considered all these factors (Judgement,
competitive tender. Anthony Cates is the together with the overall proportion Mind-set & Culture, Skills, Character &
current lead audit partner at KPMG of fees for audit and non-audit services Knowledge and Quality Control) and
following lead partner rotation in 2013. in determining whether to pre-approve changes in audit approach in response to
such services. nding and comments in the Audit Quality
Having concluded the competitive tender Review report performed by the FRC
process in December 2015, the Audit The CFO (supported by the Vice-President issued in May 2016. The Audit Committee
Committee recommended to the Board that Finance, Group Controller), monitors the concluded that the KPMG audit was
PwC be appointed as the Groups statutory status of all services being provided by effective for the nancial year commencing
auditor for the 2017 nancial year. The Audit the external auditor. Authority to approve 1 January 2016.
Committee conrmed in September 2016 work in excess of the pre-agreed fee limits
that PwC is independent under SEC and is delegated to the Chairman of the Audit
UK independence regulations. A resolution Committee together with one other
to approve the appointment of PwC will be Audit Committee member in the rst
put to shareholders at the Companys instance. A standing agenda item at
AGM in 2017. Audit Committee meetings covers the
operation of the pre-approval procedures
The Audit Committee considers that and regular reports are provided to the
the Company has complied with the full Audit Committee.
Competition and Markets Authoritys
Statutory Audit Services for Large In 2016, non-audit services provided to the
Companies Market Investigation (Mandatory Company by KPMG included the audit of a
Use of Competitive Tender Processes and product line required as part of the disposal
Audit Committee Responsibilities) Order of this asset, audit services in relation to
2014 in respect of its nancial year employee benet funds such as the audit
commencing 1 January 2016. of subsidiary company pension funds
and, tax compliance services. KPMG was
Non-audit services and safeguards considered better placed to provide these
The Audit Committee maintains a policy (the services, in terms of skills, capability and
Audit and Non-Audit Services Pre Approval efciency, than any alternative audit rm.
Policy) for the pre-approval of all audit All such services were either within the
services and permitted non-audit services scope of the pre-approved services set
undertaken by the external auditor, the out in the Non-Audit Services Policy or
principal purpose of which is to ensure that were presented to Audit Committee
the independence of the external auditor members for pre-approval.
is not impaired. The policy covers three

102 AstraZeneca Annual Report and Form 20-F Information 2016

Directors Remuneration Report

We remain
committed to ensuring
that our remuneration
arrangements support
our strategy and deliver
sustainable value to
our shareholders.

Corporate Governance
As Chairrma an of the Remu uneration Commiittee (th he As AstraZenecas pipeline-driven
transformation continues, the Committee
Comm mitttee), I am pleassed to
o present AstraZZeneca as has taken care to ensure that the
2016 Direcctorss Remunera atio
on Reportt. Our updateed Companys remuneration arrangements
remain aligned to its strategy with strong
Remun nerration Policy, whicch will be propossed for links between long-term performance
approva al by shareholdeers att the 2017
7 AGMM, is sett and our shareholders experience.
ut from
m page 122. As our 2014 Policy comes to the end of
its three-year life-cycle, we are required
to put a new Remuneration Policy forward
to a shareholder vote at the 2017 AGM.
During 2016, we consulted our major
shareholders and their representatives
extensively on executive remuneration
and we would like to thank those who
took part in this process. The feedback
we received has informed the Committees
approach to executive remuneration in 2017.

The Committees intention is to give

shareholders assurance that:
> the CEOs remuneration opportunity
Annual Statement from the Chairman of the Committee 103 overall will not increase as a percentage
At a glance summary 106 of base salary
Annual Report on Remuneration 107 > LTI arrangements will be simplied
> What did we pay our Directors? 107 > our incentives will continue to reward
> Share interests awarded in 2016 110 good long-term decisions aligned with
> Payments to former Directors 112 the Companys strategy
> 3D\PHQWVIRUORVVRIRFH 112 > the transparency of performance
> Remuneration context and our past performance 112 measures and targets will be increased
> Directors interests in shares 114 further
> Governance 115 > if discretion is used, it will be well
Implementation of Remuneration Policy in 2017 117 balanced and justied.
Additional information: Executive Directors share plans 119
Remuneration Policy 122 Taking into account shareholder
> Remuneration Policy for Executive Directors 123 feedback, two substantive changes to our
> Remuneration scenarios for Executive Directors 128 Remuneration Policy are proposed, namely:
> Approach to recruitment remuneration for Executive Directors 128 (i) a reduction in the level of LTI vesting at
> Service contracts for Executive Directors 129 threshold performance under the PSP
> 3ULQFLSOHVRISD\PHQWIRUORVVRIRFHIRU([HFXWLYH'LUHFWRUV 130 from 25% to 20% of maximum; and (ii) that
> Remuneration Policy for Non-Executive Directors 132 no new awards will be made under the
AZIP. From 2017, LTI awards for Executive

AstraZeneca Annual Report and Form 20-F Information 2016 103

Corporate Governance

Directors Remuneration Report continued

Directors will only be made under the PSP. R&D cost control despite the absorption of Shareholder engagement
We have also taken the opportunity to Acerta Pharma and ZS Pharma R&D costs. We received approximately 90%
simplify the proposed Remuneration Policy Core SG&A expenses declined by 12% shareholder support for our 2015 Directors
which we hope shareholders will nd helpful. (9% at CER). Remuneration Report. We have consulted
with our major shareholders in developing
2016 performance 2016 remuneration outcomes